Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PTC Inc (PTC, Financial) delivered solid constant currency ARR growth of 12% year over year in Q3.
- Free cash flow growth was strong, rising 29% year over year.
- The company has a strong product portfolio with five focus areas: PLM, ALM, SLM, CAD, and SaaS.
- PTC Inc (PTC) is seeing significant customer interest in its digital thread initiatives, which streamline workflows and improve competitiveness.
- The company is actively optimizing its go-to-market and G&A activities to drive more effectiveness and alignment with customer value.
Negative Points
- The demand environment remains challenging with consistent difficulties in close rates.
- The company is undergoing significant leadership and organizational changes, which could lead to short-term disruptions.
- ARR guidance for fiscal '24 was lowered at the high end by $20 million due to timing and deal composition.
- Free cash flow came in below guidance due to timing issues with collections.
- There is ongoing uncertainty in the macroeconomic environment, including geopolitical factors and customer budget constraints.
Q & A Highlights
Q: How has the demand environment changed over the past quarter? Has it gotten worse or still the same? What indicators would you look at to feel more confident about things turning around?
A: In Q3, we saw very small changes across all geographic regions and verticals, with no discernible trend change. The demand environment was consistent with the past couple of years. Our pipeline going into Q4 is strong. We look at close rates as an indicator of improvement. Once close rates on a growing pipeline improve, it will indicate a better environment for PTC.
Q: Could you talk about the trends that played out throughout the quarter and how much of the demand environment is due to execution versus macro factors?
A: We saw very small changes in trends across geographies and verticals. The demand environment remains challenging, consistent with what we've seen. Our guidance update reflects how Q3 deals will impact Q4 ARR and expected close rates based on our pipeline.
Q: Can you expand on the decision to operate a flatter organizational structure and take on more roles and responsibilities?
A: We are focusing on our five priorities where we can drive the most customer value. We repositioned product and R&D capabilities to support these priorities. The same approach is being applied to our go-to-market function to ensure effectiveness. We are aligning resources to support these priorities and drive customer value.
Q: How do you differ from Dassault, and are you seeing any geopolitical issues affecting your business?
A: We did not see any discernible change in trends among geographies and verticals. We operate under the assumption of a challenging sales environment and focus on disciplined execution. Our product portfolio and strategic priorities differentiate us and help us navigate the current environment.
Q: How do you think about the potential risk of disruptions from changes in the go-to-market strategy?
A: Having been with PTC for 18 months, I feel confident in our thoughtful approach to changes. These changes are made from a position of strength and are intended to enable our team to be more successful. We are managing these changes intentionally to drive more effectiveness.
Q: Is the reduction in ARR guidance due to deferred ARR contracts being renegotiated?
A: No, there were no changes to deferred ARR. The guidance update reflects how Q3 results and deal compositions will impact Q4 ARR. It also considers the maturation of deals in our pipeline and expected close rates.
Q: Can you discuss the relationship between ARR and free cash flow, and was there a $10 million deal that should have landed this quarter?
A: The free cash flow miss was due to timing, with collections expected at the end of the quarter arriving after the quarter ended. This timing issue has been resolved, and there is no change to our cash flow forecast for the year.
Q: How are close rates trending for ServiceMax and Codebeamer cross-sell opportunities?
A: Our assumptions for Q4 close rates are consistent with prior quarters. We are pleased with the momentum of Codebeamer and ServiceMax, with strong pipeline and deal closures expected to continue into next year.
Q: How are customers baking in the US election into their decision-making process?
A: Customers are focused on digital transformation regardless of the election outcome. The need to deliver products faster with better quality and a sustainable cost structure drives their decisions. We have considered the current geopolitical environment in our guidance.
Q: How should we think about the drivers of low double-digit growth in 2025 and the contribution of SaaS?
A: We will provide more details in our official fiscal 2025 guidance next quarter. Our focus remains on our five priorities and the continued momentum of our SaaS offerings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
