Ptc Inc. · NASDAQ:PTC
Ptc — Investor Day (November 2022)
69 slides from Ptc's investor day presentation, Nov 17, 2022
Slide 1: FY'23 Investor Day
FY'23 INVESTOR DAY Jim Heppelmann President and CEO Mike DiTullio President, Digital Thread Kristian Talvitie Chief Financial Officer November 17th, 2022
Slide 2: Agenda
10:00 – 10:30 Strategy Jim Heppelmann, President and CEO Investor Day FY’23 10:30 – 11:00 SaaS Transition Program Mike DiTullio, President, Digital Thread AGENDA 11:00 – 11:30 Financials Kristian Talvitie, Chief Financial Officer 11:30 – 12:00 Q&A 2
Slide 3: Jim Heppelmann
JIM HEPPELMANN President and CEO
Slide 4: ServiceMax Acquisition
SERVICEMAX ACQUISITION Strong Alignment Expected to Add Expected to be Expected to be Expected to Purchase Price with Closed-loop ~$160M to Accretive to PTC Accretive to Cash ~$1.46B Close in Early PLM Strategy PTC ARR in Q2'23 Growth Rate Flow in FY’23 January 2023 4
Slide 5: Performing While Transforming
PERFORMING WHILE TRANSFORMING SLM ~565% Market Cap growth since FY'10 Initiative Driven by significant acceleration of both Growth and Profitability SaaS Initiative AR Initiative Subscription 2% Growth1 CAGR FY’07-FY'10 Model 15% Growth1 CAGR FY’19-FY’22 16% Operating Margins2 FY'10 Transition 38% O
Slide 6: Accelerating ARR Growth
ACCELERATING ARR GROWTH In millions $2,500 At FY’23 Plan Rate FX Mid-Term Guidance $2,000 … $2,000 FY23 ARR is Guidance $1,700 $1,572 $1,572 the annualized $1,500 value of active $1,353 recurring software $1,156 $1,043 contracts at the $1,000 $930 end of a period $500 +12% +12% +11% +17% +16% +10% t
Slide 7: Expanding Cash Contribution Margins
EXPANDING CASH CONTRIBUTION MARGINS In millions Illustrative model Mid-Term 45% Guidance 40% 35% 37% … 38% ~ 40% 32% Cash contribution 30% 29% 28% margin1 26% 25% 21% 20% 15% 10% 5% 0% FY'18 FY'19 FY'20 FY'21 FY'22 FY'23 FY'24 FY'25 FCF = f(ARR) 1 Cash contribution margin % = Cash generation less no
Slide 8: Strong Performance vs. Peers 2019-2022
STRONG PERFORMANCE VS. PEERS 2019-2022 Aspire to Mid-teens+ ARR Growth 15% Organic ARR Growth in FY’22, up ~300 bps YOY Aspire to Sustainable Low-40’s EBITDA Margins. 39% EBITDA Margin in FY’22, up ~300 bps YOY Source: FactSet as of November 16, 2022 and SEC filings. Note: Peer figures calendarized
Slide 9: Record Performance in FY'22
RECORD PERFORMANCE IN FY’22 Top-Line Performance Bottom-Line Performance ARR Free Cash Flow Constant currency ARR up 16% YoY (15% organic) Free cash flow up 21% to $416 million Constant currency bookings up mid-teens % Organic churn improved 193bps1 1 Excludes Arena acquisition, Russia exit, and Cod
Slide 10: Great Progress on Margin Expansion in FY'22
GREAT PROGRESS ON MARGIN EXPANSION IN FY’22 SaaS realignment drove Further margin expansion targeted FY’22 expansion in FY’23 and beyond PTC Overall PTC Startups Organization alignment to SaaS principles and Resource rebalancing increased SaaS best practices investment while closing ~500 TBH positio
Slide 11: Resilient Business Model
