How's it going?
We're good. We're on? Okay. I guess it's going well. How about you, Neil?
Good. Long day.
Great to see everybody. Thank you for coming in to see us, talk to Neil from PTC. Neil, thank you very much for being here. Many years now at the conference. I always enjoy this conversation. Let's just start out with the very basics, for anyone in the room that's newer to the PTC story. What does PTC do for your customers, and what goals are you trying to solve for them?
Sure. Thanks for having us here at the conference. PTC, global software company. Our software helps companies around the world, product companies, design, manufacture, service the products that we rely upon. Five verticals we're really deep into that we're innovating for and spending our 40 years of history moving forward. First is industrial manufacturers around the world. Second, federal aerospace and defense manufacturers. Three, electronics and high-tech companies. Four is medical technology companies, and last is automotive.
Great. All, all very understandable physical goods in the world. Let's talk about the intelligent lifecycle vision. I know you've been talking more about this. Frame what that is, for investors and what you're trying to deliver for customers through this vision.
This is really capturing a lot of our customers' attention and is the framework by which we've been indicating the momentum that we've been building over the last couple quarters of demand capture. What's happening is there's a realization and understanding for our customers and those new that we're acquiring that product data is actually the fundamental most important asset of product companies around the world. All that product data actually resides and lives and gets breathed into life by software that's provided by a company like PTC. What we've been working with our customers on is, let's supercharge your business. Let's make sure you are competitive by building with you an intelligent product lifecycle. What does that encompass? First off, you need to build a product data foundation.
You need a strong, consistent product data foundation built by our core solutions, our core mission-critical systems of record in CAD, PLM, ALM, and SLM software solutions. Customer build a product data foundation with these best-in-class capabilities to give you a clear data structure. On top of it, we have this incredible technology called AI that needs to be put on top of this product data to supercharge the way in which you could actually understand your most critical asset product data to actually be competitive. That builds the intelligent product lifecycle, and it's capturing a lot of attention and excitement from our customer base and those new that we're acquiring.
That's really great. I'm gonna skip ahead a little bit because you brought up AI and data here. Everyone at this conference and for several months now has been talking about AI disruption in software. You have a real data advantage on behalf of your customers with this product data you have. Can you give us a sense how you and PTC view the future world with agents, LLMs, and your positioning in that world?
Sure. We're, like, energized by our positioning with enabling AI to be of advantage to our customers. We feel very advantaged that we have the secret sauce, the, quote, "the decoder ring" to actually train AI to actually have real scalable outcomes for our customers. As an example, the beginning of a product actually happens with the design, right? A 3D model that happens on Creo or Onshape, which are the flagship CAD models in the business. The AI agents that we're training on that CAD model actually has a lot of complexity because of the 3D geometry and something called a kernel that drives really complex mathematical computations to understand how that 3D model actually persists in a deterministic way to get manufactured. We're highly advantaged.
We're the only ones that understand how to and know how to train that CAD data model on that kernel, and what happens to make a deterministic outcome of that AI agent. Our customers are coming to us after 18 months of experimentation of other solutions that they were looking at, whether it be their homegrown solutions, and saying, "We've realized PTC has the ability, has the capability, and has the technology to actually build the AI agents with us to build the intelligence on top of this product, intelligent product lifecycle." We feel really good about that. Lastly, you've seen, hopefully, our customers are giving us really good reviews around a continuous flow of innovation coming out of PTC, organic innovation that has not happened in many years.
With the transformations we've done, we're putting out an AI-enabled solutions within the workflows of our mission-critical systems of records across ALM, PLM, CAD, and SLM.
It's interesting. You're not making widgets. You're making mission-critical automotive airplanes, medical devices, just some of those verticals you mentioned. It seems like your customers are leaning into AI already and wanna take advantage of AI capabilities. Where do you think the mindset is around these mission-critical products and your customers' willingness to adopt AI?
