Okay, awesome. Okay, great. All righty. Good morning, everyone. Welcome to day one of the Barclays Tech Conference. My name is Saket Kalia. I cover software here at Barclays. I'm honored to have between us here from PTC. We've got Neil Barua, CEO-elect. We also have Kevin Wrenn, Chief Product Officer there in the audience, as well as Matt Shimao, Head of Investor Relations.
Thanks so much for being with us here today. Great to be here.
So just to frame this discussion, we've got about 30 minutes together. Let's spend maybe the first 20 or 25 minutes with some fireside chat, right? And then I'd love to make this interactive. We've got a good group here in the room. If you've got any questions, just pop up your hand.
I think we've got a mic runner here, as well, for the benefit of the webcast. So maybe with all that, then, Neil, thanks so much. The first Barclays conference here, for you, hoping the first of many.
Many more.
Yes, absolutely. Absolutely. Maybe it's a good place to start, Neil. You know, for new investors in the audience, to PTC, maybe give us a little bit of a brief overview of PTC as you see it, and maybe how your role has expanded, in your time here.
Yeah, thanks for having me. This is one of the most incredible companies I've ever been part of. Honored to be the next CEO of PTC. Very simplistically, PTC, for everything important that is built around the world, our software allows those companies, industrial manufacturers, that we all rely upon, to design those products, engineer those products, bring them to life, move into manufacturing, and then ultimately, our software allows them to service those very critical pieces of equipment around the world. And we've been doing it for many decades. We're the leader in it, and much more opportunity ahead.
Yeah, absolutely. Talk a little bit about your role as well, and kind of how that's expanded, where you started at PTC, and of, of course, now in the incoming CEO position.
Yeah. So I, I was previously the CEO of ServiceMax, and fortunately, we have found the best home for ServiceMax within PTC. So I had the great fortune of not only bringing ServiceMax into PTC, but also learning about the culture, making myself more visible in Boston, learning the business. And over the course of just getting excited about PTC, as I did early in my tenure, as we closed the acquisition last year in January, or this year in January, I started really realizing I want to continue to build momentum in my career here, and the board, as well as Jim Heppelmann, who's done a phenomenal job building the company to where we are right now, has chosen me as the next CEO of the company.
Since July of this year to February fifteenth of this upcoming year, Jim and I have been working through a very good, thorough transition as I hit the ground running February fifteenth.
Yeah, absolutely. The word is you've been pounding the pavement out there with customers and employees, you know, and it's great to hear. Maybe we can think about your time before PTC, right to your point at ServiceMax. Tell us a little bit about your background and kind of how you got to ServiceMax.
Yeah. So, you know, for the last 10 years before PTC, I ran two Silver Lake-backed portfolio companies. So a lot of PE experience over the last 9+ years. Before that, I was at Global Crossing 8 years, directly reporting to John Legere, one of the most demanding and successful CEOs, I think, of all time. And so, you know, really built an operational rigor and part of, I think, between John as well as my experience with Silver Lake, what I'll bring to PTC, which we'll talk about, is really focusing on the things that matter the most to our customers, and then ultimately, how that accretes the free cash flow. And really thinking about that, which we'll talk about.
Yeah, absolutely. Can't wait to talk about that for sure. But maybe just to continue sort of building this foundation, you know, I want to talk about ServiceMax a little bit, right? Like, we got to meet a little bit, you know, kind of, kind of before PTC, and, and maybe this for the benefit of the group. Give us a brief overview of ServiceMax, what they did, and, and why you think it, it, it was a good fit for PTC to kind of join forces.
So ServiceMax actually is the leader in all the complex assets that are around the world. We call it an MRI machine that needs to actually get serviced, maintained, repaired by Philips Healthcare, a customer of ours, where technicians need to fix those critical assets by which our families can get, you know, serviced at a hospital. ServiceMax, for 10+ year, has built the technology by which Philips can have their technicians really understand what's happening to that MRI machine out in the field. That is the basis of ServiceMax, which now, it's interesting within PTC, that asset, which was actually designed and engineered in our other products at PTC with Creo and Windchill.
