Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to PTC's 2025 First Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. I would now like to turn the call over to Matt Shemao, PTC's Head of Investor Relations. Please go ahead.

Good afternoon. Thank you, Sarah, and welcome to PTC's 2025 First Quarter Conference Call. On the call today are Neil Barua, Chief Executive Officer, and Christian Talvatia, Chief Financial Officer. Today's conference call is being broadcast live through an audio webcast, and the replay of the call will be available later today at www.ptc.com. During this call, PTC will make forward-looking statements, including guidance as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional 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-Q and other filings with the U.S. Securities and Exchange Commission, as well as in today's press release. The forward-looking statements, including guidance provided during this call, are valid only as of today's date, February 5, 2025, and PTC assumes no obligation to update these forward-looking statements. During the call, PTC will discuss non-GAAP financial measures. These non-GAAP measures are not presented in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website. With that, I'd like to turn the call All over to PTC's Chief Executive Officer, Neal Bergura.

Thank you, Matt, and good afternoon, everyone. PTC started fiscal 2025 as anticipated, with our first quarter results coming in slightly better than the guidance we provided, which contemplated a difficult macro and our go-to-market changes. The consistency of our ARR and free cash flow underscores the strength of our diversified business model and our discipline focus on execution. While we continue to see a sluggish selling environment in Q1, I am pleased with the intensity we have internally to ensure we exit fiscal 2025 with increased momentum. This includes the focus we have on our go-to-market transformation, as well as many important purposeful product releases, augmented by the work we are doing and AI. I'll share more on these key business initiatives during my comments today. For fiscal 25, we've reiterated our ARR and free cash flow guidance ranges, and we think the guidance we provide for Q2 and the full year is appropriate. Christian will take you through the details. Turning to slide four. First off, I'd like to provide an update on the changes we announced last quarter to our go-to-market organization. We've made significant progress reshaping our approach to be vertically oriented, and the changes are energizing our team and customers. These efforts are designed to align us with our long-term growth opportunities and ensure we remain well-positioned to deliver value for our customers and shareholders. As part of this transformation, we welcomed Rob Dada as our Chief Revenue Officer in December. Rob's reputation for excellence in enterprise software is already evident. His impact on the sales team and his focus on performance standards are in early stages and showing promise. Rob is also instilling greater alignment across our sales, customer success, and marketing teams, setting the stage for sustained growth over time. In addition to Rob, we've added key leadership roles in growth marketing, technical enablement, sales enablement, and customer success. These hires bring fresh perspectives and high standards, and their mandate is to raise the bar across our organization. Our vertical approach and organizational changes will take time to bear fruit, and we expect to be hitting our stride as we exit the year. To be clear, these efforts are critical to delivering sustainable, low-double-digit ARR growth. I'm encouraged by what I'm seeing so far. There is a step change in focus and speed, and we will not take our foot off the pedal. Let's move now to slide five, which highlights our product portfolio and strategy. Our customers need to introduce new products at a faster pace and with higher quality. even as product complexity increases. That's not possible without digital transformation across their workflows, which is what our products enable. We're focusing our resources and attention on the five core areas of our portfolio that we believe can create the greatest customer value. As a reminder, these five focus areas are TLM, which is driven primarily by our windshield product. ALM, which is driven by our Codebeamer product. SLM, which is primarily driven by our ServiceMax product, CAD, which is driven primarily by our Creo products, and lastly, our continued focus on SaaS. Today, I'd like to highlight some exciting new advancements across these focus areas. Starting with PLM, with Winchell Navigate View Work Instructions, we're extending 3D digital work instructions from PLM to shop floor employees enabling our customers to get more value from their product data in ALM we're excited about the upcoming release of code beamer 3.0 which will further extend the scalability and capabilities of our market leading ALM solution in SLM just this past quarter we achieved fed ram certification for service mechs, a critical milestone that opens new opportunities in our FAND vertical. In CAD, Creo 12 leapfrogs the competition in composite structure design and adds thermal physics to our AI-driven generative design engine. Both of these are embedded modules within Creo and open up new use cases for highly innovative designs. And also in SaaS, Onshape, the industry's only cloud-native SaaS platform for CAD and PDM, also continues to advance, delivering significant new releases at a remarkable pace, 17 over the past year, including cloud-native CAM and advanced surfacing tools. We are also further differentiating our core offerings with AI, and we're encouraged by the opportunity this presents. So let's get into this area. We believe the industries we serve over time will be fundamentally transformed by AI, and PTC is in a great position to be a leader on this front. The promise of AI is based on access to data and putting it to use. PTC solutions are used to create, manage, and share the product data that is at the heart of our customers' businesses. This could be design data in Creo, requirements data in CodeBeamer, bills of material data in Windchill, or service history data in ServiceMax. We are advantaged in that we have decades of experience with how our customers use this data in their everyday operations and the impact that it has on workflows, speed of development, product quality, and employee productivity. Our understanding of how this data is stored, accessed, and used in our products has been our blueprint for applying AI. It's our secret sauce. Throughout 2024, I said PTC is taking a practical and value-based approach to AI for our customers. We've been hard at work on this front and have identified the most prominent applications and use cases for AI across our portfolio, in concert with customer feedback. Our offerings operate in assistant-like capacities, allowing customers to interrogate the data in their systems to confirm information, accelerate workflows, and automate tasks, such as proactively notifying engineers of a design or requirements change. These AI offerings will also have specialized AI agents embedded in them. These agents will map to specific domain workflows and data sources within engineering, manufacturing, and service, and they'll intelligently interact behind the scenes, connecting information across their specialty domains to serve up the best information or complete a task. I'm pleased