PTC Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to today's PTC 2024 fourth quarter conference call. During this presentation, all parties will be in a listen-only mode. Following the presentation, a conference will be open for open questions, and I'll come back and reiterate how you can ask questions at that time. I would now like to turn the call over to Matt Schumau, PTC's head of investor relations. Matt, please go ahead.

Good afternoon. Thank you, Erin, and welcome to PTC's fourth quarter and full fiscal year 2024 conference call. On the call today are Neil Barua, Chief Executive Officer, and Christian Talbatia, Chief Financial Officer. Today's conference call is being broadcast live through an audio webcast, and a replay of the call will be available later today at www.ptc.com. During this call, PTC will make forward-looking statements, including guidance as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found in PTC's annual report on Form 10-K, Form 10-Q, and other filings with the U.S. Securities and Exchange Commission, as well as in today's press release. The forward-looking statements, including guidance provided during this call, are valid only as of today's date, November 6, 2024, and PTC assumes no obligation to update these forward-looking statements. During the call, PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website. With that, I'd like to turn the call over to PTC's Chief Executive Officer, Neel Varun.

Thanks, Matt. I've been traveling the globe, meeting with customers, listening to their perspectives, and supporting the teams to close deals. I'm hearing one consistent theme from the companies that build the products the world relies upon. Neel, we need to shorten our development timelines as quickly as possible with the highest quality to remain competitive. This includes our hardware, mechanical, electronic, and embedded software processes that all need to come together for a final product. Please help us do this, as PTC's core offerings are the key to unlock this value. This is PTC's North Star, as we are best positioned across these critical dimensions to address the needs our customers have. It is tangible, the momentum. And while it might not show up every quarter in a linear fashion, I'm utterly convinced of our long-term trajectory due to this tectonic shift happening within the key verticals we serve. In fiscal 24, our free cash flow growth was solid, up 25% year over year. Our constant currency ARR growth was up 12% year over year. I am proud of the team. as these results were driven in a selling environment that remained difficult. An environment that is consistent with what we have been articulating over the course of the past two years. We also delivered despite several organizational moves we made over the past two quarters. There were varying pockets of relative strength such as areas in APAC and more broadly with our reseller channel. There were also pockets of relative weakness, such as Western Europe. In summary, however, aggregate transaction values were in line with what we have been seeing over the past couple of years, which speaks to PTC's resilient business model and our diversification across the verticals and geographies we serve. This allowed us to report solid Q4 results, despite the steady persistence of macroeconomic headwinds and geopolitical uncertainty. I am also energized to announce that given the strength of our business and consistency of our free cash flow generation, we announced today a $2 billion share repurchase authorization. This provides us with another lever to further enhance shareholder value. Christian will walk you through the details of how we plan to execute our buyback program. Let's move now to slide four. which highlights our product portfolio and strategy. As a reminder, our five focus areas are, one, PLM, which is driven primarily by our windshield product, two, ALM, which is driven by our CodeBeamer product, three, SLM, which is primarily driven by our ServiceMax product, four, CAD, which is driven primarily by our Creo product, and five, our continued focus on SaaS. These are the areas where we believe we can create the greatest customer value and are the areas where we have focused resources and attention. As I said earlier, our customers need to introduce new products at a faster pace and with higher quality. It is not unusual to hear from customers that they need to shorten their new product introduction timelines in half. And that's not possible without digital transformation across their workflows. which is exactly what our products enable. It is also worth highlighting that we are bringing our suite of software offerings in the areas that matter most for our customers together to help product companies improve their competitiveness. Given the unique breadth and openness of our portfolio, we can enable end-to-end digital threat initiatives, which leverage a connected flow of product data across design, manufacturing, service, and ultimately reuse. A digital thread enables product companies to break down silos, streamline workflows, and achieve interoperability across departments, functions, and systems with a single version of the truth. It also secures the quality, consistency, and traceability of product-related data, ensuring that the data is up to date, accessible, reliable, and actionable. With a digital thread, the right data is delivered to the right people at the right time and in the right context across the value chain. The demand drivers for our core offerings are strong, and our differentiated capabilities to drive digital thread initiatives are increasingly important to our customers. There is so much we can do to help our customers drive better business outcomes. But as I mentioned last quarter, given this incredible opportunity in front of us, this underscores that we also need to evolve how we operate to deliver more value to our customers with more precision and with more consistency. I'll turn to this now on slide five. Last quarter, I previewed some changes in our go-to-market efforts that we were contemplating. I'd like to get into some more detail since the first elements of these changes have been put into place. During my time here at PTC, I