We now have ServiceMax and the asset system of record of what's actually been designed, engineered, and actually serviced in the field, to potentially flow back into the life cycle and the build of the new products that Philips might design to make their products more resilient, for us to have more uptime in those clinics.
Got it. So it really brings it full circle, by designing the product and then servicing it, sort of making that, I don't know if you can call it a design system of record, but also that asset system of record as well, to your point.
Yeah, I think you know this. Outside of becoming a public company, standalone ServiceMax, this is the absolute ideal home for ServiceMax. In fact, much better even than being a standalone company, given the complementary nature of the things that PTC has done with what ServiceMax brings to bear.
Yeah, absolutely. Hopefully, a lot of good cross-sell that we can be talking about as well soon. But again, maybe just to sort of put a bow on sort of this transition and a little bit of your background. You know, you talked about sort of pounding the pavement. I think you said you're making a trip to India here soon to celebrate PTC thirtieth anniversary in the country. But maybe just more broadly, talk to us about how the transition is going, you know, how you've been spending your time to make it a productive and smooth transition as, you know, and I think you said it was February that you take over as CEO, right?
So, maybe talk to us about sort of, you know, you know, how you and Jim have sort of been spending your time between, you know, in that time, in that transition period.
Planes, trains, and automobiles, and most of the offices around the world. We've just been visiting a number of employees. When we go to Romania, where we have 350 great employees of the company, we spend time with the customers there as well. Same in Munich, same will happen in India. We're going to Japan, Korea. Obviously, spending a lot of time in Boston at Seaport and across the country. So a lot of time really understanding what's happening with employees. I personally have been spending a lot of time doing skip-level meetings, really hearing directly what's happening with the company and what we can improve going forward. Same goes with customers. I've met with some of our top customers. It's a nonstop alignment with customers, having Jim do the handoffs for me around those relationships, done extremely well.
Learning about what we do for these customers, learning all the great potential that we have to do even more for them, and building that tie of really thinking about the next stage of PTC and the evolution of already what you have seen, great momentum, but there's so much more to go. And so customers, employees, and quite frankly, I've been spending time with a number of shareholders, of recent new shareholders, really interested in the company, really thinking about how do we actually articulate the story? How can I talk about the durable growth that we're seeing, and how do we actually give the convincing piece of everything I'm seeing internally, customers, how does that translate to shareholders as well?
Yeah, sure. On that point, Neil, right, as you, as you've kind of gone out there and met so many employees and customers, I mean, what sort of excites you, you know, as you get to know this business more and more? Of course, there's still more to do, but in this sort of short time that you've started this transition, what have you learned about the business? What excites you about it?
The stage and the level of digitization at the world's leading companies that, again, create, build, service, the most complex products out in the world that we all rely upon. Where they are in this digitization, it feels so early, right? Number 1. So, like, as far as the eye can see, how do we use software to actually help them be more efficient, more effective, more competitive? We'll talk about those themes. I'm blown away by where they are at the state of their digitization. I'm equally blown away about how they're now moving at pace to digitize. You know, you read the newspaper, and you think the macro environment, you read the PMIs, and when I see customers, it's dislocated from.
They are now squarely focused on: "We need to digitize to make sure we're actually relevant in the next three, five, 10 years." Quite frankly, a small anecdote, I'm also seeing a changing of guard with some of the largest industrial companies that have been around for hundreds of years.
Hmm.
Where people that look like me are now taking charge and thinking about digital strategies to, like, really be competitive. So that's Number 1. Number 2, really importantly, the product capabilities off the shelf at PTC, this is truly a great testament to the work that's been done, the vision of the company so far. It's off the truck. We have what these companies are needing to digitize their businesses. So great end market, kind of alignment on what's happening, far, as far as the eye can see, and we're squarely paced in capabilities that actually address those needs that they have to actually be relevant. So two combined, that's what excites me the most. And third, probably the most important, I've met a lot of employees, meeting a lot more, as you mentioned, going to India this Sunday. We have 2,000+ employees.
