PTC Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the PTC 2020 Third Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. I will now turn the call over to Tim Fox, PTC Senior Vice President of Investor Relations. Please go ahead.

Thank you, Valerie, and good afternoon, everyone. Thank you for joining PTC's conference call to discuss our third fiscal quarter financial results. On the call today are Jim Heppelman, Chief Executive Officer, and Christian Talatia, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these factors is contained in PTC's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. As a reminder, we will be referring to operating and non-GAAP financial measures during today's call. Discussion of our operating metrics and items excluded from our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures are included in our earnings press release in related form 8K. Lastly, references to growth rates will be in constant currency unless otherwise noted. With that, let me turn the call over to Jim.

Thanks, Tim. Good afternoon, everyone, and thanks for joining us. I hope you and your families continue to stay safe and well during this crisis. I'd also like to thank the extended global PTC team for their continued hard work and commitment during this time of disruption. Before I jump into review of our quarter, I'd like to briefly reflect on the coronavirus crisis and review the headwinds and tailwinds that it's been creating for our business. In terms of headwinds, we all know that the COVID-driven economic downturn is creating profitability and even business continuity concerns for many companies around the world. Naturally, some of the affected companies are PTC customers and prospects. The second major headwind is the travel bans and work-from-home requirements, which slows down selling processes and interferes with on-site project work. As a result of these headwinds, we've seen pressure on bookings as some purchases get pushed out. Fortunately, to date, the pressure has been somewhat less than we discussed in our guidance commentary last quarter. Our Q3 bookings were down mid-20% year-over-year, which is slightly better than the expectations we shared of down 30% to 50%. Based on our current forecast, we expect Q4 bookings growth rate to improve sequentially. The impact on renewal rates continues to be muted, and we believe our previous guidance, suggesting a modest downtick in renewals, remains an accurate assessment. So in aggregate, at this point, we think that the COVID crisis will continue to be a major headwind, but perhaps less so than we got into last quarter. I'll remind you, however, that this situation remains very dynamic, and we don't have a crystal ball to see what lies ahead in the future. Like everybody else, we'd sure like to see a vaccine become widely available. At the same time, the COVID crisis is creating some strong tailwinds still. We expect these tailwinds to persist for years to come, long after the short-term headwinds fade as the health crisis passes. If there's one thing the crisis has illuminated for our industrial customers, it's the need to accelerate their digital transformation efforts. In my LiveWorks keynote, I talked about the key learnings our customers have seen as a consequence of the crisis. They include the need to embrace a mobile workforce, the need for tools that better enable impromptu collaboration across supply chain partners, the need to bring digital to the frontline workforce, and the need to push forward with remote monitoring and optimization of products and factories. These needs very directly translate into elevated levels of interest for our PLM, IoT, augmented reality, and SaaS solutions. The COVID situation is driving higher pipelines for Windchill, for ThingWorx, for Vuforia, and for Onshape. Each business is feeling the negative effects of the headwinds too, but in cases like Vuforia and Onshape, the new tailwinds are strong enough to cancel most of the headwinds and these businesses continue to exhibit hyper growth rates. With Vuforia and Onshape in particular, where we have a deal push because of economic concerns, a new one tends to pop up because of the needs of the new normal. When the health crisis is ultimately managed down through a vaccine or other means, I expect that PTC will be in a very strong growth position as the tailwinds blow uncontested. With that, let me now turn to our Q3 results. Overall, we're very pleased with our performance. We delivered 10% ARR growth, which was above our expectation of high single-digit growth. We delivered very strong revenue in EPS and exceptionally strong free cash flow in the quarter. Christian will get into details later, so let me focus on providing color on the trends we're seeing across our business segments. From a geographic perspective, ARR growth was evenly balanced with 10% year-over-year growth across all three major geographic regions. One notable area of performance was in China, which posted mid-teens ARR growth, an early indicator that the economy there is on the path to recovery and that our subscription model is gaining traction. Turning to our business performance by segment, let me begin with our growth products, which, as a reminder, includes IoT, AR and Onshape. Growth product ARR grew 24% year over year, which is below our expectations for a normal environment, but consistent with the COVID dynamics we've discussed, which in particular have extended sales cycles for new IoT customers. Remember that IoT is where the physical world meets the digital world, and we typically have to engage the physical world in the initial setup phase, so that we can then remotely monitor and control it thereafter. It's hard, for example, to make progress selling a smart factory project to a new logo if the factory is shut down or you're not allowed to go there for COVID reasons. But once the IoT system is in place, customers really see the value of remote monitoring and optimization, and the expansion business remains brisk. Before and on-shape are relatively less affected due to lightweight deployment models and their pure SaaS nature. Let me provide you some highlights in these two areas, starting with AR. We delivered a solid quarter