Q1 2025 Earnings Summary
- PTC's transformative go-to-market changes, led by new CRO Rob Dahdah, are expected to drive sustainable low double-digit ARR growth, with early signs of progress and an energized team. The vertical realignment and focus on operational discipline are anticipated to bear fruit as they exit fiscal 2025 and enter 2026.
- PTC's differentiated strategy of integrating their PLM solutions (Windchill and Codebeamer) with their CAD tools (such as Creo) positions them favorably against competitors. By focusing on product data flow and real-time understanding across the enterprise, rather than competing in the manufacturing space, PTC is capitalizing on a unique market opportunity.
- PTC's active incorporation of AI across their product portfolio, including collaborations with major companies like Volkswagen and Microsoft, enhances product differentiation and customer value. The growing importance of AI is driving customers to invest in PTC's solutions to "get their digital house in order," positioning PTC to benefit from increased demand for their products.
- PTC is undergoing significant go-to-market organizational changes, including leadership restructuring and the implementation of a new vertical approach. While the company has made progress, these changes are expected to take time to bear fruit, potentially causing disruptions and impacting sales performance in the near term. The company anticipates hitting its stride only as it exits fiscal 2025.
- The company continues to experience a sluggish selling environment due to macroeconomic challenges, which is impacting close rates. Despite a bounce back in manufacturing PMI, PTC has not yet seen a predictable increase in close rates, indicating that macro conditions remain a headwind.
- PTC's net new Annual Recurring Revenue (ARR) growth is expected to be more back-half loaded than usual, with Q2 showing subseasonal growth and the go-to-market changes not hitting stride until Q4. This suggests that net new ARR may be slightly below expectations until later in the fiscal year, potentially indicating slower growth in the near term.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3% | The $565.13 million total revenue increase is driven by recurring revenue expansion, particularly in PLM, though license revenue faced headwinds from fewer large contract renewals in the Americas market. |
Americas Revenue | +4% | The $277.97 million Americas revenue gain stems from PLM and cloud services growth, offset by a lower volume of large contract renewals, reflecting some external market volatility. |
Asia Pacific Revenue | +6% | The $91.14 million Asia Pacific revenue growth is supported by strong demand for PLM solutions and ongoing digital transformation initiatives in the region, despite broader macroeconomic conditions. |
Net Income | +24% | Net income of $82.23 million benefited from improved cost efficiencies, higher-margin subscriptions, and disciplined expense management, resulting in stronger profitability compared to the prior period. |
Diluted EPS | +24% | Diluted EPS rose to $0.68 as a result of net income expansion and disciplined share repurchases that reduced the average share count; this reflects successful cost controls and margin improvements over the previous year. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
ARR | FY 2025 | 9% to 10% | 9% to 10% | no change |
Free Cash Flow | FY 2025 | $835M to $850M | $835M to $850M | no change |
Share Repurchases | FY 2025 | $300M | $300M | no change |
Debt Retirement | FY 2025 | $500M bond | $500M bond | no change |
ARR | Q2 2025 | no prior guidance | 9.5% | no prior guidance |
Free Cash Flow | Q2 2025 | no prior guidance | $270M | no prior guidance |
Share Repurchases | Q2 2025 | no prior guidance | $75M | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Go-to-market realignment and leadership changes | Mentioned as early efforts in Q2 , organizational flattening in Q3 , and new CRO hire plus restructuring in Q4. | Still a central theme in Q1, with near-term disruption but long-term execution benefits. | Continues to evolve, sentiment shifting from short-term friction to eventual gains. |
Challenging macroeconomic conditions | Sluggish close rates, longer sales cycles, and uncertainty consistently noted in Q2 , Q3 , and Q4. | Q1 commentary reaffirms difficult selling environment influencing ARR but slightly better than expected. | Remains a headwind, consistently integrated into guidance. |
PTC’s digital transformation strategy | Emphasized CAD, PLM, ALM, SLM, and SaaS cross-selling in Q2 , Q3 , and Q4. | Q1 highlights integrations (PLM+ALM, ServiceMax IoT) and digital thread focus for enterprise-wide value. | Core growth driver, continued push toward a full digital thread. |
AI initiatives | Limited Q2 reference (beta service co-pilot), no substantial Q3 or Q4 mention. | Major new push in Q1 with ServiceMax AI, Codebeamer AI, and centralized AI strategy. | Newly emphasized as a growth catalyst with key partnerships. |
ARR growth guidance and revisions | Q2 , Q3 , and Q4 all note concern over net new ARR timing. | Q1 reiterates 9%-10% growth and the need for $214M net new ARR at midpoint. | Ongoing caution about pacing; still a top focus. |
Large share repurchases | Approved $2B authorization in Q4. | Q1 indicates $75M repurchased and plan for $300M in FY25. | Less emphasis than Q4, though some activity continues. |
2D-to-3D modeling transition | Cited as boosting CAD growth in Q2. | No mention in Q1. | No longer referenced, suggesting less focus. |
Vertical market focus remains a core strategy | Discussed as important but uneven in Q2 and Q4. No direct Q3 mention. | Q1 highlights vertical alignment (industrial, FA&D, auto, med tech, electronics) but uneven multi-solution uptake. | Remains central, actual multi-solution adoption varies by industry. |
-
Go-to-Market Changes Impact
Q: How is the progress on go-to-market changes affecting growth?
