PTC Inc. (PTC) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with a focus on AI integration and SaaS products, which are well-received by customers. The divestiture of Kepware and ThingWorx is expected to enhance product value, and the capital allocation strategy includes significant share buybacks. Despite some uncertainties in ARR growth, optimistic guidance and strategic initiatives like the Intelligent Product Lifecycle Vision and AI-driven transformations suggest a positive outlook. The Q&A section reveals strong demand for SaaS and competitive displacements, further supporting a positive sentiment.
Key Financial Performance
Constant Currency ARR (excluding Kepware and ThingWorx) $2.341 billion, up 9% year-over-year. Growth attributed to strong demand capture and transformation initiatives.
Constant Currency ARR (including Kepware and ThingWorx) $2.5 billion, up 8.4% year-over-year. Growth attributed to strong demand capture and transformation initiatives.
Free Cash Flow $267 million, up 13% year-over-year. Growth attributed to operational efficiency and strong cash collections.
Operating Cash Flow Grew 13% year-over-year. Growth attributed to operational efficiency and strong cash collections.
Share Repurchases $200 million of common stock repurchased in Q1 under a $2 billion authorization. Plan to repurchase $1.1 billion to $1.3 billion of common stock in fiscal '26. Increase in repurchases due to current valuations and proceeds from divestitures.
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Operating Highlights
Intelligent Product Lifecycle: PTC is focusing on embedding AI into its core products (CAD, PLM, ALM, SLM) to create connected systems of record, enterprise-wide cloud access to product data, and AI-driven workflows. Recent product updates include Codebeamer 3.2, Windchill UI enhancements, and new AI functionalities like Codebeamer AI and Windchill AI parts rationalization.
Market Expansion: PTC secured a significant expansion deal with Garrett Motion, displacing competitors in PLM and ALM. Garrett is adopting PTC's Intelligent Product Lifecycle vision to modernize its product development environment with a cloud-first, AI-ready architecture.
Financial Performance: PTC reported a 9% year-over-year growth in constant currency ARR (excluding Kepware and ThingWorx) and a 13% increase in free cash flow. The company also repurchased $200 million in common stock in Q1 and plans to repurchase $1.1 billion to $1.3 billion in fiscal 2026.
Deferred ARR: PTC achieved record deferred ARR under contract, with large deal volumes expected to convert to ARR in Q4 2026 and beyond, supporting long-term growth.
Divestiture of Kepware and ThingWorx: PTC is on track to complete the divestiture by April 1, 2026, with expected net after-tax proceeds of $365 million. This will enable additional capital returns to shareholders.
AI Strategy: PTC is building a common AI infrastructure across its product portfolio to enhance product data usage and governance, positioning itself as a leader in AI-driven product lifecycle management.
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Risk or Challenges
Market Conditions: Products are becoming more complex, more software-driven, and more regulated, while development cycles are compressing. Competition is increasing, supply chains are fragmenting, and the workforce is evolving to favor modern digital-first systems and processes.
Strategic Execution Risks: PTC is undergoing a transformation phase, which includes divesting Kepware and ThingWorx. The success of this transformation depends on the execution of their Intelligent Product Lifecycle vision and embedding AI into their systems.
Regulatory Hurdles: Products are becoming more regulated, which could pose challenges in compliance and product development.
Economic Uncertainties: PTC's financial guidance and growth projections are based on assumptions that may be impacted by broader economic conditions.
Supply Chain Disruptions: Fragmenting supply chains could impact the ability to deliver products and services efficiently.
Customer Adoption Risks: PTC's success depends on customers adopting their Intelligent Product Lifecycle vision and AI-embedded systems. Resistance or slow adoption could impact growth.
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Guidance & Outlook
ARR Growth: For fiscal '26, constant currency ARR excluding Kepware and ThingWorx is expected to grow approximately 7.5% to 9.5%. Including Kepware and ThingWorx, growth is expected to be approximately 7% to 9%. In Q2 '26, constant currency ARR excluding Kepware and ThingWorx is expected to grow approximately 8% to 8.5%, and including them, growth is expected to be approximately 7.5% to 8%.
Deferred ARR Impact: Starting in Q4 '26, deferred ARR will have a positive impact on ARR growth. A large increase in deferred ARR is expected to start in Q4 '26 compared to previous Q4, driven by go-to-market and commercial initiatives.
Free Cash Flow: For fiscal '26, free cash flow is expected to be approximately $1 billion. For Q2 '26, free cash flow is guided to $310 million to $315 million, including Kepware and ThingWorx for the full quarter.
Revenue and EPS Guidance: Fiscal '26 revenue guidance is raised to $2.675 billion to $2.940 billion. Non-GAAP EPS guidance is raised to $6.69 to $9.15, reflecting strong Q1 '26 results.
Share Repurchases: PTC plans to repurchase $1.1 billion to $1.3 billion of common stock in fiscal '26, including $200 million repurchased in Q1 and $250 million planned for Q2. Additional repurchases are expected following the close of the Kepware and ThingWorx divestiture.
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Shareholder Return Plan
Share Repurchase Authorization: PTC repurchased $200 million of common stock in Q1 under its $2 billion share repurchase authorization. In Q2 '26, the company intends to repurchase approximately $250 million of common stock. For Q3 and Q4, PTC plans to repurchase $150 million to $250 million of common stock per quarter. Additionally, following the close of the Kepware and ThingWorx divestiture, PTC plans to return additional capital to shareholders, with an expected net after-tax proceeds of approximately $365 million. Overall, the company expects to buy back approximately $1.1 billion to $1.3 billion of its common stock in fiscal '26.
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Key Q&A
Q:What level of visibility do you have on deferred ARR deals in Q4, and what are the variables behind their recognition?