to share that the first of these offerings will launch next week with ServiceMax. The ServiceMax AI offering includes several agents that assist with scheduling, service delivery, and workforce enablement. This offering was in beta mode for much of 2024 with top ServiceMax customers, and now it's ready for everyone. These AI agents have access to all the data stored in a ServiceMax instance, and technicians can interact with them through natural language. Using the latest Gen AI technology, the agents can answer questions about a specific job or asset, automate manual documentation and scheduling tasks, and review proactive recommendations for predictive maintenance. The main goal here is greater efficiency for technicians, doing more in less time. As part of this launch, we're introducing a new ServiceMex AI SKU, which will be the entry point for AI-powered features. This will be a per-user, per-month subscription charge, which is what ServiceMax customers are used to. Our ServiceMax roadmap for Fiscal 25 includes other AI-powered features and capabilities based on large language models that can be accessed by the same ServiceMax AI SKU. We believe that more ways of accessing AI-powered features will will lead to more adoption and happier customers. This will allow us to learn faster and continue to improve the offerings and pricing models. In addition, we have been testing a beta version of generative AI features in Codebeamer with Volkswagen Group and Microsoft, which we demonstrated at Microsoft's Ignite event in November to much fanfare. Based on customer feedback, I'm excited around the real potential for AI here because of CodeBeamer's importance to software-defined product strategies for so many of our customers. These customers store their hardware and software requirements data in CodeBeamer, critical for the overall product development process and for meeting regulatory and safety requirements. These new AI features will help engineering teams improve the quality of the requirements, remove duplicate requirements, and compare newer requirements against existing quality standards. We're also hard at work on incremental AI functionality within Windchill, Creole, Onshape, Arena, Servagistics, and other products. And you can expect previews at upcoming events such as HMI and the Paris Air Show. Ultimately, with the value they'll provide, the goal of our AI offerings is to draw in new customers, encourage upgrades with existing customers, and become even more critical to day-to-day workflows. Turning now to some customer examples from Q1 that highlight our core offerings. Moving to slide six, we've previously talked about our opportunity to cross-sell Codebeamer ALM to our base of windshield customers. as products of all types become increasingly software-driven. The two products, Windchill and Codebeamer, in a customer environment, working together is highly differentiated in our space, an area we are investing in. Today's first customer story highlights this theme. This MedTech customer has been leveraging Windchill to help drive their business since 2017, deploying it broadly beyond core engineering as a platform to enable enterprise-wide collaboration and accelerate time to market. Software-defined products are a focus area for this customer as software has become a key driver of their product differentiation. In fact, their main products are software upgradable and they are able to charge their customers for software upgrades that add value to existing products. At the same time, the opportunity for software-driven product growth comes with new challenges associated with managing the rapid expansion in the number of unique software configurations that need to be developed and updated over time. This customer needs help managing all of these software variants and releases, and that is why they are now focused on modernizing their current, fragmented ALM system and expanding their use of ALM. They decided to standardize on Codebeamer, displacing two legacy ALM vendors. Cross-selling was a key part of this deal. This customer is a happy user of Windchill, and Codebeamer's future roadmap aligns with their future plans. Furthermore, the MedTech vertical is similar to verticals including automotive and federal, aerospace and defense, in that there's an additional catalyst driving the adoption of Codebeamer. regulatory and safety compliance. With the rapid increase of software that is embedded in hardware components, companies are looking for tools to help ensure and automate their regulatory compliance processes. Traceability is required for safety-critical, highly regulated industries, and CodeBeamer is the most modern ALM product that enables this in an agile development environment. Beyond this specific customer example, 27 of the top 30 public medical device manufacturers use PTC in some fashion, and we believe we are well positioned to expand our footprint and grow our CodeBeamer business in this vertical. ALM represents a really interesting growth opportunity across multiple verticals in alignment with our PLM focus. As such, we have been increasing our investments in Codebeamer, working alongside CREO and Windchill to accelerate our leadership. Turning to our next customer story on slide 7, this customer is in the Federal Aerospace and Defense vertical and is a good example of a well-established company that continues to invest in digital transformation to drive market leadership in a competitive, high-growth environment. This customer is seeing strong growth in demand and needs to increase production. In addition, their customers are asking for state-of-the-art products that are at the boundary of what is physically possible. We're talking about designs where a small amount of wind resistance makes a very big difference. To tackle these challenges, this customer needs best-in-class tools and that's why they chose Creo for design engineering and windchill as their enterprise backbone for their product data. Design excellence is in focus for this customer because this is an R&D-centric enterprise and they depend on improvements in design engineering to stay competitive. To further add to their capabilities, they will continue to invest in advanced Creo modules, including Creo Simulation Live, Composites, and Generative Design. These modules will help this customer produce lighter-weight products with higher quality at a faster pace using less materials. This customer is also continuing to expand its windshield system as an enterprise platform to drive collaboration around real-time, trusted product data. They have provided windshield product data access to operational functions including supply chain, quality, sales, and service. Usage has gone viral, driving productivity gains. These outcomes are leading to a large follow-on order for more seats, as well as further expansion to employees on the factory floor. Currently, approximately 70% of this customer's employee base benefits from having access to product data and windchill, and this customer's Creo and Windchill ARR has grown significantly, with more room to run. In closing, I remain immensely optimistic about where PTC is heading. Our focused strategic initiatives are gaining traction, and we are driving purposeful innovations that are resonating with customers. Combine that with transformative go-to-market changes and a focus on accountability in everything we do, and you can understand why we are energized. Thank you for your support and interest in PTC. Christian, over to you.

