PTC Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the PTC 2020 fourth 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 would now like to turn the call over to Tim Fox, PTC Senior Vice President of Investor Relations. Please go ahead.

Thank you, Joelle. Good afternoon, everyone, and thank you for joining PTC's conference call to discuss our fourth quarter and fiscal year 2020 financial results. On the call today are Jim Heppelman, Chief Executive Officer, and Christian Talatia, Chief Financial Officer. Before we get started, we'd like to acknowledge that a table from our press release became public, and we're currently looking into how this happened. In the meantime, of course, the full set of earnings documents are available on PTC's Investor Relations website. Now, moving on to today's call, please note that our comments, including 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 filing 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 the 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 and related Form 8K. References to growth rates will be in constant currency unless otherwise noted. And lastly, we'll be referencing our prepared remarks document, which is in presentation form today, which you can find posted on our IR website. With that, let me turn it over to Jim.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. I hope you and your families continue to stay safe and well during this crisis. Before jumping into our quarter and year-end review, I'd like to begin by sharing several pieces of new news that we announced earlier this afternoon. Turning to slide four, we're very pleased to announce that PTC and Rockwell Automation have extended our strategic partnership by two additional years, which cements the alliance in place through fiscal 23. We have also broadened the partnership beyond IoT and AR to include PLM and Onshape. Back in May, Rockwell acquired Calypso, a professional services company who has been a strong PLM and IoT partner of PTC for years. Calypso gives Rockwell increased capabilities to pursue digital threat initiatives so the scope of our agreement has been broadened to embrace those pursuits. The agreement has other changes that better encourage sales cooperation, give PTC access to Rockwell's Emulate 3D factory simulation software, and naturally contemplates continued growth through fiscal 23. The alliance has expanded our reach and our capabilities as intended. While providing Rockwell with access to best-in-class Industry 4.0 software technology, The agreement has allowed PTC to address significant white space in the market. Rockwell has introduced PTC technology into more than 250 sizable companies across 45 countries to date, and 70% represent new logos to PTC. Rockwell has quickly become one of PTC's biggest and most important partners. Blake Moret, the Chairman and CEO of Rockwell Automation, shares my view that this extension is a big win for both companies. Turning now to slide five, we also announced earlier today that we'll be hosting a virtual investor day on December 15th. We'll be reviewing our strategy, secular growth drivers in our markets, our broad solutions portfolio, and how we're taking those solutions to market. Christian will also review progress of our very attractive financial model. Given that upcoming event, we plan to keep this call focused on Q4 and fiscal 20 results and on fiscal 21 guidance. We hope you can join us for the event in December. With that, I'd like to turn to slide six and spend a few minutes describing what we see as the three key elements of our strategy to deliver long-term shareholder value. It starts by aligning with market demand so we can build a strong pipeline. then optimizing new and renewal sales and customer success to power the top-line ARR growth. Finally, creating an efficient business model and operation that allows PTC to drive the bottom-line free cash flow growth even faster. This will be PTC's new framework for describing our business strategy, operations, and results here as we head into fiscal 21. First, on market demand. Fiscal 20 will no doubt be remembered as one of the most unique and challenging times PTC has faced over a 35-year history. I fundamentally believe we'll look back at the last fiscal year as a pivotal moment for PTC. Pivotal in the sense that our suite of software solutions, which have been driving significant value from customers before the pandemic, have now become even more mission critical. Years back, we had anticipated a growing need for the types of capabilities PTC has been investing in, but COVID has certainly accelerated demand for them. Digital transformation initiatives across the industrial space are accelerating as companies adjust to this new normal way of doing business. The importance of solutions that enable work from home, global team and supply chain collaboration, remote asset management, remote frontline worker training and support, have never been higher. For PTC, this translates into more demand for PLM, for IoT, for AR, and for SAS. What we're seeing in our pipeline, which stands at record levels, confirms that PTC is in a strong position. Regarding the top line, necessity is the mother of invention, and work from home has pushed PTC to dramatically accelerate