PTC Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. And welcome to the PTC 2021 first 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, Carmen. Good afternoon, everyone, and thank you for joining PTC's conference call to discuss first quarter 2021 financial results and the outlook for the remainder of the fiscal year. On the call today are Jim Heffelman, Chief Executive Officer, and Christian Tabletea, 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 on 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 earnings presentation, which you can find posted on our IR website. With that, I'd like to turn the call over to Jim.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. I hope that you and your families continue to stay safe and well during this ongoing pandemic. Before jumping into our quarterly review, I'd like to begin by discussing the news we shared two weeks ago about closing the arena acquisition and some related organizational changes. Turning to slide four in the deck, first, we're very pleased to have closed the acquisition and would like to formally welcome the arena employees to the PTC team. As we discussed at our recent investor day, we're excited to complement the strong momentum we have with Creo and Winchell in the traditional CAD and PLM market with the leading CAD and PLM solutions in the pure SaaS market. Together, Arena and Onshape represent a powerful pure SaaS solution that's number one in technology, customers, and revenue. With this combo, we're positioned to capture the rapidly emerging shift towards SaaS for product development, manufacturing, and support. There's clear evidence that the global pandemic has been driving a new normal in our industry, and we're now in a position to lead the product development market well into the future. We also announced an organization strategy that I'm excited about. We're expanding our SaaS business unit, initially built around Onshape and Vuforia, to embrace Arena as well. This will put us in position to pursue technology, business process, and revenue synergies across this SAS portfolio. The expanded business unit, which now accounts for about 100 million of ARR and about 20% of PTC's bookings, will be led by longtime PTC leader Mike DiTullio. Mike will focus on integrating the arena team and leveraging the tremendous talent and expertise we have across our SAS portfolio. With his proven track record of aligning organizations to drive growth, I'm confident that in this new role, Mike can help us fully capitalize on our SaaS leadership position. I'm also pleased to announce that Jamie Pappas will succeed Mike as head of global sales, reporting to our chief operating officer, Troy Richardson. Jamie is an accomplished 25-year PTC sales veteran, and he has led regional sales in Asia, Europe, and most recently in North America. Jamie has a tremendous track record of success at BDC, so I'm confident in a smooth transition as he assumes his new role. With that, I'd like to turn to slide five and review the three key elements of our strategy to deliver long-term shareholder value. First, let's cover the topic of market demand. We had outstanding bookings results in the first quarter, up more than 30% year-over-year, versus a fiscal Q1 of last year that was largely unaffected by the pandemic. The bookings helped the Q1 results, but they also beefed up the future backlog. We see the booking strength as reflecting a continuation of the secular demand trends we experienced in fiscal 20 as customers accelerated their digital transformation initiatives in response to the new way of doing business. Industrial companies are prioritizing initiatives like moving all product lifecycle processes online across their entire enterprise with PLM, remotely monitoring their products and factories with IoT, bringing digital productivity to their frontline production workers with AR, and they're generally getting more and more interested in SaaS as they go forward. For PTC, this all translates into more demand for our unique product portfolio and we see a strong pipeline heading into the balance of the fiscal year. Given that the global PMI number reached its highest point in three years in December, we also believe PTC's strong Q1 bookings may have reflected improved customer optimism around promising vaccine news, stimulus policies of the new administration in Washington, and perhaps even some calendar year-end budget flush. We hope that optimism continues, but with mixed news related to the global pandemic, including concerns about new strains of the virus, we're not sure that we're out of the woods yet, and we continue to think that our outlook for the year is prudent. In the top-line category, a combination of strong bookings and lower-than-expected churn translated into a very strong quarter with ARR growth of 16%, or 12% in constant currency. This was at the high end of our guidance range and was driven by continued momentum in our core business and solid performance in the growth business. Revenue growth of 20% was well above guidance, resulting from strong large deal activity in the quarter. In the bottom line category, we delivered strong free cash flow of $111 million and non-GAAP EPS growth of 70%, reflecting a combination of strong top-line results combined with continued operating expense discipline. In the wake of this strong first quarter, we are increasing our guidance for the year, and Christian will share the details later in the call. With that as context, let's take a look at the respective contributions of the FSG core and growth segments of our portfolio. Moving to slide six, you'll see that ARR in our focus solution group, or FSG, was flat year over year. But ARR growth was robust in our much larger core business once again, and the mid-20s growth performance of our growth business tracked to our guidance for the year. You might note visually that the growth business has now reached roughly the same magnitude as FSG, and with ARENA coming into the picture, it will soon step up about 30%. and then with its higher growth rates, it'll soon become much larger, driving the combined portfolio toward higher growth rates as well. Recall that our FSG segment has exposure to certain industries heavily impacted by the pandemic, like retail and airline industries. However, our FSG products remain important and are very competitive, and we continue to expect FSG to recover to low single-digit ARR growth in fiscal 21, as economic conditions improve. We've seen some good progress in retail already, but as you know, the