Thanks, Neil, and hello, everyone. Starting off with slide nine, our ARR and free cash flow results in Q1 were in line with our guidance. As you know, we believe ARR and free cash flow are the most important metrics to assess the performance of our business. To help investors understand our business performance, excluding the impact of FX volatility, we provide ARR guidance and disclose our ARR results on a constant currency basis. At the end of Q1 25, our constant currency ARR using our fiscal 25 plan FX rates was 2.277 billion, up 11% year over year. In Q1, we saw a continuation of the challenging selling environment we've been experiencing for a couple years now, and this continues to impact close rates. Also consistent with our expectations from a quarter ago, our constant currency ARR growth in Q1 was impacted by two factors which we called out on our previous earnings call. The first factor was the linearity of deferred ARR in fiscal 25, and the second factor was a couple of contracts that resulted in churn in Q1, which are contracted to come back into ARR later this fiscal year. moving on to cash flow in q1 our free cash flow was up 29 year over year as we continued to invest in our key focus areas at the same time note that the 236 million of free cash flow we generated in q1 absorbed 11 million of outflows related to our go-to-market realignment which is in line with our expectations. Turning to slide 10, let's look at our constant currency ARR growth in more detail. Looking at our product groups, our constant currency ARR year-over-year growth was 9% in CAD, driven primarily by Creo, and 11% in PLM, primarily driven by Windchill, Codebeamer, IOT, and ServiceMax. On a year-over-year basis, constant currency ARR grew by 9% in the Americas and 12% in both Europe and Asia Pacific. Our ARR growth is based on our unique product portfolio, which aligns with the digital transformation needs of our customers. Despite the overall selling environment, our top line has shown good resilience, supported by our subscription model, low churn rate, and the propensity for our customer base to prioritize their R&D investments through challenging times. Turning to slide 11, we ended Q1 with cash and cash equivalents of 196 At the end of Q1, gross debt was $1.548 billion, and we were 1.7 times levered. We continue to diligently pay down our debt, and we've started to buy back shares under our $2 billion share repurchase program. During Q1, we paid down our debt by $205 million and used $75 million of cash to repurchase 383,000 shares of our common stock. As you all know, we have a $500 million bond that's coming due in February, which we intend to retire upon expiration with cash on hand and by drawing on our revolving credit facility. Given the consistency and predictability of the business, we aim to maintain a low cash balance. As such, assuming we have excess cash, we expect to return it to shareholders. The authorization we now have in place gives us a lot of flexibility in how we do that. In line with what we've said previously, we currently intend to buy back approximately $300 million of our common stock in fiscal 2025, with another approximately $75 million of repurchases expected in Q2. Our long-term goal, assuming our debt-to-event-dow ratio is below three times, remains to return approximately 50% of our free cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic opportunities. Finally, our fully diluted share count in fiscal 24 was 121 million, and we currently expect fully diluted shares to be approximately flat in fiscal 25. With that, I'll take you through our guidance on slide 12. All of the ARR amounts on this slide are based on our fiscal 25 plan rates as of September 30, 2024. For constant currency ARR, given our differentiated product portfolio, the resilience of our subscription business model, the actions we've taken over time to align our investments with market opportunities, and allowing that our go-to-market changes are expected to take time to have their intended effect, we expect growth of approximately 9% to 10% for fiscal 25 and approximately 9.5% for Q2 of fiscal 25. I'll get into more detail on constant currency error on the next two slides. On cash flow, we're guiding the free cash flow of 835 to 850 million in fiscal 25, which absorbs the approximately 20 million of cash outflows for severance and consulting fees related to our go-to-market realignment we've discussed previously. We're not calling out a restructuring charge, so all of this will flow through the sales and marketing and cost of revenue lines on our P&L. As we've said previously, this is not a cost-cutting exercise. We're reinvesting in our go-to-market organization with a focus on the areas we believe deliver the greatest value to our customers. In fiscal 25, we expect largely similar invoicing seasonality compared to the previous four years. Based on this and our expected cash outflows, we expect approximately 60% of our free cash flow to be generated in the first half of the year, and for fiscal Q4 to be our lowest cash flow generation quarter. For Q2 of fiscal 25, we're guiding for free cash flow of approximately $270 million, which absorbs approximately 4 million of the 20 million of total outflows related to our go-to-market realignment. Note that our cash flow guidance is not on a constant currency basis, so FX fluctuations can have an impact in either direction. Approximately 45 percent of our ARR is transacted in foreign currencies, and approximately 35% of our non-GAAP cost of revenue and operating expenses are transacted in foreign currencies. So we have somewhat of a natural hedge. That said, significant FX moves can have an impact, and we're seeing some of that pressure this