our digital marketing and sales capabilities. I'm very pleased to report that we delivered strong Q4 bookings, up from the previous high-water mark in Q4 of 19, which is even more impressive when you consider the state of the global economy and the fact that our sales teams were constrained to virtual operations. I feel like we've made more progress adopting digital go-to-market in the last six months than in the previous five years. With the subscription transition in the rear-view mirror, we have successfully crossed the proverbial valley of death, and are back to record levels of ARR in revenue. Now we're enjoying the top-line stability and the higher rates of growth and higher margins that led us to undertake that difficult five-year journey. As proof, fiscal 20 marked the third consecutive year of double-digit ARR growth for PTC, despite the extreme volatility of PMIs and the macro environment that occurred during that same timeframe. Now more than 90% of our revenue is software and 98% of that software revenue is recurring. I'm so pleased with this outcome. It came just in time for COVID. Finally, in the bottom line category, our EPS and free cash flow were both above guidance. As Christian will detail a little later, our fiscal 21 free cash flow guidance represents another new high watermark for PDC. This is driven by strong ARR growth and the passing of several short-term free cash flow headwinds that held us back in fiscal 20, but are now fading as we go into fiscal 21, allowing our true earnings power to shine through. Altogether, PTC is very fortunate to have industry-leading technology that's well aligned with secular growth drivers, vastly improved digital go-to-market capabilities, and in a sustainable and efficient recurring software business model. With that, let me turn to slide seven and touch on a few key financial highlights. ARR of 1.27 billion represents growth of 14% or 11% at constant currency, which was the midpoint of our guidance range. To put the COVID-19 impact into context, fiscal 20 ARR growth was about 500 basis points below our pre-COVID internal plan, due to bookings pressures and modestly elevated churn resulting from the pandemic. At this point, we see a smaller 200 basis point headwind to fiscal 21 ARR growth, and as of now, no headwind to fiscal 22 and beyond. Overall, we're very pleased with our fiscal 20 financial results and excited about our fiscal 21 guidance, yet I believe that PDC is positioned to do even better in coming years. There's a lot of shareholder value creation that lies ahead of us. With that as context, let's take a look at the respective contributions of the FSG core and growth business segments of our portfolio. Moving to slide eight, you'll see that ARR growth declined modestly in our FSG business, but was strong in our much larger core business and accelerated in our fast-growing growth business. Recall that our focus solutions group, which we position as a lower growth cash cow, has exposure to industries heavily impacted by COVID-19, in particular retailers and airlines. Our FSG products remain very competitive, and we're expecting FSG to recover to low single-digit growth again in fiscal 21 as economic conditions in those segments improve. At the same time, we're very pleased with the 11% growth of our core business, which continues to materially outpace the market growth rate. Q4 was the 12th consecutive quarter that our core ARR growth rate has been in double digits. Meanwhile, our growth business had a very strong quarter in a year, with growth trending back to the levels we want to see. Thingworks, Vuforia, and Onshape all posted impressive results in Q4, but Vuforia and Onshape have really been strong all year. It's worth noting that ARR of our growth business has now surpassed that of FSG, which creates a tailwind of growth for the entire portfolio. Let's go a click deeper into the main elements of our core and growth segments. Turning to slide 9, our CAD team delivered a solid quarter with ARR growth in the high single digits. Across GEOS, APAC once again delivered strong results, and the overall demand environment improved sequentially in the Americas and stabilized in Europe. Overall, CAD renewals remain healthy, with churn improving quarter over quarter. We're excited to be launching the next release of Creo 7 in the coming months, which incorporates our first Atlas-based offering. Creo Generative Design Extension, or GDX as we call it, leverages our frustum generative design technology with the compute offloaded to a peer SaaS Atlas environment from where it is served to both Creo and Onshape. Also in this next Creo release, we'll be launching the mainstream high-fidelity simulation capabilities from ANSYS fully integrated with Creo, creating another highly differentiated leg of growth for our CAD business. Speaking of ANSYS, we had solid results from Creo Simulation Live, our CAD solution that embeds real-time simulation from ANSYS, which delivered its second-highest bookings quarter to date. We continue to see interest across a wide variety of verticals, like automotive, medical device, industrials, and in the high-tech space. On slide 10, we highlight a great high-tech CSL win with NVIDIA. This is a classic example of how traditional