Good afternoon, ladies and gentlemen, and thank you for standing by, and welcome to the PTC 2021 First Quarter Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. I would now like to turn the call over to Tim Fox, PTC's Senior Vice President of Investor Relations. Please go ahead.

Thank you, Karen. Good afternoon, everyone, and thank you for joining PTC's conference call to discuss first quarter 2021 financial results and the outlook for the remainder of the fiscal year. On the call today are Jim Heppelmann, Chief Executive Officer; and Kristian Talvitie, Chief Financial Officer. Before we get started, please note that today’s comments include forward-looking statements including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these factors is contained in PTC's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. As a reminder, we will be referring to operating and non-GAAP financial measures on today's call. Discussion of our operating metrics and the items excluded from our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures are included in our earnings press release and related Form 8-K. References to growth rates will be in constant currency unless otherwise noted. And lastly, we will be referencing our earnings presentation, which you can find posted on our IR website. With that, I’d like to turn the call over to Jim.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. I hope that you and your families continue to stay safe and well during this ongoing pandemic. Before jumping into our quarterly review, I would like to begin by discussing the news we shared two weeks ago about closing the Arena acquisition and some related organizational changes. Turning to Slide 4 in the deck. First, we are very pleased to have closed the acquisition and we would like to formally welcome the Arena employees to the PTC team. As we discussed at our recent Investor Day, we are excited to complement the strong momentum we have with Creo and Windchill in the traditional CAD and PLM market with the leading CAD and PLM solutions in the pure-SaaS market. Together Arena and Onshape represent a powerful pure-SaaS solution that's number one in technology, customers and revenue. With this combo, we are positioned to capture the rapidly emerging shift toward SaaS for product development, manufacturing and support. There is clear evidence that the global pandemic has been driving a new normal in our industry and we are now in a position to lead the product development market well into the future. We also announced an organization strategy that I am excited about. We are expanding our SaaS business unit initially built around Onshape and Vuforia to embrace Arena as well. This will put us in position to pursue technology, business process and revenue synergies across the SaaS portfolio. The expanded business unit, which now accounts for about $100 million of ARR and about 20% of PTC's bookings, will be led by long time PTC leader, Mike DiTullio. Mike will focus on integrating the Arena team and leveraging the tremendous talent and expertise we have across our SaaS portfolio. With his proven…

Thanks, Jim and good afternoon, everyone. Before I review our results, I'd like to note that I'll be discussing non-GAAP results and guidance, and all growth rate references will be in constant currency. Let me start off with a brief review of our first quarter results and then spend the balance of the call on our revised outlook for fiscal 2021. Turning to Slide 25. Fiscal Q1 ARR of $1.34 billion increased 12% year-over-year. As Jim noted earlier, we had very strong bookings performance in Q1, resulting in new ACV above expectations and consistent with recent trends, demand for ramp deals was strong, which contributes to backlog in future periods, primarily fiscal 2022 and beyond. With solid new ACV results along with churn coming in better than expected, we were pleased to deliver constant currency ARR growth at the high-end of the guidance range. Reported ARR growth of 16% benefited from 400 basis points of currency, including a 200 basis point tailwind since the beginning of fiscal 2021. Strong Q1 free cash flow of $111 million was a record Q1 results for PTC. Q1 revenue of $429 million increased 20% year-over-year and was well above the annual guidance range we had provided last quarter. Revenue performance was driven by very strong large deal results in the quarter, many of which had long contract duration. As we've discussed previously, revenue was impacted by ASC 606, which in the case of Q1 drove a higher amount of upfront subscription revenue recognized in the quarter. Currency was also a modest revenue tailwind. The strong revenue growth along with continued financial discipline resulted in non-GAAP EPS growth of 70% year-over-year. Turning to Page 26, I'll begin with our balance sheet. We ended Q1 with cash of $399 million and $1 billion of gross debt…

Thank you. [Operator Instructions] Our first question is from Jay Vleeschhouwer with Griffin Securities. Your question please.