The employees of this company, top down, are phenomenal. Nothing like I've seen before have real deep customer relationships, great caliber of understanding the product, and I'll tell you, an excitement like you know, it's palpable around the next stage of the journey of PTC.
Yeah, absolutely. You know, one of the things you didn't mention in your background, but I think is really interesting, is just the time that you spent, you know, working with with private equity, right? And just so much of the financial background that you bring, that you bring to also the business acumen. And one of the things that you talked about, I think, and maybe I'm not using the exact words, but you talked about sort of maybe a more metrics-driven approach or an ROI-based approach. Talk to us a little bit about that and how you think about that at PTC.
Yeah, I, I'm never gonna run a company off a model. That's inappropriate. However, the discipline on what matters most is something that I'm indoctrinating into the go-forward way in which we operate as a management team. Putting together management systems, where we're looking at each one of our product categories and really thinking about how do they actually return value to customers, and then how does that accrete to our Free Cash Flow, right?
That just discipline of just thinking about it in that manner allows us now, with the stability of this cash flow, right. We have really good stability of the cash flow. It allows us to put more wood behind the arrows that actually have high ROI, and at the same time be very disciplined on those areas that might sound good, might make a good marketing message, but underneath it might not have tremendous customer value, might not be differentiated versus customers. In those areas, we're gonna put more wood behind the arrows of those that return more ROI, and those ones that are lower ROI. You better make sure you prove the product category, why we should be investing more. It'll be a very unemotional view of running a company.
Yeah, absolutely. I think that's really thoughtful, and I wanna build on that point for a second. Like, what are. I mean, do we have any sort of what those areas might be that are higher ROI, where you want to put a little bit more wood behind the arrow, and conversely, maybe some areas where, you know, we want to balance sort of the resource allocation?
. Yes, so I, I want to be clear, my hands are firmly on the steering wheel. Jim has done a great job transitioning the business. He's really letting me run the business at this current time, and it's been great. So not only is it a learning tour, I now have opinion, and we had our first executive offsite last week. We set the priorities of the company, which relate to this element of where do we put more on the arrow? Those four categories are the following: One is Windchill, our flagship PLM product that's out there. We believe the expansion of PLM Windchill among our existing customers is just, again, a very huge opportunity that's already even happening, but we're gonna be very programmatic around how we're gonna expand Windchill across the enterprise, beyond core engineering.
So product Number 1, do what we've been doing, but accelerate it, because we're seeing the themes play out, and we're gonna align the organization around making sure that that happens extremely well, consistently and durably for multiple years. Number 2 is we've caught the tiger by the tail on ALM, a product called Codebeamer. Simplify this, the automotive industry, compliance-heavy industries like automotive, med tech, oil, space, defense, energy, in some cases, are building software that integrates with hardware. And Codebeamer is at the epicenter of making sure software releases are done with traceability and done in a compliant manner. We're really pushing on ALM because we see something very interesting developing in a space that's just growing at a pretty rapid pace, and we're at the epicenter of it. Three is ServiceMax, and this relates to cross-sell.
ServiceMax is at one of the most perfect solutions to cross-sell. As you asked before, we had 300 or so customers with ServiceMax. We have now identified 3,000 similar type customers within already a PTC relationship that should be buying ServiceMax licenses.
Well.
So we're putting the structure of cross-sell of ServiceMax into all of PTC and really making sure that machinery is done consistently, obviously getting more accretion on growth from ServiceMax and free cash flow, but making sure the cross-sell motion, we really make rigorous going forward. And lastly, we're continuing to invest in our SaaS transition, and we've got a lot of work, progress being made on that, and it's a multi-year, I said, 10+ year journey that we're ahead of, but we're excited about the opportunity there as well.
Got it. I think those four points are super important, right? We said PLM, we said, we said ALM, we said, SaaS, and what's the fourth one? And ServiceMax.
Yep.