You know, the conversation always includes AI, and our customers are enthused by the progress we've made on real use cases of putting AI within an engineering framework that has really deterministic outcomes. They're, they're impressed by that. What's happened is our customers are also the ones that have been around for 10, 50, 200, 500 years of existence, and they realize to make something work, you actually have to put the foundations in place. That's why the intelligent product lifecycleStarts with building a product data foundation that's composed of putting modern tools like Windchill, our PLM system, flagship PLM system, into all the seats that actually in a company that develop products. We're seeing that momentum in addition and parallel to the AI execution actually cause the momentum that we've been talking about the last couple quarters.
Very cool. It's a natural good pivot point to actually go to switch to go-to-market. Last quarter, you talked about turning the corner on your go-to-market transformation. Can you tell us a little bit more what you meant about turning that corner?
You know, two years ago, when I came in and became the Chief Executoive Officer of the company, we prioritized the company back into the core fundamentals of what PTC is based on feedback we got from customers. That translated into bringing in a whole new team that actually executed very difficult decisions organizationally, messaging, enablement, and reconfigured how we interact with our customers in a vertical expertise manner. In parallel, we also executed and have begun a revitalization of product and innovation at PTC. We brought in a new chief product officer. He redesigned the product and R&D organization. You could see the release cycles now increasing. When you put that all together, we're seeing that momentum show up in customers understanding clearly, what does PTC do? They're looking at us now more strategically versus feature functionality of PLM.
Like, if we drive this intelligent product lifecycle, we get outcomes in these verticals that other companies in the verticals are getting from PTC. I wanna get on this bus pretty quickly, start moving through that. That's shown up not on my energy level here, 'cause I'm super enthused about the progress we're making and the tough work we put to get here, but it's shown up in demand capture over the last two quarters. Customers are showing up with their checkbook saying, "This is starting to work." To be clear, we have still continued work to make this durable, consistent, and sustainable, but the difficult decisions we made organizationally, messaging strategically are starting to now resonate in the marketplace, and that's a good place to be at right now.
Absolutely. You know, I know this demand capture you've talked about, it's impacting ARR, but also deferred ARR. Can you talk us through the dynamic between those two?
Yeah. You know, deferred ARR is the component of the deal that remains as an obligation of the customer that's committed obligations when actually the technology is implemented, right? When we're winning these strategic deals, we're getting larger deferred ARR because when you consolidate a PLM estate, you not only get the homegrown systems that we gotta convert into a Windchill instance in this example, but also our competitive displacements across some divisions that we're using a competitor's PLM solution. That all has rigor towards how that gets implemented, and we have a precise way now with the go-to-market teams far more aligned than they ever were, customer success and the sales team, to really implement when the customer needs the solution and do it methodically by which we actually get the activations and the utilization the way we want at our customer sites.
That's great. You brought up competition. What is the competitive landscape like today, and particularly in your core PLM CAD areas? What's new with the, you know, the existing old guard competition that's out there for PTC?
You know, I think putting the flag as the nerve center of the product data foundation being off of a PLM system is advantaging us, meaning this also includes Codebeamer, which is our ALM solution. The two kinda coexist in the product development cycle. That's a best-in-class solution, and it's really good also when it's a best-in-class solution when competitors are trying to force people to migrate onto a platform, and you provide them a solution that is so much better than what they're trying to force the customer into. Our openness, our approach of being customer first is resonating, and that's why we're seeing competitive displacements in PLM. We're seeing competitive displacements in ALM, and we're continuing down that front. Interestingly, in CAD, we have something called Onshape, which is the most modern CAD tool bar none.
We are seeing significant traction, acceleration of competitive displacement of other CAD tools out there that allows us not only to secure the CAD capabilities, but we're building an Onshape to Windchill connector that will also drive PLM growth. Strategy is starting to resonate, and we feel good about our place right now in the industry.
Very cool. I've gotta ask about, I'll call them the ankle biters, for lack of a better word, but anything in the AI native PLM CAD world? I don't even know if that's a thing. You know, you've talked about how long your customers been around to really needing to trust a brand like PTC. Do you think about AI native startups at all? Do you see any out there, or is it really PTC and some of the other more traditional competitors?
We think about everything that's happening around AI like every other company is doing right now. What we feel is a strong advantage is this customer feedback to us versus our own bias, is within PLM or CAD or ALM, this is again going back to product data is the IP, is the competitive differentiation for these companies, bar none. That is their most valuable asset. It's sitting on Windchill, right?