year. We'll see how FX rates move as we progress through the year, but at this point, we still feel comfortable with our cash flow guidance for Q2 and for Fiscal 25. While changes in FX, interest rates, and tax regulations can be difficult to predict, we have a high degree of confidence in our free cash flow forecasting process due to the predictability of our cash collections and the disciplined budgeting structure we have in place. Importantly, we've maintained consistent billing practices over time. We primarily bill our customers annually up front one year at a time, regardless of contract term lengths. So our free cash flow results over time are comparable. Furthermore, over the past five years, we've optimized our internal budgeting process. It starts with having a subscription and business model that generates predictable cash inflows. Then we begin each fiscal year by funding our business for growth at the low end of our internal ARR forecast. As the year progresses, we maintain or increase that level of funding based on the growth dynamics we're seeing. By proceeding in this manner, we're able to match our investments to the market environment in an agile way while also delivering predictable free cash flow. That said, we would not do anything that impacts the long-term prospects of the business because of short-term FX movements. Over the medium term, we continue to expect our free cash flow to grow faster than our ARR, with non-GAAP operating expenses expected to grow at roughly half the rate of ARR. A basic tenet of our subscription business model and budgeting process is that there's natural operating leverage that we benefit from as our ARR grows. To help you with your models, we're providing revenue and EPS guidance. However, I'd like to reiterate my favorite reminder, ASC 606 makes revenue and EPS difficult to predict for PTC since we primarily sell on-premise subscriptions and the way revenue is recognized from these contracts can vary significantly based on variables that aren't necessarily relevant to the performance of the business. I did a teach-in on this subject on our Q4 fiscal 22 call that you may want to refer to if you're new to PTC. You can find the presentation on the investor section of our website. The summary is we believe ARR and free cash flow rather than revenue and operating income are the best metrics to assess the performance of our business. Next, on slide 13, here's an illustrative constant currency ARR model for Q2. This slide shows our sequential net new ARR over the past couple of years, and the column on the far right illustrates that we need 44 million of sequential net new ARR growth to hit 9.5% growth for Q2. Obviously, it's impossible to predict any given quarter with that level of precision, and we're being mindful of the macro environment and the go-to-market changes we're making. As you know, based on our results over the past few years, our net new ARR can be somewhat volatile in any given quarter, given dynamics such as the timing of new bookings, the timing of renewals, the timing of deferred ARR starting, how much of our new bookings in any given quarter starts in the quarter, how much churn we expect in any given quarter, et cetera. It's not unusual to see quarterly volatility in our sequential net new ARR results. Importantly, we expect churn to remain low throughout fiscal 25. Also, as we make incremental investment decisions over the course of a fiscal year, we continue to focus on our internal forecast for the full year net new ARR growth. Moving to slide 14, here's a similar illustrative model for fiscal 25. You can see our results over the past three years, and the column on the right illustrates that we need $214 million of net new ARR this year to hit the midpoint of our Fiscal 25 Constant Currency ARR guidance range. This range, along with our Q1 results and Q2 guidance, obviously indicates back half-loaded year, which is supported by our pipeline and our internal forecast. Our pipeline continues to grow, and we have a significant stable of large opportunities in our Q3 and Q4. At the midpoint of our range, we would be adding approximately 20 million less net new ARR in fiscal 25 compared to 2024, and approximately 5 million less than in fiscal 23 and 22. Note that fiscal 24 benefited approximately 10 million due to incremental deferred ARR in that year. Adjusting for that, our fiscal 25 guidance midpoint indicates approximately flattish net new ARR growth compared to fiscal 24, 23, and 22. I think this point highlights exactly why we're evolving our go-to-market organization this year. We're hard at work with this evolution, augmented with new product releases such as the ones that Neil outlined earlier, to ensure that we exit this year with momentum to drive net new ARR growth into fiscal 26 and beyond. In the meantime, our business model is resilient and we continue to believe the right guidance range for fiscal 25 constant currency ARR growth is 9 to 10 percent. In conclusion, PTC has a strong product portfolio and strategy, a track record of operational discipline, and clear value creation opportunities. We're focused on what matters most for our customers, and we are aligning our operations so that we can scale our business in a consistent way. With that, I'd like to turn the call over to the operator for today's Q&A session.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. We ask that you please limit yourself to one question only. If you have additional questions, please return to the queue. Please ensure you are not on speakerphone and that your phone is not on mute when called upon. Thank you. Your first question comes from the line of Jay Fleschauer with Griffin Securities. Your line is open.

