Hey everyone, Tyler Radke here, Co-Head Citi’s Software Research Practice here at Citi. Welcome to day two, the afternoon stretch of a bunch of great software companies leading off. We have our friends at PTC from up north in Boston, happy to have the CEO, Neil Barua, and CFO, Kristian Talvitie. Gentlemen, thanks for making the trip. I know it's Q4. There's a lot of business you guys are closing this month. Neil, I thought it would be great to start with you. You know, somewhat new to the CEO role, but one of the top priorities I think you had coming into that role was just to meet with as many customers as possible. I thought it'd be great just to get your impressions after traveling the globe, talking to customers. What were some of the most surprising takeaways as you met with customers about PTC? Great to be here. Thank you, Tyler, and glad to make the trip down. First of all, PTC is a global software company. We help our customers who build amazing products, design, build, and maintain those products. Through the 40 years, we actually celebrated 40 years at PTC this past May. The 40 years we've created a great relationship with many of them through our software suite that includes starting with CAD, which is computer-aided design. All the cool designs of all the products happen on our software. PLM, very importantly to us, is where all the designs actually are built into a very sophisticated recipe before they get manufactured. We've got a great suite of services on the services side that actually sees and feels and maintains all the things that happen to those products in the field. In these conversations with these customers globally, and we spend a lot of time with customers and continue to do it, and we'll always continue to do that as the CEO of this company. Three themes are coming up in 10 out of 10 conversations, which is number one, product companies around the world need to speed up their way of doing business. Their business is getting more complex. It's got dynamics to it, whether it be geopolitical, whether it be policy-driven, whether it be competitive-driven from many companies around the world that are speeding up development. Our customers are coming to us and saying, what can you provide for us to speed up our organization to produce great products at a high quality so we could exist for another 50 to 100 to 200 years? That is uniformly across every customer. It's only accelerated despite the uncertainty that's out there in the world. Got it. You talked about, you know, CAD and PLM. Obviously, those are really broad categories, especially all the different products you touch. I imagine some of this was just kind of educating customers on everything you could do for them in some of those situations. It's interesting. We've been spending a lot of time now. Rob Dahdah, our new CRO, is really in this go-to-market transformation, making sure the messaging and the view of PTC is seen the way we know it to be seen, which is highly strategic at some of the most substantial companies in the world. NVIDIA was one that we announced in our earnings release and a press release around a relationship where every single GPU in the world actually gets configured on Windchill, our PLM system. Raising that now to the senior levels, Jensen and his team, making them aware of PTC has resulted now in a partnership that we're beginning and is only going to accelerate. That we're doing across the board. Part of the theme of what we've done in go-to-market so far is really making the messaging around what outcomes are you getting from deploying these amazing software solutions that PTC has? What do others in your industry vertical have done? What outcomes are they getting from using PTC? We're raising that conversation up to the C-suite. That's a great new motion that the company is doing at scale now and continuing to move that forward as we get into next year. Yeah, touching on that strategic positioning, I know you don't comment on market speculation, but I think on the last earnings call, you did talk about PTC being a strategic leader in the category and maybe not being surprising that others could be interested in that. How do you just kind of think about that strategic positioning in the context of the broader market, and how are you thinking about driving shareholder value from here? The first thing we think about from a strategic standpoint and why we feel so great about the position of PTC and the opportunity to continue to improve PTC is because at these great customers for the last 40 years, we're at the epicenter of their business. All the ways in which products get designed, developed, built, maintained have been touching PTC's products and is only getting more so. If you think about strategically how critical we are in a software vertical that not a lot of players are in and the depth and understanding and the relationship we've built with amazing products, there's no other company that's this strategic in an environment where product companies are just trying to stay alive to produce the amazing products that our kids and our families use, that we all use on a daily basis. That strategic priority is so