Mm-hmm.
Us enabling innovation for AI-enabled workflows driven in agent frameworks that are built by PTC, understanding the data model as well, and delivering to customers for use cases that they need, there's no reason with all the security, governance-Access controls that we've already built into our mission-critical system records for them to think about a third party doing this. We feel really good about our positioning, and we see a lot of people actually energized to join PTC saying, "Wow, like, everyone could do agents, but we don't have a data set that actually we could train these agents on. PTC, you have that technology." We're actually attracting really interesting talent coming in the business.
Very cool. You mentioned earlier Codebeamer and Windchill. Let's unpack that a little bit more. I think the first time we met, you told me that most automotive companies have more software engineers on staff than mechanical engineers. Can you talk about the integration between Codebeamer and Windchill and what you're really seeing in the combination of digital and physical product?
Sure. You know what, one of the things interesting is automotive in some other industries or some other competitors could be seen as a Achilles' heel. For us, you know, what's interesting is our exposure to automotive is through Codebeamer, right?
Yeah.
Codebeamer is an ability for automotive companies to actually be relevant with software-defined vehicles and have actually software be part of the mechanical and electronic components of the car. Codebeamer is a real strong driver of our growth, and it's being readily adopted by all of significant portion of the automotive OEMs, and now it's percolating down to the Tier 1, Tier 2 suppliers because of traceability. When we add Windchill to the component, what's occurring, this theme of software-defined everything, software is becoming, in every industry, becoming a more critical part of the hardware mechanical part of the product, right? Codebeamer does an incredible job mapping to the variants that are happening in mechanical and hardware changes to make sure that products are being developed with the same clock speed as software development as it would in the mechanical and hardware side.
We're very advantaged there because Codebeamer works in an agile framework versus competitive solutions. Then when you layer upon the strength of configuration of hardware mechanical components in Windchill, it's a home run. You will see increasingly number of releases coming up on continued integration tightness between the two. You will see agent frameworks and agent capabilities that will actually map towards these two systems actually working more and more closely together. It's what our customers want.
Very cool. Last year, you announced interesting portfolio rationalization, I'll call it, but divested ThingWorx and Kepware. Can you talk about the rationale behind that, to, you know, sell those businesses and maybe frame for us the, you know, kinda your view on the portfolio going forward?
Sure. Look, Right now, the way we see it, as we've been mentioning, we're building momentum. You know, we feel good about the hard lift, and it now showing up. We just gotta continue to make that consistent. We like the environment that we're operating, and we like the transformation our customers are looking at us for. We like our AI roadmap and the real value it's providing to customers. We feel good about the current portfolio. We are close. I think we denoted that April 1st or earlier, we'll be closing the transaction of ThingWorx and Kepware, and we're on track for that timeline. What I'll say is the rationale and the really strong thing that's happening as feedback to us is customers are coming to us in all these conversations saying, "This is great.
You're talking about the product data foundation, the engineering product data, and how we can unleash it across the enterprise. You're building innovation towards that. You're getting deeper into the domain. You're building AI use cases on top of those core systems of records. You're not taking our eye off the ball and talking about the fragmented factory floor, right?
Yeah.
Which, by the way, the new owners of the business will have a far greater focus on that. They'll have capabilities on it, and they'll better serve the customers in that area. We now have freed up our clarity to the customers, clarity internally, to go deliver on the promise of the intelligent product lifecycle. That singular focus across that strategy is super helpful to a company that's been around for 40 years, that is pushing and accelerating at the pace we are right now.
That's really helpful and really allows you to focus your R&D organization on what really matters for customers and that you can deliver for them. How do you think about future M&A as an enhancement to your own organic development?
We're constantly looking at tuck-in acquisition. We've done a few since I joined the company.
Joined through an acquisition.
I joined through an acquisition. That was a little larger of an acquisition.
Yeah.