Of course, right? I want to dig into some of those a little bit deeper. I want to start with the PLM part of the business. I mean, you know, I've covered the stock for years and years, and PLM has always been around, but boy, it seems like there's such a renaissance in PLM. Can we just go a little deeper into that PLM expansion? You know, I mean, maybe just for the benefit of everybody in the audience, what is PLM? Why is PTC excited about it?
Yeah, so at a very high level, products get designed on Creo, a CAD system, and there's only three real CAD systems, or one of them. That is important to then move to a 3D model that works to make that 3D model actually live, right? Before it gets manufactured. So PLM Windchill, which is our flagship PLM offering, allows that design to now have all the components, the configuration management, the parts, the supply chain, the, what we call the engineering bill of materials, to be comprehensively then sent to the manufacturing facility, right? And what's happened there is within Windchill, the complexity of products, multiple platforms that companies are needing to have, multiple manufacturing facilities, multiple supply chain risk mitigants that they have. All those things play into needing a comprehensive product lifecycle management tool like Windchill.
Part of this, as some people call the renaissance of PLM, is because the complexity for customers has increased. Hardware aligning with software together for a product release is a really difficult thing, and so you need sophisticated products. PLM is the epicenter of that. We're the leader. Like, there's very few that can match the strength, capabilities, and referenceability of Windchill. So that's what's causing it, and that's why, as far as the eye can see, companies need to stay relevant by their building of these products that are more complex across very difficult and complex supply chain, and a wage environment that's actually increasing. So they need to think about effectiveness and quality, and that's why Windchill is so effective here.
Yeah, yeah, absolutely. Maybe, maybe we can ask the exact same question just on ALM, you know, application lifecycle management, Codebeamer. I think there's pure-systems that we added to that as well. Talk to us, just maybe a quick intro, kind of what ALM kind of means to you and why it's such an exciting area. I mean, I think we've had. I think it was a deal that you worked on as well with Volkswagen. Really interesting activity happening here with Codebeamer. Talk to us about the ALM strategy public.
So automotive, as everyone I think knows, needs software to be relevant, to actually sell cars. Software is such a big component now of any car that we buy, and Volkswagen, as an example, across all their brands, is making sure their software releases, whether it be the autonomous driving release or how the, when you press a button on the screen for seat heating, that's software, right? And so all the alignment of hardware design, which we've done, which every one of the companies are very advanced in, all the brands around the world, now need the same sort of expertise, the same sort of diligence on how software is built in alignment with the hardware that's of the car. That's why Codebeamer has such a strength, because it is the only tool out there that allows software developers.
To have a traceability in an agile environment, to actually understand before we release an autonomous driving software update over the air to a BMW car or to a Codebeamer, make sure that it actually is the right move. Think about the importance of it. Think. That's why we're getting pulled on. We are racing to deploy Codebeamer because we need that rigor that we had for hundreds of years to build a BMW car. We now need it for the software part of the BMW car or the Porsche car. That's what's causing the real uptick in demand that we're seeing in ALM.
Yeah, absolutely. I mean, when you go into an account and sell a Codebeamer, are you displacing something, or what does the competitive backdrop there look like for Codebeamer? Out of curiosity, high level.
Yeah, this is a share, initially a share displacement. There's an entire product out there. I won't name who it is. It is what it is, because we're, it's rearview mirror for us, but there's a company that has not focused on Codebeamer. We're taking advantage of them. Scale, enterprise ready, feature-rich, works in an agile platform. It's differentiated product offering in ALM, and we're off to the races on that piece of it. But what's happening, Saket, is that the use cases are expanding. As software becomes more and more critical part of product companies, how they build hardware, how to live the software, it's becoming more critical to all industries. Think about it.
Yeah.
Anything we buy is now embedded software. Medical device companies, you know, you ship, a medical device equipment out there, it's not just a piece of equipment, it's the software that's actually the strength. Alcon is one of them, right?
Yeah.
A big customer of ours. Ophthalmology expertise, software is with 80% of the value that they ship in the hardware to the clinic that checks their eyes.
Got it.
Become very relevant.
Got it. Maybe some other verticals that we could hear about with Codebeamer besides auto as well?
