Hello, everyone, and thank you for joining us today for PTC's fiscal 2021 Investor Day. My name is Tim Fox, and I'm the Senior Vice President of Investor Relations at PTC, and we look forward to spending the next few hours with you today. We have a great lineup of topics and speakers. The purpose of today's event is to share our perspective on exciting secular trends converging within today's industrial economy, our broad and differentiated solutions and how we're bringing these solutions to market, while delivering customer value and finally, how we're delivering strong financial performance and shareholder value. We're also pleased to have Craig Livingston, the CEO of Arena here with us today to provide you with an overview of the company and the momentum he's seeing in the market today.
From a logistics standpoint, we have a 10 minute break planned midway through the event to give you a chance to stretch your legs. And at the end of the day, we'll be hosting a moderated Q and A session starting around 12 Eastern. Jim and Christian will be available to answer your questions at that time. And you can submit your questions privately through today's event by e mailing the IR team at investor atptc.com. And now before I turn it over to Jim, let me share our Safe Harbor statement.
I won't read it through in detail, but to summarize, we'll be making forward looking statements during today's broadcast. 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 ks, Forms 10 Q and other filings with the U. S. Security and Exchange Commission. We'll also be referencing supplemental operating and non GAAP financial measures and targets.
The definitions of these items and reconciliations of non GAAP financial measures to comparable GAAP measures can be found on PTC's Investor Relations website in the posted version of this presentation. Unless otherwise noted, all references to growth rates will be in constant currency. Lastly, I want to stress that we are following the appropriate protocols to ensure the safety of the PTC team and production staff at our live event today. It may not at times look like it on the screen, but I can assure you that we're maintaining 6 foot distance from each other and of course, wearing masks when off screen. With that, let me hand it over to our President and Chief Executive Officer, Jim Heppelmann.
Jim?
Thanks, Tim, and welcome to all of our friends in the investment community who are tuning in remotely to this year's Investor Day. I hope you and your families remain safe and well. I'm pleased to say that we put together a great digital program that will bring to life our amazing technology, our strong and resilient business model and the impressive management team leading PTC into FY 'twenty 1, a year that is full of potential. As you probably saw, PTC announced the acquisition of Arena yesterday morning. This is a big acquisition for PTC, so I'd like to address that news upfront and then we'll weave it into our discussions of strategy and financials throughout the meeting as well.
As you've all seen over the past decade, PTC has completely reinvented our company, transforming from the low growth, low profit perpetual company we used to be to the high growth, high profit subscription company that we've become. Many have said this is one of the greatest turnaround stories in software. Key milestones along the way include multiple restructurings that increased our operating margin by 1700 basis points. That was followed by the business model transformation to subscription, the modernization of Pro Engineer into Creo and the development of a new high growth business in the adjacent markets of IoT and AR. Collectively, these strategies have added about 1,000 basis points to our growth rate.
Today, we're blessed with a high profit core business that's growing well above market rates and a growth business with number one positions in the high growth markets of IoT and AR. Our portfolio is counterbalanced with the high value FSG products that are in lower growth markets but provide strong cash generation. So everything sounds great, doesn't it? Well, yes, but we saw a growing vulnerability that could derail our success. But it was a vulnerability that if played right could be transformed into an even bigger opportunity.
I'm talking about disruption from SaaS. Let's be frank, the CAD and PLM industry that we participate in is 99% on premise today. It won't stay that way. In some cases, including here at PTC, the single tenant on premise software has been installed in the cloud and served back to the customer through a managed services model. That does add value, but we all realize that isn't really the same as SaaS.
It misses too many of the benefits. It's certainly not the approach Salesforce took. If there were a list of software markets that are primed for disruption by true multi tenant SaaS here as we enter 2021, the CAD and PLM market would be near the top of the list. The COVID pandemic removes all doubt that this disruption is coming as receptivity to SaaS has soared in our market over the past year. Some of you know that PTC was disrupted once before in the late '90s, largely by a Windows based CAD from SOLIDWORKS.
I joined PTC just as that was starting, and I can tell you it was not fun for me or for shareholders. I don't want that to happen again to PTC, certainly not on my watch. Knowing that the probability of a disruptive SaaS wave was growing, we set out to become the disruptor. Last year, we acquired the number 1 pure SaaS CAD platform with Onshape. When the Arena transaction closes in a month or so, we will have acquired the leading pure SaaS PLM platform.
That puts us in an unparalleled position to deliver exceptional industrial SaaS solutions to our customers. As we've demonstrated for years with IoT and AR, we don't give up leadership positions. And with these transactions or with these two transactions, we've once again solidified our leadership now with a complete CAD and PLM SaaS solution footprint. When the transaction closes, PTC will have a pure SaaS business across Onshape, Arena and Vuforia that's approaching 10% of our ARR, more than 20% of bookings and growing at a hyper growth rate. That's an impressive business by any measure.
Going forward in CAD and PLM, we'll have a 1 two punch with Creo and Windchill performing very well in the traditional market and Onshape and Arena out front pioneering the SaaS market. No matter the customer preference for SaaS or on premise, PTC has the best solution to offer. These offerings play in different parts of the market today. The lower half or SMB part of the CAD and PLM market is more ready for SaaS now, but it will take longer for the upper half of the market that Creo and Windchill serve to more fully embrace SaaS. Now we all know that death comes from below in software.
PTC will turn Onshape and Arena loose with a charter of unbridled SaaS innovation and watch them disrupt the SMB space where SOLIDWORKS and Autodesk live and work their way up market from there. Because Creo and Windchill are high end offerings, our pure SaaS strategy built on Onshape and Arena is effectively expanding our addressable market, allowing us to take share in the growthier part of the market where we haven't been participating previously. Over time, we expect that interest in moving to SaaS will grow in the larger accounts too. So in parallel, work is already underway to leverage the Atlas platform that we acquired with Onshape to create SaaS based versions of Creo and Windchill. But here, the main focus is to become as sassy as possible while maintaining upward compatibility so that we can bring that entire installed customer base forward just as Microsoft's done with Office 365.
When an installed customer moves from on premise to SaaS, the ARR run rate roughly doubles. So this strategy will prove to be another great growth driver for PTC over the long term. I'm very excited how this SaaS strategy has fallen into place, but here may be the best news. Because Arena already has some amount of scale and with it good profitability, this transaction will be accretive to ARR and neutral to free cash flow already in FY 'twenty one.
As we go forward, it
will be accretive to ARR and to free cash flow as we delever. In terms of our longer range views, this acquisition is only helpful. Bottom line, it's a great transaction for PTC. Okay, let's put the acquisition aside for a bit and get back to the main topic, which is how PTC is well positioned even before the acquisition to create shareholder value for years to come. To begin, I want to share that PTC recently unveiled our new purpose statement.
The same way our logo does an amazing job of telling the story of what we do, meaning help customers connect the physical and digital worlds, this new purpose statement does an amazing job of explaining why PTC matters to the world. PTC's purpose statement is the power to create. This simple statement brings forward a lot of meaning. For example, our employees have the power to create innovative technology solutions. With those technology solutions, our customers are given the power to create great products, new business models and double digit impact across their operations.
And by delivering that customer impact through our recurring revenue business model, PTC has the power to create long term shareholder value. Over to you, Tim.
Today, we'll focus on that power to create shareholder value. As we look to our fiscal 'twenty one and beyond, we see tremendous opportunity to create long term shareholder value with a 3 pillared value creation strategy. The first pillar is focusing on technology solutions that align with secular trends in the market to create a strong pipeline of demand. The second pillar is efficiently turning that pipeline into top line ARR growth. And the 3rd pillar is the operating discipline and recurring revenue business model that allows us to convert ARR into even higher levels of bottom line free cash flow.
We plan to use this framework as an agenda for today's meeting, with Jim leading the discussion on our alignment with market demand our new Chief Operating Officer, Troy Richardson, leading the discussion on top line ARR growth and our CFO, Christian Talbotia, leading the discussion about bottom line free cash flow growth. Back to you, Jim.
Thanks, Tim. Let's dive into the market demand topic. I'm going to act as an MC, pulling in various business leaders to discuss secular trends and then the performance of our different product lines. First, I'd like to call on Kathleen Mitford, our Chief Strategy Officer, to discuss the secular trends we see accelerating the adoption of digital technologies by industrial enterprises around the world. Kathleen?
Thanks, Tim. In many companies, digital has become the big hero that saved the day during the pandemic, leading many organizations to more deeply appreciate their need for digital transformation. Now that we have been forced into new ways of working, I don't believe we will ever go fully back to how it used to be. Instead, companies are forging ahead to a new digital enabled normal that will last long after COVID has passed. For industrial companies, the workplace, work methods and workforce are all changing because of digital.
Mastering this new reality could become an industrial company's greatest competitive advantage. Let's start by looking at the workforce. In most companies, baby boomers are now becoming a minority of the work force as millennials take over the majority and Gen Z begins to enter the picture. These workers are very different. They are digital natives and they have very different ideas about what digital means and how to use it.
While many older workers fight against change, these younger workers crave it. If they see a better digital solution, they embrace it quickly. A great example is unfolding in the CAD industry. Traditional professional CAD systems all run on high end Windows workstations, which frankly students simply don't have. They use Macbooks and Chromebooks and phones and tablets.
That's where Onshape comes in. Adoption of Onshape by schools and students has exploded. And for all these students exposed to the power and ease of SaaS based CAD, there is no turning back. The ability to free desk workers or students from their desk is just one of the 6 capabilities we now see as being key for thriving in the new normal. The others are frictionless agile supply chains, connecting products and factories, bringing digital to the front line, enhancing employees with AI and virtualizing everything with spatial computing.
Let's start on the topic of freeing desk workers, but switch from students to corporate knowledge workers such as engineers. We have heard from numerous CIOs at global manufacturers that while the bulk of their knowledge workers transitioned to work from home rather seamlessly, many said their engineering organizations really struggled. The big powerful workstation sitting on the engineer's desk at the office contains tremendous computing and graphics power, numerous different installed software applications and a lot of data. Many have unique hardware and software configurations. Switching to a different home device is not easily done and many engineers have been forced to use virtual desktop infrastructure to log into these powerful workstations from home, which is far from ideal.
The solution here is to apply that same SaaS approach that is now so widely accepted by students to the commercial world. Adoption of SaaS technology for product development finally and fully frees these workers from their existing limitations. Imagine no specific software installation being necessary for different designers, engineers or project managers to simultaneously collaborate on that same project files at the same time. Our Windchill software had a similar hero effect for broader enterprise users. Because our PLN has always been fully browser based, when workers were sent home, they went right back to work in their company's product development process using whatever device they had available there.
Many customers have thanked us profusely for helping them achieve a seamless transition to work from home. Working from home is great, but that is the tip of the iceberg here. These powerful new product development capabilities lay the foundation for an agile frictionless supply chain. By that, I mean the ability for partners on an impromptu basis to easily join forces to blend their ideas to design and manufacture new products. That is a very different approach than what we have all known.
Ask an automotive supplier how much they like having to maintain specific versions of different CAD and PLM systems to work in different OEM supply chains. It's a real pain because it takes a lot of time and effort to set up and maintain that infrastructure. Given the level of disruption of typical supply chains from natural disasters and then trade wars and now by the coronavirus pandemic, the ability to instantly collaborate without any infrastructure set up at all is a powerful capability to have. Let me share an example of how SaaS technology has lubricated supply chain processes. This example is one of impromptu innovation during an emergency response effort.
When COVID-nineteen hit, there was an urgent need for many more ventilators and much more personal protection equipment than was commercially available. Many organizations around the world started to think out of the box about how they might organize crowdsource teams to design and build ventilators with standard materials that were locally available. Several dozen of these newly formed teams reached out to PTC for help and our Onshape teams stepped up to provide an instant solution. The Francisco Gaviria University in El Salvador, in collaboration with the local companies, is one of the groups we engaged. Their initial ventilator prototype started within the university facilities.
This is the first design concept. As local industry partners joined the ad hoc team, their ideas and experience caused the design to quickly evolve further with many parts changing from 3 d printing to metal construction to accommodate the higher volume production. What this group of ad hoc collaborators produced here was amazing. This method of working together was forced by the pandemic, but nobody is going to forget the advantages for everyday business once it passes. If you are wondering if it could really be that easy for any product development organization to collaborate across an Agile supply chain, I say try it yourself right now.
Just open a modern web browser and type in ptc.com/respirator. In about 15 seconds, you will find yourself in a professional CAD system collaborating with the Francisco Gavidia team. Of course, you are in read only mode since they don't really want you to change the design. But the key takeaway is that nothing has to be downloaded or set up in advance and nothing is left behind when you are done. That's what I mean by frictionless.
The 3rd capability necessary to thrive in the new normal is remote monitoring for both products and factories, which has allowed companies to continue to optimize business operations despite work from home orders, travel bans, quarantine areas and limited staff. Beyond the needs of the pandemic, IoT enabled remote monitoring and remote service improves uptime in critical environments, saves massive technician labor and travel costs and provides new ways to transform the relationship with your customer. Let me explain that last point. The way companies manage customer relationships is being turned inside out. Rather than the historical practice of asking the customer to monitor the product they purchase from you and call if there is a problem, companies are now asking their products to supply a steady stream of telemetry data to help them better understand their customer and anticipate needs and problems.
ESAB, part of the Colfax company, is a U. S.-based manufacturer of welding equipment and machinery and a PTC customer who has enabled this kind of transformation with their products. The welder you see here is one of ESAB's arc welding products typically found in the field at construction sites or in factories. It looks normal, but you see a WeldCloud logo on it. ESAB's WeldCloud IoT solution, powered by PTC ThingWorx running on Microsoft Azure enables automated capture and reporting of weld session information, ensuring the highly skilled welder stays focused on welding rather than on documentation.
WeldCloud provides ESAB with valuable data to get a better understanding of how their products are being used in the field, enabling them to provide better service to their customers. By connecting their products, ESAB has been able to rethink their business and service model by leveraging real time visibility into usage, performance and compliance data and serving much of the same data back to the customer. And they can do it all from home. It is great to monitor and optimize equipment remotely. But what about all of those workers who use it, like the professional welders and the millions of other workers on their front lines.
Their need is very different. For 70 5% of the global workforce, work involves interacting with and operating out in the real world. Front line workers can't work from home because their work is in the physical world.
You
can't assemble an automobile from home and you can't make a field service call from home. Knowledge workers do well at home because we have tools like Zoom and Teams for real time collaboration and PDF and web for publishing knowledge and YouTube for capturing and sharing how to knowledge. While knowledge workers marvel at the power of digital, frontline workers say, I sure wish digital would do something for me. But now there is a new approach with augmented reality that provides the frontline workers equivalent of those digital tools. Behind PTC's Vuforia AR suite is powerful AI driven computer vision technology that allows a hollow lens, tablet or phone to see and recognize the real world and decorate it with valuable digital information.
For example, to show the inspection steps on the engine, we used a deep learning approach that trained against the matching CAD configuration to create the neural network that ran on the HoloLens, so the HoloLens knew precisely what it was looking for and how to accurately place and scale all of the information. This is cool stuff. But AI can also be applied to many different product development work methods. AI can help an engineer make better designs, for example. Using AI driven generative design capabilities, an engineer can quickly evaluate dozens or hundreds of computer generated design options, each specifically optimized for different materials and manufacturing methods.
At Volvo, there is a constant goal to remove weight from the truck. So Volvo leveraged generative design within their CAD tool to see if they could come up with a better design to reduce the weight of components such as the heavy engine mount bracket without compromising its structural performance. AI driven generative design helped the engineer create this somewhat radical looking design whose weight is reduced by 75%, yet it meets all design requirements. In the course of my discussion, I've talked about PTC's amazing technologies and how they enable the new nature of work going forward. What if we took these ideas like 3 d and SaaS and IoT and AR and AI and put them all together into one big cohesive strategy.
If we did that, we could virtualize an entire work site including all of the assets and workers and processes that it contains. Not virtual reality like in some make believe video game, but a captured and virtualized copy of true reality that you could enter and explore from the comfort of your home office. This concept is what we call spatial computing, which is a powerful new idea unleashed by our Vuforia spatial toolbox software. With this concept of spatial computing, we can digitize the entire process of a frontline work setting such as a factory. Then we can leverage AI again to perform spatial analytics to analyze movement patterns, how much time is spent at each specific workstation and task and so forth.