The ones that we're looking at is more tuck-in related, where, you know, pure::variants was an excellent acquisition where we brought technology that was very unique, that actually builds, bridges this Codebeamer to Windchill variant management. An excellent part of the portfolio that accelerated the ability to deliver what we just talked about. We are looking at others that are, you know, we did IQL, a very smaller company. There's several others that could potentially accelerate it. We're staying disciplined on a few fronts. Number one is it has to be relevant to the strategy that we've got. It can't take us off and go to another shiny toy because there's enough demand right now.
Yeah
A nd enough energy on the current strategy. That's point one. Two is you can't disrupt the organizational dynamics that we're building. I have a, you know, a refreshed team where the camaraderie is starting to build, the alignment's starting to build, the way we're talking about the business is being consistent. I will not sacrifice that culture changing, adding, you know, new people that don't fit in within that framework. We're looking at it. We constantly are thinking about how do we accelerate the intelligent product lifecycle for our customers. They will be tuck-ins
You know, at best. Okay. Very helpful. Maybe I should have asked first beyond digging into M&A, let's take a step back. Capital allocation as a whole, very cash generative business, today. You know, how should investors think about how management and the board will view the relative of investing in organic growth, return of capital shareholders, again, in relative to M&A? I think you've already addressed M&A, but how do you think about broader capital allocation for PTC?
First off, you know, we've got a new Chief Financial Officer, she's been doing a bang-up job. The team really is acclimated to her, the organization's really like the refreshed way in which she communicates and interacts with the organization. I'm pleased. She's still early days, the proof points are very positive. The reason why I bring that up is it's a new set of eyes that's looking at what's the ROI look like? How are we operating? Are we efficient? Are we, you know, it's making the business suffer. I'll say in general, Jen and I are at the spot where the framework of, you know, 50% of ARR growth will be kind of OpEx related in terms of the increment.
It's a good continued framework as we think about the opportunities, as we think about multi-year ARR growth trajectories, et c. One of the reasons why we feel good about that currently is because the new leadership is actually as much as the prior leadership did, we're continuing on this theme of reallocation of, like, what's the best use of resource allocation. Jon Stevenson, our chief product officer, doing a bang-up job. As an example, you know, spending time on releases that are maintenance releases on a product just 'cause we've done it for the last 20 years doesn't work anymore, right? Jon's bringing a new view of that. He's bringing in tools to accelerate development processes. Rob and Siki are doing the same thing.
Jen DiRico is here, and she's looking at G&A to do the same thing. We feel good about the current contract. I think it's important to stay disciplined right now. Jen and I share this, by the way, in the entire leadership team. Stay disciplined because we see us rising right now and, you know, delivering what matters. If we get too ahead of ourselves, that doesn't result in the right ROI and creates a different culture of the company. I think by being this discipline has been helping us. Lastly, I'll say on the capital allocation piece, you know, one of the differences that Jen's brought to bear is we're gonna get proceeds from this divestiture. You know, her approach, which she told the board and first convinced me, was like, "Look, this, like, stock price is way too low.
Like, we're gonna be out there, and, like, we're gonna use the proceeds, and, you know, we're gonna do it in a way that's, you know, aggressive." That will be themes of which we look at. From a cost structure perspective, we feel good so far. We continue to think about reallocation, and we'll continue to think about what's the best for our customers. Right now we're good in the framework.
Great. I'm gonna hit one question on top line and one on kind of profitability. On the top line angle, we've talked about the positioning and how it's resonating with customers. Maybe at even higher level, like how does the macro landscape look for your customers? You know, how's pipeline trending, implementation times? Are things moving faster today? Are things slowed down 'cause of uncertainties out there in the world? Is there any difference by geo or vertical? I know I just asked five questions.
No, it's great. Great questions. I've been in the field a lot of recent. I was just in Japan last week, it's a theme that actually, you know, we operate in the major theaters around the world for 40 years, and we have a lot of depth of capabilities and experience with these customers. We're seeing a few themes that are of tailwinds here. Local for local, right? Reshoring, whether it be here in the United States, in Japan, they're building up, you know, an immense renaissance of the industrial base, you know, for a lot of different reasons. That plays to our strong suit, right?
It was a very well-attended kind of week that we spent a lot of time thinking about how do we modernize, you know, what has been a pretty legacy s-stacked within the Japanese kind of industrial base using the intelligent product lifecycle.