fundamental and such an inspiration for PTC to do what we're doing right now. Right. I guess translating that into your conversations with customers, you have made some changes to the go-to-market since you took over. I think you talked about verticalization and some other things. Just give a sense for those changes, where we are in those changes, and how you're thinking about the tailwinds or the benefits of those investments you've made as we head into FY 2026. As you mentioned, I was announced as CEO about two years ago with a great transition with my predecessor, Jim. As I mentioned on the first earnings call, it's my job and duty to turn over all the stones of the company and make sure we are appropriately doing the things we need to to create great value for our customers and all the stakeholders. One of the things early on that we saw in bringing in a lens that was very data-driven was around we had significant, in our view, improvement levers on how we're operating our go-to-market machinery. What we unearthed with that was we need to do a number of things different. At the highest level, we felt a vertical approach would benefit us, gaining more traction and attaining more wallet share of our great customers and those new by having that focus and desire. There are a number of levers underneath it that we're also pulling, which also resulted in making sure I brought in the right leader, Rob Dahdah, who's actually here with us today here at the Citi Conference. I recruited him to come in. He joined early December, well aware of the playbook of how we were going to transform. For the last seven, eight months, he's been with the team, hard at work, chipping away on the playbook to make sure that the transformation actually builds momentum. We make the tough decisions to position us for ultimately a North Star from a financial perspective is let's start growing that new ARR. That is fundamentally all the work that he's putting into place with the marketing leadership, all of us leaders to actually have a high-performing sales team that really takes advantage of this opportunity in front of us, Tyler. Good progress so far. It's a multi-year journey, but I'm very pleased with the progress so far. Yeah, I guess that's a good segue on the topic of growing that new ARR to bring in Kristian on the financials a little bit. You know, post-deliberation day and a lot of the uncertainty, you did bring down your full-year growth targets to the high single-digits range. You did take the low end up after last quarter, off kind of better execution and everything. Could you just walk us through what you're seeing in the demand environment, maybe both from a macro perspective, but also some of these go-to-market changes that Neil was talking to and just kind of your confidence level in hitting those targets? Yeah, thanks, Tyler. Yes, you're right. We did bring down our full-year guidance. Post-liberation day, there was obviously a lot of turmoil, a lot of angst at the time. Some of you may recall, we had set a kind of low end that contemplated a macro situation that got potentially significantly worse from where it had been. There were conversations with customers. They were uncertain as to how they were going to proceed, not if they were going to proceed, but perhaps when and at what scale they were going to proceed, particularly early on in that quarter. We put in place what we thought was kind of a low end that contemplated things getting significantly worse. Obviously, off of the Q3 results, which we felt were solid, and the macro environment in general, I'd say remaining stable. Like we've been calling out now for the past two or three years almost, it's been a difficult macro or a challenging macro. I wouldn't say that it's turned into a better macro. It just didn't turn into a worse macro. Given that dynamic, given the execution that we saw in Q3, the opportunity, the pipeline for Q4, we felt it was appropriate to take that kind of low-end scenario off the table. Obviously, we still need to execute in Q4, but we feel the range that we have out there is appropriate, allows for some ongoing macro turmoil and, frankly, allows for deal structuring, which for our larger deals can have an impact in any given quarter as to how much ARR actually starts in the quarter, whether the deal is a ramp deal or whatnot. Those are probably the two bigger swing factors, what happens here with the macro and the deal structuring between the high end and low end of the range. Probably the larger of the two variables is the deal structuring aspect, which is difficult to always predict. On the ramped versus kind of. ramped. Okay, got it. Obviously, it's early to talk about FY 2026 at this point, but just as you look across the product portfolio and if we were to get accelerating growth on a net new ARR basis in 2026, absent some dramatic improvement in the macro environment, what products or maybe segments from the go-to-market perspective do you think could drive that? What are you most excited about that you think kind of has that acceleration potential? Yeah, maybe back up to make sure we're level setting. The way we're approaching how we're operating