design and simulation processes impact time to market. Creo Simulation Live provides NVIDIA engineers with real-time control of design direction, allowing a more refined design handoff to analysts, resulting in reduced rework, faster time to market, and improved work processes. We're pleased with CSL's traction in the market and look forward to launching new marketing programs in the coming quarters. Moving on to slide 11 in our PLM business, you'll see that PLM continued to deliver strong performance with mid-teens ARR growth in Q4 and for the full year. In fact, the PLM team beat their pre-COVID sales goal for the full year. From a geographic perspective in Q4, PLM performance was broad-based with double-digit growth across all three major geographies led by the APAC region. From a vertical perspective, our PLM team continues to win big in medical device space and in A&D. Turning to slide 12, a great proof point in the life sciences arena was a major competitive displacement at Baxter International. What started as a point solution opportunity for product requirements management expanded into a full-blown digital thread enterprise engagement. Baxter was operating with disparate independent systems and processes, which was negatively impacting regulatory cycle times. By adopting PTC's broad suite of windshield PLM solutions, Baxter's consolidating its footprint into a single enterprise system and transforming from document-centric to part-centric processes, resulting in a 4,500-seat competitive displacement. You'll see on slide 13 that we had a great win at TE connectivity. In this case, TE was using a highly customized incumbent system for technical document distribution. By leveraging ThingWorx Navigate and seamlessly integrating with Windchill PLM and other enterprise systems, TE will deliver content to 20,000 users across functions like purchasing, supply chain, planning, and manufacturing planning. Moving on to our growth business, I'll begin with IoT on slide 14. While IoT ARR was impacted in fiscal 20 from the new logo headwinds we described earlier in the year, we were pleased to see IoT bookings double sequentially in Q4, which benefited from some pent-up demand following macro slowdowns mid-year, but also benefited from a number of significant wins in the quarter. Once again, the standout IoT vertical in the quarter was medical device industry, which has experienced less economic disruption during the crisis. We also had very strong performance in the Americas with bookings more than doubling sequentially. We were also pleased to receive further validation of PTC's strong IoT market position by the industry analyst community. Just last week, PTC was named a leader in the 2020 Gartner Magic Quadrant for industrial IoT platforms. This is a particularly special award given Gartner's rigorous and in-depth evaluation process and the strong influence that Gartner has in our market. On slide 15, we have an example of ThingWorx in action at Stanley Black & Decker, one of the most venerable manufacturing brands in the industrial tool and hardware markets. Stanley's been on a multi-year digital transformation journey with BTC. and we were pleased to expand this relationship in Q4. Leveraging ThingWorx applications to expose data across previously disconnected assets, Stanley's driving significant improvements in OEE, overall equipment effectiveness, across their global manufacturing footprint. Turning to slide 16, Bridgestone is another SCO customer that's had great success leveraging ThingWorx analytics, the embedded machine learning engine, to provide real-time insights into its production environment to drive operational efficiencies, improve throughput, and improve quality all at scale. Let me shift to our AR business on slide 17. The Vuforia augmented reality team delivered very strong results in Q4 with bookings up 50% year over year. The AR team landed a nice seven-figure deal and the largest deal to date in Europe. We also saw a significant increase in the number of six-figure deals with 18 in the quarter, doubling the previous high-water mark. The large deal acceleration is a testament to the success of our upsell strategy. Customers are starting to adopt our entry-level AR solution, Vuforia Chalk, and then identifying more sophisticated AR use cases, which we address with Vuforia Studio and Vuforia Expert Capture. These advanced solutions are tailor-made for the remote work situation that our industrial customers are currently navigating. We had two notable wins in Q4 that highlighted the value of our broader AR suite. The first on slide 18 is at Jabil, a major global contract manufacturing company with 260,000 employees in 30 countries. Jabil operates in a highly competitive market where margins are paramount. One of the biggest cost inputs is, of course, human capital. So finding new transformative solutions to improve onboarding and training and increasing frontline worker efficiency can have huge returns. PTC's AR team, leveraging existing CAD and PLM relationships at Jabil, introduced the Vuforia suite to their manufacturing team and landed a seven-figure AR starter deal. Turning to slide 19, a second great AR success story in the quarter was with Nordex, one of the world's leading wind turbine