Thank you. Neil, your various comments on new products or product expansions are quite interesting to me. And one thing I'd like to ask about is your comments about the AI product specifically. Maybe you could talk about how you're organizing and investing in those. Is this a segment or product-specific development effort? Is there a central AI group that is managing all of these developments so there's some commonality within the company for your AI proliferation? And then just to finish up on the product side, you alluded to some expansion into manufacturing process. This is something that two of your larger competitors, DeSoe and Siemens, have clearly been investing in and seen new business in. Is this an incrementally important use case or application area for you?

Yeah, so thanks for the question, Jay. I'll take the second piece. In fact, we had a contingent of a number of people, partners as well as employees today here at the seaport this week, working through the manufacturing process, please, and process category and value that we've got. The way we're approaching it is we believe extending PLM windshield data to the manufacturing floor is where our value resides. And we see that working in conjunction with the MES systems of the world that are deeper into that into that workflow, we will provide the PLM data to those systems and to ERPs is our approach on the manufacturing side. On the other piece on the AI, you know, as you know, as we've talked about with ServiceVax, we were letting 2024 be able for our teams to self-introduce and innovate and experiment with AI technologies over the course of 2024, you saw the ServiceMax team really doing a nice job. OnChain, by the way, has also done a really nice job with that, thinking through all different technologies and approaches for working with customers on betas by which now, as I talked about, ServiceMax is GA-ing on January 10th here, their ServiceMax AI piece, and that was done within the ServiceMax team. But what we've seen with CodeBeamer now and the interest that we got out of the Ignite conference and the work we're doing with Volkswagen and Microsoft for the CodeBeamer launch, and subsequently what we're doing with Windchill and Creo, we're now in the process and have already started an alignment of a group that is actually centered in on making sure there's alignment across all our AI innovations that are happening in our product segment. So we're evolving it. As I said, it was always going to be an approach that's valuable and practical and to make sure there's value for customers and over time can accrete to PTC. And I think we're at the stage where we were crawling last year. We started walking and it's time to move into the jog to run pace based on the customer feedback we're getting around this. And this space is evolving very quickly and will be very nimble towards things that are changing around that manner. But we're energized, as you can tell, around the addition of AI capabilities into what is already great products for the company.

Thank you, Neil. Thank you, Christian.

Thanks, Jay.

The next question comes from Jason Salino with KeyBank Capital Markets. Your line is open.

Hey, thanks for taking my question. And actually, kind of building off of Jay's, you know, one of Jay's parters, you know, two of your competitors, your European one, seem to be really battling it out on the PLM side. You know, ironically, one seems to be taking share from the other. You know, where does PTC fall in all this? I mean, have you seen any changes to the competitive environment? You know, any changes to your win rates? Are you involved in some of these? Are you happy to be watching from the sidelines?

So we're fully in the arena. No being on the sidelines here, Jason, as you know. And I think what I would say is given we're three players in this really remarkable industry where all boats are lifting because of these digital transformation needs, I'm glad to see all of us kind of rising to the occasion here. and as I said, very optimistic around how this will translate over the next number of years in front of us for all three of us competitors. That being said, strategically, our focus from a PTC perspective is that the nerve center is our windshield and code beam of product capabilities. And we have amazing CAD tools like Creel, obviously, and Onshape, and we have really great aftermarket capabilities in our SLM suite. Our approach was just differentiated versus the two that you mentioned is how do you really think about as a customer the utilization of windshield in coordination with your CAD systems whether it be Creo or others and how does software kind of get embedded into what's happening within product development cycles and that's our approach and you know the competitors as you heard this past week they're battling it out in the manufacturing side which Jay talked about we're not there we're not going there we're actually just showing our plm data to the manufacturing floor so let's let our two competitors play out the manufacturing side we're really focused on where does the product data actually need real-time understanding and democratization of that moving through the enterprise and our windshield code viewer in conjunction strategic intent is very differentiated versus our other two competitors and we feel good about how we're positioned there it.