overall with record Vuforia Chalk enterprise sales, an acceleration in six-figure AR deals, and we added substantially to the burgeoning AR pipeline, which will serve us well in the fourth quarter and beyond. You may recall that in response to the crisis back in March, we decided to provide free access to Vuforia Chalk, which is the entry level capability of the Vuforia suite that allows everybody to use their mobile device to see and mark up real world frontline worker environments such as factories and worksites. Chalk is proving to be incredibly helpful for remote support and problem solving. The adoption of Chalk has been exceptional. with daily production usage levels across the customer base now running five times higher than before we launched the program a few months back. All those companies using Chalk now represent an exciting upsell pipeline to pursue in Q4 and beyond. Because of the strong adoption we've seen when we took the sales friction out of the way, we're moving toward a freemium program that positions Chalk as a basic offering that's an easy entry point into the broader Vuforia suite. One of the most interesting upsell opportunities is to Vuforia Expert Capture, a more advanced AR solution, which was a key driver in large AR deals in Q3. Expert Capture is tailor-made for doing knowledge transfer between frontline workers in the remote work situation that our industrial customers are currently navigating. We had two notable wins in Q3 that highlight the value of our broader AR suite. The first is a leading U.S.-based manufacturer of specialty measurement equipment. Before the crisis hit, their services organization had kicked off an initiative to transform the way they deliver services to differentiate their offerings and improve operational efficiency. When the crisis hit, they encountered new services delivery challenges because of travel bans and on-site restrictions. PTC introduced the Vuforia suite through this free truck program And in less than three months, the customer adopted and deployed Vuforia Chalk and Expert Capture across the global services team. Using Vuforia, they're now delivering highly effective remote support and are capturing best practices from internal experts for distribution to their end customers. A second great AR success story in the quarter was Philips Healthcare. As the COVID-19 pandemic unfolded, Philips needed to significantly ramp up ventilator production, to address the growing healthcare crisis. They faced two significant challenges. The first was accelerating training of new staff required to enable 24 by 7 production chefs. The second challenge was the travel ban, which threatened to delay their new production capacity in India. PTC introduced Philips to our Vuforia expert capture solution, and in less than 30 days, Philips was capturing expertise from technicians in the U.S., and remotely training new hires across the globe. Despite facing the same COVID headwinds that we're navigating across our business, our pure SaaS Onshape CAD business delivered a strong quarter. The Onshape organization had a solid bookings quarter, added a record number of new logos, and is tracking to achieve their FY20 plan. It's worth noting that in this challenging macro environment, Onshape's growth rate is more than 30 percentage point higher than the well-known mainstream product it's most frequently displacing, which tells me that something interesting is happening. Another proof point for Onshape momentum is that the pipeline is four times larger today than when we acquired the company three quarters ago. To support this strong demand, we're making significant investments in Onshape go-to-markets. including expanding sales reach into Europe, which is a large market for design software. In Q3, Onshape also booked the first handful of orders from PTC's reseller channel, a new program that was just launched. We believe getting PTC VARs in the game will open another exciting vector of growth for the Onshape business. We're proceeding full speed ahead on the Atlas program, too, which aims to generalize the underlying Onshape SaaS architecture and put it to work more broadly across the entire P2C product portfolio. Work has progressed well on the Vuforia and generative design front, and we're working toward the day when there are versions of Creo and Windchill that are fully multi-tenant SaaS, thanks to the underlying Atlas platform they share with Onshape. Overall, we remain extremely excited about the opportunity to grow Onshape into the leading SAS engineering design suite. As industrial companies rethink their innovation strategies for a new normal built around SAS, there's no better solution than Onshape. John Herstick and John McElhenney and the rest of the Onshape team have integrated seamlessly into PTC, and morale is very high, and they've never missed a beat in their frequent delivery schedules. Naturally, they love the Atlas strategy, and we're very pleased with how this acquisition is unfolding. Lastly, in our growth business, I'd like to discuss IoT a bit more. As I mentioned earlier, we've seen pressure on new deal closure as a result of the COVID-19 crisis. While the new logo pipeline remains strong, the inability to engage with customers on-site, the scope and plan enterprise solutions has elongated sales cycles. But the interest level remains higher than ever, so we're confident that as we see the environment begin to stabilize and engagement activity resume, we'll get this part of the pipeline cranking back up. Meanwhile, we did see solid IoT expansion activity in Q3, which is a testament to the value customers are realizing with ThingWorx. We saw balanced expansion across both the smart connected products use case and the smart connected operations use case. And from a vertical perspective, we continue to see broad-based demand in our core industrial space in high-tech and electronics, and in aerospace and defense. But the real standout vertical in the quarter was the medical device industry, which has experienced less economic disruption during the crisis. Medical device companies like Abbott Laboratories and Hologic are continuing to expand their smart connected product deployments, enabling them to remotely