RESILIENT BUSINESS MODEL Guidance reflects strength and resilience in FY’23 Constant Currency Organic ARR Bookings Churn Free Growth Scenario Scenario Cash Flow FY’22 Actual 15% +mid-teens% 193bps better $416 million 14% ~5% Flattish ~$560 million Most FY’23 Plausible Guidance 12% Flattish ~100bps w
Slide 12: Category Leadership in PLM
CATEGORY LEADERSHIP IN PLM PLM: Product data management and process orchestration software PLM software market share1 using comparable PTC PLM outperformed the market* definitions of PLM (latest trailing 12 months data) FY’22: 20% Total Growth $148M TTM software revenue 2% 5% $981M Software Revenue
Slide 13: Strong Position in CAD
STRONG POSITION IN CAD CAD: Product data authoring CAD software market share1 using comparable PTC CAD outperformed the market* definitions of CAD (latest trailing 12 months data) FY’22: 11% Organic Growth 4% 11% 7% $790M Revenue Market Growth PTC Outgrowth* PTC ARR Growth *PTC Outgrowth Factors: 1
Slide 14: Large and Growing Markets
LARGE AND GROWING MARKETS PTC Total Addressable Market1 2022-25 CAGR $39B +11% CAGR Product-centric Field Service Management (FSM) +13% $29B PLM +12% CAD +8% 2022 2025 1 Source: Company data, industry analyst data, and estimates. 14
Slide 15: Why the Momentum?
WHY THE MOMENTUM? DISRUPTIVE FORCES ARE DRIVING DIGITAL TRANSFORMATION IN INDUSTRIAL COMPANIES “ Manufacturers are investing $524 billion annually in digital transformation initiatives EVOLVING CLIMATE SOFTWARE EATING SUPPLY CHAIN WORKFORCE CHANGE THE WORLD DISRUPTION \ 15 15
Slide 16: PTC Is at the Nexus of Digital Transformation
PTC IS AT THE NEXUS OF DIGITAL TRANSFORMATION DIGITAL TRANSFORMS PHYSICAL 16
Slide 17: Digital Transforms Physical
DIGITAL TRANSFORMS PHYSICAL DIGITAL DIGITAL DIGITAL DIGITAL DIGITAL DIGITAL Defines Controls Manages Connects Sustains Augments PHYSICAL PHYSICAL PHYSICAL PHYSICAL PHYSICAL PHYSICAL CAD ALM PLM IoT SLM AR DIGITAL THREAD 17
Slide 18: Digital Thread Across Product Lifecycle
DIGITAL THREAD ACROSS PRODUCT LIFECYCLE Manufacturing Engineering Factory Operations Manufacturing Manufacturing Manufacturing Manufacturing Performance BOM Process Work Execution Analysis Transformation Planning Instructions Product Engineering Hardware Platforms / Requirements Systems Configuratio
Slide 19: IoT Enables Closed-Loop Lifecycle Management
IOT ENABLES CLOSED-LOOP LIFECYCLE MANAGEMENT Factory Feedback Manufacturing Engineering Factory Operations Product Quality Value Engineering Manufacturing Manufacturing Manufacturing Manufacturing Performance Design for Manufacturability BOM Process Work Execution Analysis Transformation Planning In
Slide 20: Benefits Every Customer Strives For
BENEFITS EVERY CUSTOMER STRIVES FOR Time-To-Market Cost Quality 20
Slide 21: Key Drivers of Demand
KEY DRIVERS OF DEMAND Regulatory Environmental Digital Fast Modular Compliance Sustainability Innovation Fashion Platforms Agile Transition to Industry Virtual Product with/as Product Cloud/SaaS 4.0 Workforce a Service Development 21
Slide 22: ServiceMax and PTC: A Long History Together