Perfect. Thank you.

The next question comes from Ken Wong of Oppenheimer and Company. Your line is open.

Thank you for taking my question. Christian, I just wanted to ask about the trajectory of NRR. When I look at kind of Q2 being a little sub-seasonal, and then I maybe meld that with Neil's comments that you guys won't hit your go-to-market stride until Q4, Is it fair to assume that we should be looking at, you know, kind of slightly subseasonal net new ARR until you hit that fourth quarter?

Yeah, I think we're not providing, you know, specific Q3, Q4 guidance at this point. But, you know, as we said in the, you know, in the prepared comments, we do have a maybe even slightly more than usual, you know, back half loaded year. Of course, back half loaded year is pretty typical for PPC and we're, you know, kind of around the edges there.

All right. Thank you.

The next question comes from C.T. Panigrahi with Mizuho. Your line is open.

Hi. Thanks for taking my question. Neil, on your comments about exiting fiscal 25 with momentum and maybe growing 26, help us understand the progress you have made on the go-to market alignment side, given Rob joined recently as CRO. And also on the macro side also, we recently saw manufacturing PMI bouncing back 50, above 50 after two years. Wondering what are the metrics that you look at to feel comfortable on the macro side?

Thanks for the question, Citi. I'll take the first one, and thanks for it. You know, I want to just level set again on reinforcing the two main reasons for why we're making, in the process of all these go-to-market changes. First is to make us more effective at serving our customers. And the second is to make sure as we scale, we sustain our low double-digit AR growth target over the medium term, right? So that's what we're, like, centered in on from all the changes that are being made. And in terms of the changes, in Q1, you know, we're showing early promise, and I'm seeing the teams being motivated, customers reacting to this as well. But like three dynamics of the things we've already undertaken and are now well underway in executing. First is in Q1, as we talked about, we've verticalized our go-to-market approach. Top verticals are industrial products, F, A, and D, automotive, med tech, and electronics and high tech. So we did that in all the heavy lifting to make sure the messaging, the account transition, the plans to go execute as we're starting to do here in Q2 has been put in place. If you watch LinkedIn, you'll see the marketing messages very tailored around industry verticals. So point number one. Two is we brought Rob in, our new CRO, in early December. Rob's acclimated real well so far. He's infusing a ton of discipline and depth into, as an example, our weekly pipeline management processes. He's working through the overall go-to-market operating rhythm. which should, he's targeted to make sure we're getting a more consistent and predictable way to grow the business. He's also, this is really great, is Rob's working with CK, our chief marketing officer, to make sure they're combining their efforts to execute across this vertical strategy. And lastly, just to give you the scope of the change that we're making, you know, we've also leveled up our overall go-to-market team by adding key leadership roles in growth marketing, enablement that I mentioned on sales and technical, customer success. We've exited a number of people that we talked about in Q1. We've removed layers. We're starting to add quota-carrying salespeople over the course of this year. And we've elevated really great veteran PTCers to prominent roles as well. The reason why I give you that backdrop, City and the team here is because that work and the execution now of all the foundation laying that we did in Q1 will now allow for the next few quarters for us to start working that flywheel to get us running at the pace that I believe is the potential of this company. And so far we feel good about it, but work is ahead of us and we're feeling compelled around the opportunity around it. On your second question around macro, yes, of course, we look at the PMI. Of course, we wake up like it's Christmas morning when we see a PMI take over 50. But that being said, what we look at is the pipeline, which Christian talked about. We feel really good about the back half pipeline, the size of the deals, the quality of the deals. And I'm even more energized by the fact that now that we're putting a greater discipline around the go-to-market changes, how we can add even greater pipeline opportunities. And the summary of when the macro gets better, when I'll stop saying it's a sluggler sales environment, is when we can predictably have higher close rates on an already really good pipeline. That's what we're looking at. We'll obviously watch every metric out there from a macro perspective, but internally, that's the laser focus we continue to look at when we see the macro changing to our favor.

Bill, I appreciate the great caller and all the LinkedIn posts.

The next question comes from Tyler Radke with Citi. Your line is open.