A:Neil Barua explained that the deferred ARR for Q4 is about triple what it was last year and double for 2027 compared to this year. The deferred ARR is due to strategic cross-product wins and competitive displacements. These are contracted commitments, and while they don't show up in Q1 or Q2 ARR, they are expected to impact Q4 significantly.
Q:Are the AI capabilities being released by PTC starting to have a material impact on demand decisions?
A:Neil Barua stated that while the AI capabilities, such as Windchill AI parts rationalization and Codebeamer AI, are well-received by customers, their economic impact is currently immaterial. However, as these releases move from POCs to scaled deployments, they are expected to become significant economic drivers over the next few years.
Q:What is the mix of growth for Creo and Windchill between expansion and competitive displacement?
A:Neil Barua mentioned that the majority of growth comes from expansion, but there is accelerated growth in competitive displacements. Customers are consolidating disparate PLM systems into Windchill, driven by the need for contextual product data for AI benefits. Rob Dahdah added that competitive displacements are growing as a next step for the company.
Q:Are you seeing increased customer demand for SaaS products like Windchill+ and Creo+?
A:Neil Barua confirmed strong momentum for SaaS products, with record-breaking demand capture for Windchill+. While the market is not flipping to SaaS overnight, scaled implementations and positive customer experiences are driving growth. SaaS transitions are also yielding a 1.5 to 2.5x ARR lift compared to on-prem solutions.
Q:Why did the channel drive over 80% of net new ARR in the quarter, and when can the direct business contribute at a similar level?
A:Jennifer DiRico explained that a large deal influenced the numbers, as customer preference determines whether fulfillment is through the channel or direct. Rob Dahdah added that the company is fostering collaboration between direct and channel teams to meet customer needs, and this dynamic may continue in the future.
Q:What is the seasonality of ARR growth for the fiscal year, and is it more back-end loaded than expected?
A:Jennifer DiRico stated that the shape of the ARR growth curve remains similar to initial expectations, with a step-up in Q3 and a larger step-up in Q4. Neil Barua emphasized that the focus is on building durable, multiyear growth through strong demand capture.
Q:What is the update on ServiceMax and its cross-sell opportunities?
A:Neil Barua noted that while ServiceMax faced churn issues, there are green shoots of demand capture and cross-sell opportunities. The integration of ServiceMax into the Intelligent Product Lifecycle and its AI capabilities are seen as competitive differentiators. Rob Dahdah added that the company is aligning incentives to promote ServiceMax adoption.
Q:Why is there an implied decline in net new ARR for Q2, and how does deferred ARR factor into this?
A:Neil Barua explained that the decline is due to assumptions about deal structuring and timing, not a lack of demand. The focus is on building deferred ARR to create a durable, multiyear growth engine.
Q:What trends are you seeing in the macro environment, and how are they affecting verticals and geographies?
A:Neil Barua stated that despite macroeconomic challenges, customers are prioritizing modernization, particularly in industrial manufacturing. Rob Dahdah added that performance across verticals and geographies is balanced, with no significant weaknesses.
Q:How much visibility or control do you have over the implementation timelines for deferred ARR deals?
A:Rob Dahdah explained that deferred ARR deals are contractually committed, and customers have incentives to adhere to implementation timelines. The company has aligned sales and customer success teams to ensure realistic timelines and minimize risks.
Q:Are you seeing a fundamental change in deal profiles, such as more frequent large transactions?
A:Neil Barua confirmed that the company is seeing larger cross-product deals as a result of its go-to-market transformation. While timing remains an art, the pipeline for such deals is growing, and the company is optimistic about closing them over the next few years.
Q:What was the significance of PTC's presence at CES, particularly in the automotive sector?
A:Neil Barua highlighted strong interest from industrial manufacturers and automotive companies at CES. Codebeamer is the tip of the spear in automotive, with opportunities to expand Windchill and ServiceMax adoption. Rob Dahdah added that ALM is also gaining traction in other industries.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about the seasonality of ARR growth for the fiscal year, providing only general statements about the shape of the growth curve. Additionally, while discussing deferred ARR, management did not provide specific details on how much of the balance is baked into the guidance, leaving some uncertainty.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI road
AI system
ALM SLM
ARR contract
CFO
Intelligent Product
Jen
Kepware ThingWorx
Lifecycle product
Lifecycle vision
Product Lifecycle
access product
connection Codebeamer
customer feedback
element
enterprise workflow
goal
life cycle
partner
product AI
product CAD
product development
product road
productivity
record ARR
record life
road map
seller
standard
supplier
system record
transformation PTC
user
vision product
PTC Transcript
PTC Inc. (PTC) Q1 2026 Earnings Call Transcript
Positive2-4
The earnings call summary indicates strong financial performance with a focus on AI integration and SaaS products, which are well-received by customers. The divestiture of Kepware and ThingWorx is expected to enhance product value, and the capital allocation strategy includes significant share buybacks. Despite some uncertainties in ARR growth, optimistic guidance and strategic initiatives like the Intelligent Product Lifecycle Vision and AI-driven transformations suggest a positive outlook. The Q&A section reveals strong demand for SaaS and competitive displacements, further supporting a positive sentiment.
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Neutral12-11
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Neutral11-18
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Positive11-5
PTC's earnings call highlights a revenue beat, record deferred ARR, and improved operational efficiency, all signaling strong financial performance. The divestiture of the IoT business aligns with strategic focus and is seen positively. Despite challenges in certain segments, the overall guidance is optimistic, with a focus on AI and product development. The Q&A reveals confidence in the Intelligent Product Lifecycle strategy, though some uncertainty remains around the Section 174 decision. With a $2 billion share repurchase plan and raised free cash flow guidance, the sentiment is positive, expecting a 2% to 8% stock price increase.
PTC Report
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