Yeah.
We feel very advantaged by the local for local, kind of the what's happened as a result of the geopolitics on helping PTC. Within the European defense space and aerospace, like, there's a revitalization of how do we stay, you know, competitive and how do we actually fulfill our obligations to, you know, NATO, et cetera. That's causing us to have conversation with customers that says, "We need to modernize. We need to, like, get this product data foundation in place and then put AI on top of it." We're seeing good themes around that. Again, in automotive, we're very singularly focused on software engineering. That's a real good tailwind on.
Sure
C ontinued companies building their inference there. Across geographies, I'd say that North America is an area where we see an immense amount of demand and backlog predominantly. For those that don't know, we are at the epicenter of the build-out of data centers, meaning our customers are, whether it's the Cummins of the world, the JCIs, you go down the Schneider Electric of the world. They are, you know, very strong PTC customers, Caterpillar.
Sure.
You know, they're dealing with immense demand, right, and backlog. We're helping them modernize their infrastructure so they can be nimble, adding intelligence to it. I'd say that the uncertainty of the tariff situation is not allowing the customers in North America just to go at the pace the demand is requiring them. I'm optimistic that as we get more clarity, hopefully around the tariff situation, it will unlock a next leg for the North American manufacturers. I'm optimistic, you know, calmer minds will prevail, and people will think about already what has been great things added to the manufacturing within North America, including the OBBB. The tax bill has been a huge benefit to manufacturers. The permitting process. It's all moving in the right manner. We just need the tariff uncertainty kinda put behind us.
A lot of tailwinds clearly, and tariff uncertainty will be one thing to get behind us, will be very beneficial it sounds. I'm gonna go to the bottom line. You talked a bit about this already, maybe to ask a very specific question on profitability. How are you using AI? I don't know if you wanna give some examples, but AI internally to automate, to create more efficiency for you all. You talked a lot about it from a product strategy for your customers. How are you all using AI tools?
Our engineering group is really accelerating on this. Like the it's just really good maturing tools that from a code development perspective and quality is like it's becoming a very important part of how we're talking about the innovation speed. Jon Stevenson likes to say, "I've come back here to make sure PTC runs at the speed of a startup." The AI capabilities really allow us to actually leapfrog that versus what's been happening over the last number of decades. That's a benefit. Customer support, huge value.
Sure.
Like we've implemented very strong AI capabilities in customer support. I'd say generally speaking across the other functions, sales and marketing, we've implemented, we use it, we're still sorting through the ROI of those capabilities. Then obviously in G&A, Jen's coming in, and she's got a bunch of new ideas of how to use AI to make that more of an efficient, effective kinda model. Yeah, we're all of the above. Similar to our customers, we're making sure it scales, we're making sure there's ROI-
Yeah
We're making sure there's real use cases. 'Cause right now we're busy. We got customers coming to us wanting us to deliver. I don't want the company distracted with too many tests out there.
Experimentation testing, yeah.
Within R&D and product, for sure. This is a good capability right now that's matured, that is scaling.
Amazing. let me pause here. We got five minutes to go or so. Any questions in the audience for Neil?
Sure.
We have a mic. Hold on one sec. It's coming down.
Yeah, great. Thank you. Just on the, I guess on the CAD side, you mentioned Onshape Creo, the kind of transformation towards the more cloud-based product on the, on the Onshape side. Can you just give us a feel on product completeness on Onshape, where does that stand versus on the Creo side? Any kind of feel of adoption rate on Onshape versus Creo, like install base sizes would be helpful. Also I guess the first leg on getting Onshape in the market. You often have to win with the universities, right? You have to get into the students that have to learn the tools. Anything around that would be very interesting. Thank you.
Sure. Great question. I would say, you know, we're not gonna talk about the user base, but I'll say it's, you know, it's one of the fastest growing, if not the fastest growing products we got in the company right now. Codebeamer and Onshape are like really on fire. The reason for it is because it's matured enough by which companies like Garmin, companies like Garrett, the sophisticated, you know, multi-product needing collaborative solutions. Onshape team's done a nice job scaling, right? They've created the right element by which all of Garmin's products are being designed on Onshape as an example. A big, you know, statement of strength. Different than Creo. Creo does a remarkable job at large assemblies. Very complex, large, heavy industry design Creo is extremely good at.