Hi, thanks. This is Peter on the line for Tyler. In your presentation, there's an example of a MedTech windchill customer expanding their seats from 10 to 15 percent to over 50 percent. Just curious, how much of the opportunity is there still left, like, within the existing PLM customer base to see key count expansion, like, outside of that core engineering team and, like, dive deeper into other departments, whether that's, like, quality supply chain and manufacturing?

Yeah, there's a reason why I start every call since I started last February around PLM and the opportunity there. The expansion of PLM and every call we've been talking about examples of customers that are now seeing the value of PLM being enterprise driven, not just a CAD repository, a repository tool, a PDM like tool. It is now becoming enterprise PLM, and we have a significant opportunity across our already existing base of customers that are still at early or mid stages of expanding PLM to all the seats like this example the customer did. So that is the reason why we're pushing on all cylinders to get enterprise PLM known and integrated with what they could also do with CodeBeamer as a very critical value prop to our customers. So this is the area that we feel very energized, and it gets even better when we create the vertical approach to how automotive companies are using windshield to expand their utilization of product data moving faster through their enterprise. How does a federal aerospace company think about that? And we're really advancing that, and we're just needing to prove it out to more customers to expand. That is a clear priority of the business.

The next question comes from Steve Tusa of J.P. Morgan. Your line is open.

Hey, thanks for being in. Thanks, Steve. I wish I got as excited as you guys do about macro data, like Christmas morning with the ISM or the PMI. On the macro front, how are you seeing, you know, the focus on AI impact decisions and budgets more specifically than just, you know, what normally happens at this time of year on budgets?

You know, within our space, and I talked to this last, I think, last quarter of the quarter before, Steve, most of our customers still need to make sure that they have a structured data set by which you can apply AI to. So, like, as per the prior question, when you don't have enterprise PLM and a number of your engineers and supply chain folks or human folks still use antiquated systems or spreadsheets for data flows around product data, it's very hard to apply generative AI. So we call it get your digital house in order. We really feel, Steve, this is why Christian and I talked about the robust pipeline we see in the second half of the year. That is inspired by the fact that people need to get going on getting PLM systems across their enterprise, get CodeBeamer deployed, make sure they have 2D models moved to 3D and model-based definition across their CAD drawings. And what's really interesting is when we add the AI concept of CodeBeamer as an example that we're really going to be stoking the flames with to make sure people understand the real value here at HMI, it then creates a necessity for the customer to deploy Codebeamer on their underlying requirements management capabilities so that they actually can get the benefit of a generative AI tool like Codebeamer AI that we're launching. So, Steve, I actually think it's a good benefit from us because it's creating our customer base to get their digital house in order.

And now with our additional AI offerings, which we have a secret sauce to give to them in concert with them i think we're in a good spot great thanks for the color the next question comes from joshua tilton with wolf research your line is open hi this is arsene on for josh tilton i just had a question really on the nair our performance look it was within the range of guidance but even after adjusting for the timing impact and fruit error it looked like it was below year over year irrespective of the environment not really changing still mixed I guess, what occurred, is there some underperformance in the channel versus expectations, or is it just kind of exactly within what you were expecting, even on the channel front, and expected still better visibility with growth recovering in the back half? Thanks.

Let me start, and then, Christian, this quarter, we guided towards the number, and we came in thereabouts. Even from an internal expectation, we saw this. We took into account the pipeline, the slugger sales environment, obviously all the changes we're making in go-to-market, and we structure a guidance as such. So we're, you know, we're past Q1. It was as expected from our perspective. What we're really focusing on is let's get the machinery working, as I mentioned, on the go-to-market side. Let's get these product releases out, messaged, and customers really buying into it, by which when Rob and CK get the go-to-market transformation really humming that I mentioned in the tail end of this year second half of this year we have a real rhythm to close out already a robust pipeline and keep adding to it by which we can now really see a sustainable path for low double digits AR growth as we go into next year which has been our medium and long-term targets for saying that yeah just reiterating what you said I we came in pretty close to our internal targets channel actually had a strong quarter this quarter.

So all in all, I think it was largely as expected.

Got it. Thank you. Thank you.

The next question comes from Nase Nong of Berenberg.

Your line is open. hey guys thank you for fitting in i've got two questions if i may the first one on the go-to market changes it sounded like you know you made uh you know quite a little good progress uh in q1 i just want to get a sense of whether that was ahead of what you scheduled or is everything pretty much on track and then a secondary uh question to that is that you know i think if i I remember correctly you said in the last quarter that you weren't expecting any major disruptions of sales from these go-to-market changes. Now that it's been a quarter, can we get an update on that front, please?