Yeah. I think that's the promise over the next few years. I mean, it will take time. It might come faster than what we predict, given what I'm seeing, but we're being methodical around it. We're investing behind this, and we feel it's a real right for us to win in this space.
Yeah, absolutely. Maybe somewhat related, but a bit more broader, you know, cross-sell seems like an important, important priority for you, whether that's ServiceMax, whether that's Codebeamer, and the rest of the portfolio. Where do you see some of the biggest opportunities here for cross-sell?
Yeah. First of all, like, one of the other really great things about the company is through organic growth, but it's also inorganic, which the company has done a decent amount over the last number of years. We have most of the customer relationships already in all of industrial manufacturing. Like, someone is using, in all the top companies, some part of PTC. So we don't. You know, we have a cross-sell motion that is already happened. It's happening, right? It's been a good part of the growth that we've seen over the last number of years. What I think going forward is we just want to institutionalize the way in which we do that, and that relates to: How do you set up account plans? How do you do territory management? How do you think about account-based marketing?
And it's more the discipline around very precise ways in which we cross-sell. That's point Number 1. We've already been doing it, it's just we're going back to the gym to do it even better in a more precise, consistent manner. The areas that we feel, again, like I'm mentioning, ServiceMax is top of the list right now in terms of being able to cross-sell into an existing PTC account. Just because it's, it's a really tangible ROI, the product supports at scale. ServiceMax, most of the great employees of ServiceMax continued on with PTC, so we've got a body of knowledge at scale being able to support the PTC sellers to actually implement ServiceMax. So that's Number 1. That's why we're pushing hard on that. We see the opportunity there.
A lot of great targets, too, that you.
A lot of great targets, Saket. And then too, Codebeamer, right? This is, this is something. Again, it's not like we're walking in brand new into accounts. Some we are, by the way, and I'll talk a bit about that. But a lot of these are relationships that use Windchill, and we say, "Wait a second. We use hardware configuration management, product lifecycle management using Windchill. That's for hardware, but now we got software needing to be embedded." Guess what? Codebeamer with Windchill is an ideal, you know.
Mm
Marriage that allows the customer to see integrated value, through the two, two actually working together well, and we're working to that.
Yeah, absolutely. Let's talk about this sort of fourth and last pillar that you talked about, which is the SaaS transition, right? I mean, you know, I think you've come out with SaaS for multiple products here, right? Whether it's Creo+, whether it's Windchill+. You also have some other native SaaS products in the portfolio as well, like Onshape . And it sounds like there is some revenue uplift, right? When an on-prem customer converts to a plus version. Maybe you could just talk to us about how you think about this SaaS transition.
So I, I'm like, hopefully, many others believe that, at one point, there's an inevitability that all enterprise systems being SaaS, over time, right? Other than maybe 10%-20% of our base that does very, you know, the A&D space in particular, might never go to, to SaaS, right? Given the complexity and the criticality of what governments do or defense companies do, that we help them build. So, but the broad base of our, our customer base will go to SaaS. I think what I've been saying is that we are going to work through the journey to get to SaaS. We're not going to be adamant that you have to flip to SaaS immediately just to get a price uplift.
We will get that price uplift, but the philosophy of the company moving forward will be, let's make sure we do it hand in hand with our customers. Go through the journey with them, refine the technology as we learn with our great customers that are going through this journey already with us, keep making sure it's scalable, and keep making sure the customer experience is really good at the back end. Because my philosophy is, when you do that, particularly Windchill+ , the dam will break, but I don't want to break the dam on our side. I want the customers to actually do that for us, right?
Right, right.
At the same time, to be clear, because we're seeing such strong durable growth on our existing Windchill product, apps with the SaaS plus strategy, there's a value that we're getting already, 16% growth in Windchill, as we disclosed, right?
Sure.
That's no SaaS.
Yep.
Predominantly. But we see that, and we have now the ability to do this the right way on the transition for our customers to go to SaaS. When they want, we're ready for it and do it thoughtfully. Creo+, on the flip side, could happen faster.