is not by assuming the macro gets better. All these changes we're doing internally to make sure we're better suited for any macro environment. It's been a bad macro environment for quite some time. We hit another soft spot this year globally with the Liberation Day and that few months of pause. All this work and heavy lift that we're doing, including the go-to-market transformation, the addition of a new Chief Product Officer to accelerate our product innovation within AI, is around making sure we get our foundation much stronger in any kind of environment that we've got. By the way, if a macro improves, we'll just be benefited even more is the way we think about it. In terms of how we think about the excitement of as we enter next year and the years following, we really feel strongly about achieving our vision of what we're calling the intelligent product lifecycle. You'll hear this more from PTC, where ultimately we have seen from our customers and heard loudly from them that having a product data foundation that engineering workflow occurs off of and that product data actually being utilized by the rest of the enterprise is our secret sauce at PTC. We do that extremely well with a lot of reliability and confidence. As we stitch together the workflows and the data workflows across our software solutions for our customers, we strongly believe that that not only inspires customers to use Windchill more broadly and deploy Codebeamer, our ALM tool, which coincides with what we think about PLM, but also allows them actually to take advantage of generative and agentic AI. Without PTC, without this product data foundation, you're pretty much SOL as a product company to actually achieve these outcomes to remain competitive in this very interesting world that they all compete in. We're most jazzed about that because we're starting on second base. We're getting the messaging right. We're making sure the product integrations work well. We're adding the agentic AI capabilities, generative AI capabilities, so that when our customers are ready, we're giving them a wholly differentiated experience using PTC. Got it. Okay. Maybe just thinking about the product segmentations that y'all break out, starting on the PLM side, you know, a lot of different great products in there. You talked about Windchill being used by NVIDIA and, you know, ServiceMax, where you kind of came into the company through. Give us a sense of just, you know, what could be the biggest growth drivers within that bucket. We often get the questions from investors, you know, how to think about the growth of that going forward. When you have various parts that are growing at different rates at different stages of the maturity curve, it's sometimes kind of difficult to get a consolidated number. Sure. Let me start with the beginning of how products actually come alive, which is with design and requirements. That starts with our CAD tools, right? Creo is our flagship, clearly. It's, you know, the thing that we point investors to to look at. We watch carefully how we innovate on that, how that growth rate occurs. We've also got something called Onshape, which is the born-in-the-cloud CAD tool, which has caught fire. It's fantastic. It's nothing I want you all to get excited for in models. I believe from a mid-to-long-term perspective, Onshape will be a critical growth driver of that data flow from design through the lifecycle of this intelligent product lifecycle. That's the beginning of CAD. The most interesting growth lever we see is around Windchill and Codebeamer. Windchill is, again, the configuration engine of how products actually get put into a very sophisticated recipe before it gets manufactured. Windchill does that incredibly well. It's a flagship product. It's one of the most substantial parts of our financial framework. It is the area we see the most opportunity for customers seeing the expansion of Windchill across their enterprise. A level of seats that they have that has been predominantly doing CAD data management, they're now seeing if we expand PLM beyond that, we actually can move the product development process faster. Windchill is front and center where we're putting, you know, resource allocation, incremental dollars to accelerate that, not only on-prem, but SaaS. We can talk about that in a little bit. Codebeamer is one of the most strategic capabilities we've got because we have a view that software development in hardware and mechanical companies will become one of the same. Every CEO I'm talking to that runs a product company, they're dealing with how do I break the silos between the software engineers and the hardware and mechanical engineers. Codebeamer with Windchill allows a CEO and a C-suite to actually break those silos down and be able to move a product development process much faster using those two capabilities. We see Codebeamer on its own being a growth lever, but in combination with Windchill being a real exciting part of our growth algorithm as we think going forward. Lastly, ServiceMax remains strategically important. We'll talk about what happened this year, but it allows for PLM, again, to have a place by which service data