With this data, we can apply the scientific management principles of Frederick Taylor in a broad and continuous way. As you probably know, you can improve what you can't measure. Under normal circumstances, this stuff is hard to measure. But suddenly, we are measuring the 4 Ps of how products and people work together in processes that happen in places, and able to easily find bottlenecks and pursue opportunities to optimize. That completes my overview of PTC technologies that will help change the workforce, work methods and workplaces of tomorrow, thanks to key capabilities such as freeing desk workers to collaborate from any device, anywhere and with anyone in your ecosystem, enabling an agile supply chain to promote collaboration with anybody who has good ideas without the massive friction we are used to, connecting products and factories to drive operational efficiencies and transform customer relationships bringing the augmented reality version of the digital tools we enjoy as desk workers to the frontline workforce, enhancing our employees with the power of AI to optimize their work methods and designs and embracing spatial computing to improve performance across all of the dimensions of equipment, workers, process and space.
Now let me hand it back to Jim.
Thanks, Kathleen. That's very exciting stuff. Once again, necessity has proven to be the mother of invention. The COVID pandemic forced us all to try new digital approaches. It opened our eyes and we liked what we saw.
Like a step function, the speed of digital innovation has never been faster. 5 years of digital innovation happened in the last 9 months simply because of necessity. These demand drivers are accelerating the adoption of digital technologies across industrial enterprises around the world, and PTC is poised to capitalize on this acceleration to drive both top line growth and bottom line margins. Let's continue into the portfolio discussion and given the acquisition news, I think it makes sense to start with the SaaS part of our portfolio. First, we're going to hear from John Hirschtick, who created and has been driving PTC's overall SaaS strategy.
As you know, John was one of the cofounders of Onshape and he was the founder of SOLIDWORKS before that. John is a legend in the CAD industry, and I'm very glad to have him on my team. His technology is simply awesome. With that, let me turn it over to John.
Thank you, Jim. 1 year ago, I stood right here at Investor Day and PTC had just acquired Onshape. On that day a year ago, we were all really excited about what Onshape joining PTC could mean to the success of Onshape and the success of PTC overall. Now we were optimistic, but still nobody ever really knows what an acquisition will be like or how it will really go. Today, as we celebrate our first anniversary of Onshape being part of PTC, I'm really happy to tell you that it's gone better than we could have imagined.
And we just launched a new Onshape logo designed to fit in the PTC family of logos. So we're really proud to be part of the family now logo wise too. I'm excited to share today how we've succeeded and even expanded our Onshape story as part of PTC. I'm going to show you Onshape and how it's the only full SaaS solution in our industry. We'll talk about how the world's changing and driving the success that we're having in both the commercial and the academic markets.
I'll introduce you to one of our thousands of commercial Onshape customers and give you a chance to hear from a U. S. University who switched to Onshape. And we'll share our plans for what's coming with Onshape in 2021. Now first, let's take a look at a demo of Onshape.
You've all seen CAD demos before, but you've never seen one like this because every other demo you've ever seen had software demo. Everything you're seeing here is happening in a web browser. Onshape is the only full SaaS platform in our industry. Our competitors say they have SaaS, but what they have is merely hybrid SaaS or cloud washed. It's part cloud, part traditional installed software with file copies and so forth.
These approaches do not deliver the full benefits of SaaS, only Onshape does that. And it's not just in browsers, iPads, iPhones, Android phones, tablets. Here you are seeing real CAD editing of a car mirror right on an iPad. Onshape is the only system that provides this. This mirror is part of a complete electric car from Onshape user EGO Mobile in Germany.
Yes, Onshape has a lot of CAD power and features, but it's not just CAD, it's user admin, data management and many of the other tools you saw a moment ago. Ego wants their franchisees to be able to customize the Ego car and that's where Onshape comes in because where Onshape really shines is collaboration with a whole bunch of new generation collaboration features that are only possible on a full SaaS platform, simultaneous real time collaboration. On 2 different types of devices working simultaneously on the same parts and even the same assembly at the same time. It's incredible, really. No checkout, no copies, no locking, lets them work faster and better than they ever could before.
Collaboration Onshape, it's not a tool or mode that you go into. It's woven into the fabric of our platform. Users have presence in the system. You see others in the work they are doing all the time. Collaboration cues show you who else is working right now.
You see those cues at the top of the Onshape window, on the tabs at the bottom, in the feature manager and comments all over the place. All these features work together to make teams incredibly more collaborative. And in 2020, as many of you know, we announced the PTC Atlas platform. The core of Atlas is the Onshape platform, and that means that many of the exciting features I've just shown you that are in Onshape you've just seen in this demo, these are being leveraged into other products from the other PTC brands, Vuforia, Creo generative design extension, windshield visualization service. You'll hear a lot more about Atlas in a few minutes from our CTO, Steve Dertin.
Now 2020, it was a great year for Onshape. We had over 700 competitive logo displacements in 2020. That's 700 companies that chose Onshape over their existing CAD and data management systems, most typically my former company, SOLIDWORKS and PDM Pro. Our customer companies range from small one seat customers all the way up to larger companies with 100 of 1,000 of dollars in Onshape ARR. In Q4 of 2020, Onshape's new ACV, our new sales grew 82% versus Q4 of 'nineteen.
The number up here that we are most proud of is our NPS score, which is consistently in the 40s, a better number than perhaps anyone in our industry. NPS or Net Promoter Score, it's one indicator of overall customer satisfaction and success. Our strong NPS score tells us that we're not just selling Onshape, but we're making our customers successful and happy. And in the education market, 330% Q4 growth in sign ups. As Kathleen said, all the trends favor us now in education.
We also have 0 scheduled downtime ever. The power of full SaaS pays off again with reliability that's unheard of in the rest of our industry where you typically have crashes almost daily. We crossed 15,000,000 hours of total usage and 16 major product releases last year. Now, but the greatest success we have, not those things, the greatest success is seeing our Onshape customers design awesome products better and faster than they could ever do with other systems. They understand that Onshape, it's not just different software, but a platform to improve how their teams get work done, improve their processes, improve their businesses.
Now here to tell you their story directly is one of our Onshape customers, Matthew Wilson of Google. Now we all know Google knows a thing or 2 about what a real cloud solution is, a real SaaS solution is, and Google actually designs a lot of hardware too.
Focus on the user and all else will follow. As a user of Onshape, I feel like the designers of the software were thinking along the very same lines when they set out to build the product. I spend much of my time designing and often fabricating a wide variety of objects for my team and others around me from simple fixtures to prototype hardware all the way through to end user products. Onshape enables me to provide my team with creative solutions, both big and small. Some projects take months to complete, while others are done in an afternoon.
I need a tool that can handle either elegantly. I want my tools to work for me, not the other way around. My work often requires me to design parts to connect or otherwise fixture a wide variety of objects. Onshape's in context editing feature gives me a safe and controlled way to design around an assembly of parts. Top down or bottom up, Onshape lets me design the way I want to.
If there's an important lesson that I've learned by being a mechanical engineer, it's that not everyone can see what I see when I describe an object in words. It needs to at least be a picture, if not a physical object. For me, Onshape has become as much a tool for communication as it is for design. As Onshape is cloud based, I can share the mechanical designs directly with the team rather than e mailing files and screenshots around. That way, everyone always has the latest version and no one needs to install anything on their computer to be able to view design data.
It's always exciting to see that little message pop up about a new release of Onshape, to see what features have been added. I'm really looking forward to seeing where the Atlas platform and Onshape go.
As you can see, Google is a great example of a really modern tech company that's thinking in new ways and using Onshape to improve how they work. Now another thing we're really excited about is Onshape's incredible growth in education this year at colleges, high schools, robotics teams and more. The COVID driven need to teach remotely requires both strong collaboration tools and the ability to run on all the types of computers that schools and families already have, particularly iPads and Chromebooks. As a result, Onshape education use has truly reached a tipping point and is skyrocketing, 330% recent growth approaching 1,000,000 users worldwide. Most of these are Onshape displacements of competitive systems.
Now our education standard product that's free and will continue to be free, but we recently added a new forcharge product, Education Enterprise that has advanced features for provisioning and teaching. It's been very well received in the academic market and will begin to contribute to our ARR soon. When the legendary First Robotics competition had their season canceled due to COVID, Onshape stepped in with a virtual design competition we called Robots to the Rescue. It was a huge success with 1st student teams submitting hundreds of robot designs to solve all sorts of compelling problems, identifying repairing potholes, decontaminating medical equipment with UV light, replenishing animal bedding to prevent disease spread and more. One of the thousands of schools that have recently adopted Onshape is the University of Colorado Boulder.
It's one of the top ranked engineering colleges in the United States. Mo Woods, from their integrated teaching and learning program, is here to tell you more.
The installation process of anything that's hosted locally on your own machine is just a pain.
Having to
go through it with 30 students at a time, forget about it. We have to make sure that all of the computers are the same. We have to make sure that everybody's system is running properly and that we're on the same version. If somebody doesn't have the ability to get their hands on a machine, especially when we're remote like this, then it becomes this unfair disadvantage. Onshape gives us this flexibility, being able to share instantly, being able to simultaneously edit.
And in their group projects, they can use it to their advantage to make their design optimized and their design process optimized. Plus, it's the interaction between the instructor and them as well as it made much easier through that. The ease of being able to log in and just be there on Wi Fi, on whatever is huge. It turns it into the Google Drive of CAD that we are all familiar with. There's no teaching the file structure and the dashboard and all that stuff.
It's just there and students know what to
do.
Onshape's success in education has been a big win for students and for teachers. We're so proud to be doing something good for the world at a time where the world can really use it. So as we look to Onshape in 2021, we have a really exciting year ahead. Product wise, we're going to continue to expand our lead in full SaaS in both depth and breadth. In terms of depth, we'll continue the high pace of enhancement we have established in all the core areas of Onshape, modeling, data management, collaboration, etcetera.
In terms of breadth, we will expand in exciting new areas like generative design, simulation and more. Another key area for 2021, sales growth. 2 highlights, increasing our cross sell with PTC sales teams and expanding our sales coverage with personnel and language support in more and more countries outside the U. S. We'll also be monetizing our academic success, low price point, but high volume that will add up.
And finally, we are investing in maintaining and expanding our market leading customer success because that's what it's all about. We've had a great first year for Onshape at PTC and we have an exciting second year ahead of us. That second year just got even more exciting with the Arena announcement. And I want to extend my personal welcome to Craig Livingston and all of his Arena colleagues. We're super excited to have another full SaaS product join the family here at PTC.
I also want to say a huge thank you to Jim and all of my PTC colleagues. They've all been wonderful in welcoming us and working with us to build Onshape and Atlas. I also want to thank my Onshape teammates and most of all, a big thank you to Matthew Wilson of Google, Mo Woods of the University of Colorado and hundreds of thousands of other Onshape users worldwide. And now back to Jim.
That's great. Thanks, John. I trust our investors can see why we're so excited to have Onshape as part of the PTC family and why that acquisition has been so important. To draft off John's sentiment about the tipping point, we at PTC had concluded even before the pandemic that SaaS software would disrupt its way into the mainstream of the engineering software market. But now the push towards SaaS has been catalyzed over the last 9 months of work from home.
PTC is in the enviable position of having the only full cloud, full SaaS platform in our industry and momentum is building as we continue to expand Onshape's capabilities and global distribution. Now that you know about Onshape, I want to bring Arena back into the conversation. To help you understand how Arena and Onshape fit together, let's take a look at a common market texture diagram that's been drawn on literally thousands of whiteboards over the years. Most people in the industry think of 3 layers of traditional CAD, PDM and PLM working together. CAD, of course, is 3 d authoring and in most cases, this means reading and writing configurations of data files, each representing different parts in an assembly, for instance.
In many cases, a CAD session downloads and opens dozens or hundreds of files. PDM or product data management is normally thought of the engine that downloads and manages those different versions of work in process files as a team of CAD users interacts with and edits the design. For example, if I have a 5 part assembly on my screen and my colleague edits 1 of the parts on her workstation, I want to be notified that my copy is now out of date so I can get that modified part refreshed back into my session to ensure I'm designing against the latest and greatest interfaces. And if I want to modify a part myself, I have to check out the file to ensure nobody else is also trying to modify it while I am or one of us will clobber the changes the others made when we check it back in. PLM or product lifecycle management is more of a database based business application.
It's concerned about the requirements of the design, the bill of material that may include software and other types of parts, how the product could be configured different ways for each unique serial number and if and when changes should be incorporated into these different configurations and so forth. Ideally, these three layers all work well together, and over the years, PTC has mastered cross sell across the different layers. When I started the Windchill Company many years ago, we first created the PLM application layer. After PTC acquired Windchill, we developed the PDM layer to connect Windchill to Creo and with that in place, the cross selling took off. Of course, Windchill PDM capabilities can also manage data from other applications such as CATIA, ECAD applications and so forth to help companies manage the entire product configuration across a diversity of authoring tools.
Now the Onshape team took a novel approach that leveraged new possibilities unique to SaaS. Onshape is a highly collaborative multi user application, but it does not use files. Every user is transacting against data in a common database in the cloud. There's no need for uploading or downloading files or check-in and check out or any of that stuff, which makes collaboration powerful, easy and real time. As John has said and as the examples from First and Francisco Gavittia University demonstrated, Onshape's innovation is as much in the PDM layer as it is in the CAD layer.
Now what Arena did is innovate within the PLM layer, so it's nearly 100% complementary to Onshape. And with the combination of Onshape and Arena, we have replicated the same solution footprint we have with Creo and Windchill in the traditional world, though the divisional labor is a little different owing to new innovation possibilities in the SaaS world. So with that backdrop, let me introduce Craig Livingston, the CEO of Arena, who's going to tell you a little bit more about Arena. Craig?
Well, thanks, Jim. While we only just announced our definitive agreement yesterday, I can already tell how important this deal is going to be to our 2 companies and to the markets we serve. We couldn't be more pleased to be joining forces with PTC to accelerate the tipping point of PLM and CAD to SaaS. I'm grateful for the opportunity to take a few minutes to share with you the Arena story. If you don't know us, it's fair to say we were the first to see that engineers and product developers would benefit from a new paradigm in the way they collaborate and drive product innovation.
Back in 2000, Arena was formed to serve that need and develop the first true SaaS PLM offering from the ground up. Quite honestly, we were ahead of the market in the early days. However, in the past several years, we've seen an incredible acceleration of market receptivity and demand. Today, we serve more than 1200 customers across the electronics, high-tech and medical device industries. Our sweet spot is fast innovator, mid market companies with highly complex products or supply chains or processes that require complex compliance management.
When people ask, who is Arena? We say, we help leading edge product companies change the world through improved development and quality processes. Let me start by giving you some of the basics. Arena is headquartered in Foster City, California. We have roughly 160 employees worldwide and are primarily owned by the growth equity firm JMI Equity, which made a strategic investment in the company in 2017, helping us really accelerate our efforts to capture the SaaS market.
As I mentioned, our core positioning is that we were the only true multi tenant SaaS offering for PLM and quality management. We expect to do roughly $50,000,000 in revenue this calendar year, and we are cash flow positive. We have an incredibly strong deep management team representing decades of leadership in SaaS, enterprise software and driving growth in new markets. I personally have spent most of my career in enterprise software in sales and business leadership positions. I joined the company in 2,008 from Oracle, where I led the Agile mid market PLM business.
And when we look
at the market, we see a lot of the same things that
Jim talked about earlier. Companies that produce innovative products have never been under greater pressure, and they all see digital transformation as a way to keep up or get ahead. Yet for most of our customers, especially those challenger brands in the mid market, they're looking for solutions that meet their core business needs but also are quick to deploy, available to users where and when they want to work and require very little in the way of IT management overhead. Core to Arena's value proposition is our ability to manage highly complex bills of materials, or BOMs, as well as the management of compliance with quality standards and regulatory requirements. For many mid market companies, especially in the electronics, high-tech and medical device industries, BAWM and quality management can be the most critical part of the product realization process.
