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    PTC Inc (PTC)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$180.65Last close (Jan 31, 2024)
    Post-Earnings Price$177.74Open (Feb 1, 2024)
    Price Change
    $-2.91(-1.61%)

    What went well

    • PTC's ALM business, led by Codebeamer, is experiencing rapid growth and is expected to surpass $100 million in ARR this year, contributing significantly to company growth and acting as a strategic high ground. ** **
    • The company's core on-premises products, such as Creo and Windchill, are delivering solid double-digit growth, which is sustainable and provides confidence in meeting guidance. PTC anticipates continued strong performance in these areas, even before any significant impact from their SaaS offerings. ** **
    • PTC has a strong pipeline of opportunities and is confident in the number and size of deals expected in the second half of the year, supporting their ARR growth guidance despite a sluggish sales environment.

    What went wrong

    • PTC is experiencing a sluggish sales environment, particularly around customer approval cycles, which have been elongated for several years without improvement.
    • Despite the persistent sluggish sales environment, PTC's growth guidance depends on achieving significant net new ARR in the second half of the year, which may be challenging under current conditions.
    • The company's confidence in meeting its second-half targets relies on pipeline opportunities and historical seasonality, but without any expected change in the sales environment, there is risk if deals take longer to close or fail to materialize.

    Q&A Summary

    1. SaaS Transition Impact
      Q: Is the SaaS transition affecting long-term financial targets?
      A: Neil Barua stated that the industry will eventually move to SaaS, estimating it to be a 10-plus-year journey. The on-premise business is delivering solid growth, particularly in PLM and Creo. There are no changes to medium- or long-term financial targets, and the SaaS transition is expected to contribute to ARR growth over time.

    2. ARR Growth Confidence
      Q: What gives confidence in second-half net new ARR growth?
      A: Confidence comes from a strong pipeline of opportunities, including the number and size of deals, and the criticality of customers. The guidance doesn't assume changes in the selling environment but leverages historical seasonality where such deals have been closed in the second half.

    3. ServiceMax Cross-Sell Progress
      Q: How is the cross-sell with ServiceMax progressing?
      A: After integrating teams, PTC implemented a more direct selling process, aligning ServiceMax sellers with PTC's team. This year focuses on building momentum, with expectations of mid-teens-plus growth for ServiceMax in subsequent years.

    4. ALM Business Growth
      Q: How significant is the ALM business and its growth?
      A: The ALM business, including Codebeamer, is growing at an exciting pace. It's expected to surpass $100 million in ARR this year and is growing faster than the overall company, making it accretive to growth.

    5. Creo CAD Resilience
      Q: Can Creo CAD continue double-digit growth this year?
      A: PTC expects double-digit growth for Creo to be sustainable. The strength lies in Creo on-premises, with Creo+ impact being limited in the near to medium term.

    6. Focus on Priority Areas
      Q: How are you approaching investments in IoT and AR?
      A: While IoT and AR remain important, PTC is prioritizing investments in the highest value creation opportunities like PLM, SLM, ALM, and CAD. They may de-prioritize areas with a less strong outlook.

    7. Contract Length and Churn Rate
      Q: Are you focusing on increasing contract length, and what's the churn rate?
      A: PTC will continue to move contracts to longer terms, with the average contract length hovering around 2 years. The churn rate continues to be low and steady.

    8. Operating Expenses and Investments
      Q: What are the areas of increased investment affecting OpEx?
      A: OpEx guidance remains unchanged. Incremental investments are directed into ALM, SaaS products like Windchill+, Creo+, and Atlas.

    9. China Business Performance
      Q: How did your business in China evolve during the quarter?
      A: PTC hasn't seen China be a drag on the business.

    10. Ansys Partnership and Synopsys Acquisition
      Q: How might Synopsys' proposed acquisition of Ansys affect your partnership?
      A: Ansys has been a good partner and will continue to be. If the deal goes through, there's zero overlap with Synopsys, which might create an opportunity for PTC.

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