SERVICEMAX AND PTC: A LONG HISTORY TOGETHER 2015 FY’16 Investor Day 2017 2019 GE Digital Acquires ServiceMax to Extend Predix Silver Lake to Acquire Majority and Analytics Across Field Service Processes Stake in ServiceMax from GE Digital 22
Slide 23: Track Record of M&A Success
TRACK RECORD OF M&A SUCCESS LONG HISTORY OF SERVICE – RELATED ACQUISITIONS Product Telemetry & Analytics Technical Spare Parts 3D AR Service SaaS Field Product Definition & Publications Optimization Instructions Service BOMs Management FY’98 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘1
Slide 24: Transforming the Service Process
TRANSFORMING THE SERVICE PROCESS 24
Slide 25: Perfect Fit with PTC Strategy
PERFECT FIT WITH PTC STRATEGY Product Engineering Hardware Platforms / Requirements Systems Configuration & Software Simulation Management Engineering Management Design Service Engineering Field Operations Service Service Service Aftermarket BOM Process Instruction & Customer Service Service Parts T
Slide 26: ServiceMax – A Strong Complement to Portfolio
SERVICEMAX – A STRONG COMPLEMENT TO PORTFOLIO Arbortext 2D Service Instructions CAD/PLM IoT Product Definition / BOMs Telemetry / Analytics Servigistics AR Spare Parts Optimization 3D Service Instructions 26
Slide 27: Managing the Product at the Customer Site
MANAGING THE PRODUCT AT THE CUSTOMER SITE CAD – ALM – PLM – IOT – SLM – AR – EAM – FSM – CRM 360º 360º View of View of the the Product Customer 27
Slide 28: Strong Customer Synergies
STRONG CUSTOMER SYNERGIES Complex Products | Long Lifecycles | Critical Uptime | Wear-and-Tear 28
Slide 29: SaaS Will Be a Long-Term Growth Driver
SaaS WILL BE A LONG-TERM GROWTH DRIVER Mid ~40s% of ARR in FY’27 Majority of ARR 16% Mid ~20s% SaaS of ARR of ARR in FY’23 in FY’22 On-Premise FY'22 FY'23 FY'24 FY'25 FY'26 FY'27 FY'28 FY'29 FY'30 29
Slide 30: Mike DiTullio
MIKE DITULLIO President, Digital Thread
Slide 31: SaaS Tipping Point Has Arrived in B2B Software
SaaS TIPPING POINT HAS ARRIVED IN B2B SOFTWARE SaaS in now the majority in the enterprise application market Global Enterprise Application Market Importance of Cloud & SaaS For Product SaaS vs. On-Prem and Service Innovation Efforts $B % of respondents, 1-5 scale, consolidated 600 578 550 527 +10% 5
Slide 32: Strong Value Proposition Drives SaaS Interest
STRONG VALUE PROPOSITION DRIVES SaaS INTEREST Key Benefits of SaaS: More innovation, SaaS customers shift cost of better collaboration, lower TCO, improved hardware stack, software stack, and security, fewer headaches system administration to PTC SaaS eliminates friction in the digital thread 32
Slide 33: SaaS Drives 2X ARR Uplift
SaaS DRIVES 2X ARR UPLIFT $2.00 We are in the early days of Windchill+, with limited data points, but actual results so far $1.00 are better than 2X, ranging from 2.4X to more than 3X. Lower discounting rates typical for SaaS is a helpful factor. $1.00 We continue to think 2X is an appropriately con
Slide 34: Charting PTC's Path to Subscription and SaaS
CHARTING PTC’S PATH TO SUBSCRIPTION AND SaaS Traditional Software Company Path PTC’s “2-Step” Path On-Prem Cloud On-Prem No valley here! Cloud $1.45 Net Yield 2X $2.90 $2.00 Subscription Subscription 2022-2030 1.25X “like for like” “Valley of Death” When crossing this line $ 2014-2019 t Valley Perpe