monitor and service their product fleet seamlessly, despite the operational challenges caused by the pandemic. Our partner, Rockwell, had a relatively good quarter of AR and IoT sales with a strong sequential tick up in business. Like PTC, Rockwell saw strong expansion sales, which is great for the success of the partnership as we have landed a lot of starter deals previously. Our partnership with Microsoft had a strong quarter across IoT, AR, and PLM fronts. We were pleased to learn just recently that we won Microsoft's global competition Manufacturing Partner of the Year Award for a second consecutive year. We've recently extended this partnership into a new class of IoT solutions called Factory Insight as a Service. This solution, which launched a few weeks ago, is a three-way partnership with Rockwell Automation and Microsoft. Factory Insights as a Service is a turnkey cloud solution that enables manufacturers to achieve significant impact, speed, and scale with their digital transformation initiatives. All three companies are taking it to market. Lastly, on IoT, in addition to solid expansion activity and healthy backlog and pipeline heading into the fourth quarter, our confidence in PTC's IoT market position was once again validated by the industry analyst community. Quadrant Knowledge Solutions identified PTC as the outright leader in industrial IoT platforms in its latest Spark Matrix report based on technology excellence and customer impact. We'll put this report on our investor relations website for you to reveal. To wrap up on our growth business, the punchline here is the COVID crisis creates a significant long-term growth opportunity for PTC balanced against some near-term headwinds. We believe there are fundamental changes happening in the industrial economy that will play out in our favor over the coming years. Bolstered by the strong alliances with Rockwell Automation and Microsoft, PTC is extremely well positioned to be a central part of the digital transformation strategies of our industrial customers. Turning now to the core business, we're very pleased with our Q3 performance with ARR growth of 10%, once again outpacing the market growth. The juxtaposition of Creo and Windchill being up a combined 10%. In a quarter where Dassault's, Catia, and Inovia businesses were down a combined 10% is interesting. I attribute that 20-point disparity to the great progress PTC has made to strengthen our products and to strengthen our business model. Q3 was the 11th consecutive quarter that our core ARR growth rate has been in the double digits. With such steady and predictable performance over a long period now, it's obvious that we've made tremendous strides driving the cyclicality out of our core business. At this point, PMI fluctuations seem to have a more muted effect on PTC than they do on some of our peers. PTC's PLM business continues its streak of strong performance with mid-teens ARR growth in Q3. From a geographic perspective, PLM performance was broad-based, with double-digit growth across all three major geographies led by the APAC region. The momentum in our PLM business was underscored by a major win with the U.S. Navy, which we announced earlier this afternoon. Following a rigorous competitive process against a dozen other technology providers that concluded with a small initial win a year ago, we conducted a successful pilot program, and we've now won a substantial expansion agreement to power a cloud-based digital transformation and modernization effort around the weapons readiness and warfighting capabilities of the Naval Sea Systems Command. This project will drive a fundamental change in the way the Navy operates and supports its fleet of ships and submarines. PTC software will be used to create a model-based digital twin of each ship that will be used by more than 15,000 users and an expansive supplier network to optimize lifecycle costs and maximize operational availability. With additional options in place that could expand the ARR of this project to over $25 million in year five, this contract is poised to become PTC's largest run rate customer so long as we successfully execute. The Navy win reinforces my earlier point about the digital transformation trends that are happening across the broader industrial economy and how they're driving new demand for PLM. Our PLM pipeline looks strong, and with many more digital transformation projects being discussed, we feel the prospects of a new wave of secular PLM growth are increasing. Turning now to CAD. Our CAD team delivered a solid quarter with ARR growth in high single digits. Growth across the geos was mixed, with APAC leading the way, followed by the Americas and Europe. In Europe, which has our largest CAD channel exposure, sales were more severely impacted by the COVID crisis, given the patchwork of government shutdown across the regions, but CAD renewal rates were extremely strong. We had solid results from Creo Simulation Live, our CAD solution that embeds real-time simulation from ANSYS. We closed 10 expansion deals across a number of verticals like automotive, medical device, and industrials. And we inked our first seven-figure CSL deal with a large U.S. government agency. It feels like we're gaining some steam with CSL, and we look forward to launching new marketing programs in the coming quarters. And finally, our focus solution group was flat, more or less as expected given the difficult circumstances. With high profitability and low churn, this business continues to add real strength to the portfolio. To wrap up my comments, I think it's safe to say that we're operating in unchartered waters as we navigate through this pandemic. However, I couldn't be more pleased with our strategic position and with our team's execution in the face of these challenging times. We're fully mindful of the headwinds the pandemic will place on new business as we continue to target double-digit growth in ARR, revenue, and EPS for the year. We're confident that once this crisis passes, we'll be well-positioned to drive even higher levels of growth, margin expansion, and shareholder value creation. With that, I'll turn it over to Christian, who will take you through more details on the financial results.