From the start, Arena's approach was to build the industry's 1st true multi tenant SaaS PLM solution. The Arena product realization platform unifies PLM, quality management and regulatory requirements management, allowing every participant throughout the product design and manufacturing process to work together in a highly secure, high availability cloud environment. For companies manufacturing products subject to U. S. Trade regulations such as ITAR, Arena offers a proven platform deployment option with our government cloud solution.
Arena has a long history and strong reputation for enabling the world's most innovative product companies. Our diverse customer base ranges from mid market upstarts to well known international brands across high-tech, medical device and highly regulated industries like those that sell products to the U. S. Government. Today, we have more than 12 50 customers who access our solutions from 92 countries around the world.
Our customers grow with us and stay with Arena for a long time, resulting in net retention year after year. As industry trends continue to evolve in our favor, we feel we're positioned for really strong growth. In short, we believe we have a winning formula to capitalize the shift to SaaS in the engineering and product development market. We were born in the cloud, so our platform is designed for usability and can scale easily to drive collaboration across ever changing teams. We have a deep understanding of specific market dynamics of the customers we serve, and we deliver to them the insights they need to create the next big thing for the customers they serve.
With that, I want to thank you for your time. We couldn't be more excited to be joining PTC to reshape our industry together. Now I'll turn you back over to Jim.
Thanks, Craig. That was a great introduction to Arena. As you pointed out, Arena has a lot of momentum for the very same reasons that Onshape has so much momentum and it's a great complementary fit. We're pleased to have you and your team joining PTC as soon as the acquisition closes. Thanks for joining us today.
Next, we're going to dive into our other Pure SaaS offering, which is our Vuforia augmented reality business. Let me turn it over to Mike Campbell, a very talented guy who runs the Vuforia business. Mike?
Thanks, Jim. I'm thrilled to be here today to give you an update on augmented reality. The pandemic has definitely been an accelerator for our Vuforia business, and it helped us deliver a tremendously successful fiscal year. And with ongoing momentum fueled by new innovation, we're looking forward to continuing that trend in FY 'twenty one. I'll tell you all about it and also share with you some feedback directly from our customers about the value that they're seeing from their Vuforia AR investment.
Now, let's start by noting that there are over 2,700,000,000 frontline workers in the world. In fact, 3 out of every 4 employees worldwide work on the frontline. Of course, some work in industries like hospitality and health care, but well over 1,000,000,000 are in the industrial enterprise space. But those industrial enterprises are facing a talent gap related to technically skilled workers. Much of their current workforce is aging out and retiring, and they're taking their deep institutional knowledge that they've gained through years of experience with them.
The training methods for new employees coming on board are often antiquated and ineffective. And furthermore, it's difficult to find new talent in this space. Many new entrants to the workforce have a negative perception of low tech industrial work. And on top of that, these companies are challenged by travel bans and social distancing requirements on the frontline, all brought on by the COVID crisis. These are the reasons we built the Vuforia Enterprise AR suite.
Augmented reality allows frontline workers to get critical knowledge, information and insights when and where they need it. Unlike traditional training methods where they might spend hours in classrooms or shadowing experts in the field, learning lots of information just in case they ever need it, AR provides them what they need to know when and where it matters, just in time, allowing them to get the job done quickly and accurately, safely and in a compliant manner. Now that information could be procedural guidance that helps them assemble, repair or inspect something in front of them, or it could be other forms of digital data from sensors or analytics or AI, all that provide valuable insights, making them more meaningful contributors to the value chain. Industry analysts reinforce the market opportunity for AR. They project over a 50% CAGR in the enterprise AR software space.
They're also validating what we're seeing in the market as it relates to use cases for AR, remote assistance, knowledge capture, augmented work instructions, these are the highest value use cases that they see for AR today. And the Vuforia suite and our near term roadmap are well aligned to this market opportunity. Now, like other SaaS offerings from PTC, it's built upon our Atlas platform, which Steve will talk more about next. But by leveraging Atlas, the Vuforia Enterprise AR suite delivers the critical enterprise capabilities, like content and user management and approval workflows for AR content. And the Vuforia suite itself provides market leading capabilities for creating that AR content, addressing key use cases like augmented assembly and inspection work instructions, virtual product demonstrations, training and remote expert assistance.
We have an unmatched portfolio of solution centric, fast time to value offerings built to address specific use cases, as well as platform centric offerings that provide the flexibility to address virtually any use case that our customers might find value in. This suite has been repeatedly by industry analysts as the market leader. In fact, we believe that PTC's Vuforia suite occupies the top right corner in every analysis of the enterprise AR market conducted thus far. And the business results reinforce those accolades. Vuforia ARR grew by more than 80% in FY 'twenty and has become a more meaningful growth driver for the company, contributing 10% of PTC's new software sales.
We closed 75% more 6 figure deals in FY 'twenty compared to FY 'nineteen, and we expanded our footprint at over 100 customers, while adding just about 500 new AR logos as well. 1 of the key drivers of new logo acquisition has been Vuforia Chalk, which enables real time ad hoc augmented remote assistance that makes it possible to resolve virtually any problem a frontline worker might run into. This technology runs on the devices that field technicians likely already have, and it provides incredibly fast time to value. Vuforia Chalk has been particularly relevant during the COVID pandemic for frontline workers and end customers who need clear, unambiguous help from their remote experts. To help frontline workers in the face of these challenges, over the past few quarters, we've made euphoria chalk freely available to anyone who could benefit from it during the COVID crisis.
We had over 25,000 individuals take advantage of that offer. And despite the free offering, we still set new records for chalk sales in the March quarter, again in the June quarter, and then once again in the September quarter. That's a clear testament to the value that the solution delivers. One company who's seeing the benefits of euphoria chalk is Henkel in Germany. They're actually a brand new customer of PTCs.
As you can see, they were able to use chalk to provide critical support that ensured that their production lines remained up and running in the face of pandemic lockdowns. And they are just one of the hundreds of companies that have experienced the moment that's delivered by Chalk's AR based annotations, which make it instantly clear that AR is the most effective way to transfer knowledge across their organizations, to their employees and even to their end customers. Now because of the ongoing market demand for these capabilities as we head into 2021, we're leveraging this momentum and we're embracing a freemium model more holistically. In this new normal where every industry, every company and every employee is thinking remote first, Our customers are shopping online for technologies to enable remote work, and many want to try out these technologies before they buy. By making the core capabilities of Vuforia Chalk freely available online, PTC can acquire prospective customers more efficiently and involve our sales teams only once the users themselves have recognized the product's value on their own by actually using it.
In addition to our existing top down enterprise selling motion, this product led growth strategy will make Vuforia Chalk freely available on an ongoing basis to a much broader audience. It also provides us the opportunity to use Vuforia Chalk as the tip of the spear to expose those users to other solutions from PTC like IoT, CAD and PLM. And it also allows us to upsell the customer the broader Vuforia Enterprise AR suite, which addresses use cases across the value chain, from engineering to manufacturing, service, sales and marketing and training throughout. That suite includes the market leading computer vision technology in Vuforia Engine, which is now used by almost 1,000,000 developers to build custom AR apps for sales and marketing, like this one from Infinity. And it also serves as the foundational computer vision technology upon which all of our other offerings are built.
The suite also includes Vuforia Studio, which is the best solution for combining high fidelity 3 d CAD with other forms of digital data, like IoT, to address a broad collection of industrial enterprise use cases, such as operations, training, product familiarization and design reviews. And finally, Vuforia Expert Capture, which is our fastest growing offering and directly addresses the challenge of capturing the tacit domain knowledge of our customers' most experienced employees and then easily scaling that expertise throughout their ecosystem, either to new employees and even to their customers' customers. Early in 2021, we'll be introducing another new use case specific offering called Vuforia Instruct. Like Vuforia Expert Capture, Vuforia Instruqt is an easy to deploy offering that provides value quickly to our customers by dramatically accelerating the creation of augmented work instructions based on 3 d CAD data. It will leverage the digital thread to deliver work instructions for assembly and inspection use cases initially, and then expand to include service and diagnostics use cases later in the year.
Vuforia Instruct leverages PTC's Atlas platform for user and content management, approval workflows and 3 d data optimization. All of this makes it enterprise ready and easy to scale. Now this broad portfolio is filled with amazing technology, and I'd argue it's the best in the world. But that's not where we start a conversation with prospective customers. We begin with an understanding of their business challenges.
We bring to that conversation a point of view on where AR can make a meaningful impact by identifying use cases that are most appropriate for AR and where we know we can drive the biggest outcomes. We generate a shared point of view on value and then work together to apply the technology to realize that promise. And the outcomes are remarkable. There are dramatic cost savings, higher quality products, better differentiated products and more satisfied customers. But you don't just need to take my word for it.
Let's hear what GE Healthcare has to say about the benefits of using AR in their training programs.
Hi, my name is Matt Kwakowski. I am a Global Learning Project Lead here at GE Healthcare. Effectively, I am part of the global innovations team. We look at new technology and we recognize whether that technology is going to be useful for training specifically. We train field engineers, the guys who go out into the hospitals and actually fix the equipment, as well as the clinical operators, the people who actually operate the system, the MRI, the CT system, being the innovations team.
We started looking around and realized, what if we use the same company that our engineers use to build the CAD? What if we use that same company to deliver training with? And we started looking at PTC and we actually came to Vuforia Studio, which was the perfect route to take engineering CAD directly out of our PLM and have an experience that the field engineer doesn't matter where in the world he or she is can access just instantaneously. It's helped us with performance support, on the job training, before they come to class training. It's helped all over the business for training specifically.
We bring students from around the world to Waukesha, Wisconsin, and that has a lot of T and L costs. By enabling remote learning, we eliminate that cost full 100%. We also reduced the number of machines that HCI or the Healthcare Institute actually has to hold on to as we need less of them when you can train using virtual the same as you can with the physical. It's helped with specifically in anesthesia, with retention of schematics. So gas flows through this thing called an autoclaving breathing system.
It's on the side of an anesthesia machine, gas flows through it and the field engineer needs to understand where the gas can go in and out and where it can maybe leak and they need to understand it completely. Traditionally, it would take a half of a day to teach the users to have them draw out a hand schematic, where they take apart all the different parts and then they figure out where the gas flows. We're using AR and using model targeting. We take that 2 hour class, 2 hour lesson and we drop it down to 30 seconds. In 3 d space, we show them where the gas flows and all the different paths it can take.
And every single time we do that, the students always turn around and say, why do I have to learn this in 2 d schematics? It's right here. Whatever we're building in AR, the users are out there and they're constantly screaming for more, at least at GE Healthcare. It's been fantastic.
Thanks, Matt. It's great to hear how AR is revolutionizing training and reducing the time it takes and the associated costs at GE Healthcare. To wrap up, I hope that you can see why we're so excited about the opportunity for industrial AR that's really accelerated over the past year, and we look forward to continuing PTC's momentum by delivering new innovation and significant value to our customers. Thanks a lot for your time today. With that, Jim, back to you.
Thanks, Mike. It should be clear that PTC is delivering significant value to our customers with highly differentiated AR solutions in a market that's become more attractive in light of the pandemic. With 2 consecutive years of 80% ARR growth behind us, we're starting to see Vuforia reach a size and growth rate that's beginning to move the needle for PTC overall. What Vuforia and Onshape share in common is an underlying SaaS platform that we call Atlas. We feel that Atlas, which was built to power Onshape and things like it, is the industry's best and most powerful SaaS platform.
As I've discussed before, the acquisition of Onshape was really a 2fer deal where we landed both a leading next gen CAD system and a leading next gen reusable SaaS platform. I've invited our awesome CTO, Steve Dratine, to join us to talk about PTC Atlas and describe how we're leveraging Atlas to both consolidate our SaaS development efforts and to provide a launching pad for other new SaaS based PTC offerings. Steve, over to you.
Thanks, Jim. I'm excited to walk you through our strategy and early wins with Atlas today. Last year, when we introduced and demonstrated Onshape to you, we were excited about their agile culture, their vision for disrupting product development and their platform to support 3 d CAD data with incredibly innovative content management and collaboration features. As we described then, we were excited not only about the amazing technology they had, but how they could ultimately use that to benefit PTC more extensively. I'm going to share some insights on where we are today and our plans looking forward.
As John Hirschtick and Matthew Wilson from Google described earlier to you, Onshape combines this multi user Google Docs like experience. Many of us are familiar with that. And a GitHub agile development and version management capability
for users of 3 d
CAD and product data management. The Onshape team has fundamentally changed the rules for collaboration and interacting with rich three d data through the power of cloud and SaaS. And we would like to unlock more of that potential within PTC's products that we bring to SaaS as Mike and many have mentioned today. The operational and technical scalability is just one of the impressive factors that allowed us to pivot so quickly towards the education market and capture incredible market share in such a short period of time, as John shared earlier. In any other situation, a march to rapidly add a 1000000 users to any software would have been a huge undertaking, not with Onshape and commercially, not with Atlas.
There were no changes to the required underlying platform. We never discussed adding capacity for servers, storage, databases, what student usage would look like or where they were even located in the world. Onshape was purpose built to scale both architecturally and via the processes and culture the team had defined, which manifested in this incredible agility to bring full SaaS products to market. There's also no notion of downtime or planned maintenance in Onshape. Everything is gracefully managed for the users and the system remains continuously available.
It doesn't any of us would want it in software that we use every day, anytime, anywhere, always impressing the users. While many CAD competitors claim SaaS, the truth is their underlying technology cannot match this level of operational availability and technical scalability. It's incredibly hard to do. These are the real expectations that we have for full SaaS solutions, but don't take my word for it. Just go to their FAQ page or their service availability announcements and see for yourself.
Our path to accelerate PTC's own SaaS strategy is to extract that core underlying essence of Onshape with their Perfume platform, the incredible operational and technical scalability and a modern multi tenant SaaS approach. We're extremely excited to bring those levels of performance and security across our portfolio to enable our SaaS strategies for Vuforia and subsequently Creo, Windchill and ThingWorx. To help us drive that strategy internally, we named that underlying platform and processes from Onshape as PTC Atlas. Like the Greek Titan who was charged to hold the weight of the celestial heavens, Atlas will support the needs of PTC. Culturally at PTC, Atlas helps us drive alignment with our people, purpose and energy into the synergy across our product portfolio and business operations to support them.
One big aspect of this is to accelerate our own development teams in bringing more SaaS technology and products to market faster and our ability to staff our resources and generate momentum in what we're developing. We can focus on making sure that we have a shared cohesive set of capabilities that everyone can leverage. You can think of our approach in a series of phases where we want to enhance the platform, so that serves as the foundation for our underlying PTC SaaS strategy, add capabilities to enable new use cases around our existing SaaS offerings, and ultimately evolve the rest of PTC's portfolio to SaaS over time. Some of these platform improvements are core and central to every application we produce, like managing the entire customer onboarding experience or how customers are managing user identities and their enterprise security, as well as the way that we manage operational availability of the underlying automation and collaboration and data management services. They're all essential pieces that we as customers appreciate in any SaaS solutions we use today, and we couldn't be happier about the progress to date.
I'm pleased to share with you that we've already made dozens of enhancements to the platform to broadly support PTC's collective needs. We've operationally aligned the Viforia team with the Onshape team, as both Mike and John alluded to earlier and creating efficiency by adopting behaviors of the agile Onshape culture that they brought with them and many more behind the scenes changes to adopt their underlying abilities. We're enabling both the Creo and Windchill teams to begin delivering on Atlas right now. And the result, while Onshape formed the basis for Atlas, we now have 3 additional offerings on the Atlas platform with plans for many more underway. By leveraging our Atlas strategy, we have dramatically accelerated our time to market with richer featured products.
Let me now highlight the value of that to PTC Atlas using these three offerings: Viforia, Creo's new generative design extension, and our windshield visualization service. First, Mike Campbell made mention that Viforia and Atlas have made expert capture and soon instruct is now that it shares that underlying content management workflow version controls from Atlas as also used by Onshape. These were all features we had in our product roadmap that would have taken a year just to get to an MVP. And while that may seem trivial to you, managing the complexity of changes is a substantial differentiator against our competition. It's a set of great features that allows customers to satisfy both their processes and regulatory needs with their AR based process documentation.
