PTC Inc. (PTC) Earnings Call Transcript & Summary

The bigger accounts, big holding accounts or geographic [indiscernible] industrial accounts are proceeding forward. Defense companies are on fire and medical device companies seem [indiscernible]. So there's a lot of pockets of strength and then some pockets of weakness where smaller companies that maybe are concerned about their staying power in bad economies. They're just trying to kind of [indiscernible] back a little bit [indiscernible].

Thanks, Kevin. Let's go to Adam borg next.

Thanks for the question and the open access. Maybe to circle back [indiscernible] help us understand that key milestones [indiscernible] the last 6 to 12 months. When did people decide being part of the [indiscernible].

For sure. First of all, on the second [indiscernible] respects into the PTC family has been extraordinary, much better than I expected. And the reason for it is around the capabilities that is already existing in PTC synergies, [indiscernible] lot of customer conversations going on around how do you have combined offerings help to make [indiscernible] make all the other parts more relevant is very compelling [indiscernible] which is a very important [indiscernible] on the priorities of R&D and sales and marketing. Right now, we have plenty of things to do within ServiceMax feature functionality to continue to serve the existing customer base that is growing and those that were acquiring new. So first and foremost, it's just a singular ServiceMax product road map and do it really well the way we've been doing it for the last number of years. Two is within SLM server [indiscernible] integration points thinking through what we're going to do with Arbortext and very importantly, around service use cases with ThingWorx, which makes that connection very relevant and ultimately, Vuforia, that's the next level of product prioritization that we're working through. And the third, what I think is the Holy Grail is the upstream, downstream integration points with Windchill. And there's a great demo with Harpak-ULMA down on the shop floor [indiscernible]. You could see what the combined solution looks like, but that's the next level that I think will take a year or 2 years to continue to accelerate that integration point.

Yes. Maybe about the only thing I would add is that this event was a milestone. There's a lot of teams working on integration, again, Arbortext to ServiceMax, Servigistics to ServiceMax. And we said, on your road maps, make sure you have demonstrable code at LiveWorx because we want you to be able to show it to the customer, even if we can't ship it to them yet, show it to them, get feedback, get the customers excited. So this is an important event. And every one of these integrations is being demonstrated here. Again, not [indiscernible] done. But these are things that are kind of going to happen relatively quickly and then just continue to improve over time.

You also asked about sales and marketing. So from a go-to-market, we have our own sales team within SLM that has continued to upsell our existing customers, renewed them and also pursued new logos, partly also with our Salesforce relationship, which continues and now as they've gone through some of their [ culling ], we rehabilitated some of the approach that we've had jointly with their customer base with ours. Then thirdly, we're working through the initial phases of cross-sell. There's quite a lot of customers within PTC already that have very great criteria that fits what we could actually offer within SLM. So we're working with Mike's team on the sales and marketing side through PTC direct on approaches with joint customers to go penetrate those that are excited that can fit into the model that we could show some value towards.

Thank you, Adam. Next question. Where do we go Dmitri.

Just following up on SLM and ServiceMax. Have any of the customers expressed any type of concern of having standardized on PTC too much or having too much with one -- with 1 vendor and how do you overcome those questions?

I actually think the -- given the economic climate and some of what we're seeing a lot of vendor consolidation that actually rewards the scale players. And within SLM, there is not another company with the amount of scale that we have now within PTC. I think if you're thinking about a mission-critical implementation like what SLM provides, you're not going to take someone that has negative cash flow that could be going away in 2 years with something that critical. So I see the value of scale [within] part of PTC being extremely valuable. I have not heard once yet nor is my team around. We don't want to put all our eggs in the basket. In fact, they're just pushing us on how fast can you integrate these products with the seamless experience.