airline business remains difficult for everybody. Naturally, we're very pleased about the 12% ARR growth of our core business, which materially outpaced the market growth again. Q1 was the 13th consecutive quarter that our core business ARR growth rate has been in double digits. As Jay Leishauer pointed out in a recent report, PTC has of late enjoyed the number one growth rate in the traditional CAD industry with Creo, and our windshield business has been doing even better. Meanwhile, our growth business had another strong quarter with year-over-year bookings growth of nearly 40% and delivered ARR growth in the mid-20s in line with our guidance for the year. Let's go a click deeper into the main elements of our core and growth segments. Turning to slide seven, our Creo CAD team delivered another impressive quarter with ARR growth in the high single digits. The improvement in the demand environment that we started to see in Q4 continued this past quarter with strong performance across all major geos. And in a market that tends to see very little replacement activity, we had some notable CAD competitive displacements which speaks to the technological strength of the Creo product suite. Our CAD technology leadership was further extended with the latest release of Creo 7, which incorporates our first Atlas-based offering. Creo Generative Design Extension, or GDX as we call it, leverages the Frustum generative design engine acquired in 2019, with the compute being offloaded to an Atlas PureSAS elastic computing environment, from where it's served to Creo sessions now, and soon to Onshape sessions as well. We also released the high-fidelity, mainstream simulation capabilities of ANSYS, fully integrated into Creo, creating another highly differentiated leg of growth for our CAD business. Speaking of ANSYS, on slide 8, we highlight a great Creo and Creo Simulation Live, or CSLWin, with SharkNinja, Shark Ninja is becoming a household name, and to respond to the growing demand for its products in a very competitive space, Shark Ninja re-evaluated its design technology and decided to phase out competitive gas systems and standardize on Creel, adding CSL to help accelerate the new product development cycle times. Moving on to slide nine in our PLM business, you'll see that PLM continued to deliver very strong performance with another mid-teens ARR growth quarter. From a geographic perspective in Q1, PLM performance was broad-based with double-digit growth across all three major geographies, led again by the APAC region. Thanks to its key role in digital transformation initiatives, PLM continues to be a major growth engine for PTC. From a vertical perspective, our PLM team continues to win big in the medical device space But market traction in the first quarter was strong across a number of verticals, including automotive, aerospace and defense, and high tech. Turning to slide 10, a great proof point in A&D was a major extension and expansion at Airbus, which also happened to include a competitive displacement in one of their divisions. Along with the windchill footprint expansion, Airbus adopted ThingWorx and Vuforia in their manufacturing environment which is another great example of the cross-sell opportunity within our product portfolio. Given today's difficult air transportation market, airframe companies are being careful with spending, but thanks to this deal, PTC is locked into a substantial long-term relationship with Airbus. You'll see on slide 11 that we had a great cloud-based win-show win at Terumo in the medical device space. Terumo is replacing its paper-based FDA compliance system with an end-to-end digital thread based on Windchill's quality management solution. Moving on to our growth segment, I'll begin with IoT on slide 12. Following strong bookings performance in Q4, IoT had a solid start to the year with a promising uptick in new logo bookings, an area that was pressured over the last year due to travel restrictions and lockdowns. Demand was broad-based across verticals, and we had some sizable expansion deals in the process manufacturing space, which is greenfield for PTC. With a strong pipeline and encouraging signs of churn improvement in IoT as well, we expect to see continued solid ARR growth in fiscal 21. On slide 13, we have an example of ThingWorx in the process manufacturing space at Griffin Foods. Operating in a market that has relatively thin margins, Griffin Foods was looking for ways to accelerate efficiencies in its production environment. Leveraging the ThingWorx Smart Connected Operations, or SCO, solution, they are digitizing their production lines to capture key performance data and display it in a unified view to allow managers to see problems and make faster, more informed decisions on the plant floor. Let me shift to our AR business on slide 14. The Vuforia augmented reality team again delivered very strong results in Q1, with bookings up 80% year over year. Expansions drove over 50% of bookings in the quarter, with three deals greater than 500K, which was a new record for the AR team. Traction outside the Americas continued to gain momentum with strong growth in both Europe and APAC. Let me share two examples that highlight the value of our broader AR suites. First, on slide 15, is at BidGroup, one of the largest integrated suppliers in the wood processing industry. The BidGroup replaced a do-it-yourself or DIY approach for industrial IoT and then added Vuforia Chalk to the mix to improve workforce productivity while reducing travel costs. Turning to slide 16, a second great AR success story is Royal Enfield, the world's oldest motorcycle brand. As the COVID-19 pandemic unfolded, Royal Enfield was forced to reimagine a planned physical event for launching a new motorcycle. Leveraging Vuforia Studio, in under a month, they built a dynamic sales training capability and delivered this highly effective, interactive, augmented reality experience to more than 3,000 remote participants. Turning now to slide 17, I'll wrap up my comments on our growth business by discussing OnShape. which also delivered a very strong quarter. Onshape had record bookings up more than 150% from its initial quarter at PTC one year ago, including a nice balance of new logo activity and expansions. Onshape's pure SaaS CAD solution is quickly becoming a disruptive force in the SMB space, shaking up a mature market segment where PTC has been underrepresented for years. I'd like to update you on the exciting trends we're seeing in the education market with Onshape. As the COVID pandemic