Now with Viforion Atlas, we have greatly exceeded our expectations for customers and have easily produced a more robust broad set of capabilities that are battle tested. By any conservative estimate, this would have taken an additional 2 years to get to the same maturity levels that customers are going to see in this first release. 2nd example, we shipped Creo 7 earlier this year, and that included the acquired Trusson technology for generative design. Shipping later this month is the 1st hybrid SaaS component for Creo, the Creo generative design extension. This is a SaaS service that allows Creo customers to push designs to the cloud where we can dramatically scale up the use of AI driven generative designs far beyond what many of our users would ever attempt locally one at a time.
Users specify the constraints and materials and manufacturing methods and we solve the rest for the most optimal results. Each generative study by itself can be incredibly compute intensive, requiring high performance CPUs and GPUs. And we're now providing those users with the ability to rapidly assess dozens or even hundreds of studies through the massive scalability of Atlas in mere fractions of the time without a need to upscale their personal hardware. We're easily 12 months ahead of schedule in bringing some of the most advanced AI based computing capabilities deeply integrated with Creo, well ahead of any 3 d CAD application on the market. We're really excited that in late FY 'twenty one, we'll bring some of those same great capabilities they're using in the Creo generative design capabilities to the Onshape users as well.
With unbridled innovation in a full SaaS application like Onshape, generative design is a perfect technology pairing. And the 3rd achievement on Atlas is really in our recent release of the windshield visualization service. The service is responsible for generating viewable content for a variety of products, most notably inside Windchill and CreoView, as you saw earlier, as well as inside Viforia. You can think of this as another compute intensive engine that runs a scalable fleet of big machines that run Creo or other 3 d CAD applications to convert 3 d CAD data for customers. Customers are regularly converting their data into numerous formats, including PDFs for drawings or lightweight viewables, and they review and collaborate with suppliers and other colleagues using these.
And with the benefits of Atlas making this a multi tenant elastic service, we can greatly reduce our overall operating costs and have the first major piece of our Windchill SaaS capabilities ready. Beyond these three offerings, we're well underway in bringing our technologies inside PTC that we can bring on to Atlas so that it benefits our broader portfolio. For example, within ThingWorx is an incredible integration capability called ThingWorx Flow. It's a BPM engine that we use for integrating numerous enterprise software applications and data together for even greater process orchestration inside the enterprise. Think of it as an engine that powers the digital thread of information across PTC's products and customer systems.
Later in FY 2021, both Onshape and Bushtoria will now have access to a best in class workflow for synchronizing with on prem systems whenever that is necessary. We'll be bringing other aspects of ThingWorx onto Atlas this year, and ultimately, we'll look forward to bringing ThingWorx into the SaaS world soon. Our SaaS strategy for Creo and Windchill is to bring the customer base with us. Now the main objective of that is to certainly maintain forward compatibility for customers to get them from their on premises windshield and Creo to SaaS using Atlas. And we're not alone in our journey.
We've taken notice on how Microsoft, Adobe and many others have been able to accomplish this for both desktop and server based applications. And when companies switch from Microsoft to Office to Office 365, it generally didn't comprehend a change in the core capabilities, but that portfolio has now changed expansively over time. That same care for compatibility is going to take us some effort to convert what's traditional on premises application to SaaS and bring those customers with us. PTC is at an amazing moment in time with some of the most stunning products and technologies available in our market across all of our major products. Bring all that energy and excitement that our products have onto Atlas and into our SaaS future is a remarkable opportunity to create more value for our customers and for our shareholders.
And with that, I want to thank you for your time today and hearing about our Atlas strategy. I'll now turn things back over to Jim. Jim?
Thanks, Steve. I hope you have a fuller appreciation for just how much the Onshape acquisition has already brought PTC with Atlas, the industry's 1st and only full SaaS platform. With Atlas, we've accelerated our product roadmap by years. We've already launched some highly differentiated and scalable solutions into the market, and we have a promising roadmap of new solutions on tap for the coming years. We're now going to get an update on our IoT business and solution strategy.
I'm pleased to introduce Craig Melrose, who will take us through this part of the program. Craig joined PTC about 18 months ago after spending 20 years at McKinsey where he led their operations practice, helping Fortune 500 Companies transform their factory operations. Craig brings a wealth of real world operations expertise to PTC, and we're very excited to have him leading our IoT Solutions team. With that, I'll turn it over to Craig.
Thanks, Jim. I appreciate the opportunity to share more details on IoT and our approach to solutions. It's been an exciting 18 months, accomplishing so much progress. Though I miss Mackenzie at times, I've never had more fun in my career. I'm going to focus on 3 key themes today: the current state of PTC's IoT business, our strategy to deliver high value solutions to the market, and highlights of DPM, Digital Performance Management, our first IoT solution, due later this year.
As Jim discussed in his opening remarks, and as we have all experienced daily, COVID has had a significant impact on companies across all industries and geographies. Given the sheer magnitude and breadth of COVID's impact, it's now top of mind for the C suite agenda. Consequently, companies are now embracing new perspectives and accelerating their digital transformation efforts. More specifically, companies are seeking digital opportunities that will increase employee productivity, enhance the visibility of their supply chain, and improve the ability to remotely monitor field assets and factories. This is great news for PTC's IoT business, given our distinctive expertise in helping companies address their pain points around connecting, monitoring and improving their businesses.
Now, let's spend a few minutes talking about the current state of IoT here at PTC from FY 'twenty challenges to the strengths that we possess going into FY 'twenty one. Despite headwinds from COVID in the fiscal 'twenty year, new ACV growth approached 10% and ARR growth nearly 20%, both strong numbers, though slightly below expectation. The inability to engage on-site with new prospects due to travel restrictions pressured close rates on new logos. The good news is that the logo pipeline is strong, and we are confident in this part of the business recovering once engagement activity returns to normal. Considering these challenges, there are several bright spots to highlight from FY 'twenty.
Most notably, IoT expansion activity was very healthy in terms of quantity, quality and size, especially for larger deals over 500,000 with over 70% expansion of ACV and almost 60% increase in the number of deals at that size. Both data points speak to the value that customers are realizing from their IoT deployment. Now, looking forward to fiscal 'twenty one and the outlook there, we have a strong 33% increase in backlog. The pipeline is 3 times larger heading into fiscal 'twenty one than 2 years ago. This further reinforces our confidence in achieving strong IoT results this year.
Our optimism is further strengthened by the continued confidence that industry analysts have shown in PTC's ThingWorx. The ThingWorx platform has repeatedly been recognized in the upper right quadrant of IoT by industry analysts as a leading IoT platform. ThingWorx has differentiated itself from the competition on the proven ability to enable customers to quickly and easily build applications, meet their unique needs across multiple use cases, and serve as a great starting point to leverage for connecting and monitoring of assets and factories. Further underpinning that confidence, PTC industry analysts have in our IoT opportunity, there's an extremely vibrant and high growth IoT market as well. The total addressable IoT market today is about 3,000,000,000 PTC's customers make up about 600,000,000 of that addressable market, and in IoT, we're 20% penetrated with that customer base, equating to about 150,000,000.
Looking forward, there's a significant opportunity to both cross sell and expand our PTC customer base existing customer base. Additionally, and as noted before, there's a significant white space and new logo opportunity to capture as well. If we continue at our current pace and speed, this would translate to roughly doubling the IoT business through fiscal 'twenty three. Despite the significant market opportunity and growth that we see in IoT, many companies still are stuck in pilot mode, but they're starting to capitalize on the market opportunity. Several years back, a good personal friend of mine from McKinsey, Richard Kelly, introduced the term pilot purgatory.
Pilot purgatory is an industry wide challenge where industrial companies are stuck trying out new technologies without the ability to realize enterprise level value. Key drivers for why this is happening include the lack of a top down executive mandate or a clear business case on intended business outcomes. Additionally, companies underestimate and the level of collaboration and change management required for their organizations to successfully achieve a double digit impact and scale beyond a pilot. So how do companies break out of this pilot purgatory and move toward enterprise scale impact with IoT? Let's use Geoffrey Moore's Crossing the CASM framework, which, by the way, you'll hear referenced by my colleagues today as well.
Companies are shifting from experimentation into seeking out more targeted use cases and solutions and the subsequent benefits. Moore states that the critical few highest value use cases are the real game changing opportunity. So given the market dynamics and customer readiness for making this shift, PTC will lead the way across the chasm by offering enterprise scale solutions starting in IoT. There has never been a better time to offer IoT solutions due to a host of reasons related to technology convergence, new data capabilities, and market maturation. Over the last 5 years, we've seen a long tail of 3rd party spot solutions with very limited impact and scale.
These spot solutions address repeatable use cases, but cannot drive enterprise value. Customers needed a platform and an ecosystem. The ThingWorx platform, in combination with Microsoft Azure and the PTC ecosystem, have collectively enabled companies to more easily build custom apps. Additionally, the extensibility of both Microsoft Azure and ThingWorx allows companies to solve multiple challenges across the enterprise. However, custom Spot solutions and apps built on IoT platforms can have limited impact and scale depending on the use case, because the enormous number of resources and expertise required to achieve optimal results, literally people decades of effort are required, and we have seen that do it yourself solutions can take twice the time and 4 times the cost of vendor solutions.
As a result, PTC is creating enterprise scale solutions that are more out of
the box. The app strategy
for customers on the left side is just too costly and time consuming, as I mentioned, and it often leads to pilot purgatory. So we're creating an and story by building solutions up the stack and on top of ThingWorx and the Azure platforms, creating a combination of scalability, security and readiness for demanding enterprise workloads as a foundation, and ultimately, the customer benefits from this transition to solutions. They will achieve double digit impact and the ability to reach enterprise scale with speed. Our first enterprise solutions will focus on addressing critical high value IoT and augmented reality use cases. The plan over time is to incorporate PTC's entire portfolio into our solutions roadmap.
But for now, the rationale for this approach at PTC is that we view our customers through the lens of the value chain. From engineering to sales and marketing ultimately product innovation and service optimization, PTC is addressing the digital thread across these functional areas. Our enterprise solutions will go deep on top use cases for double digit P and L impact at each step of the value chain as well as across steps of the value chain. So let's look at a typical $5,000,000,000 revenue company. For example, the company you see here makes front end loaders.
While there's an enormous opportunity to unlock double digit impact at each step of the value chain, with a combination of PTC's technologies, our initial focus for PTC's first IoT solution will be manufacturing efficiency due to market and customer demand, the size of the value proposition, and the strength of PTC's ecosystem with Rockwell and other partners to enable a strong go to market approach. Now let's double click on manufacturing efficiency to understand the value proposition and to see how companies can unlock and achieve tens to 100 of 1,000,000 of dollars of impact, or roughly 5% to 10% enterprise improvement. In order to move past that pilot purgatory, customers need to understand and link to financial value. It's represented here by revenue increase and cost decrease, linking financial value to operational levers such as productivity or throughput, where you can see improvements ranging from 5% to 60% across a variety of levers, to use cases such as real time performance monitoring or overall equipment effectiveness, also known as OEE, And then finally, the subsequent combination of technologies such as ThingWorx and Vuforia that will unlock this value. The results here on this page are based on lots of data points, including customers' real world impact from implementing PTC technology to address their challenges and needs.
So with that background on manufacturing efficiency, let me now take you through our 1st enterprise scale manufacturing solution that leverages our strengths in IoT and augmented reality. Our name for this solution is digital performance management, or DPM, which we are planning to release in the second half of fiscal 'twenty one. Focusing on throughput and OEE, overall equipment effectiveness, which are 2 of the largest value use cases and most important use cases in manufacturing. For those not steeped in manufacturing, think of DPM in terms of utilizing data to problem solve and dramatically improve performance, with a laser focus on the critical few items to address. You might compare this to an accomplished athlete training to become a world class athlete.
So let's think of that in manufacturing terms. In manufacturing, this looks like switching from lagging, even real time, to leading indicators for processes, people, materials, flow and efficiency through a factory. That's throughput through a factory. So DPM identifies the areas of an operation requiring this laser focus and allows customers to capture that double digit value. 1st, management and the frontline will gather and use data to identify critical bottlenecks.
For example, 10 out of every 100 operations would require focus. Then DPM will go deep on performance in those 10 focus areas, utilizing new approaches such as a time based performance to an absolute time period of 24 hours or 160 hour week. This allows data reconciliation to the absolute, transparency for everyone involved, and frontline operator engagement in a very intuitive manner because we're using ours, and incorporating change management and accountability to ensure actions and outcomes happen in a timely fashion. It will create and reinforce the backbone of operational improvement processes built on frontline targeted problem solving. This standard approach will stand the test of time since it is a closed loop, self monitoring, self measuring design.
You've just heard how DPM has been designed around real world users to allow a single source of truth to operate, but this will also create a single operating team with manufacturing, maintenance, quality, continuous improvement resources, all held accountable against those standard improvement actions collectively and together. Consequently, DPM will enable the double digit improvement that we spoke about earlier, such as the 5% to 20% throughput in manufacturing. So now let's discuss what this would be worth to a customer and why this improvement can be monetized in multiple ways. Assuming an 80 hour work week, a 15% improvement for a company is about 12 hours. Filling those 12 hours per week with additional units of volume would be equivalent to about $100,000,000 in our example.
Reducing those 12 hours per week reduces the costs of the operation to the tune of about $50,000,000 across a 50 plant network, or reinvesting those 12 hours per week into changeovers for an every product every week approach reduces inventory or even improves service levels for a customer. While the value proposition of DPM to customers is clear and compelling, we are validating this solution with a planned release later in 'twenty one, as I mentioned. Through this validation phase, we're co innovating DPM with several customers and key strategic partners. One of Ation is actually with Mackenzie, where we're working on both solution development and go to market activities. A second innovation is with customers like Autoliv to validate DPM functionality in their actual shop floor setting.
Autoliv is one of the largest automotive safety suppliers, and they're quite innovative as a company. So let's hear from Danny Jackson, Manufacturing IT Director at Autoliv on his perspectives related to his co innovating with DPM.
Hello. I'm Danny Jackson, Manufacturing IT Director at Autoliv. And I want to talk today about a strategic partnership that we've started recently with PTC and the ThingWorx platform. So, why DPM then? Well, we find that like a lot of companies, we are very data rich and sometimes we're information poor.
If someone wants insights today from data, they have to manually go looking for those insights, They have to comb through the data, run a bunch of different excel sheets, queries, reports and try to conjecture some kind of a problem statement from that data. And we're hoping that through the development of DPM, we can utilize the machine learning capability and analytics capabilities that come with ThingWorx to more readily provide those insights to people. They don't have to seek them. We're able to give them the insights. So, why not launch an objective like this with our own developers, with another partner or even with our citizen developers?
I think the biggest reason for that is time to value. And we believe that PTC is very good at what you do and we want to leverage that capability. We want to be able to allow the people in Autoliv to do what we're good at, solving problems in the manufacturing process and providing more productivity. And we look to PTC as a partner to be the product development team that delivers the software and we can then utilize it and provide the value to the organization. So, although it's in the very early stages, we hope to have quick success with it, and thereafter roll it out globally throughout our organization.
So, thank you for your time today.
Thanks, Danny. Now that
you've heard about the strength of our IoT business and our approach to solutions for our customers to scale their impact, let me just conclude by saying, I was brought into PTC to lead the company's growth business across the CASM. With enterprise solutions and providing a means to deliver double digit impact for our customers. After 20 years at Mackenzie, I'm excited to move from leading operations transformations to now leading digital transformations, utilizing all of the world class offerings here at PTC, allowing our customers to drive improvement actions while unlocking and realizing that significant real world impact we've been talking about. We're excited about IoT and AR as well as our approach to solutions in FY 'twenty one. Back to you, Jim.
Great. Thanks, Greg. We're very excited about our strong position in the industrial IoT market and the secular trends driving demand for PTC's offerings. These offerings are getting even stronger as Craig and his team deliver enterprise solutions that address high value use cases at scale, which we expect to speed customer impact and accelerate expansion activity. Next up, we're going to discuss our core PLM and CAD business, which as you know has been on a bit of a tear lately with growth easily outpacing our peers in the market.
Kevin Wren and Brian Thompson are going to take you through some highlights of our core business. So let me turn it over to Kevin to kick things off. Kevin? Thanks, Jim.
