PTC INC. Q4 FY2025 earnings call

• Divestiture of Kepware and ThingWorx to TPG: This move enhances the value for these businesses, with PTC focusing on CAD, PLM, ALM, SLM, SaaS, and AI. - Fiscal '25 Q4 execution: Delivered 8.5% constant currency ARR growth and 16% free cash flow growth. Successful large strategic agreements closed, including largest Codebeamer, med tech, and Onshape deals. Record deferred ARR. - AI initiatives: New AI capabilities released in various products, with ongoing Creo AI road map and upcoming releases of Windchill, etc. - Capital allocation: Plan to return excess cash to shareholders via share buybacks of $150 million to $250 million per quarter in fiscal '26, starting with $200 million in Q1.

In fiscal '25, ARR attributable to Kepware and ThingWorx was approximately $160 million, with revenue contribution of around $200 million. The core segments such as CAD, PLM, ALM, SLM, SaaS, and AI are now the focus, with PTC concentrating resources on these areas to align with the Intelligent Product Lifecycle vision. Constant currency ARR grew by 8.5% in Q4 '25, and free cash flow increased by 16% year-over-year.

• Fiscal '26 ARR growth: 7% to 9% including Kepware and ThingWorx; 7.5% to 9.5% excluding. Free cash flow guidance ~$1 billion. - Q1 '26 net new ARR: Similar to last year, with momentum building. - Revenue guidance: First half up over 10%, mid-single digits in Q3, decline in Q4. - Share buybacks: $150 million to $250 million per quarter in fiscal '26, starting with $200 million in Q1.

• Macro environment variability could affect ARR growth. - Potential unexpected disruption from the Kepware and ThingWorx divestiture. - Deal structure variability impacting revenue and ARR.

Q: Could you give context behind the decision to divest ThingWorx and Kepware and what's strategic in the portfolio now?

A: The decision was to focus resources on the Intelligent Product Lifecycle vision. The remaining portfolio around building product data foundation, applying AI, and related capabilities is strategic.

Q: Kristian, any benefit from Section 174 in the $1 billion free cash flow guidance?

A: There is tailwind from the new Section 174 decision included in the number, along with incremental CapEx for R&D facility transition.

Q: How to characterize push vs pull in deal structures this quarter?

A: In Q4, large transactions in the pipeline were closed, with ramp deals and longer-term commitments from customers capturing demand.

Q: How are you thinking about the TAM with move away from factory floor?

A: Feeling better about the addressable market with Intelligent Product Lifecycle, as it covers product data foundation, AI application, and enterprise-wide digital transformation.

Q: Any additional go-to-market changes planned in Q1 and vertical focus dividends?

A: Go-to-market transformation foundation set, with focus on elevating messaging, feathering AI into talk tracks by vertical, and expanding reach through partners.