In terms of where we are in the transformation versus where we thought, I'm pleased with where we're at. Obviously, I would have liked Rob to join a month earlier when I did some of the folks that moved out of the company come in. We had a month gap before he joined back in December, but he's hit the ground running in December, and the team didn't wait for him to get here, and he was really well acquainted with the plan. So, in general, I would say in a very specific project plan that we've had for this transformation, I feel good that we accomplished a lot of the foundation laying Q1. Now, we've had our kickoffs in January to get, you know, now that the account transitions are done, comp plans are out. We've really, if you're watching LinkedIn again, we've really had a good time kind of launching all this in the January timeframe. And as I mentioned, the reason for why we're talking about the next few quarters is now the framework, the operational discipline Rob's bringing to bear, the vertical approach. We believe that that just will take some time to catch rhythm. It could happen faster, but my experience would say it takes a few quarters to really get the machinery moving here. In terms of disruption, what I'd say is we made a lot of changes in Q1. And, you know, the different approach that Rob is taking and CK is taking around this vertical piece is change. And when we thought about this, this is why we proactively came out to you last quarter and said, look, like in our guidance, we are going to have a framework by which there should be a level of impact from the go-to-market changes in addition to our estimation that the macro remains sluggish. And that's why we came to that 9% to 10% AR range that we reiterate again on the call today for the year.

That all makes sense. Thank you very much. One quick question, if I could squeeze in if that's all right. The AI product launches are coming. All sounds very exciting. But are they going to be limited to just Codebeaver and ServiceMax, or will that be across your entire product portfolio?

Like a great question. uh stay tuned that the service max is first one out of the gate code beamer is a big uh element that we've been working on that at hannover messe will be spending a lot more time on obviously as you know we've been spending uh time working on this with volkswagen microsoft we're working through a windchill applied ai uh element around parts reuse on shape has been doing a lot of work on this so stay tuned on that um and we got a few more up in the hopper but we're really focusing on the core areas right now and learning from a very innovative technologies that's moving um so we're learning around that in conjunction with our customers that's really important here uh to show real value versus just a marketing message sounds good thank you we look forward to The next question comes from Saket Kalia of Barclays.

Your line is open.

Okay, great. Hey, guys. Thanks for taking my question here and fitting me in as well. Hey, guys. Christian, maybe for you and Neil, please feel free to chime in here, right? So I want to go back to kind of the five pillars that, Neil, you talked about in your prepared comments, Right. So so clearly there are a few higher growth parts of the business, like an ALM or an SLM or a SAS part of the business, just because of their scale. Right. I think there are the strong competitive position drives solid growth in PLM and CAD, but it feels like those three segments have the potential to grow faster. Maybe the question is, where are those businesses in their evolution in terms of in terms of being more additive to growth? and then maybe the other side of that coin, how much of a drag are some of the businesses that maybe aren't those pillars anymore, like an IoT, for example? There's a lot of moving parts in that question, but does that make sense?

Yeah. Well, let me take the front end, and then Christian can add any color here. I just want to be clear. The PLM and the ability for us to expand seats like we mentioned in this customer example, there's a lot of room for us to grow with a best-in-class PLM offering in the marketplace, bar none, in my opinion, and I think in our customer's opinion. When integrated with CodeBeamer, our ALM suite, we believe that there is a real strong growth potential for those two boats to rise in a significant manner that really creates a differentiated value to the end customer. So I just want to be clear, PLM is part of a very strong growth drive of the business. And we just see many more potentials for that to increase in growth rate as we get, you know, this vertical approach, right? As we get the messaging on EPLM really structured in the marketplace. So I'm just not, and we're not just relying on alm slm to and sas to be the inflectors of accretive growth plm actually will will pull its weight and then some in our view in terms of the approach that we're taking in terms of the drag you mentioned some of them um as as i indicated on windshield navigate uh view work instructions where we're extending 3d digital work instructions repeal on the shop floor Guess what? We're using ThingWorx technology to do that. And if you recall, nine months ago, we took a number of resources from the standalone businesses and moved them to make sure the great technology of ThingWorx actually allowed customers to expand PLM and provide more value to different personas. us. We're doing the same on some of those other product sets that don't really do as well versus our core growth rates to make sure we augment our core growth rates with better capabilities using some of those technologies. That's how we're thinking about it from a perspective of how we're interfacing with our customers and organizing ourselves internally. Christian? No? Good.

That's super clear, guys. Thank you very much.

This concludes the question and answer session. Please remain connected as I turn it to Neil for closing remarks.

Thank you, everyone, for joining us and for your questions today. In February, Christian will attend the Baird Conference in Park City, Utah, and Matt will attend the Wolf Conference in New York. In March, I'll be in San Francisco attending the Morgan Stanley Conference together with Christian and Matt. Also in March, Christian and Matt will participate in two additional conferences, the Loop Conference, which will be virtual, and the Stiefel Conference in New York. Thanks again, and we look forward to engaging with you.

This concludes today's conference call. Thank you for joining. You may now disconnect.