Now, you know it's no secret to anyone who's here that our CAD and PLM businesses have been delivering value to our customers for decades. Yet as Jim mentioned, our core businesses of PLM and CAT are both outperforming market growth even in the face of COVID. Now while each business has its own set of growth drivers, and Brian and I will take you through them, they do share one important large core and secular driver of growth, and that's the digital transformation programs that are happening at our customers. Now we believe that this trend could continue to fuel CAD and PLM growth for the foreseeable future and drive growth opportunities in our base and for platform consolidations. Now digital transformation, of course, is driving our IoT and AR businesses, and they're growing like crazy.
But digital transformation is also driving our CAD prospect engages with PTC around their digital transformation initiative and they get really excited about how IoT and AR can transform their business in engineering, manufacturing, in service and frankly across their entire extended enterprise and even for their customers. And that excitement always includes product data. Involving product data is fundamentally for the vast majority of the use cases that our customers are considering. I mean, if you're a product company where the product is at the center of the value that you create for your customers, then your digital transformation needs to begin with your products. And our customers know this.
And then they realize that they have all of this data that they create in engineering that can be leveraged by IoT and AR to solve real problems for their company. At the same time, they also realize they don't exactly have it right for what's required for digital transformation. They need to create richer information and engineering and manage it so they can be leveraged downstream. That's why CAD and PLM are thriving here at PTC. They're the foundation.
Now I've seen this happen repeatedly. And that's when they decide to transform engineering and when they start a CAD and a PLM project with us. We even have a phrase for it internally. It's called getting your digital house in order. Now, like I said before, since our CAD and PLM businesses have their own drivers along with digital transformation, I'll take you through PLM first and then I'll turn it over to Brian Thompson who runs our CAD business to take you through CAD.
In PLM, we had an excellent growth year in FY 'twenty. Our PLM business is outpacing market growth. It's growing at 14% versus a market during COVID that's essentially flat. Now previous to COVID, the market was growing around 8%, but so still we're outpacing market. Even in a challenging economic environment, customers are buying PLM from PTC.
Now at the same time, our customer retention was also very good. Our churn rate was just 5%. In fact, COVID made our PLM a bit more important in work for home. Now since our PLM system was born web native, our customers were able to change to work from home quite easily and still have secure access to all of the data that's in Windchill. Now while we had good growth across all of our main A and D vertical, we had a lot of impactful deals.
I'll cover 3 in just a little bit of detail. First, Raytheon Technologies. This is our largest PLM customer, and they expanded their current digital threat initiative to support design, build and support anywhere, growing their single global instance to 40,000 users. This expansion was to support the growth of the rapidly growing defense business. Next, Lockheed Martin, they also have a large digital transformation initiative.
They're implementing PLM for the missiles and fire control business area. In this deal, we displaced Oracle Agile PLM in this division to consolidate on a single PLM system to support their transformation initiative. Lastly, the U. S. Navy, We won a significant new contract to manage the configurations of the Navy ship fleet.
It's a large program to consolidate the data from several legacy systems into a single configuration management system on Windchill. Now this is a really interesting non engineering centric use case of PLM to manage in service configurations of ships or assets that are in the field, or in this case, in the ocean. The Navy implementation will be delivered on PTC's secure cloud environment. It's a multiyear program that gets larger every year and will ultimately result in Navy becoming PTC's overall ARR generator. We also did some nice deals at the Army and at Thales.
Now on to medical devices. We're in a bit of a tear here. We're the PLM system for 27 of the 30 largest medical device manufacturers globally. First, Baxter, this is a competitive displacement with a brand new customer. The conversation actually started as a requirements management RFP, and we turned it into a digital transformation discussion where we identified and demonstrated the value of implementing enterprise PLM, and in the end, we won a large PLM deal to help them transform.
Next, Jabil. This is a really interesting deal that included PLM, CAD, IoT and AR. They have multiple business units consolidating under one roof in addition to the acquisition of some Johnson and Johnson medical device sites. The deal doubled their PLM footprint, added new seats of Creo, included a plan for 30 factories with ThingWorx SCO and a large AR large augmented reality deal for Vuforia Expert Capture, Studio and Chalk. We also had some other really nice wins at Zimmer, at Smith and Nephew, Mindray, Johnson and Johnson and at St.
Jude. So that's a little bit about fiscal 'twenty and PLM performance. Now what's driving demand in most every case study spoke about is digital transformation and more specifically a concept called the digital thread. From a PLM perspective, the digital thread enables enterprises to leverage the digital data that's created in engineering across the enterprise. For example, in manufacturing, they can leverage a manufacturing bill of materials from PLM to create the material master in PLM I'm sorry, in ERP.
They can also create associative process plans and work instructions from PLM directly to the factory floor. Likewise, for service, they can leverage spare parts for spare parts lists and create service procedures. Now there's a myriad of other use cases leveraging accurate configurations from PLM combined with IoT and AR for use cases in sales and marketing and operations and even to support brand new business models. Now customers choose PTC because we know what digital transformation looks like and because along with CAD and PLM, we have AR and IoT. We know what digital transformation means to CAD and we know what it means to PLM and we know what it takes for our customers to fuel their digital transformation initiatives from engineering to improve manufacturing, service and across the enterprise.
And the reason that we're winning is that our stuff works out of the box and we can help identify and prove value with our customers. And it's not just us that says our stuff works. Because of this strategy and our understanding of what it takes for customers to digitally transform, we've gotten the top spot in every industry study since 2017. Now we're, of course, proud of this, but most importantly, we're proud of the fact that our customers are telling us that they're getting measurable value from our solutions. We believe that our strategy on focusing on digital transformation in PLM along with our ability to deliver has really fueled our growth.
Now digital transformation in our customer base is just beginning, and you can imagine that these projects can be large, multi year, multi dimensional projects. It should drive very good growth in PLM for years to come. Now I'd like to turn things over to Brian Thompson, who will take you through the CAD business.
Thanks, Kevin. Yes, it's great to see digital transformation taking hold with our customers and the business that's driving for our PLM products. I'm excited to say the same is true for our core Creo business as well. Even in the pandemic, we had a very good growth year in FY 'twenty. When you consider that the worldwide CAD market is flat to maybe up 4% this year, we really had a fantastic year with 8% ARR growth, at least doubling the market rate.
Breaking that down a bit, we see the strength of diversification of PTC's Creo business with 7% ARR growth in direct accounts and 9% ARR growth in channel accounts. And the growth of our CAD business in fiscal 'twenty was fueled by a few key drivers. First of all, we saw significant customer footprint expansion and adoption of broader core Creo capabilities in new technologies like our ANSYS powered real time simulation offerings and in displacement of competitive CAD in our existing accounts. We also saw strong new customer performance in our channel business with over 1300 new Creo customers added. Finally, we saw solid retention with just 6% churn, despite the impact of the global pandemic and the exposure to SMB customers in our channel.
Our differentiated Creo product strategy, particularly in the context of PTC strength in enabling digital transformation across all aspects of our customers' businesses was another strong driver of our results. Creo 7 was released this past April and it's the most significant release of Creo at PTC in the last 10 years. And we're not alone in that thinking. Al Dean, a prominent journalist who closely follows the design, engineering and manufacturing software space, clearly thinks Creo 7 is a standout release, as you can see from his quote. Creo 7 brings together core improvements that users really want like multi body design with expansions and some really differentiated technology areas.
First of all, we added real time fluids analysis to our Creo Simulation Live offering powered by our partnership with ANSYS. This adds fluid flow simulation breadth to our existing real time structural, modal and thermal capabilities that was shipped in Creo about 18 months ago. Adding fluids, of course, expands the use cases we can sell into and also gives us an opportunity to sell real time simulation at a higher price point by combining all the technologies into a single attractive offering. When you consider the momentum we've already created in 2020 with Creo Simulation Live, beating our plan and delivering our first 7 figure direct deal and our first 6 figure indirect deal, plus the fact that this technology is still only penetrated in our base at a few percent, we've got reason to be optimistic about future growth prospects. Now to continue on the simulation theme, we've also just added ANSYS high accuracy, high fidelity solvers to Creo 7 as well.
In fact, these just shipped in November. These are selected ANSYS flagship structural, thermal and modal solvers, all deeply integrated into Creo. This integration enables design engineers to utilize ANSYS' premier solver technology inside Creo as part of the design validation process, allowing a more seamless workflow between design engineers and analysts. We're already seeing that customers are more and more willing to make significant investments in simulation as a core part of their digital transformation strategy. You could think of it as digitizing product validation, while of course improving quality and time to market.
When you consider that the penetration of simulation in general across our entire Creo base is less than 10%, overall, it's clear we've got a lot of runway of growth opportunity ahead of us with these new flagship solvers from ANSYS. Creo 7 is also the 1st shipment of CASM PTC to include the frustum generative technology that we acquired in late 2018. When we shipped in April, we shipped the Frostm engine inside Creo, allowing design engineers to use generative technology optimize designs right there inside the core Creo design environment. But just a few weeks ago, it got even better. As you saw from Steve Dertin earlier, with our latest release of Creo 7, we extended our generative capabilities using our cloud platform, Atlas.
This allows users to expand their use of generative technology with elastic compute resources on the cloud, so they can explore a wide array, think hundreds of potential design solutions automatically, combining factors like a variety of material choices, manufacturing processes, load cases, even optimization goals. This is a new frontier for design, with artificial intelligence helping customers digitally drive innovation, challenge their innate biases, reduce product cost and of course speed time to market. Let's hear more directly from an early adopter, Jesse Kraft from Jacobs Engineering.
So NASA's current mission is ultimately to go to Mars. That's the big goal for all of us. The question is, how do we get there?
We have to design in a whole new realm. These spacesuits have to be able to go farther and last longer than they have ever before.
There's a lot of things we have to learn about living in space and how to develop the right technologies to get there and bring people home safely. I mean, not just go 1, 2, 3, 4, 5 times, but go and stay.
So my role at Jacobs is working on the exploration portable life support system, also known as the Xplis.
And the portable life support system, if you just look at the suit in general, it's kind of the backpack looking thing on the back of the suit. And it provides life support functions. So things like providing oxygen for the astronauts to breathe inside the suit, fans to circulate air in the suit, pumps to circulate water cooling, things like that. The further our missions take us from Earth, the more and more and more pressure we have put on minimizing massive system, every single ounce or kilogram of mass matters. We need to find a way to blend that safety and reliability with reducing mass at the same time.
It's extremely important for us to find that right balance.
We found a the PTC standard design technology and the design for our spacesuit backpack. We have several components that are structural components that hold different objects within our space suit backpack, either their brackets, housings, baseplates that we want them to achieve their goals of doing their function, but we also want them to use as little mass as possible because the astronauts' mobility is affected by how heavy their backpack is. And having a
tool like generative design enables us to explore that full suite of manufacturing methods and apply whichever one is best to this given part. If we
set up the analysis right, we're going to have a part that is truly optimized, which is the goal of our whole design process. So this is something that helps us leapfrog steps that we currently have in our process to arrive at a final goal.
We're utilizing newer technologies, new methods, new materials. It allows us to shrink things, make things more optimized for weight. So we're trying to squeeze out a lot more performance out of this backpack.
So since we started using generative design technology, we've seen mass reductions up to 50%, which is critical in the area of aerospace for reducing launch weight and increasing the mobility of our astronauts. The most exciting thing about generative design to me is it challenges my biases. As an engineer, I like right angles, flat surfaces, round dimensions. And generative design says that may not be the best solution. And so if I want to be the best possible engineer at my job, I look to generative design to find those kind of solutions.
That was great. I'd like to thank Jesse Craft and the entire Jacobs Engineering team for their help in creating that really inspiring video. I'd like to also thank you for your time. And at this point, I'll turn it back over to Jim.
Great. Thanks, Brian, and thanks, Kevin. We're very pleased with the momentum in our core businesses, following strong ARR performance last year and high retention rates, all in the middle of a global pandemic. Digital transformation is clearly becoming a strategic imperative in the industrial market and PTC is uniquely positioned to address customer challenges with highly differentiated technology and solutions. Looking forward, we believe that we can sustain attractive growth by expanding within our customer base and by winning some exciting new customers along the way.
Now we're about 2 thirds of the way through the agenda, so let's take a short 10 minute break and we'll see you all back here at about 5 minutes after the top of the hour and we'll take you through the balance of the agenda and then into Q and A then. Thanks and see you shortly. Hi, everybody, and welcome back. As you can probably guess, I spend a lot of my time working with the team to develop PTC's strategy. And from what you've heard so far this morning, you can see that the strategy is working well.
But it's important that we have equally strong execution of that
With that in mind,
we ran a comprehensive search to With that in mind, we ran a comprehensive search to find a strong Chief Operating Officer who would complement me with a strong operations focus. I'm very pleased to introduce Troy Richardson, who recently joined PTC as our new Chief Operating Officer to lead this next discussion. Troy brings a wealth of sales and operational experience to PTC, having spent more than 3 decades at some of the biggest names in the software industry, including IBM, Oracle and SAP. We're very excited to have Troy on board to help drive PTC's ongoing transformation. With that, let me turn it over to Troy.
Thanks, Jim, for the introduction. It's great to be with you today in this virtual setting, and I look forward to meeting you in person hopefully soon. So far, you've heard about important secular trends driving our business and our amazing technology we have at our disposal to address this opportunity. This is why I was so excited to join PTC. I saw a company that really transformed itself from its business models to its solution portfolio and its customer engagement model.
I'm looking forward to leading our field organization to an even higher level as we continue to transform PTC into a high growth SaaS company over the coming years. Since this is officially my 4th week, I want to keep my comments at a high level and ask several of my key leaders who you've met before to have who have a deep expertise to take you through the details of our top line strategy. But before I turn it over to Mike, let me provide some context on our field organization. Some of you may be familiar with our CARE framework. It does a nice job of capturing the mission of our field teams and our lifetime customer engagement model as we progress from close to adoption, renewal and expansion.
This self reinforcing cycle is key to driving sustainable top line growth. With that, let me turn it over to Mike D'Tullio, who will take you through our go to market model and how we plan to drive growth at scale at PTC.
Thanks, Troy. Well, it's great to be here with you all today. For the next 15 minutes, I plan to share some insights on our sales and marketing machine. We have made a lot of great progress on the go to market front, and I'm excited to share that with you today. I want you to walk away with 3 major points.
First, we have significantly transformed our sales and marketing machine. 2nd, this machine is working well for us in delivering results. And then 3rd, we are ready to scale at a time when PTC has never been better positioned for sustainable growth. Real quick, a trip down memory lane. Our old model was direct selling of on prem CAD and PLM platforms.
We sold primarily to our existing customer base, and our commercial model was perpetual license. Fast forward to today, and PTC has a significantly broader addressable market with the addition of these secular high growth markets like IoT and AR. PTC also has completely pivoted to a subscription SaaS license model. And then finally, digital transformation in all its many forms has opened up a new world of opportunity for PTC. The sales and marketing organization had to transform and modernize, and so we did.
We retained that foundation of disciplined sales execution, but then added new muscle aligned to modern buyer journeys. Let's start with York for a minute. We significantly transformed our sales engine to address the opportunity created by our emerging growth businesses. Previously, 80% of our selling capacity was focused on the core business. Over the past 5 years, we dramatically shifted our resources and reduced that number to 50%, in turn adding capacity to the growth businesses, which increased by 100%.
We haven't only survived this transformation, we're thriving. The core business, as you heard, has seen a resurgence and is growing above market growth rates. And today, we are the recognized leader in IoT and AR. Now let me introduce you a little bit to the sales and marketing organization. We are 1300 strong, and we're oriented in a matrix setup with geographically aligned teams, complemented by horizontal centers of excellence, which would include the marketing org, product specialty teams, partner teams, just to name a few.
And I want to highlight something really important here. Our partner ecosystem is an extension of our sales force. They're part of our sales force, and we treat them this way. Just to put some numbers on that, we have 1800 partner sales reps and 50 plus alliance partners outselling PTC products and solutions. Now, of course, a critical part of go to market success and optimization is efficiently aligning those resources to cover the addressable market.