Slide 35: SaaS Will Be a Long-Term Growth Driver
SaaS WILL BE A LONG-TERM GROWTH DRIVER New SaaS $2 PTC Total ARR +$2 (SaaS) SaaS (>$1B of On-Prem ARR) Conversions -$1 (On-Prem) New $1 On-Prem 35
Slide 36: SaaS Conversions: ARR Growth Tailwind
SaaS CONVERSIONS ➔ ARR GROWTH TAILWIND We have >$1B on-prem ARR 70% We expect to ultimately convert ~70% of on-prem ARR converted to SaaS We expect this phenomenon to take a decade We expect ARR growth tailwind to have an “S-curve” shape Year 1 Year 5 Year 10 Illustrative 36
Slide 37: Governed by Major SaaS Transition Program (STP)
GOVERNED BY MAJOR SaaS TRANSITION PROGRAM (STP) Services Development Mission: Accelerate PTC’s SaaS 60+ leaders working value creation opportunity together across 30+ by driving SaaS-first practices (across people, STP workstreams to drive our SaaS transition processes, products, Partners Delivery a
Slide 38: Atlas SaaS Platform
ATLAS SaaS PLATFORM TODAY FUTURE Unified SaaS Portfolio Note: we plan to continue to indefinitely offer on-prem offerings for Creo, Windchill, Integrity/Codebeamer, ThingWorx and Vuforia built from same code bases. 38
Slide 39: SaaS Product Offerings
SaaS PRODUCT OFFERINGS Cloud-Native “Plus” Products December 2022 May 2023 SaaS Today In Development 39
Slide 40: Leading Our Industry to SaaS
LEADING OUR INDUSTRY TO SaaS SaaS tipping point has occurred in B2B software PTC is all in with our SaaS Transition Program Customer interest in SaaS is high SaaS will be a growth tailwind Converting the customer base will be a multi-year journey ServiceMax acquisition expected to close early Januar
Slide 41: Kristian Talvitie
KRISTIAN TALVITIE Chief Financial Officer
Slide 42: Financial Strategy
FINANCIAL STRATEGY Align with market Drive sustainable Grow free cash demand top-line ARR growth flow Capital allocation Value creation through Business model aligned with technology transformation and operational leadership discipline 42
Slide 43: ARR and Free Cash Flow Are the Best Indicators of Business Performance
ARR AND FREE CASH FLOW ARE THE BEST INDICATORS OF PTC’S BUSINESS PERFORMANCE Top-Line Bottom-Line We believe that ARR is the We believe that free cash flow best indicator of PTC’s top-line is the best indicator of performance PTC’s bottom-line performance 43
Slide 44: Why We Focus on ARR and Free Cash Flow
WHY WE FOCUS ON ARR AND FREE CASH FLOW 1 ASC 606 Volatility: Revenue versus ARR (refer to Q4’22 earnings call) $1 ARR ➔ $1 Revenue over the term of a contract Free Cash Flow = f(ARR) ARR & Invoiced Cash Revenue Revenue is noise when assessing 2 PTC’s business performance 1 Refer to appendix slides a
Slide 45: A Look Back at Results versus FY'22 Targets
A LOOK BACK AT RESULTS VERSUS FY’22 TARGETS Strong results, despite FX headwinds and macro uncertainty FY'22 Initial FY’22 Initial FY'22 FY'22 $ in millions Growth Guidance Actual Growth Actual Results Guidance ARR at Constant Currency1 10% - 13% $1,615 - $1,660 +16% $1,706 Cash from Operations ~17%
Slide 46: ARR Growth Acceleration