visited with many of our customers and, importantly, spent time with the go-to-market teams that interact with these customers. I had the chance to assess our capabilities and to examine the ways in which PTC's go-to-market teams are organized to bring value to our customers. Along with external advisors, we evaluated these elements on a qualitative basis and took the time to assess the performance of our go-to-market teams on a quantitative basis as well. The result of this evaluation is that we are making changes to our go to market structure that I believe will make us more effective in serving our customers and enable us to sustain the low double digit ARR growth target for the medium term that we've previously laid out. I'd like to take a few minutes to walk you through these changes in more detail. First, We are hiring a new chief revenue officer who is expected to start in December. This leader is well known within the enterprise software space, and I expect that once he settled in, he will drive increased focus, speed, and accountability in a more vertically oriented go-to-market model. Speaking of which, the second adjustment we are making is that we are aligning PTC selling, marketing, and customer success motions around the five key verticals we already serve, particularly in North America and Europe. Those are industrial products, federal aerospace and defense, electronics and high tech, automotive, and lastly, medical technology and life sciences. The rationale for this vertically focused realignment is simple. It's an extension of our mantra of putting more wood behind the arrows that we believe deliver the greatest value to our customers and ultimately to our company and our shareholders. By aligning our go-to-market organization along industry lines, we will increase the specialization of our sellers, which will enhance their industry knowledge and allow them to be more effective at understanding the needs of their customers how to help with their digital transformation journeys, and how to provide relevant industry-specific feedback to our product development teams. Similarly, by having customer success teams that specialize in certain verticals, they will be more familiar with the pain points that affect their customers and can act more quickly with more precision to solve these challenges. Frankly, I believe that we have been leaving money on the table with our previous structure and that there are significant opportunities to enhance our ARR growth by selling to and serving our customers in this manner. We have a large pool of customers, and their need for digital transformation can be met by the portfolio products we have today. Yet, we aren't fully capitalizing on this because how we currently operate. Consider, for example, a customer in the automotive sector. In some cases, That customer's lead salesperson within PTC might also be addressing customers in the med tech, in high tech spaces. And while that automotive customer might have certain brands and divisions using our Windchill product for PLM, they might not be standardized on it. The automotive industry is under immense pressure to transform to software-defined vehicles, which of course comes with tremendous unique challenges, some of which can be addressed with our CodeBeamer product, working alongside and integrated with Windchill. By adjusting the PTC teams that serve this customer to focus exclusively on the auto industry, for example, we believe that our selling and customer success teams will be able to cross-sell our solutions, and this will also enable us to address these customers' unique industry-specific challenges more swiftly and effectively. Underpinning this transformation are three cultural tenets. that I think are worth highlighting because we believe they will ultimately drive value to our customers and to PTC overall. First, focus on what matters the most for our customers. Second, drive increased speed internally and deliver value to our customers more quickly. And third, be more accountable for decisions from start to finish. As part of this transformation, we've also reduced spans and layers within the go-to-market organization while also eliminating certain overlay functions. To be clear, this is not an exercise in cost-cutting. Rather, we believe reorganizing our customer-facing resources will make us more effective in capturing the vast opportunity that is ahead of us. We expect to redeploy the run-rate costs associated with these people back into the re-architected go-to-market organization. We will be hiring quota caring salespeople and also specialized technical resources in our customer success organization that align with our five key verticals. There will be approximately $20 million of cash outflows associated with these changes. Christian will cover more details in his discussion. Let me wrap up my comments about this go-to-market realignment by saying that I believe The opportunities to improve our effectiveness are significant here at PTC. We have started to make the required changes to our organization. We are confident that these changes will lead to repeatable and scalable go-to-market motions that will serve us well. And the guidance that Christian will walk you through takes into consideration the possibility for some near-term disruptions associated with this realignment. Although we are taking significant measures to avoid meaningful stumbling blocks, we must acknowledge that we are evolving our go-to-market organization and the potential near-term risks associated with doing that. We believe we have taken a responsible approach here and look forward to updating you on future earnings calls. Finally, I thought it was worth spending most of my time today, as I just did, sharing my thoughts and expectations related to our go-to-market alignment. This took precedence over sharing some excellent customer stories. And so this quarter, we put the customer stories into the appendix slides of our earnings presentations. I'll continue to highlight customer stories on a consistent basis in future quarters. With that, I'll hand the call over to Christian to take you through our Q4 and full year financial results and future guidance. Thanks, Neil. And hello, everyone.