can go back into the PLM system. This reinforces part of our vision that the product data foundation with the centerpiece being PLM is reinforced with everything that we're doing. Everything I didn't mention, by the way, all the other product categories you've heard for 40 years at PTC or 10 years or before my time are getting the resource allocation differently than the ones I talked about. I see. That would be things like IoT or the other. You name your word soup of all the other things, they're important to us. We measure them appropriately. We have different metrics and views of how we manage it. We think about resource allocation all the time on those fronts, but where an incremental dollar comes in is on those areas that I talked about. It's interesting to hear you really talk a lot about the incremental resource allocation, particularly on Windchill, right? I think that's been a product that's been around for a very long time for PTC, but what do those new users look like? Where is this expanding to? Is there something you're also seeing on the competitive front where maybe there's an opportunity for you to replace other PLM products? You know, I will say Windchill has been around for quite some time, as you noted, but the mojo of PLM and the consistency of PTC talking and innovating and releasing really amazing functionality in Windchill, including what we're going to release as soon this year around Windchill AI, which is a generative AI solution on top of Windchill. We've accelerated that over the last 18 months. I notably came into this company and made that the centerpiece of how we think about the business going forward because of the strategic importance of that software solution. When we think about the growing utilization of Windchill, a significant portion of our customers use Windchill as just a data repository for these 3D designs, right? It organizes in a file system, so to speak. It's one capability. It's called PDM, which is not full PLM. That's been Windchill for 20+ years. A good portion of our customers have moved and said, you know what, Windchill we could use to now move those designs to a manufacturing engineer or to a supply chain engineer or a quality engineer in a real-time basis to see as the design changes, do I have to change all the other aspects of how to get this manufactured and produced appropriately? When you get that excitement of Windchill and that use case to be seen as I now could have a faster throughput of a design process to the manufacturing floor using the full set of capabilities of Windchill, that's when we get the expansion of seats. Lastly, the Codebeamer piece is important because a product actually can't get manufactured without the software alignment there, right? An autonomous driving, one of the most prominent autonomous driving companies in the world, use Codebeamer for all their release and requirements management. That needs to get integrated when they actually build the car on the shop floor, right, at the same time. That's another area of why we get inspired and why we're pushing on the incremental dollar in those two product sets. Yeah, no, that's super interesting. I guess you touched on AI a little bit, but one of the things we heard, we had your friends at Autodesk here this morning talking about kind of the AI strategy. One of the big pieces to kind of unlock that is this data readiness, right? A lot of these systems, you know, you have file-based architectures, which doesn't necessarily mean that that data is usable in an AI construct. How are you thinking about that transition for PTC to kind of, whether you want to call it a cloud-based data model or, you know, a data model that's usable by AI? Yeah, so, you know, I think we have a two-pronged approach. One is we're embedding AI into our solutions. So regardless, like Windchill and Codebeamer, ServiceMax already is GA, Onshape's GA on generative AI solutions where it's embedded into the actual product. Where the automating, right, the agentic layer actually comes in, which we're spending a lot of time on, you really need to simplify that data foundation as we, as you know, you noted, a competitor calling that. We also believe that to be the case. We believe in our industry, which we, you know, have similarities to a certain degree, there have been complex deployments. When you look at a Windchill deployment or a Creo deployment, it is a very complex deployment that is taking, you know, 12 months, 24 months to deploy. On top of that, customizations occur. PTC has done a really good job understanding how do all those workflows occur, you know, how does all the contextual data work within Windchill? Our secret sauce is understanding what happens to that Windchill data when it leaves Windchill. What are all the business workflows that happen? We're building our AI solutions knowing that. We feel very strongly about that. I will also summarize that our customers need to deploy these digital tools first and foremost. I'll actually take another step even before data cleansing. Our customers, in many cases, sadly, the engineer, great engineers in this world, the great service technicians in the world, don't