Yes, I think so, too. I mean it's important to know, and you probably had a chance to test it. Our customers are pretty happy. They like doing business with PTC. Our customer satisfaction is very high across the board. I'd say probably the highest in the industry, although I don't know if I can prove that to you, but it's very high. So I feel like customers say, PTC is a good company to do business with, we're open. We don't foresee to buy all these different technologies from us. You buy one, if you like it, you buy another one, if you're still happy, you buy a third one and pretty soon, you have a big footprint. But I think it really goes to treating your customers well. And I think we do that probably best in our industry. And it encourages people to do more business with us.

Thanks Dmitri. Let's go to the back.

As Creo becomes increasingly collaborative, is there a prospect that you might move to away from sort of [seat-based] licensing to more of project-driven model that encourages broader usage of the software?

You're saying like a consumption-based model?

Yes.

Where the more you use the software, the more you pay for it? I don't love that model because the value of our software is not always measured by how many hours you spend using it. You know what I mean? If you approve on a design and improved scalability or let's say, sustainability by a lot, that's an important decision but it took you 5 minutes, right? So I don't love consumption-based models. It doesn't really fit what we're selling. It doesn't fit the value prop. So I wouldn't rule it out. Maybe in pockets, we would use it, like, for example, generative design consumes a lot of computing resources. So maybe we have to put a meter on that. But in general, we want named user base licensing across our product line in general.

All right. And just to clarify is when exactly is Creo+ available, is it -- is there a date?.

Yes. Creo 10 and Creo+, it's really Creo 10+. Creo 10 and Creo 10+ are shipping in the next couple of weeks here. Mike will be happy to take an order if you're interested.

Let's go to Yun Kim for your next question.

Obviously, there's a lot of focus on ServiceMax at the event, a lot of interest out there, too. But can ServiceMax adoption drive incremental driver for like some of the PTC products, especially Vuforia. You've now sold a couple of demos out there and booth and whatnot. It seems like a lot of positive feedback from those booths from the people who are actually attending those demos. Just wanted to understand just whether or not Vuforia product can benefit from ServiceMax and if there are other products within PTC that could benefit from that?

I'll start. So when we were stand-alone company owned by Silver Lake, the #2 criteria in acquisition targets we were looking at was an AR company and an IoT company. And the reason for it is the service use -- our customers were pushing us on that. The service use case is, I think, the killer app for those technologies, right? Meaning installed system of record what you heard with Schneider Electric, then adding the components of remote service, augmented reality as well as IoT, the very big draw that has very tight synergies with what we've done in ServiceMax and vice versa. So I predict it will take a continued methodical way in which we approach from a go-to-market standpoint, product integration, but the use case and the customer demand is like you've said on the shop floor, it's pretty unique right now if you go to [indiscernible]. And then lastly, before I hand it to Jim, another really interesting thing we've seen is ServiceMax customers, particularly were very -- historically had been very strong in med device at ServiceMax. We're actually getting PLM colleagues involved that might be using competitive PLM solutions because of ServiceMax actually start looking back at PLM using PTC. So hopefully, over time, it could be a generative loop.

What I was going to say is, one of the things that has PTC product managers excited and PTC customers is the system of record idea because ServiceMax knows the current configuration of all the products in the field at the customer sites. I'm talking manufactured products. And at PTC, we didn't have that. So we have a lot of capability for dynamically configuring. Like we can dynamically configure an augmented reality experience, but we have to configure it to match the product that was shipped from the factory because we're not sure what happened to it since. We can dynamically configure Arbortext documentation. But we're not sure what happened in the product since it was shipped from the factory. And Windchill could have stored this information, the problem is how do you keep it accurate because if you're not involved in the execution of service, you have no visibility to what changes were made. So ServiceMax is a service execution system that instructs somebody to make a change and then records that they did. So this ServiceMax system of record is invaluable because now what Vuforia can do is say, "Hey, ServiceMax, what's the current configuration? Hey, Windchill generate for me now an experience that matches the product with that configuration", same with other products, Arbortext and so forth. And I think for Servigistics, the whole value prop of Servigistics is to help a customer maintain their service level agreements with the minimum amount of part inventory. As part inventory burns up tons and tons of capital. So how can I take spare part inventory down, but I don't want to start missing my service level agreements, SLAs. So now we could do that a little bit without knowing the condition of the fleet and the activities that are happening. But my God, when you understand the condition of the fleet and what parts are being swapped out where and why you can tighten that forecast up a lot more. So even like the Servigistics team is saying, wow, there's a whole another tranche of value we can deliver now that we actually understand what's happening out in the field with these products.

