PTC Inc. (PTC) Earnings Call Transcript & Summary

Yes. I think, again, Arena, another acquisition that we think is going really well. It was a well-run company prior to them joining forces with us. And they, like everybody else, impacted by COVID. I think we've seen a little bit of pressure valve relief, if you will, on that front. In the meantime, they've also been doing a good job at increasing their pipeline over the past 12 to 18 months, and they're executing on in the field. The product works well. They get a lot of good customer feedback. And market receptivity has been good. We think that -- we think this can continue here really for the foreseeable future, call it, the near and midterm. And the opportunity to continue to grow that business exists. Then just as a follow-on point to that they had really been primarily focused in the U.S. only. And now we're looking to expand their reach. We've recently established here last quarter, their first initial go-to-market presence in Europe. And so we'll look to continue to expand that as well as other opportunities for expanding the reach because again, it is a solid product with good applicability. So...

Okay. Interesting. When I think about Arena, and let's say I'm a customer, am I looking at other cloud PLM products when I'm in my decision process? Or am I looking at converting from on-premise to the cloud? What is the typical Arena customer look like today?

Yes. Right now, where Arena is in the kind of mid-market product or company category, a lot of the space that they go after are unvended, right? No formal PLM system in place. So when customers are looking at implementing a PLM system that make their evaluations. And I mean, Arena, again, is really the leading SaaS-based PLM system for that market. So a little friction around kind of displacing other systems. It's really more of making sure that customers are ready to embark on that kind of digital transformation journey. And where they are, it's a good product market fit.

Okay. Excellent. Maybe we move on to your IoT segment. This was a segment that has seen some pressure over the last couple of quarters. Maybe can you talk about some of the dynamics on why growth hasn't been as strong as on the ARR side is what we'd expect and maybe how the pipeline might be shipping out.

Yes. So the pipeline for IoT still continues to be strong. I think that during -- certainly in the early stages of the COVID environment, which impacted broadly, and impacted PTC, and impacted IoT in particular with new implementations, new logos, if you will. And once you get past that initial stage of confusion, when people started to figure out that maybe there is some light at the end of the tunnel, not that we're at the end of the tunnel yet. Maybe that was a reflection of like further down the tunnel because the Delta variant and other things going on, we're starting to see continued turbulence out there. But even still, people got more comfortable with the situation, and we started to see some demand pick up. However, those kind of new logo, new implementations generally work better when customers on site -- we can get on site with them to make sure that the deployment is going well. Those have remained slower where they've -- where we've had customers that have had an implementation and just want to expand it. Those have been going better. And then lastly -- the last thing I would say is, we talk about ramp deals as well, which are increasing piece of our new bookings, are coming in as ramps. And really the ramp deals are primarily PLM or IoT. Certainly, there's other elements to it, but those are the 2 primary segments that drive it. And we've -- as we transitioned into fiscal '21, we had -- and we've articulated this in our guidance, but we had a headwind, if you will, from the amount of deferred ARR that we had that was going to come off -- come into production in '21 because of the light bookings in '20 due to the COVID environment. So those are the things that we're seeing right now in IoT. But I think that longer term, I think we're still very positive on the opportunity. It's another part of digital transformation for our customers. And we continue to pump significant R&D effort into continuing to commercialize or make more out of the box, even our IoT solutions as well. So we've got our first real solution DPM, digital project management (sic)[ digital performance management], coming out here at the end of this year.

Okay. So I mean that kind of leads me to my next question. And the IoT business, sounds like it's kind of a good pipeline. You got some good products coming out. But I guess one is, what gets us back to this, call it, 30%-type IoT growth? And maybe how should we think about maybe working our way back to there in terms of timing?

Well, I don't really want to get into fiscal '22 guidance here at this point. But I think it's going to take some time for us to get it back to approaching those levels. I think, hopefully, we'll see continued positive momentum going into fiscal '22 and start to see IoT turn the corner, if you will.

Okay. And then another question -- so we've gotten somewhat frequently maybe can you talk about your relationship with Rockwell, and how the dynamic might play out with their acquisition of Plex, which is another good asset that's complementary to your business. But how do you see your relationship with Rockwell evolving?