have modern tools. I'm in right now a deal with Rob outside of the United States on one of the more significant companies in the world that is doing software requirements on Excel, using Excel. Now they're looking at Codebeamer. This is not just one company. It's many companies that we're talking to that need to get to a modern stack, which includes just getting on Codebeamer or getting on Windchill. We have to make sure, and the third part of our strategy is how does that move to the cloud, right? We are solidifying our SaaS repetition model. We're getting more confident about SaaS as every month goes by, as every deployment goes by. We do have a belief that AI is advantaged, especially if you know how the contextual data works, as PTC knows, when it moves to the cloud. As customers are ready for it, that will be another advantage that they might have. Got it. Makes sense. On the topic of customer conversations, and I know you've been on the road a lot lately, would you say that you're seeing any change or increased optimism just in terms of your customer conversations over the last couple of months versus prior to this year, like whether it's around AI or kind of looking past the initial shock waves of Liberation Day? You know, I could empathize with all of us and around every single customer. There's a lot of stress out there. People are dealing with a lot of strain and urgency, as we all are, around how to navigate through a time that's got so much movement. That's ubiquitous across every customer conversation. What that relates to, and we're advantaged at PTC, we're dealing with customers that are startups, but also customers that have been around for 500 years or so, right? 200-year, 300-year businesses. They've understood that in times like this, you invest into it and get through, like PTC is doing, with figuring out our foundation. That then relates to what are the things we need to put in organizationally, technologically to actually do that. We're also advantaged, given, as you mentioned, I'm only two years as CEO. When I look out for the next 5 years- 10 years, the opportunity of PTC is these end markets have not transformed themselves digitally. They're one of the last industries to do it. We see that as an opportunity. They also see it as an opportunity to move now quickly. I think the stress and strain that's in the current system across every customer that we talk to is actually causing good leaders to say, let's go actually start doing the work to break down silos in our companies, to actually think about how software developers work with mechanical developers. What tools do we need for that? We're sitting there right on front row seat saying, we're ready to serve you, customer X or Y. We feel good about that opportunity. Got it. You alluded to ServiceMax earlier. I just wanted to go back to that. Can you just refresh like some of the headwinds that you might have seen in that business? It sounds like those are in the rear view. Maybe you saw some green shoots this past quarter, but how should we just think about the growth rate potential of that business over time? Yeah, I mean, this was a tough year for ServiceMax. We got a few weeks left, so we'll see how it ends up. We dealt with a lot with one time and almost churn in our view. In the 10+ year history of ServiceMax, we didn't see this type of churn where there's just things that we don't believe are going to repeat themselves. We're gutting through a year that is dilutive to the company growth rate, unfortunately. On the flip side, when we look at pipeline and we look at movement of pipeline, when we look at size of deals of ServiceMax now connecting into this opportunity, when PTC bought the company that ServiceMax, when you now see the alignment of how many customers of PTC can use ServiceMax, it's starting to build. We got our work ahead of us, but we firmly believe it's strategically important to us. It differentiates Windchill from our competitive solutions, and it also creates a bridge that we believe over time will be critical for customers. Knowing what field data looks like is going to be very critical to product development processes. We're still encouraged, but it's not where we want to be two years into the acquisition, but we're working hard to get back on track. Was that related to Salesforce at all on the churn, or was it different? No, no, it's not a sale. We're built on Salesforce, as you're alluding to. It's not a Salesforce-induced churn. I'll give you an example. A very large customer of ours got bought by a much larger company. For the first time in 10 years, the CFO overruled everyone that actually does the real work at that company and said, we're going to merge all this into a horizontal software platform. I'm predicting that in two years, they're going to come back and ask us to redeploy the solution. You know, we lost that account. It sucks. Yeah, okay. Maybe Kristian on the profitability side, I think despite the choppiness in the macro environment, the free cash flow has continued to hold up. You've had a pretty high degree of, I guess, accuracy on the guidance and your ability to kind of maintain that. Just talk to us