PTC Inc. (NASDAQ:PTC) Q1 2024 Earnings Call Transcript

Jay Vleeschhouwer: Thank you. You noted on the call your closed-loop life cycle strategy and your cross-selling structure and process. The question I have is about customers’ receptivity to cross-selling. And what I mean is, do you see any correlation between the likelihood of cross-selling and the size of the customer or the customer’s products and/or perhaps the end market? Is there anything that will make a customer in industry X or where product Y more receptive to your multi-solution cross-selling approach than perhaps another customer might be? Then a follow-up.

Neil Barua: Yes. Thanks for the question, Jay. In terms of ServiceMax cross-sell, a key factor is having product companies, OEM manufacturers having long life cycle assets in the field. And if you want to double-click, critical assets within life sciences, electronics and high tech, the industrial manufacturing space, the ones that are in the field for a long time, the product companies are now needing service revenue to offset any declines or lack of new product innovation to make sure that they’re getting a consistent durable revenue stream themselves. So that’s a consistent correlation that we’re seeing from a customer lens. Two is when a customer has Windchill, one thing that’s really interesting is this past quarter, we won a very large industrial manufacturing win at ServiceMax, over a 7-digit-plus deal that, quite frankly, I was trying to win for five straight years at ServiceMax on our own unsuccessfully.

And we were able to take this deal down because the customer has Creo and Windchill. And they, over time, as they implemented ServiceMax, want the asset field record, the system of record of the asset to actually flow back to their PLM system. So the combined solution, Jay, of — and the correlation point of a customer with Windchill with long life cycle assets that they produce is a really nice makeup, which brings that math of 300 ServiceMax customers equated with 3,000 similar like-minded PTC customers. Last thing quickly on ALM, which is actually a big cross-sell for us as well, that’s interesting to us on the other side of it. So as we mentioned I think last earnings call, we’ve been seeing Codebeamer as a tip of the spear where we’re particularly in automotive, automotive suppliers where now we’re getting in the conversation as we’re showing them the Codebeamer value prop, we also have a PLM system that might not be PTC, how can the two work together with hardware configuration management, with software configuration management, Codebeamer.

Should we actually look at PTC for the combined offering? That’s interesting to us. We’re starting to see it. I wouldn’t call it a trend yet but it’s another opportunity that might have a correlation that we’re starting to see some early signs of, Jay.

Jay Vleeschhouwer: Okay. Also, over the last two or more years, it’s been demonstrable that Creo and Windchill have gained share, as you know. And I think there are some describable reasons for that. But over the course of fiscal — of calendar ’23, it did look as though CAD market shares were beginning to stabilize. And I’m wondering if you are beginning to see any evolutions or new dynamics in either CAD or PLM suggesting that customer requirements or selection criteria or anything of that kind might be changing from what they’ve been over the past number of years as it might affect your Creo or Windchill momentum?

Neil Barua: Yes. I’m going to — I’ll take the Windchill piece, and maybe I could ask Jim as I’m getting deeper into the Creo piece to comment on that. But one of the interesting things we’re seeing with our prioritization of putting wood behind more of the arrow in the PLM expansion category, which is predominantly Windchill, as you know, Jay, is when customers are going through an ERP migration, particularly SAP to S/4HANA, we’re seeing that as a really interesting point where the customer is looking at what workflows belong in ERP system versus MBS versus a PLM system. And we’re actually feeling advantaged when that introspection is happening to have more functionality being put within a PLM system, which makes Windchill far more important in the transition process.

So that’s a theme we’re starting to see, number one. And number two, again to reiterate, the idea of having a broad portfolio not only on the SLM side, ALM side, I believe we’re starting to have the customer conversations where having a Windchill PLM system becomes more critical to have a common data flow over time through the thread. And we’ll see whether that amounts to competitive placements, but we see that as a continuation of some themes that are interesting for us for Windchill expansion. Jim, do you want to talk about Creo?

Jim Heppelmann: Yes, maybe I could add. Jay, I think your point is that PTC has had good double-digit growth, steady as she goes, for some years now with Creo. And some of the competitors have lost momentum and then seemingly gained some of it back. I think you know we have one European competitor in particular whose customers aren’t that happy, and that dynamic serves us very well. Now it looks like they have some momentum, but I think you remember, too, they put through some fairly nasty price increases, which I think might cover up a little bit what’s really happening because the price increases might give them some short-term growth but actually exacerbate the problem that the customers are frustrated about. So I don’t know.

I feel like our business has been steady. And we think, as Neil said clearly before, will continue to be steady. Creo+ maybe offering a bit of a tailwind over time. I think that we’re in a position to take share with Creo and to take share on the other end of the customer base with Onshape. And so I like our CAD prospects.

Jay Vleeschhouwer: Very good, thank you.

Operator: And your final question comes from the line of Saket Kalia with Barclays. Saket, your line is now open.

Saket Kalia: Okay great guys, hey thanks for squeezing me in here. I’ll keep it to 1 question. Just first off, congrats, Neil, on the upcoming appointment, and Jim, tip my cap to you for all the years at PTC and the industry. The question I want to focus on here maybe for Kristian and Neil is just the ALM business overall, right, really spearheaded by Codebeamer. How do we — can you just maybe give some contours on roughly how big that business is from an ARR perspective, how fast it’s growing roughly? And Kristian, you talked about sort of the range of outcomes in sort of this ARR guide. How much can Codebeamer sort of affect that range of outcomes? Because it just sounds like there’s a lot of excitement, a lot of product success there. I wanted to just put some numbers around it to the extent we could.

Neil Barua: Yes. I mean, I’ll start, Saket. Good to hear your voice. I’ll let Kristian talk about if we do break out ALM from a size perspective. But it is, from my perspective, nowhere near the size of Creo and Windchill at this current time. However, the pace of growth is extremely exciting. I mean, as fast as I’ve seen West Coast start-ups start growing, I’m starting to see that same level of percentage growth year-over-year. We got some work to do so it’s not going to be a straight up into the right line. But that being said, one of the things we’ve been seeing is Codebeamer is catching fire. I think we mentioned that as a quote from last quarter’s call. And we’re seeing as the adoption occurs or a POC occurs at a large automotive company that, for example, Jim and I were in Japan.