And we felt that our previous market segmentation approach, which was designed in another era, was no longer granular enough for precision execution. And so we refined it to help us deploy the right people at the right place at the right time. This refined segmentation gave us clarity across a few important characteristics, customers versus prospects, large versus small, those with high potential versus matured opportunity and of course, direct versus partner. So at the top of the chart, S1 and S2, these are our largest customers with equally large potential. Here, strategic account managers focus on growing our ARR footprint.
S3 and S4, these are important customers with high levels of penetration, and so therefore, our near term expansion opportunity is a little more limited. And here, we focus on nurturing or maintaining these valuable accounts. S5 and S6, these are prospects where the marketing and sales hunting muscle is critical in identifying and closing new logos. And then lastly, we have customers, mostly in the SMB space, that our channel reselling partners look after. This refined approach to segmentation allows us to market, sell to and then service each of these cohorts much more effectively.
Now I'd like to turn to 2 of our force multipliers that are really helping us drive growth at scale. 1st, we're building pipeline through digital marketing and selling. We have dramatically modernized org around digital and made that an integral part of how we sell everywhere and all the time. Before digital, a frontline seller sourced nearly 100% of our opportunities. After digital, marketing contributed 30% of our new pipeline in fiscal 'twenty.
And here technology underlies what we're now able to do in marketing. Just take 1, 6¢. With 6¢, we're able to listen to the market and find those people who have high buying intent. And because we can now identify prospects with active initiatives, we can further refine our marketing efforts to do what the industry calls account based marketing or ABM. Digital also starts at home with product telemetry.
Specifically what can our own products tell us about how customers are actually using our software. And with this kind of insight, we have those answers. And this enables predictive selling because we know specifically what our customers need. We are now leveraging technology and AI to drive significant upsell and cross sell opportunities from within our base. But to make full use of these digital insights, we realized we needed agile human teams to drive the business.
Our pod approach puts sellers and marketers together in small groups. This setup actually ensures we deliver the right customer touch at the right time, and it allows us to sidestep that dueling banjos problem that can sometimes come with 2 siloed departments. Next up, pipeline. The ultimate upstream measure of successful sustainable business is pipeline. You front load on pipeline and the quarters take care of themselves.
As I mentioned earlier, our revamped marketing engine has been cranking, and it contributed 30% of the pipeline created during fiscal 'twenty. And despite the headwinds from COVID-nineteen, in fiscal 'twenty, we entered this fiscal year with about 20% more pipeline. We have pipeline discipline in every part of our business, in every geo and in every aspect of our operating rhythms. And in fiscal 'twenty one, pipeline provides ample coverage to go achieve our bookings plan. So now let's transition to our next force multiplier for sustainable growth, which is our partner ecosystem.
You remember that old saying, when you help somebody up a mountain, you both end up higher? Well, certainly, that was a story in fiscal 'twenty, where partners impacted 30% of new sales. Selling with partners makes sense because it's both a top and a bottom line play. It increases both our yield and our efficiency. The ecosystem consists of strategic alliance partners, management consultants or advisory firms, global systems integrators and of course, technology partners.
Four quick stats about strategic partners. Rockwell. Rockwell has become our largest IoT AR bookings partner in just 2 years. And as you well know, Rockwell is a trusted advisor in the industrial space. This partnership provides for an additional 1500 sellers who are out proliferating our joint message to the market.
Microsoft, our partnership with Microsoft is a co sell model where we're out telling a better together story. Sales here grew 30% over last year with expansion across IoT, AR and now PLM. And as you know, PTC for the 2nd consecutive year won Microsoft's Partner of the Year. GSIs and advisory firms, they assisted with about 40% of our IoT deals and 30% of our PLM deals in FY 'twenty. And to end on a big one, 75% of our top 20 deals in FY 'twenty had 1 or more of these partners source, influence or resell.
So the other critical hemisphere of our partner program is our channel resellers. Make no mistake, we are winning with channel partners. We consider our channel partners as an extension of our sales force of PTC, and they're critically important to us, covering the market and also serving our customers. Channel contribution to ARR is currently growing from 32% of total up to 40% in the midterm. Heading into fiscal 'twenty one, we had 800 reseller partners.
That's 140% increase from when we started doubling down on our partner strategy in fiscal 'sixteen. And in turn, these partners bring 1800 partner sales reps, which is a 70% increase. Let's shift now to IoT and AR and double click on that for a minute. You've seen this curve earlier today, and the point I want to make is this. Our IoT and AR businesses are crossing that famous chasm, and we're doing it with products that have now matured into solutions, and we enter in a leadership position just as the mainstream market is ready to go.
We are healthy and accelerating. You'll remember that we have increased capacity by over 100%. We have success both landing new customers, we are capturing growth in new logo ACV with a revamped hunting team of 50 plus sellers, and we're also having success expanding these customers with an increasing percent of our business now coming from there. All of this has contributed to pipeline growth, which is up 130% from fiscal 'eighteen. Even in a COVID year, our pipeline grew 40%.
So a few last thoughts here. The world's changed, and so did we. We've put the right resources behind the right opportunities and the right systems and processes as well. We are now in a great position to drive growth through scale. In sales, we talk about earning the right.
And at PTC, we have earned the right to sustainable growth. Now, we know we have to go close that business, but our transformations coupled with our strong performance gives us enormous confidence in our future, and it should give you confidence as well. We are where we really want to be. Thank you, everyone. Now let me turn it back over to Troy.
Thanks, Mike.
Clearly, PTC has made significant strides in optimizing the go to market model to address exciting growth opportunities in both our core business and our high growth IoT and AR markets. Our strong partner ecosystem provides another lever to broaden our market reach, and we're well positioned to drive growth at scale. Now we're going to hear from Eduardo Camacho, our Chief Customer Officer, who's going to give you an overview of our customer success function, a critical component of our field organization. Let me turn it over to Eduardo.
Thanks, Roy, and good afternoon, everyone. As Chief Customer Officer, I truly believe that if we focus on what our customers need to be their best using the power of our technology, our growth at PTC quickly follows. So today, I'll show you what we are doing to empower our customers and why I am confident in the field's contribution to PTC's sustainable ARI growth. This confidence is grounded on 3 key pillars: the scale in proactive customer success, driving adoption and value from best usage of newer capabilities of generative design to full factories digital performance management. 2nd, the positive results from our programmatic approach to maximizing customer lifetime value.
And PTC's focus on customer centricity, driving higher net promoter scores. And it's a proven fact, engaged customers drive growth. 3 years ago, I started the journey to bring together all of our post sales functions under a common mission. Let me start by saying that I am very proud of what we have achieved. Through this global pandemic, we were able to support our customers and keep them going.
We saw only a slight increase in churn and our customers are resilient. It is also a testament to the strength of our products, our business model, our employees and our customer success organization. Because of what we are doing to empower our customers, I am confident in our ability to reduce churn by 100 basis points this year and to drive continued improvements moving forward. But first, proper introductions. Who are we?
Our mission in life is accelerating our customers' success to go further than they thought possible, overachieving their business goals with BTC's technology and solutions. And in doing so, we protect and grow our ARR. How do we do that? With a team of 1300 engaged professionals around the world, who are passionate about designing and building repeatable customer experiences focused on value attainment, enabling the right technical expertise, so our customers can leverage the full potential of our technology proactively engaging customers throughout the whole lifecycle from on boarding to first value and then value at scale and maximizing customer lifetime through optimization at time of renewal. We are not done yet.
We continue to iterate with a relentless focus on customer value at scale, doing our part to help cross that all important chasm in IoT, for example. And the next frontier, elevating the customer experience, will underpin our future as a SaaS company. The voice of our customers needs to always be with us in the room. So related to value management, let's look at our first pillar, which is proactive customer success. We are driving success in 3 key areas.
Our growth business, we are investing heavily here to ensure our customers are at their best from leveraging newer augmented reality capabilities for remote assistance all the way to true scale in harnessing connected assets and operations data across multiple factories to reduce the operating costs. 2nd, we are deliberately dedicating resources to customers across our whole portfolio, making selective investments as defined by our account segmentation model that Mike just described earlier or for strategic and risk mitigation purposes. Finally, we are leveraging digital more than ever to maximize success of all of our customers. A lot of progress in building our own digital footprint this year. This includes better self-service support, widely available digital assets, outlining step by step pass through success by use case and digital adoption campaigns like the ones we launched this year for Chalk or Creo Simulation Life.
By continuing to do right by our customers, we directly impact their usage of our software and their satisfaction, shortening time to value and driving expansion. Given the focus on driving success in our growth business, let's dive deeper into what we are doing here. High value use cases sold by value based solutions are at the forefront of customer value at scale. Combining solutions with the right expertise and aligned execution gets us there faster and easier. It starts with designing the right experiences and customer journeys based on value and on persona.
You have the user or the project manager, the executive, results in the room, their needs and their expectations. Based on those, we identified detailed paths to success for each IoT or augmented reality use case, like the ones Craig and Mike presented, along with standard delivery models, so our customers, but also our partners have the right guidance. We are also making a significant investment to expand our CSM team this year, substantially increasing the coverage across our growth customers. Finally, we have the infrastructure to track and manage customer experiences, including the usage of predictive tools enabled by product telemetry. This is a modern proactive customer success machine, and it's ready for scale.
And we've seen the machine work. We are accelerating customer success. It was tested in this pandemic and it proved to be resilient. Despite this difficult environment and the challenges that we all collectively faced, we were still able in most of the cases to get customers to go live. Like our customers and our partners, also our professional services teams had to adapt pivoting to almost 100% remote.
But together, we were able to deliver critical projects, making many of our customers' digital transformation stories go real. We celebrated the multitude of go lives throughout the year, including upgrades, migrations to cloud, a full production deployments across the portfolio. And talking about crossing the chasm, also our IoT customers are scaling at an accelerated pace. With a repeatable experience, the right teams and infrastructure, we did it in this environment. So next, let's talk about renewals and maximizing customer lifetime value.
We evolved our renewal practices around 3 areas. There's a new organization focused on creating and driving commercial programs to maximize lifetime value with a win win approach, offerings for expansion at time of renewal, price increase programs, conversion of perpetual support to subscription, multiyear contracts and others. Then a process tool and management operating rhythm to identify and mitigate risks. Our account risk management tool leverages predictive analytics and the combination of product telemetry, customer health data and human insights to identify risks for the next 4 to 6 quarters. Then we act.
We work to mitigate those risks and monitor them. Although it is a newer process in the field, it's fundamentally helping us anticipate and manage the business. And finally, an aligned field execution model, relentlessly driving our customers through the renewal event in a spirit of optimization of the subscription benefits. So let's double click on this one. There's always a lot of chatter in the software industry who owns renewals, who owns the customer.
For us at PTC, the breadth of our portfolio and how we go to market calls for some sophistication in our approach. Our renewal team owns designing the common practices, the business approach to renewals, acting as a center of excellence and defining the engagement. Then Mike and I align objectives across all field teams that prioritize ARR growth. And finally, we use our account segmentation model to specialize the engagement based on each of these cohort needs. We are fortunate to have many customers leveraging a multitude of PTC solutions and with the potential to expand to new business lines, new teams as they grow and transform.
So here, our strategic account managers drive the execution, leveraging the renewal events to further deepen the strategic partnership with these customers, of course, supported by subject matter experts. Then in our protect and maintain customers, where the priority is getting higher utilization and value of the software that they already own, the customer success team takes the lead, bringing in specialized sales and marketing resources for identified opportunities. And lastly, in our channel accounts, our partners take the lead and we have a team that supports the channel community. It's a well oiled execution engine, maximizing customer lifetime value. Now finally, a theme that I am especially passionate about, our next wave of transformation, elevating the customer experience.
Elevating the voice of our customer is a mandate for us to be the company that enables the power to create. We know engaged customers drive growth, and we are acting on it, optimizing our customers' experience, working across PTC for all products and the entire lifecycle. To accelerate the change, we introduced this year a customer experience transformation office. It's the best practice in the industry. This team will orchestrate the necessary work to assure the voice of the customer is present in everything we do.
So how is all of this coming together? As I mentioned in my intro, I am very proud of how we've been executing. Even in a challenging year, we saw signs of our subscription model strengthening in China with a major year over year improvement. Our core products continue to excel, maintaining the consistently low churn through the pandemic. And we saw a 100 basis points churn improvement in our growth products.
Also in the growth business, we've seen this year the acceleration in our customer success when fully engaged with our teams with both a reduction in time to value and a significant increase in expansion size. What is also positive is that more customers are getting to expansion, proving we are landing healthier logos. And one of the best leading indicators of retention and growth, our net promoter scores have improved significantly across all regions and products. It's rewarding for this team and for me personally to know that we are making an impact. So to wrap up, we are confident in our goal to drive sustained improvement in churn in fiscal year 'twenty one and beyond by focusing on scaling our proactive customer success management programs, maximizing customer lifetime value and elevating the customer experience.
So with that, let me turn it back to Troy.
Thanks, Eduardo. I hope you can see that PTC has created a world class customer success organization that is driving oriented around driving strong retention around our customer base, aligning with our go to market team to drive growth and ultimately drive strong customer lifetime value. Now I'm pleased to have Wynn Grubbs join us to take you through one of our key business units, our Focus Solution Group. FSG is a unique asset to PTC, featuring market leading products, a stable customer base and highly profitable business model. With that, let me turn it over to Win.
Thank you, Troy, and good morning, everyone. 2 years ago, I took over as Head of the Focus Solutions Group, and it quickly became clear that we needed to tweak our model to allow for financial and customer success in PTC's more mature FSG product lines, while at the same time allowing the large engine functions of PTC, like sales and R and D, to scale, unencumbered by the needs of these smaller product lines. The focused solutions group is not, of course, about applying more or less focus, but really about applying a special and specific focus to these customers and product lines to ensure their success. We made significant changes to the operating model over the last 2 years That increased customer satisfaction and delivered great financial results. Let's look at the themes that I think will facilitate stepping through that story.
I'll start with the grounding in FSG's portfolio, including the role we play in the overall PTC portfolio. We'll look at our business framework and why we operate the way that we do. I'll then outline our product positioning in the markets we serve and makeup of our loyal customer base. And then lastly, we'll take a look at some of the headwinds and tailwinds in the portfolio. FSE consists of 23 products across five lines of business.
Let's take a quick look. Arbortex provides an end to end solution for technical publications. The Classic Products Group consists of 10 mature developer tools and 4 enterprise software solutions, like warehouse management and warranty. The retail business unit provides a retail PLM solution but focused on creative designers rather than engineers, while Surrogistix provides a service parts optimization solution. And systems and software engineering, formerly known as ALM, provides a solution that extends PLM with requirements, product architecture and validation capabilities.
Looking at the numbers, FSG is a meaningful portion of the top line with 15% of PTC's ARR, but we provide an even larger and significant portion of the company's contribution margin and free cash flow. Many would refer to this business unit as a cash cow. We have low single digit growth rates, which can vary in any given year. In some business units, we have very large deals, which can impact growth significantly. In FY 'nineteen, you might recall that we grew at over 10% in FSG.
In FY 'twenty, we gave some of that growth back, overall resulting in a 3 year CAGR of 4%. Let's turn now to our business framework and provide some insight into how we operate these businesses. I view FSG as a center of excellence that manages a disciplined portfolio of mature products within the overall PTC portfolio. Our primary mission is free cash flow with a secondary focus on ARR growth. These businesses need a different operating model than that of our high growth businesses.
The challenge for each business unit is to delight customers and achieve its own financial goals, but while being housed in a high growth $1,000,000,000 plus public company. The focus areas for high growth, broad customer base organizations are not the same as markets with smaller base and slower market growth. FST customers want a sense of community, the creation of intimate customer provider relationships and influence over product roadmaps that align with their vertical market needs. So we created 5 nimble small businesses, each with a domain expert, general manager who has full P and L accountability and a large degree of autonomy to run their business in a way that fits their customers, employees and their financial goals. So for some additional context, it's important to note that operationally, these product lines were once incorporated into the mainstream of PTC.
Sales, marketing, services, support, R and D and operations were all integrated into corporate functions along with the other PTC products. By design, we separated them and operate all functions as part of their respective business units. The model has allowed for significant operational and customer benefits. The design here is not for scale, but rather for efficiency and customer effectiveness as any independent company of their size would operate. This operating model has served us extremely well.