unfolded, we saw a real opportunity to help schools and universities because we have the only true school-from-home CAD solution that works on any device with no installed footprint. PTC's academic team decided to pivot their focus to Onshape and set an aggressive goal to try to reach 1 million total education users by the end of fiscal 21. To put that in perspective, it's double the number of users that were participating in our education program across all PTC products at that time. I'm happy to report that already in January, we've exceeded the goal of one million total Onshape education users, nine months ahead of schedule. Onshape is quickly becoming the education standard thanks to one of the greatest share shifts I've experienced. Students and teachers love it. Clearly, we caught a wave as world events and the changing needs in education have accelerated this achievement. It's been incredibly rewarding to see how many educators and students have been able to take advantage of Onshape. Students who do not normally have access to CAD are now able to engage in STEM classes. Robotic teams are able to compete even when their season is canceled, and educators have been able to seamlessly continue their instruction because of their access to Onshape. On slide 18, we highlight one of the many school systems supporting their K-12 STEM education program by adopting Onshape, in this case across the Charlottesville city school system. Gaining one million student users is a huge milestone with significant implications for PTC well into the future. Manufacturing companies have the very same needs for real-time collaboration and access to data from anywhere and on any device. I continue to think the COVID crisis is accelerating the SAS tipping point for the engineering software industry by several years. On slide 19, you'll see a great example of a commercial company, Sterling Ultracold, doing the same thing. They're adopting Onshape to streamline communication between mechanical designers, supply chain managers, manufacturing, and quality assurance teams to avoid the delays associated with with sending CAD data back and forth by email like they used to do. To wrap up on our growth business, I think it's pretty clear that our solutions are uniquely positioned to help customers respond to the new normal they're facing today, and they provide a very strong foundation for long-term growth for PTC. Let me provide some color on geographic performance, which was strong across the globe. On slide 20, you'll see that APAC had strong performance with ARR growth of 16%, reflecting the earlier reopening of those economies, and much improved churn rates as our subscription licensing model gains increased acceptance. America's ARR growth of 13% was the second quarter in a row of double-digit growth, driven by broad-based demand across our core and growth segments, but partially offset by softness and FSG. Europe ARR growth of 8%, based on tough year-over-year comparisons, but delivered very strong bookings performance in both our core and growth segments, along with some notable competitive wins. With that, now let me turn to slide 21 and touch on our key alliance partners. The Microsoft partnership had another strong quarter, delivering above plan for the third consecutive quarter and exceeding expectations in all geos. As you saw in their earnings release yesterday, Microsoft has a lot of momentum, and we're drafting behind it. With a solid pipeline and field engagement strengthening across the globe, we remain bullish on the Microsoft Alliance opportunity. Rockwell delivered over 20 expansion deals and had transactions in 27 countries. The majority of Rockwell's deals continue to come from customers that are greenfield to PTC and in process industries that we have not traditionally targeted with our core products. I was pleased to see in their earnings release that Rockwell, too, is seeing a strong uptick in orders. If you follow Rockwell, you may be aware that they have reorganized to have a software-focused business unit that owns the PTC partnership, and yesterday they announced that they have hired Brian Shepard to head up that unit. Brian worked directly for me at PTC for a dozen years, so I know that Rockwell has found a very capable software leader and somebody who can help the PTC-Rockwell relationship unleash its fullest potential. Congratulations to Brian. We're looking forward to working with him. Lastly, on the Alliance front, our ANSYS-powered solutions had a solid quarter with 20% bookings growth and very healthy expansion activity that drove around half of Q1 bookings. To complement CSL in the market, we launched the broader and deeper Creo ANSYS simulation suite. We're expecting these ANSYS-powered solutions to account for a high single-digit percentage of our new CAD ACV in fiscal 21. Before I wrap up, I'd like to highlight a great win we had with Microsoft on slide 22. The Colroot Group was looking for an IoT platform to support a complete digital transformation of their shops, food production, energy production, and logistics. Microsoft received an RFP in a competitive bid process and turned to PTC to partner on the opportunity. We ultimately won together, resulting in a multi-phase hybrid cloud IIoT project. To wrap up and summarize my comments, turning to slide 23, we're off to a great start in fiscal 21 as customers continue to embark on digital transformation initiatives that leverage our full product portfolio. We had strong bookings in the quarter, and churn performance was good as well. We delivered ARR at the high end of guidance while adding to the backlog. We saw great performance in core and growth segments and in our channels. The demand environment appears to be improving globally, and our strategic alliances continue to grow and mature. Plus, with the ARENA team joining forces with Onshape, PTC is now positioned as the number one leader in SaaS-based CAD and PLM, and along with Vuforia, this sizable pure SaaS portfolio is paving the way toward an attractive, future-proof business model for PTC. As Christian will detail shortly, we're pleased to be raising our Fiscal 21 guidance in recognition of solid execution that demonstrates our capability to deliver strong top-line growth, margin expansion, and free cash flow generation, the necessary ingredients to drive significant shareholder value for years to come. With that, I'll turn it over to you, Christian, to take us through more details on the financial results and guidance. Thanks, Jim, and good afternoon, everyone.