Okay. Great. And then Jim, you mentioned that this week's event is very educational for a lot of the users because it's been a long time since we had this event here in Boston. So especially regarding the Creo+ and Windchill+. How should we think about the adoption curve for Creo+ and also Windchill+, given that now users have attended the event, they're getting more comfortable with how it works, what the migration path looks like. I think we were actually giving a demo of assessment tool for Windchill+. So I mean, that seems like a pretty compelling tool that anybody who are even remotely thinking about it, will actually just click on a button and see what it would look like. So just trying to get a better understanding of like given this event that happened for the first time in 4 years, do you expect the adoption curve to maybe accelerate faster?

Yes, I do. I mean -- well, I think it was designed into our concept of an S-curve. So an S-curve says it takes a while to get going, and then it picks up momentum and accelerates. And in order to pick up momentum and accelerate, we needed an event like this. We used to have this event annually. And people would come and they would get updated and refreshed and reenergized and then they'd go back home and make [stuff] happen. And of course, we tried to do it digitally, and it's just not the same thing. I mean not that there's no value in digital events, but there's not the socializing in the mingling and the comparing notes informally with industry peers and so forth. So I think this event is very important to getting through [ the knee ] in that S-curve and starting to accelerate faster. And I'll tell you, I'm very pleased with the attendance. I don't still have the final number. But my God, when I looked out from the stage this morning, I was shocked coming [indiscernible]. I mean the seats were mostly full, maybe some of the cheap seats on the side, not so much. But then there were hundreds of people standing in the background. So like we should have set up more chairs. I mean, obviously it surpassed what we expected to happen somehow. So anyway I'm excited about it.

Thank you,. And Blair.

Blair Abernethy with Rosenblatt. It seems like the ANSYS partnership is going well, good presence here by them. Can you just give us a sense of where you are today on that partnership and maybe where you're going in the next couple of years? And is this driving net new business to you at this stage? Or are you just really selling into your base?

So the ANSYS partnership is going very well. It drives 2 things. Number one, it drives actual sales of, for example, Creo Simulation Live, which we [indiscernible] paying royalty to. But it also takes any discussion of how good is the simulation of Creo off the table and it makes all of Creo more competitive. So what happened with ANSYS is we launched the partnership in 2018 here at LiveWorx. It took us about, I don't know, better part of a year to get all the versions integrated, developed et cetera. But our teams learned to engineer products together, engineers, working with engineers, building products with the Creo I'm sorry, the ANSYS code literally runs inside the Creo [code]. And then we had good success with it. And I'd tell you what, nobody would criticize the simulation capabilities of Creo right now. 5 years ago, they did. Now, not a topic. Because if they say, how good is Creo simulation, we say ANSYS, case closed. What's happened though is because that partnership has created goodwill and momentum, we started looking at all the other things we could do. And there's a long list of things. [indiscernible] and I talked about that. And what's interesting is that PTC and ANSYS really compete against the same companies, principally Dassault and Siemens, #1 and #2 competitors for each of us. So we feel like our products are better but they're not all coming from one company. So it's in our mutual interest to present ourselves as the friends that we are and make our products work together so customers feel like, "Hey, I could pick ANSYS and PTC, I have better products, and they work together and that would be a better solution for them". So that's really kind of what's going on in the background. It's just 2 companies realizing that the partnership is very mutually beneficial and expanding it in a different direction.

Thank you, Blair. For our next question. Let's go to Steve Tusa.

Yes. That was one of my questions is ANSYS one. And clearly, a lot of buzz about ANSYS throughout the keynotes. So appreciate that. What about Rockwell. what's the status of that partnership today?