Yes. I mean it's a good question. It's certainly been a good journey thus far. And as you know, we, a few months ago, expanded and amended -- extended and amended our relationship with Rockwell. Certainly, Rockwell has a pretty clear position that they want to continue to expand their software footprint and software capabilities, right? That have their own factory-type automation suite that was originally augmented with our IoT and AR capabilities with the expanded arrangement. They also can get into PLM as well. I think they've been making some investments and changes on their part to continue to drive software -- their software business, which is all positive. And then most recently, the Plex acquisition, which, as you say, we view as very complementary to PTC's solutions. And if you're referring to the commentary that we made on our earnings call, I think the point of that is really, we are just being mindful that Rockwell has put down a considerable sum of money to acquire Plex. And there is potential that it has some near-term disruption or near to medium term, who knows, disruption in our, we'll call it, joint go-to-market efforts. I'm not saying that's going to happen, I mean we don't know. But we just wanted to caution that it is a possible outcome. If it were me, and I bought a company and put down a considerable sum of money for it, I would want to muster the resources to make sure that it was succeeding. So that's...

No. That's an interesting perspective. We have 5 minutes left, but I did want to hit on more -- on your cloud strategy since that's so key to the long term here. But -- so I know Jim likes to talk about the push in the cloud with Onshape, Arena and Atlas, and eventually converting over Creo and Windchill. Maybe what gives you confidence that this is the right strategy versus maybe what some of your competitors may or may not be doing. That's I mean the part one. And then in I have a follow-up.

Yes. So let me here, I'll leave it to our competitors to articulate the -- their own strategies and what the pros and cons of those strategies are. I think from our perspective Jon Hirschtick and the Onshape's team spent nearly a decade building the cloud platform that's now Atlas, right? It's a modern, multi-tenant, scalable platform. It gives us a big head start in our view as we think about a more expanded cloud or SaaS strategy for PTC. And then in terms of how we think about our transition. We've also opted to make it more -- I don't know if gradual is the right word, but gradual in its approach, meaning we're going to be increasing incremental features and functionality for Creo Windchill over time. It's not that we've locked a bunch of engineers in the basement and told them not to come out until they have a SaaS version of that. And we think that our belief is that, that will allow our customers to really start to absorb SaaS in this part of the enterprise into the retail environment, and also to see firsthand the benefits that they're getting out of kind of the SaaS deployments, which we think will lead to broader adoption, an uptake over time, plus we'll try to be keeping pace with or in front of market adoption.

Okay. And then my last question here. So PTC has gone through model transition. So we've seen the benefits of that. And with moving to the cloud, I don't know if there's a price difference between on-premise or cloud, but is the real opportunity here more about share gains, just capturing more of the users who want to go cloud? How should we think about that in terms of price versus an absolute share gains?

Yes. Well -- and I think that, for sure, there is a, we'll call it, pricing difference. Some of it's just pure nuts and bolts pricing of now you don't need to have your own data center. You don't need a building for your own data center. You don't need, the servers, the storage. You don't need the people. And that's all helpful to get rid of and not have to manage and maintain, if that's not your kind of core business and you don't want to be doing that. But when you get more broadly into it, the benefits of SaaS are actually much deeper than just getting those costs transferred over. And that value comes in just natively how things like collaboration, frankly, are just easier, actually built into SaaS versus on-prem solutions, let alone how updates happen, security, et cetera, et cetera. So there's a much broader value creation in migrating to SaaS. And so we think that there is an uplift opportunity there. There's value created. We would expect with our customers will get a big portion of that value, and we would expect to get some portion of that value as well. And then over the longer term, I think we also believe that the industries that we've served, particularly CAD and PLM are pretty sticky software, right? And getting major switches, share shifts has proven challenging for everybody in the industry. And -- but maybe this is a paradigm that actually opens a crack in that door. I think we'll see over time, but certainly it seems like the world is moving to SaaS because of the benefits that are there. And our little piece of the enterprise is eventually going to move that way as well, and we think we're well positioned as that happens.

Okay. Excellent. Well, unfortunately, I think we're over time here. But Kristian, it's been -- it's an absolute pleasure. I hope the rest of the conference goes well and hope you have a good week.

Great. Thanks, Jason. Thanks, everyone.