about the levers you have in that business and how do you kind of think about long-term margin expansion, the additional efficiency unlocks that are ahead. Yeah. Just, you know, briefly for those who are not 100% familiar with PTC, it's about $2.5 billion in top line. We measure our top line largely in what we call ARR, which is annual run-rate. It's not revenue because of ASC 606. Revenue is an interesting metric for us. We focus on ARR, which essentially is our software billings. Maybe more to the point, we operate the business on a cash basis, cash in, cash out. Virtually all of our cash inflows are subscriptions. We're pretty religious about how we bill those annually upfront in advance. Frankly, most of our outflows are also subscription-like, whether it's salaries, rents, or the software vendors that we use. We actually have pretty tight visibility into both cash inflows and cash outflows. When you layer on top of that some of the kind of disciplined budgeting process and what Neil was alluding to earlier about where we're going to invest incremental dollars and how we think about re-prioritizing spend even internally as we're thinking about capital allocation, that gives us a fair amount of room to be nimble to adjust to a current macro environment, whether that's increasing spending or reducing spending, and you have a reasonable runway into the future as you think about that. That's certainly been helpful on the, we'll call it on the predictability and growth front in terms of free cash flow. In terms of incremental margins, I guess we would think about it in terms of cash, you know, cash margins, if you will, not operating or P&L-based margins again because of 606. There I would say that I think because of the nature of the business model, there is actually largely modest upward pressure, if you will, on the margins. Now, again, assuming that all the initiatives that we're working on to start growing net new ARR again, and hopefully the macro turns better, the more that that happens, the more we're likely to continue to reinvest in different parts of the business. I think we have pretty good visibility into our cash inflows and cash outflows. As long as we continue to be vigilant in our budgeting and capital allocation decisions, I think we have pretty clear visibility there. Yeah, maybe related to the cost side, but I'd be curious too if there's any examples on the revenue or customer side. What are some of the examples of internal use of AI that PTC's had, whether that's cost savings among developers or contact center? Not that you have a big contact center, but any examples or projects stand out? You know, the big one, customer support. We do have customer support that's been utilizing AI, now generative AI, and that's, I think, a value in terms of cost avoidance. We've deployed really interesting tools within our R&D organization. We're seeing some good lift on QA, some lift on development throughput. We brought in John Stevenson, a real expert at AI as well, and he's enthused about how we could accelerate that usage. Broadly speaking across all the knowledge workers, sales is really kicking that into high gear. I wouldn't say we're at the spot where I could come out and say that's going to relate in, let's go take out 30% less cost or 30% cost levers. We are seeing interesting productivity gains in pockets. We're measuring it closely, but we got more work to do before we say that this is the lever that's going to create huge cost savings for the company. Right. How do you think about the M&A environment? Obviously, ServiceMax being kind of one of the larger acquisitions. You've made some other interesting kind of higher growth acquisitions, I guess, before ServiceMax, whether it was Onshape and Arena. What type of assets or technologies are interesting at this point? You know, we're looking at tokens mainly that really accelerate the vision of this product data foundation, what we call the intelligent product lifecycle. Anything that makes the PLM data more critical or creates an ability for that data to be used for a different workflow that's related to that same data set, that's what we look at. One bar that we look at is making sure that the buyer, whoever's buying our software, is actually aligned with where our strong suits are, right? You saw us do a token called IQL, a company out of Budapest, Hungary. They brought in 15 - 20 amazing people that actually know how to bridge Codebeamer to Windchill and actually are now building and accelerating our Codebeamer AI development. Those types of companies we get really enthused about. We're looking at all of them. We're very disciplined, I believe, under my leadership around making sure we really make sure that the organic transformation is prioritized versus starting to get too allured by any shiny toys. It's got to be about the organic transformation because we see so much value creation possibility on just getting that right. Right, right. Awesome. I think that's a good place to leave it. We're out of time. Neil, Kristian, really appreciate you making the time, and thanks for everyone for joining. Thanks, Tyler. Appreciate it. Tyler. Thanks, everybody.