Turning to our products and our customers, let's first look at the Surrogistics and Retail business units. We're product leaders in many of the FSG businesses. Here, you'll see our leadership position in the latest IDC Marketscape reports. We're positioned again in the number one spot in both Surrogistics and retail. Taking a quick look at an expanded list of the customer base for each business unit, you'll see many high profile, recognizable industry leading companies because in most cases, we serve the high end of the market, companies that have global operations and complex problems to solve.
The products are vital to customer success and create tremendous value. They're deployed as core systems in their business operations and in many cases are considered mission critical or a key contributor in creating differentiation in their marketplace. Let's wrap up with headwinds, tailwinds and an outlook for FSG. The largest structural headwind in FSG, at least on the top line, is that we serve mature markets. Although, as I mentioned, we have years where some business units grow double digits, in general, you should think of these as lower growth markets relative to our core and growth businesses.
It's also worth noting that our growth profile is also a byproduct of our focus on margin over growth. We won't pursue growth in new geographies or verticals at the expense of our margin profile. We stay true to our mission. Also, as you know, we have 2 areas in our business that are particularly vulnerable to the COVID economy. One is commercial airlines and its supply chain that accounts for about 15% of our overall Surrogistics business and still faces obvious uncertainty.
The other area is our retail business unit, which is focused largely on fashion and footwear. There's significant disruption in the retail world, of course, and we've adjusted our investments accordingly as a result. Our results are also influenced by big deal variability, which is fairly common in FSG. It's great when we're closing large deals. However, we did have one large contract churn out in late fiscal 'twenty, which impacted our churn rate for the year.
The churn was the result of a single large government customer who elected to stop implementing the solution as they pivoted their resources to respond to the COVID crisis. Turning to tailwinds. We enjoy a strong referenceable customer base and have industry leading feature rich products. Customers are happy and loyal. And aside from the normal lumpiness of large accounts that affect short term linearity, churn and ARR are stable and on track.
Our cloud first business model is also a strength. New ARR from Surrogistix and Retail Solutions is exclusively cloud based. SSE and Arbor Text are also increasing their cloud capabilities. And once implemented, these engagements tend to be very sticky. We believe this cloud first model will continue to pay dividends in the overall lifetime value of our accounts.
So as we look ahead, we're targeting a continuation of our low single digit growth rates, coupled with continuation of high margin performance. Sustainability, of course, is a key tenet to this plan. With our product leadership positions that we discussed, disciplined operating framework and our intimate customer first execution model, we're confident in driving sustainable growth going forward. So with that, thank you for your time, and Troy, I'll send it back to you for final thoughts in this area.
Thanks, Win. FSG is truly a unique asset to PTC with a collection of very strong technology serving an impressive and stable customer base managed with a proven portfolio strategy that drives free cash flow. As you can see, I'm excited to be a part of the PTC organization, and you can see why we look our future looks really bright. With that, I want to turn it back over to Jim.
Thanks, Troy. Throughout that discussion, you can see the tremendous progress PTC has made advancing our marketing, sales, customer success and renewal functions to align with our growth ambitions and to align with our subscription business model. With the added expertise that Troy brings to PTC as our new Chief Operating Officer, I expect that our pursuit of best in class operations will only accelerate from here. I'm glad to have Troy on board. Moving to the final session of the day, which I know many of you are waiting, Christian will address the bottom line.
By bottom line, I mean how we plan to convert the strong market demand and our robust top line ARR growth into sustained margin expansion and strong free cash flow growth. But before I turn it over to Christian, I'd like to address our long term financial targets and guidance going forward. At our Investor Day last November, we shared a range of financial targets based on a number of different scenarios we had modeled. One of those scenarios was a recession scenario. We had offered that scenario to show the strong resilience we have in our business model in case we ever needed it.
Nobody could have guessed at the time that in just a few short months, we'd be facing one of the most profound global recessions we've ever experienced. Fortunately for PTC, we were prepared and I'm pleased with how the business has performed when confronted with this unprecedented downturn. The downturn did negatively affect ARR and free cash growth rates, but actual conditions have varied somewhat from the assumptions baked into last year's recession scenario. On one hand, the downturn happened sooner, but on the other hand, it may not be as deep and may pass more quickly, at least for PTC, and the business so far has performed better than the assumptions of the recession scenario. Christian will provide more details, but we continue to believe that the growth drivers and expense algorithm we shared with you last November are still very much intact.
Based on the latest long range plan we recently reviewed with our Board of Directors, we still see PTC performing within the ARR and free cash flow ranges we outlined last year. Plus, we expect the acquisition of Arena will be accretive to both ARR and free cash flow, adding a tailwind to our performance in that timeframe. Of course, precisely where we land will depend in large part on the timing and shape of the global recovery, which is hard to call right now. While we are reaffirming that the ARR and free cash flow ranges we communicated last year remain valid, we don't think it's prudent to continue to communicate a rolling 5 year plan. The practice of 5 year projections was started because of the necessity to guide expectations of performance during the long but predictable trough associated with our subscription business model transition.
But that transition is now complete and the trough is behind us. As we've seen since last year, the world is a very dynamic place. So without a crystal ball, there are simply too many moving parts to project so far out with such implied accuracy. Frankly, it's hard enough for anyone listening to me right now to project what will happen with the economy even next quarter. Therefore, we're not planning to issue new fiscal 'twenty five targets and generally plan to keep our comments based on the near term and midterm outlooks going forward in line with the practice of most companies.
By midterm, by the way, we mean a 3 year perspective. That said, I trust it's clear that PTC is playing the long game. We're making substantial strategic investments in growth businesses like IoT, AR and SaaS that will drive ARR growth for a decade or more to come. We're making tactical investments to improve productivity and churn and investing in business systems to improve process efficiency, all to expand margins and drive higher levels of free cash flow growth. The long term future is very bright, but we hope you can appreciate that our primary focus each day needs to be on executing the near term opportunity that's right here in front of us.
With that, let me turn it over to Christian to take you through the financial details.
Thanks, Jim, and thanks for joining us today. Over the next 15 minutes or so, I'm going to provide some commentary on our Q1 and our outlook for fiscal 'twenty one, discuss key assumptions embedded in our midterm ARR growth and margin expansion outlook and highlight our strong capital position. Please note that my commentary does not include the financial contribution of the Arena acquisition. As we stated in the press release, Arena is expected to generate approximately $50,000,000 of ARR in calendar 'twenty. This is based on Arena's definition of ARR, which is annualized recurring revenue.
So this may move a little as we incorporate Arena into our reporting framework. However, because the acquisition hasn't closed yet, we're not updating our previous financial guidance for fiscal 'twenty one or the impact on our midterm outlook. But suffice it to say, as Jim mentioned earlier, we think Arena will be accretive to both ARR and free cash flow over the midterm. Turning to our outlook for the year, we continue to expect ARR growth of 9% to 12% in constant currency for fiscal 'twenty one. And as we discussed on our Q4 call, this growth includes an approximate 200 basis point backlog headwind resulting from bookings pressure in fiscal 'twenty related to the global pandemic.
Heading into the final weeks of the quarter, ARR growth for Q1 is tracking to the midpoint of the 9% to 12% constant currency range we discussed, which is $1,280,000,000 to $1,320,000,000 We also continue to expect free cash flow of approximately $340,000,000 for the year, which is an increase of around 60% year over year. And we believe we can maintain this target with the acquisition of Arena. I will remind you that free cash flow in fiscal 'twenty was impacted by about $60,000,000 of one time items including restructuring costs, M and A related expenses, higher interest expense and higher cash taxes. For Q1, we're expecting to deliver free cash flow north of 100,000,000 driven by solid top line execution in Q4 of 'twenty and in Q1 of 'twenty one as well as the seasonality of collections and payments. Also, it's worth noting that our bond interest payments have moved from Q1 and Q3 to Q2 and Q4 beginning this fiscal year.
In terms of expenses, we expect headcount to ramp throughout the year, so OpEx will be lower in the first half than in the second half of the fiscal year. Turning now to our midterm outlook, we're on track to deliver our 4th year of double digit ARR growth, which in light of the unprecedented global economic backdrop speaks to the value of our solutions and the resiliency of our business model. For fiscal 'twenty one, at the midpoint of guidance, we expect our core product group to grow in the high single to low double digits, FSG to rebound from a tough fiscal 'twenty and grow in the low single digits and our growth product group to grow in the mid-20s. Within our growth products, we're expecting very strong AR and Onshape growth, but have built some caution into our IoT growth assumptions given the ongoing travel restrictions limiting our sales engagement with new customers. Looking ahead, as the economy recovers and the promising news about vaccines becomes a reality, we expect IoT ARR growth to accelerate, resulting in sustainable ARR growth north of 30% for the growth products.
We also believe that the strength we've been seeing in the core, especially in PLM, could drive ARR growth into the low double digits over the midterm. This combined with low single digit growth in FSG yields mid teens ARR growth overall. Double clicking into our growth product group, we heard a lot of good stories today about the adoption of our technologies across a range of customers and the compelling direction we continue to drive from a product perspective. Turning that into financial results, you'll see that as our hypergrowth AR and Onshape businesses scale, along with strong mid-20s growth in IoT, we believe a 30% plus ARR growth rate is achievable in the mid term. Unpacking the ARR growth story, I'll begin with our outlook for new ACV growth.
Following 8% new ACV growth in fiscal 'nineteen, which you will recall was a soft bookings year and 10% growth in fiscal 'twenty, which was obviously impacted by the global pandemic. The midpoint of our fiscal 'twenty one guidance assumes mid single digit new ACV growth. However, I'd like to remind you that we're assuming the first half of fiscal 'twenty will remain pressured by the global macros and then rebound in the second half. More specifically, our guidance assumes that new ACV growth will be about flat year over year in the first half and then rebound into the low double digits in the second half. Looking ahead, we believe that exiting fiscal 'twenty one, driving towards the mid teens new ACV growth range is a reasonable assumption based on continued solid performance in the core and the increasing mix of our growth products.
The other key element of ARR is of course churn. While we saw a modest increase in churn last year, about 120 basis points, we are expecting churn to improve about 100 basis points in fiscal 2021 and we continue to see a path to approximately 6% over the midterm. As you can see from the chart, the majority of the churn improvement is expected to come from our growth product group. As you heard earlier today from our field and technology teams, we have a number of important initiatives in flight to drive this improvement, including our solution strategy, which is expected to drive faster time to first value and further investment in our customer success programs to drive adoption and expansion. Beyond these important strategies, we continue to see opportunities to improve effective price increase realization and to drive longer contract durations, especially for renewals.
Given the size of our recurring ARR base, both of these factors can also have a meaningful impact on churn over time. I would now like to turn to our operating model and discuss our outlook for margin expansion. Let me begin with gross margins. We expect to see some modest improvement in gross margins over the midterm as we grow our ARR base. While not a factor in the midterm, longer term, as the mix of our SaaS business increases, you should expect to see some pressure on gross margins.
Of course, this will be more than offset by higher ARR, so we would still be expecting to drive incremental free cash flow long term. Turning now to operating leverage. As we've shared with you before, our investment rule of thumb is to target OpEx growth of about 50% of our ARR growth. We believe this remains a reasonable algorithm over the midterm with the caveat that in any particular year, we may toggle spending as we respond to new opportunities for growth, like our Atlas strategy that you heard about earlier. That said, over the midterm, we continue to expect that as the business scales, we can achieve contribution margins in the mid-30s with the majority of this improvement coming from sales and marketing, as well as some modest improvements in R and D and G and A.
As you know, we've been ramping go to market investments in our growth businesses to address the exciting opportunities there. And as Mike described earlier, we've achieved significant improvements in our go to market productivity in the core and FSG businesses. Looking ahead, we expect to improve productivity in our growth businesses as our partner economy continues to execute and customer engagements expand over time. Turning now to free cash flow. As I mentioned earlier, free cash flow in fiscal 'twenty was impacted by about $60,000,000 of one time items.
Normalizing for these items, our free cash flow guidance for fiscal 'twenty one represents about 30% growth year over year. Going forward, based on our target ARR growth and OpEx algorithm, free cash flow growth should continue to be in the 25% to 30% range over the midterm, yielding very attractive free cash flow in the out years. Before I wrap up, let me highlight our strong capital structure and discuss our capital allocation framework. Following the Onshape acquisition and our debt refinancing last fiscal year, we have $1,000,000,000 of long term debt with an aggregate interest rate of 3.8 percent with maturities in 20252028. With continued EBITDA expansion, we're comfortably below our target debt to EBITDA ratio of 3 times.
And of course, with the acquisition of Arena, which we intend to finance with cash on hand and by drawing on our revolver, our debt to EBITDA ratio will temporarily push above 3 times. We intend to aggressively get that back down below 3 times, which we think can happen over the next couple of quarters. And then we'll begin buying back shares in addition to continuing to delever. Ultimately, we intend to maintain a lean cash balance with access to about $1,000,000,000 of flexible debt capacity on our revolving credit facility. Regarding our uses of capital, our first priority of course is to continue investing in organic growth with targeted investments in our global go to market engine, strategic R and D investments across our portfolio and investments in exciting opportunities you heard about earlier today like Atlas and our SaaS strategy.
We continue to monitor the market for attractive acquisitions that either deepen our product portfolio or enhance our emerging SaaS strategy. And we also plan to return excess capital to shareholders through buybacks and are pleased to report that our Board has recently authorized $1,000,000,000 for stock repurchases through fiscal 'twenty three. To wrap up, given the impact of the global pandemic on our business in fiscal 'twenty and on our outlook for fiscal 'twenty one, the beginning base of ARR is lower than what was assumed in the scenarios we shared last year. And in a recurring model, as you know, this has a compounding effect on future periods. However, given our markets and our strong performance, we remain committed to driving to mid teens ARR growth and we also remain committed to driving margin expansion as our growth businesses scale.
This attractive top line growth coupled with OpEx discipline will yield very attractive free cash flow over the midterm. And lastly, we have a very strong balance sheet and an attractive capital strategy to help drive significant shareholder value over time. With that, let me turn it back to Jim to wrap up before we take your questions.
Great. Thanks, Christian. As we wrap up, I'd like to remind you that we see tremendous opportunity to create long term shareholder value with our 3 pillared strategy that is PTC's alignment with exciting secular trends in the market to create a strong pipeline of demand secondarily, efficiently turning that pipeline into top line ARR growth and third is the operating discipline and recurring business model that allows us to convert ARR into higher levels of bottom line free cash flow growth. We're right on time. So with that, let me turn it back to Tim to begin our Q and A session.
Great. Thanks, Jim. We will now begin our Q and A session. I'd like to remind everybody, if you'd like to submit a question, you can e mail it to the IR team at investorptc.com. Thanks for sending in all the questions beginning last night and through the session today.
Let me kick it off with some questions around Arena first and a couple to you, Jim. One was around where Arena focuses. Here, they plan a couple of verticals that have been pretty strong growth drivers for Windchill, like the med device space, high-tech space. Do you think there's any risk around cannibalization between Arena and where Windchill has been focusing over the medium term?
No, I don't. I mean, certainly not anytime in the near future. I think it's going to be very much like Onshape. I think that buyers, when they decide to look for a solution, the first decision they make is do I want to go full SaaS or am I looking to do something in the on prem world? It's sort of like automobile buyers deciding do I want an electric car or do I want an internal combustion engine.
And very rarely do those buyers end up with a mixture of both on the same buying decision matrix. So really, I think the nature of pure SaaS is a segregation factor that causes companies to decide I'm either interested in Onshape and Arena or potentially I'm not interested in Onshape and Arena and I really want to stay with something like Creo and Windchill and all the things that would compare to Creo and Windchill. So I don't really think it's going to be a factor. And then of course, over the long term, I do think more of the market will go to SaaS. But at that point, we're going to have SaaS based versions of Creo and Windchill as well.
So I think it's basically an expansion of our addressable market in any business we win with Onshape and Arena will be incremental to any business we would have won with Creo and Winchell.
Great. The second question on Arena was more around kind of a technology question. And one of the key benefits of Atlas that's been described to the investment community was to have a kind of a common SaaS platform. And now with Arena, they're obviously bringing their own technology platform to the picture. Do you see the opportunity for those 2 different technologies to perhaps converge at some point?