Mm-hmm.
Creo+ is a less heavy, customized enterprise system. In our customer base, we're seeing. We launched it back in May of this year. We're seeing traction there. So, you know, maybe to summarize this, I think on the SaaS transformation, I said it's a 10+ year journey. It could happen sooner, but I want to be clear, we're going to do it very thoughtfully and make sure we do this hand in hand with our customers. We're going to get the price uplift. We are actually, you know, we're not going to lose to a competitor. Our renewal rates are extremely strong. We're going to do it the smart way.
Yeah, absolutely. We've got about five minutes left. I want to shift to some strategic financial questions here, but maybe before we do that, any questions here from the audience? Neil, maybe.
I wonder.
Please.
It's more around. So we're already made progress there, to be clear. It's just our hypothesis it will, it's so accelerating in automotive that we can't even keep up with the demand. We believe it's going to turn into a medical space. And the real simplistic way to look at it is, software embedded in a medical device. I mean, if you go to any hospital clinic, you'll see that. And because of that, because it's a compliance rich environment, where the necessity of compliance is high, it's going to enable us to be very successful in Codebeamer. And just for what it's worth, 27 out of the top 30 med device companies in the world use PTC at a very substantial level. So we've got relationships there to get this, you know, into the.
There's already a foot in the door there, basically, right?
The Cross-sell motion is a lot easier.
I'm going to pivot to some financial questions here to sort of tie things together. So as we think about these four things, Neil, that we spoke about, sort of your priorities, how do you sort of fit together to drive growth? You know, what's a reasonable growth target for you, and what needs to happen for it to maybe be above or below? How do you think about sort of the flex factors in that growth rate, if you will?
Yeah. And as we all saw, right, we did 13% of organic ARR growth this past year. I believe that. And that's been in a difficult macro environment. And when we see macro, it's not around what I mentioned, the customer demand. That I could see it's happening. It's the way in which the approval processes happen at companies. That just takes longer than it did, like, three years ago, in my recollection, right? And so, you know, we do assume in the mid- and long-term ARR guidance, that there will be an easing up of this pressure on, like, the way in which approvals happen at companies. So a bit of a step up, if you call it, on macro, to get to the mid-teens growth rate, right?
Part of the thesis and what we're executing on is across these four priorities, right? Predominantly the first three, I could see with good execution a mid-teen growth rate. We're already doing 13%, and we could see some of these actions start to work. So mid-teens is kind of where, you know, feel good that we have the opportunity to get there. To punch up to high teens, we're going to need SaaS kicking in, or we're going to need an ALM bull case to come in, where, you know, just even the real strong growth, there's a potential it really blows the cover off the roof, right? So those two things might happen that allows us in the high teens.
I want to be crystal clear, the way we manage the business, the way I will be managing the business, which has actually been done really well over the last few years. In any ARR growth scenario, within the range that we've given, that Free Cash Flow, we have very good levers to make sure that that is a very solid, high confidence interval, Free Cash Flow guidance that we put out there, without starving the business at all.
Yeah, absolutely. Maybe that's a good topic to end on here in the last minute or so that we've got. But you know, as incoming CEO, you will also have a seat on the board. How are you and the board sort of thinking about capital allocation? Historically, been a very important part of PTC's investment case. Any thoughts on capital allocation as you think about it in the fall?
Yeah, I, you know, I take a lot of comfort in Kristian's advice here, with our advisors as well. I think I am 100% aligned with the view that we will be paying down debt this year. And then as the year kind of comes to an end, think about how buybacks occur. You know, thinking about free cash flow per share is really important to me, and so we'll be thinking through that. And, you know, while we're executing across the organic business, we'll be, you know, generating the cash that we indicated, and those will be the two capital allocation strategies we've got currently in place.
Excellent. Excellent. Well, I think that's about all the time that we have. Neil, thanks so much for the time.
Thank you.
Wish you luck through this transition. I really look forward to, you know, the next stage here for PTC.
I appreciate it. Thanks for having me.
Absolutely. Thanks.
Thanks.