Obviously, we have a very strong tight-knit integration already with Creo and Windchill. We could do more with that, right? And now as you mentioned, ServiceMax, which I will correct you for a little bit, ServiceMax is a very stable recurring revenue business that is native SaaS. So, it takes away the lumpiness from the SLM business that might have existed historically. It helps with that. But the main point strategically is as we create better value props, as I answered in Saket’s question, for the customer to have product data run wildly through their enterprise for all the collaboration, time-to-market benefits, quality benefits, we believe customers will choose PTC for a greater number of those best-of-breed solutions in a one-stop-shop.
But we will make it so it’s customer value-driven versus edicts from us saying it’s only us you could play within a closed system versus being open. So, we’re taking the customer view and I think it’s going to win out, Jay, in the long term.
Jay Vleeschhouwer: In the meantime, let’s say, the remainder of this year or early next year, how would you describe your pipeline of large deals that might have as you saw in Q2 a significantly pronounced 606 effect? Incremental, obviously, in the case of Q2, apparently in Europe especially. So, is there any way to predict the 606 effects and fold that into guidance?
Kristian Talvitie: If there was a way to predict the 606 effects, Jay, trust me, we’d be happy to share it with you.
Jay Vleeschhouwer: Understood. Okay.
Neil Barua: The answer is, we can’t do that, Jay.
Jay Vleeschhouwer: Okay.
Neil Barua: I will say though that the pipeline of large deals, we feel good about. It’s healthy and sales team, all of us are focusing on closing them. The timing of those is always tough, as I mentioned, but we have a really nice pipeline that’s been growing around those large-sized deals across the world, quite frankly. So, we feel good about what we’re entering in the second half here.
Kristian Talvitie: And, Jay, not trying to be snarky about the 606 thing, I mean, you will remember that the main drivers are the kind of contracts and there is the upfront contracts and there’s the ratable contracts, the term length of the contract. So those are probably the two main drivers. Term lengths, we can try and incent customers to move in a certain direction, but ultimately, they’re going to make the right decision for them and that includes both on new and renewal — new and renewal transactions. And then, as it relates to the ratable versus the upfront contracts, we still have a small base of perpetual support that we’re still converting. So, every time that happens, you’re taking in up — you’re taking a ratable contract and moving it to an upfront contract.
We have — we’re, as you know, transitioning customers to SaaS. So, every time you do that, you’re taking an upfront contract and moving it to a ratable contract. The moving parts, the volatility is — well, you get the picture.
Jay Vleeschhouwer: Yes, indeed. Thank you.
Operator: [Operator Instructions] Thank you. The next question comes from the line of Stephen Tusa from JPMorgan. Please go ahead.
Stephen Tusa: Hey guys, how’s it going?
Neil Barua: Hey, Steve.
Kristian Talvitie: Hey, Steve.
Stephen Tusa: So, the net new ARR has been up nicely in the last couple of quarters. You haven’t guided, I guess, down just year-over-year. You can kind of like cut these numbers any way you want, but any — is that a reflection of the macro you were talking about? And then, when does this now $10 million of deferred go live? Are you expecting that in the 3Q or the 4Q?
Kristian Talvitie: So, let’s start the — I guess we’ll go in reverse order. The $10 million of deferred is also split probably pretty evenly between Q3 and Q4. The other $10 million, let’s just be clear, those are still contractual commitments that will — that have just moved to a future period, right? So, they haven’t gone way. They’ve just gotten larger and moved to a future period. In terms of the macro, again, I think Neil mentioned earlier, we haven’t really seen any change really in any direction here over the past few quarters. And as it relates to tying that back to Q2 results, Q3 guidance, in any given quarter, there can be a little volatility around lumpiness of deals, start dates, and prediction of those that can cause minor swings in either direction. So all in all, we’re pleased with the result for Q2. We think we’ve set the Q3 guidance appropriately and steadily, I guess.
Stephen Tusa: And then just one last one, on the — in the appendix, you had in the last presentation, I believe guided for like cash taxes in ’25 and ’26, I think it was. That wasn’t in the appendix this time around. Anything moving around on that cash tax guide for the next couple of years?
Kristian Talvitie: No, not specifically. I think we were just trying to again tighten up the disclosures. And it was — to be honest, it was a little weird. We were giving points on certain line items and not other line items. And so, we just tidied up the more detailed disclosures to fiscal ’24 and otherwise, we remain on target for the other for ’25 and ’26.
Stephen Tusa: Sorry, one more just to get Neil involved. Is there a dynamic here where your customers are evaluating their IT budgets and in regard to AI and that’s slowing these pipelines from closing because they’ve obviously been faced with a different kind of choice that it seems like a bit generational in nature. And so, is that something you’re seeing as far as these extended close rates that there is potentially a bit of reallocation into these new technologies?
Neil Barua: Absolutely not. And the reason why I say with such firmness is because in our segment of the market, there is plenty of POC-ing and experimentation and conversations. And what I will say is, we’re involved in those, right, on a fair number of them, because while I’m not coming out promoting this on calls like my other peers, we are building and working through a number of ideas around practical use cases for Copilots. We’ve actually put out, like I mentioned last earnings call, a beta for GenAI solution for service that we’re getting good feedback on. Where I’m going with this, Steve, is that I believe that AI is not taken away from IT prioritization currently. As they’re thinking through what the POCs are and what the use cases are, and quite frankly, what they’re going to do with it, and vice-versa, what are vendors actually going to charge for it?