Onshape over time could be, but that's not where their focus is. In fact, Onshape's focus right now, we're knocking it out of the park on robotics as an example with Onshape. Most of the physical AI world is being designed on Onshape, and several new introductions and announcements are forthcoming in the next number of weeks. We're seeing strength there. Just from a perspective of where the market is, we're seeing that kind of both boats rise from a perspective of different markets adding AI that's enabled into both of them, which we're spending a lot of time on, and we're seeing good value on it.
I'll come back to the audience, but the Onshape question triggered one for me just on your other plus offerings, your SaaS initiatives.
Yep.
Can you tell us what you're seeing with Windchill+, Creo+, and the willingness of, you know, these more mature, sometimes around 50 or a 100-year manufacturing companies willing to adopt the Plus series, your cloud offerings?
Every one of the new deals that we're winning, meaning from a competitive displacement, is going on Windchill Plus. It's a real, you know, strong product capability that's winning against our competitive solutions, other competitive solutions. This is Windchill Plus. We feel very good versus two years ago, I think I told the market like, "Hold on a second. Like, you know, this will take some time until we get our sea legs. I don't wanna put myself ahead in the company saying Windchill Plus is where you should spend your time thinking about where the value uplift is." Two years later, we have matured, and we have far more transformations under our belt. We are deep into multiple, very complex implementations right now, and we're continuing to invest into Windchill Plus. We see real value in the continuation of Windchill Plus.
We also, to be clear, for those new to PTC, continue to see on-premise Windchill expand seats, right? Different than other industries, our industries have not given modern tools to product development teams. We're allowing that to happen, and then we're converting them to SaaS. In some cases, we're converting them early on. We see that of value. In terms of the CAD kinda cloud versus on-prem, for very complex assemblies, Creo on-prem is completely the right approach. Our AI actually strategy has been building plug-in technology that works on-premise as well as SaaS. We have an advantage of like AI helping both sides of the customer. We've got the best cloud, most modern CAD platform in the world that this gentleman asked about, Onshape. We've got two vectors that customers can choose from.
Lastly, Onshape, different than prior regimes, is actually create integration points of Windchill.
Yeah.
Right? It's a big change. It was a religious change within PTC. The new team said, "You know, we're gonna do right by the customers." That's gonna unlock a lot more value also from Onshape downstream into PLM, ALM over time. You saw that with the Garrett you know, the customer win that we talked about.
Yeah.
That is fundamental to like how we displaced the major competitor there was with that strategy. We'll continue to do that.
Absolutely. Time for one more from the audience. Do we have one more question for Neil? We crushed it all. I'll ask a general one. You know, just gonna summarize everything we've talked about. A lot to be excited about. What are the two to three most exciting things for you as Chief Executive Officer? You know, no target this year, next year. What are you really pumped about with PTC?
We've been putting in the hard work. You know, this has not been an easy couple years since I took over the role. Doing the right things and making the tough calls on people, strategy, the focus on the customer, revitalizing the culture towards these things, as we're developing our AI capabilities on the intelligence of the product life cycle, it just feels good to have put in the hard work and starting to see the momentum build. When you see the organizations across the world speaking the same way and customers repeating back what we've told them, things are starting to click. We've said that happened the last few quarters. You know, work's cut out for us. We still have a lot of work ahead of us.
I'm a big student of when shifts happen in momentum from an organization standpoint, and I can see it happening. That just gives me pure joy and inspiration to push even harder right now because, one, our customer base needs it, and the people at PTC and the generations before that gave us this opportunity deserve for this company to be the preeminent enterprise software company in the world. I strongly believe that we have that place to be that company.
Amazing
Keep me going.
I wanna thank Neil for being here. It's always one of my most fun interviews. I always enjoy having you on stage. Thank you, Neil.
Thanks. Appreciate having me.
Continue success to PTC.
Thank you.
Thank you, everybody.