manufacturers. As the COVID-19 pandemic unfolded, Nordex was planning to ramp new production capacity in India. However, the COVID-related travel restrictions kept their German-based technical experts grounded, which stalled the commissioning of new production facilities. By leveraging Vuforia Expert Capture, local technicians recorded training instructions in context, then automatically published that content to headsets and mobile devices used by the production teams on the ground in India. Turning now to slide 20, I'll wrap up my comments on our growth business by discussing Onshape, which delivered another strong quarter as they wrapped up their first year as part of the PTC family. Onshape had a record quarter with bookings up more than 80% year-over-year and with 70% growth in new logos. During fiscal 20, Onshape landed over 700 competitive displacements, the majority coming from SOLIDWORKS. I see this as clear evidence of the disruptive nature of Onshape's SaaS-based solution in what has been a competitive, mature market with entrenched incumbent players. The investments we're making in Onshape's global market expansion is starting to pay early dividends in Europe, which is a large market for design software. The PTC reseller channel, while still early in its Onshape journey, is gaining traction and opens up another exciting vector of growth for the Onshape business. Lastly on Onshape, I'd like to update you on the exciting trends we're seeing in the education market. On slide 21, you'll see that education sign-ups during the back-to-school season have been growing nicely for years, but they have literally exploded this year due to COVID. Let me explain why. Mainstream CAD systems run exclusively on Windows workstations, but students generally have MacBooks, Chromebooks, or iPads, So schools have always been forced to provide a special PC computer room on campus for any CAD-related work. Because of the pandemic, most schools now require work-from-anywhere solutions, so they're increasingly turning to Onshape, which runs on any of the devices students typically have. Schools are realizing that they don't even need the expensive PC room anymore, so I don't see the situation reverting. Winning in education is really important because students represent the workforce of tomorrow. Winning them over while setting the bar at a new level has proven to be a winning long-term sales and marketing technique in the CAD industry. We believe the rapid adoption of Onshape in education provides a template for SaaS adoption to follow in the commercial market. Our manufacturing customers have the same needs for real-time collaboration and access to data from anywhere and on any device. I believe the COVID crisis is accelerating the SaaS tipping point for the engineering software industry by several years. Bottom line is that one year into it, Onshape looks to be another excellent acquisition. To wrap up on our growth business, I think it's pretty clear that the COVID crisis has only amplified long-term growth opportunities for PDC. Let me provide some color on geographic performance. On slide 22, you'll see that APAC had strong performance with ARR growth of 14%. reflecting the earlier reopening of those economies, and much healthier churn rates on subscription licenses, particularly in China, where our subscription model seems to be gaining a foothold. America's ARR growth of 11% was driven by mid-teens PLM growth and strong growth across our ARR suite, but partially offset by softness in FSJ. Europe ARR growth of 8%, while benefiting from solid PLM performance, lagged other regions primarily because of the higher mix of CAD and pressure on new logo activity in IoT. Before I wrap up, let me turn to slide 23 and touch on our other key alliance partner. I've already spoken of the strength of the Rockwell and Ansys alliances, but our partnership with Microsoft had another strong quarter. With bookings increasing around 20% from Q3, with momentum building in Europe, which comprised 30% of the bookings in Q4, With a solid pipeline heading into FY21 and field engagement strengthening across the globe, we remain bullish on the Microsoft Alliance opportunity. To wrap up and summarize, turning to slide 24, we're seeing strong demand from secular drivers like digital transformation, work from home, the need for remote monitoring solutions for asset management, remote support of frontline workers, and growing interest in SaaS. We're in the right place at the right time. We've executed well during a challenging environment, delivering solid ARR growth and record bookings to close out the year. Our subscription transition is complete with a return to record ARR and revenue in FY20. And we're expecting a free cash flow inflection in fiscal 21 with continued strong free cash flow growth thereafter. We're confident that by aligning with market demand to build a strong pipeline and Improving our execution to convert that pipeline to robust ARR growth and leveraging scale and business model efficiencies to drive even higher free cash flow growth is a recipe that will continue to create significant shareholder value for years to come. With that, I'll turn it over to Christian, who will take you through more details on the financial results and guidance.