ARR GROWTH ACCELERATION 1 Organic constant currency ARR growth accelerated to 15% $ in millions 12% Constant Currency ARR CAGR Market driven ARR growth During transition to subscription business acceleration fueled by $1,800 model, ARR growth was helped by mix shift solid execution $34 from Perpetua
Slide 47: A "New Era" of Free Cash Flow Growth and Stability
A “NEW ERA” OF FREE CASH FLOW GROWTH AND STABILITY Market leading products + subscription model + cost discipline = operating leverage $ in millions Subscription Transition “New Era” $1,949 $2,000 $1,740 $1,501 $1,706 ARR $1,500 $1,291 $1,468 $1,207 ARR $1,122 $1,258 $1,038 $1,137 $978 ARR $1,000 $8
Slide 48: ServiceMax Key Figures
SERVICEMAX KEY FIGURES Expected FY’23 Revenue by Geographic Region ServiceMax within PTC FY'23 Expectation ~8% Americas Constant Currency ARR1 ~$175 million (~$160 million in Q2'23) Europe ~34% ~58% APAC ARR Collections mix ~95% U.S. Dollar Free Cash Flow impact to PTC 2 ~$5 million accretive Expect
Slide 49: Capital Structure Update
CAPITAL STRUCTURE UPDATE Strong balance sheet as of September 30, 2022 Cash and cash equivalents of $272 million Gross borrowings of $1.359 billion with an aggregate interest rate of 3.9% $1.0 billion of senior notes with an aggregate interest rate of 3.8% $359 million drawn on revolving credit faci
Slide 50: FY'23 Guidance Including ServiceMax
FY’23 GUIDANCE INCLUDING SERVICEMAX FY'23 Growth FY'23 Growth FY'23 Guidance FY'23 Guidance $ in millions FY'22 Actual (excluding (including (excluding ServiceMax ) (including ServiceMax) ServiceMax) ServiceMax) ARR at Constant Currency1 $ 1,572 $1,730 - $1,790 10% - 14% $1,905 - $1,965 21% - 25% Ca
Slide 51: FY'25 Targets Including ServiceMax
FY’25 TARGETS INCLUDING SERVICEMAX FY'22 Actual FY'25 Targets $ in millions (excluding ServiceMax) (including ServiceMax) Constant Currency ARR growth 16% (15% organic) Mid-teens % Non-GAAP Cash Contribution Margin %1 32% ~40% Free Cash Flow $416 $825 to $875 External factors that could positively o
Slide 52: Modeling Cash Gross Margin % During SaaS Evolution
MODELING CASH GROSS MARGIN % DURING SaaS EVOLUTION ServiceMax included in FY’23 and beyond Illustrative Cash Generation by line of business FY'22 Actual FY'23 Illustrative FY'25 Illustrative FY'27 Illustrative Non-GAAP Assumptions $ in millions Gross Margin % On-premise ARR1 $ 1,320 $ 1,480 $ 1,480
Slide 53: Delivering Shareholder Value Over Time
DELIVERING SHAREHOLDER VALUE OVER TIME Performing while transforming Management has ▪ Subscription business model ▪ Leading our industry to SaaS demonstrated an ability to ▪ Growth acceleration and margin expansion proactively adapt to changing ▪ Continuous spend optimization macro environments and
Slide 54: Wrap Up
WRAP UP STRONG POSITONED TO STRONG PROFITABILITY DRIVE STRONG PORTFOLIO EXECUTION EXPANSION GROWTH AND STRATEGY Portfolio of products is Sustainable double-digit FY’25 target non-GAAP Business model, unique and compelling top-line growth cash contribution margin market position, and of ~40% executio
Slide 55: Questions?
QUESTIONS?