A: PTC is making significant go-to-market changes to better serve customers and sustain low double-digit ARR growth over the medium term. They have verticalized their approach, brought in a new CRO, Rob, and are adding quota-carrying salespeople. While these foundational changes were laid in Q1, they expect momentum to build over the next few quarters, aiming to get the machinery running at its full potential. The company proactively accounted for any disruptions in their 9%-10% ARR growth guidance, which they are reiterating. -
ARR Growth Outlook
Q: Should we expect subseasonal ARR until you hit stride in Q4?
A: PTC acknowledges they have a back-half loaded year, which is typical for them. While not providing specific Q3 and Q4 guidance, they have a robust pipeline for the second half and feel confident about the size and quality of deals. They anticipate starting to hit their go-to-market stride by Q4, contributing to ARR growth as planned. -
Competitive Position in PLM
Q: How is PTC positioned amid competitors battling in PLM?
A: PTC is fully engaged in the competitive PLM arena and differentiates itself with a strategic focus on their Windchill and Codebeamer products. They emphasize extending PLM data to the manufacturing floor without entering deep manufacturing workflows, unlike competitors who are battling it out in manufacturing. They believe their approach sets them apart as they concentrate on product data moving through the enterprise. -
AI Investments and Products
Q: How are AI developments affecting customer decisions and budgets?
A: PTC sees AI encouraging customers to get their digital house in order, which benefits them. Customers need structured data to apply AI tools, and PTC's PLM solutions like Windchill and Codebeamer facilitate this. They are introducing AI capabilities across their product suite, starting with ServiceMax and Codebeamer, and are energized about adding AI functionalities to their already great products. This creates a necessity for customers to deploy PTC's solutions to gain AI benefits. -
Macro Conditions and Pipeline
Q: How are macro conditions impacting your outlook and pipeline?
A: While watching macro indicators like the PMI, which recently ticked above 50%, PTC focuses on their pipeline. They have a robust back-half pipeline with strong deals but note that the sales environment remains sluggish. They believe that improving macro conditions will lead to higher close rates on their solid pipeline, enhancing predictability and growth. -
Expanding PLM Deployments
Q: Is there opportunity to expand PLM within existing customers?
A: There is significant opportunity to expand PLM deployments across PTC's existing customer base. Many customers are at early or mid-stages of expanding PLM beyond core engineering teams into departments like quality, supply chain, and manufacturing. PTC is focusing on promoting enterprise PLM integrated with Codebeamer, which is a priority for driving growth. -
Net ARR Performance
Q: Was net ARR below expectations despite guidance?
A: PTC's net ARR performance was as expected and aligned with their guidance. They accounted for the sluggish sales environment and go-to-market changes in their forecasts. The channel had a strong quarter, and they came in close to internal targets. -
Segment Performance and Drag
Q: How are different business segments impacting growth?
A: PTC emphasizes that PLM has substantial room for growth, especially when integrated with Codebeamer. They are leveraging technologies from lower-growth segments like ThingWorx to enhance their core offerings, such as extending 3D digital work instructions beyond the shop floor. This approach augments core growth rates with better capabilities, offsetting drag from less performing segments.