Will they remain separate? Will there be synergies? I know it's early, but that's several different questions around that kind of technology landscape have come through.
Yes, I mean, for sure, keep in mind, it is early. And we know what we've learned by doing the deep dives and the diligence process. But of course, we'd like to close the transaction and sit down with the engineering teams on both sides and figure out the right thing to do. But let me just say, if you think about the Atlas platform, what it's really good at is anything 3 d, anything that is involving data management, CAD data management and augmented reality data management and things like that, and collaboration it excels at. But Arena actually has a set of different things to bring to the table.
So the first thing I think is going to happen is Arena is going to help us extend the Atlas platform to be broader. For example, the whole database discussion around how to create data models and so forth, I think Arena will have a lot to add. And then I think over time, we'll work to converge those 2 things into one continuous thing. But long before that happens, customers will see them as converged. One of the great things about SaaS is we don't ship these problems to the customer side anymore.
Like if you think about any time you have 2 pieces of software that are potentially integrated together with a third piece of software, you ship all three pieces of the software to the customer and say, here's how you should hook it all together. And then you get the version explosion. Well, software product A comes in 10 versions and software product B comes in 20 versions and therefore there's umpteen versions of the connector between them and oh my god, I got a headache. But with SaaS, we'll just do all that behind the scenes and serve up a solution. And the only company that's going to know how Arena and Onshape are integrated together is PTC.
And so customers are going to love that, and I think it will just get better and better over time.
Great. Maybe Christian, I'll throw a couple of your direction here on Arena, and then we'll move to some other topics. Arena has been in the market for quite some time. I mean, as Craig touched on it early, perhaps maybe very early to the market, They've got about $50,000,000 in ARR in calendar 'twenty. But can you help the investment community understand, has this growth been picking up in recent years?
What kind of growth do you think about for this business as we look out over the next few years?
Yes, great. Thanks. It's a great question. I think that's right. As Craig mentioned, Arena was early to the SaaS game.
That said, over the past 3 years, they've driven double digit to 20% ARR growth, even during the pandemic. Obviously, they've been impacted the pandemic by the pandemic like PTC, but at the same time, much like PTC also continued to deliver double digit ARR growth. As we get through the transaction and think of longer term, we are strong believers like the Arena team that this part of the software industry is going to continue to migrate to SaaS. And that tailwind along with the markets that we play in and the operating discipline, we think is going to continue to drive solid ARR and frankly free cash flow as we continue to march through the next few years.
Great. And I guess following up on that question. So for the year, for fiscal 'twenty one, we're expecting this to be neutral to free cash flow and then accretive thereafter. Clearly, it sounds like you've got a decent profit profile. Can you comment at all a little bit about the profitability of the company and where you see that going forward relative to kind of free cash flow contribution?
Yes, another good question. As we said earlier and in the press release, they have about $50,000,000 worth of annual recurring revenue here as we close out calendar 2020. In terms of getting more into the details on the actual financial performance, I think we're going to hold on that until we actually close the transaction and can update our guidance more fully. But again, suffice it to say, they've had multiple years of solid profitable growth and I think we expect to see that continue.
Great. Thanks, Christian. So Jim, maybe I'm going to throw 2 more arena questions your way and then we'll jump into some other topics that just came in. Thinking about the go to market motion, so we've been investing obviously in Onshape's go to market here. I'm imagining there's going to be some investment in Arena go to market.
Do you think there's going to be synergies as we start to think about those businesses going to market going forward and how that sales motion might start to play out?
Yes, absolutely, Tim. I mean, yes, first of all, we are going to make some incremental investments. It's a growing business and you have to invest to keep the growth going. So we'll make some incremental investments. But I think, let's say, in year 2 and beyond, I really do expect synergies to develop.
And I say that based on what has happened in the traditional market for CAD and PLM and not just with PTC, but PTC has had tremendous success upselling from CAD to PLM and in more recent times going the other direction. And then if you look every other CAD vendor, even those that didn't start with PDM or PLM capabilities, develop them over time because it's what the market wants. So I do think we're going to have a good development of cross sell synergy. But let's take it one step at a time. We need to get the products integrated.
We need to learn the business a little bit. But definitely, I think we'll go after that. And I think our channel might play a role there as well.
Great. And then so speaking of channel and last one, I promise, on Arena. Rockwell, just the extension of that recent agreement would allow Rockwell to sell Onshape as well as perhaps Windchill. With Arena, would this be something considered as part of Rockwell's go to market? Would they be able to sell perhaps sell Arena into their own customer base as well?
Yes, Tim, that's actually a great question. What really attracted Rockwell to Onshape is how easy it is, that they don't have to become experts in doing all this on-site technical work around the software, implementations, upgrades, etcetera. And Arena, of course, will have the very same quality. So Rockwell certainly has, throughout the course of the partnership with PTC, really begun to deeply appreciate the importance of CAD and PLM to what's happening downstream in the manufacturing process and they like to be more active. So they've adopted embraced, let's say, Onshape aggressively and Windchill.
But I think maybe Arena will end up playing a key role there because it will be a little bit easier to bring into the Rockwell system.
Great. Okay. So let's pivot to some questions around some of the midterm targets here, and I'll start off with Christian. So the free cash flow growth range that you described earlier would land PTC somewhere in the kind of $700,000,000 range at the midpoint. So that's effectively kind of a recession scenario that was laid out last November.
Is that the right way to think about the range that you described?
Yes. Great question, Tim. Thanks. So I mean, the short answer is yes. Frankly, we are in the middle of a recession.
As Jim pointed out earlier, it certainly started earlier than what we had contemplated. It may not be as deep, it may not last as long. But that's where we are. And I think that's the right way to think about it. The plan that we reviewed with the Board certainly gets us into the range that we talked about.
And I think we are comfortable with the acquisition of Arena, etcetera, that we can get to 700 or above. Great.
Maybe, Jim, within these growth targets, we've laid out a possibility, it looks like, of the core growing a little bit more quickly than had anticipated, perhaps sustaining this kind of low double digit growth that we've seen in recent years. We had one question saying, do we actually think that that's potentially sustainable? And if so, what would be a driver of this sort of better than high single digit growth over the midterm, call it, in the core?
Yes. Okay, Tim, that's a great question. So you heard Kevin Ren, who's been running the PLM business for a while, talk about the fact that the connection between IoT and AR and PLM is really starting to create some synergy. And it's really this digital transformation topic. You might remember Kevin saying customers get excited about IoT and AR and then they realize they have to go get their digital house in order and they launch a PLM project.
So definitely we think digital transformation is going to be a tailwind that we much more deeply appreciate now than we did a year ago. And in part that's because the PLM business beat their plan in fiscal 'twenty despite the COVID pandemic. It was a fantastic year. And all the things that really made it strong in fiscal 'twenty, we don't see going away in the near to midterm. Now longer term and we didn't really talk about this today much, but longer term, the movement of Creo and Windchill to SaaS and the conversion of $1 of on premise subscription to $2 of in the cloud SaaS, that's also going to become a strong growth driver.
I mean, just run the math on the base there, it gets really interesting. But let's put that beyond mid term and kind of into long term as a growth driver. So mid term, definitely digital transformation has been a great tailwind. Longer term, conversion to SaaS is going to kick in. And therefore, I'm more bullish than the data we presented last year that said those businesses were going to slow down the market growth rates in the coming years.
I'm more bullish than that as I sit here today. Got it.
Great. Thank you. Christian, a lot of incremental color provided today on the churn, a little bit of a double click into the different businesses. Clearly, the growth of your businesses, as expected, are probably running at a higher churn than you'd expect over the long term. It does look like pretty heavy lifting to get from sort of where we are today to get to that 6% kind of midterm target that we laid out there.
Do you see Musk risk around that assumption? And what are really the key drivers in your mind, perhaps both in the core sorry, in the growth business as well, maybe in the growth businesses to help drive that churn number down?
Yes. Well, I mean, that was a lot of the conversation that we heard today from both our field and technology leaders about programs that they have in place really focused on our customers and making sure that they're getting the value quickly, which ultimately is what's going to drive utilization and ultimately reduce churn. Whether that's the solutions work that Craig Melrose and his team are working on or some of the customer success program that Eduardo talked about today. I think all of those coming together, as well as some of the contractual pieces that we discussed as well around price increase effectivity, as well as contract durations. I think while all of those certainly cut across all of our product segments, there is no doubt that we are acutely focused on the biggest areas of opportunity.
And so we have got the whole weight of the organization driving behind those.
Great. Thanks. Just drafting off a comment you made about contract durations there. We did have a handful of questions come in around that particular topic. I know we put a little bit of a pause on the effort to drive contract duration up, sort of pre COVID had some plans to get there, put that on a pause.
At this point, where do you see those programs from restarting perspective? And do we expect contract durations to change much in our 2021 outlook as it stands today?
Yes. Well, first of all, I'd say, we did start launching programs to try and drive incremental contract lengths right as the pandemic began. That's when we rolled those out. So I would say, it was really more of the macro environment that paused that effort more so than any conscious decision that we did. There was a lot of uncertainty in the market.
I think customers in general just felt more comfortable making shorter term decisions. So that said, we continue to believe that there's great value to our customers for looking at longer term contracts as well as the positive impacts it has for PTC as well. And we continue to be focused on driving that out exactly. When that's going to occur, I think depends a little bit on how the market environment evolves and when folks get more comfortable to start thinking about making longer term investments that are frankly in their best decision. So I think that will continue to be a focus for the company.
How much that impacts us in fiscal 'twenty one, I think is still a little bit TBD. But certainly over the coming years, we would expect to see that dynamic happen.
Got it. Thanks, Christian. Jim, one for you that came through on DPM, a lot of interest in that first sort of big S solution as we call it here. Is this something that's going to be available to Rockwell to sell perhaps later this year when that's launched? That was one of the questions came through on the manufacturing front.
Yes, for sure. In fact, Rockwell is one of the coal innovators who's helping us understand how to develop and apply this kind of technology to get the outcomes that Craig was talking about. So I think that DPM is going to be very good for PDC and at least as good if not better for Rockwell because again making this stuff easier and faster time to value and more clear value proposition and better executive selling motion. That's all very beneficial to both parties. And like I said, Rocco is collaborating with us to develop it.
And by the way, to deploy it in their own factories to have an internal reference case study.
Christian, one of the topics that we've discussed in the past but hasn't come up today yet is the conversion program that we've been running for a number of years now. As we think about where that maintenance base stands today, what's your perspective on the conversions continuing to contribute to the sort of midterm plan that's out there? What's the sort of overarching opportunity that's left today in that base of support?
Yes. So I mean, I think today as we begin the fiscal year, we have somewhere around $350,000,000 of support still running through our ARR. Not all of that is really, we will call it convertible to subscriptions. And I think that really the right way to think about it is, we view support as a subscription anyways. If the customer wants to migrate to a true subscription offering to get the benefits of the flexibility that come with the subscription offering, we're happy to do that.
And if they want to stay as a support paying customer, I think we're happy to accommodate there as well. Obviously, it will become more financially attractive to migrate to support or to subscription, excuse me, over time. So I think that we'll just continue to see the same kind of conversion rates that we've seen here now over the past couple of years as the base continues to slowly trickle and migrate into subscription offering. Got it.
So a couple of questions that have come in here, all centered around IoT and the recent positive news about vaccines and obviously the pressure that Craig talked a little bit earlier today about in the new logo side of the business. So I guess the question maybe perhaps for Jim, as we hope, knock on wood here, that we start to get back to some sort of new normal when vaccines get into the picture here, travel gets back in place. Do we think that sort of the back half of the year is when new IoT logo activity is going to pick up? And is that baked into our outlook, do you think at this point?
Yes. I mean, those are good questions, of course. I think with the vaccine, we're beyond the question of will we have a vaccine and will it be approved. And now we're on to the question of when will us common folks in business actually have it. I don't think it will be before our Q3 and probably start maybe coincident with that as I understand.
So what you heard today is that the pipeline for IoT is very strong. There's a lot of queued up interest from people who are interested but kind of unable to proceed forward. So I do think that as the vaccine kind of let's say in the Q3. But definitely it's going to be helpful in the Q4 and into next year. We have had we have planned around fairly conservative assumptions.
We in some cases, the COVID pandemic has helped some businesses more than others. And in many cases, it's both a headwind and a tailwind. And as the headwind lifts with the vaccine, the tailwind should blow through. Definitely IoT is kind of 1st in that camp, probably held back more by the headwind. But again, tremendous demand queued up that should turn into a tailwind once business gets back to some form of normal that involves travel and visit the customer sites and things like that.
So I'm optimistic it will happen. A little tough to call precisely when, but I'd say probably a little bit in Q4 and then more so going into next year.
Great. Thanks. We just had one come through, favorite topic of Christian's ramp deals. And so question there is, we've seen a little bit of a pickup towards the latter half of fiscal 'twenty relative to ramp deals, particularly in the IoT space, but perhaps a little bit in the PLM space. As we think about fiscal 'twenty one and the dynamics in the market today, do you think that the mix of those ramps could bounce around?
And if so, what's the potential impact on ARR for 2021, if that mix were to be different from the plan that we have in place?
Yes. So first of all, let's be clear, right, these ramp deals are good business for PTC. They are good decisions for customers. They want to get engaged in a long term relationship with PTC. That's the kind of engagement that we want to have and we want to make sure that we are accommodating market demand and putting the right kind of offers in front of customers.
So let's start with that. Secondly, as we have talked about, sure, there can be some, we'll call it, lumpiness to ARR in any given quarter as a result of mix of ramp deals. That said, remember, anything that doesn't come in, in the current quarter is actually going into backlog for future periods, right? So it's goodness either way, it may cause a little bit of turbulence in the near term. And in the guidance range that we've outlined for the year, we've tried to take into account some of the potential variability that we may see, given some of the ramp deal dynamics.
Great. Thanks. And I guess maybe the last question, I'll rope in one more areangrowth question here. And this is an opportunity perhaps to integrate ThingWorx with Arena. We haven't really talked about that potential intersection.
But maybe, Jim, do you see an opportunity for ThingWorx in that sort of mid market where we really haven't trafficked much today, but perhaps this is an opportunity to get some integration and more market exposure in a slightly different part of the market.
Yes, for sure, Tim. In fact, if you remember, Steve Dertine did talk about some of the progress being made already to have ThingWorx Flow running on Atlas for release here in fiscal 'twenty one. So that work is already underway and the first payload is queued up for delivery in the fiscal year. So definitely, ThingWorx is a bit of a different animal than Creo and Windchill because it's kind of always been cloud based, particularly for smart connected product use cases. But it wasn't really a multi tenant system.
It was a private instance, stood up on an Azure IoT and served back to a customer. And again, if we can find ways and we can to make it multi tenant and automatically upgraded and all those wonderful benefits of of SaaS. We just again lower the VARTA entry into IoT. So that's definitely in the plans. And again, 1st payload coming here this year.
Great.
So maybe, Tim, are we done? Can I move to wrap up? Sure. Okay, great. All right.
I want to thank everybody. Tim will do so as well, but I want to thank you personally. We had a good solid 3.5 hour event here. I think you did get a chance to really understand deeply our solutions and why we're doing well right now and aligned with market demand, especially market demand that's been accelerated through COVID. I think you had a good chance to meet a lot of the team.
I mean, I'm so proud of the talent we have here at BDC, all these smart, passionate people that are really having a lot of success. You got to hear all the changes that we have made and are continuing to make on the execution front. I know that that's been from time to time a concern with investors, but now we have a new COO, we have a team that really has executed and done some amazing things since we talked to you last year. And letting and letting the free cash flow goodness flow through with a 60% down payment here planned here in fiscal 2021. So I'm really excited about where the company is.
And I want to thank you personally for all the time you spent with us here today.
Great. Thanks, Jim, and thanks everybody for joining today. Please note that we're going to place all the content for today on our IR website. If you're interested also in learning how PTZ is transforming customers through their businesses, we've provided a link on our IR website to over 100 different customer studies that showcase our technology in action. That's a pretty good reference for those of you getting ramped up on our name.
Lastly and most importantly, I suppose we all hope that you and your family enjoy a very safe and healthy holiday season. And with that, we're all set. Thank you.