Slide 56: Thank You
DIGITAL TRANSFORMS PHYSICAL THANK YOU ptc.com Go900
Slide 57: Appendix: Comparison of ARR vs. Revenue (Summary)
APPENDIX: COMPARISON OF ARR VS. REVENUE (SUMMARY) $1 ARR → $1 Revenue Free Cash Flow = f(ARR) Revenue is noise when assessing 1 PTC’s business performance 1 Technical definition: irregular fluctuations that accompany a transmitted signal but are not part of it and tend to obscure it 57
Slide 58: Appendix: Key Definitions
APPENDIX: KEY DEFINITIONS Bookings ARR (Annual Run Rate) Bookings represents the annualized ARR represents the annualized value of value, based on the final month of our portfolio of active subscription the contract, of new renewable software, cloud, SaaS, and support software contracts committed to
Slide 59: Appendix: Comparison of ARR vs. Revenue (Exhibit A)
APPENDIX: COMPARISON OF ARR VS. REVENUE (EXHIBIT A) $15,000 This hypothetical model assumes +69% No growth, price increases, or churn +26% +50% No changing software type (e.g. support +44% to subscription, or subscription to SaaS) +25% +5% $10,000 All contracts the same size ($1,000) -5% -21% No cha
Slide 60: Appendix: Comparison of ARR vs. Revenue (Exhibit B)
APPENDIX: COMPARISON OF ARR VS. REVENUE (EXHIBIT B) Primary variables impacting revenue Type of Term Type of software Software Length Upfront recognition % Upfront Total Term length Recog. Contract Contract size % Value FX rates Hypothetical example with 10 contracts 60
Slide 61: Appendix: Comparison of ARR vs. Revenue (Exhibit B)
APPENDIX: COMPARISON OF ARR VS. REVENUE (EXHIBIT B) Primary variables impacting revenue Type of Term Type of software Software Length Upfront recognition % Upfront Total Term length Recog. Contract Contract size % Value FX rates Key takeaways For SaaS/Cloud and On-Prem support, revenue recognition i
Slide 62: Appendix: Comparison of ARR vs. Revenue (Exhibit B)
APPENDIX: COMPARISON OF ARR VS. REVENUE (EXHIBIT B) Primary variables impacting revenue Type of Term Type of software Software Length Upfront recognition % Upfront Total Term length Recog. Contract Contract size % Value FX rates Key takeaways For On-Prem subscription, a portion of the TCV of the con
Slide 63: Appendix: Comparison of ARR vs. Revenue (Exhibit B)
APPENDIX: COMPARISON OF ARR VS. REVENUE (EXHIBIT B) Primary variables impacting revenue Type of Term Type of software Software Length Upfront recognition % Upfront Total Term length Recog. Contract Contract size % Value FX rates Key takeaways For On-Prem subscription, a portion of the TCV of the con
Slide 64: Forward-Looking Statements and Risks
FORWARD-LOOKING STATEMENTS AND RISKS Statements in this presentation that are not historic facts, including those noted under the title “Cautionary Note About Forward-Looking Statements,” are forward-looking statements that involve risks and uncertainties that could cause actual results to differ ma
Slide 65: Operating Measures
OPERATING MEASURES ARR: We provide an ARR (Annual Run Rate) operating measure to help investors understand and assess the performance of our business as a SaaS and on-premises subscription company. ARR represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and
Slide 66: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES PTC provides supplemental non-GAAP financial measures to its financial results. We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operating performance because they provide a view of our op
Slide 67: Non-GAAP Financial Measures and Reconciliations
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS PTC Inc. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) (in millions) Twelve Months Ended September 30, September 30, September 30, September 30, September 30, 2018 2019 2020 2021 2022 ARR as reported $ 1,010 $ 1,111 $ 1,264 $ 1,468 $ 1,57
Slide 68: Non-GAAP Financial Measures and Reconciliations
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS PTC Inc. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) (in millions) Twelve Months Ended FY'23 Guidance September 30, September 30, September 30, September 30, 2010 2021 2022 2023 Cash prov ided by operating activ ities $ 285 $ 369 $ 435
Slide 69: Non-GAAP Financial Measures and Reconciliations
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS PTC Inc. NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) (in millions) Twelve Months Ended September 30, September 30, 2010 2022 Rev enue $ 1,010.0 $ 1,933.3 GAAP operating income $ 74.8 $ 447.4 Stock-based compensation 48.9 174.9 Amortizat