Thank you. Good evening. Jim, let me start with a technology question for you having to do with the Arena acquisition. With that you now arguably have three code basis for PLM, Arena, Windchill and Onshape that's not unprecedented in the industry. As you know, as a result of acquisitions in technical software. But could you talk about how you're thinking about the co-development or the conjoining of those technologies, particularly given the ultimate objective you seem to have had with Atlas of having a micro services architecture for example. And then for Kristian, at the analyst meeting, you put up a very interesting slide on your customer engagement model showing seven categories of customer that I don't think you've shown before. How does your guidance encompass you're thinking about those various categories in terms of growth and contribution to fiscal 2021. Thank you.

All right, great. Thanks, Jay. Kristian, you start thinking about the answer to that, while I answer him. Yes. So it's a good observation. I mean, we have Windchill then we acquired Onshape and they were two different things and now we acquired Arena. So yes, in fact, we have three. But actually we do have a very well understood strategy. So first of all, we will begin the process of looking at the best ways for Arena to use more and more of the Atlas platform that came to us with Onshape. And to be frank, Arena and Onshape don't do exactly the same things. Onshape is more like file management except not really files but more like data management and collaboration and Onshape is more like bill of material. So those two things do different things, but they will over time share more and more of a common architecture called Atlas. So then that leads to Windchill. So we have shared kind of a mid-term project that we are developing versions of Windchill and Creo that will use the Atlas platform to a great extent, so that they can be delivered in a SaaS model, but those products will retain full upward compatibility from the on-premise versions that exist today. Now, we will continue to maintain an on-premise version. So you might say, we're going from 3 to 2 to 1.5 or something like that, but there is a good strategy here for how this stuff evolves and none of it's going to be revolution because we're bringing all the customers with. But I definitely think this is a problem that will fade away and we've done that before. It's a problem that – I'm not sure it's a problem, but it's a situation that will be – that will evolve over time toward a cleaner kind of steady state in the end. Kristian?

Yes. Great. Jay, so I think what you're referring to is that S1 to S6 customer engagement model. I mean, I think here conceptually the right way to think about it is the largest piece of our ARR really comes from S1 – the S1 and S2 space that also actually where we still see a significant amount of new booking activity. Those are our largest and customers with the biggest growth prospects. We have a lot of stable ARR in kind of the S3 and S4 space. And the new – really the land and expand activity happens primarily within the S5 and S6 space. And so I mean, if I was going to think about this. I'd still put the largest chunk up in S1 and S2, we're seeing a lot of momentum in the S5 and S6. Tim or we actually mentioned in the – on the call that we've seen a little bit of a resurgence in new IoT customers coming back in the channel, which also operates in kind of the S5, S6 and the channel space continues to bring in new customers. That's obviously also where I think relationships like Rockwell are, who also continue to bring in a lot of new greenfield customers, which are the foundation, really for us to continue to expand upon those relationships over time. So I don't know if that answers your question, but...

Let me add some color to that, I think it's a easier way to see it. I think if you look at it by product, you get a different story because the size, the relatively larger size of some products kind of overwhelms that story. But Arena and Onshape are all about new accounts, they're basically competing in a space where we didn't previously have products competing. So there are almost entirely new accounts. If you go to IoT and AR that's kind of 50-50 because those are products we can sell to our traditional accounts, but of course, there's a lot of demand and interest in IoT and AR and we have new partners like Rockwell that also take us to a lot of new places. And then if you go back to Creo and Windchill, I mean, that would be majority of the bookings coming from companies we've been doing business with, but sometimes we knock one offer, there is a consolidation play or something like that and as well the channel is bringing this new accounts. So I think it's almost all new for Onshape and Arena, roughly half and half-ish for IoT and AR and sort of majority maybe 70/30 in favor of installed base with Creo and Windchill.

Thanks very much.

Thank you. Our next question comes from Adam Borg with Stifel. Your question please.

Hey, guys, and thanks for taking the question. Maybe just two real quick. First on Arena. Can you just remind us on Arena's kind of international footprint and what's the plans to kind of expand that both direct and via channel? And then maybe two different answers. So thanks for the color of how you're thinking about Creo Simulation Live and Creo Simulation Growth over the back half of the year. But when you think more broadly, how addressable is the Creo Simulation technology to your broader installed-base. Thanks for that.

Yes. So let me say, on your first question Arena. Arena is predominantly a U.S. business, it's been almost – to a very great degree sold to American companies, although some American companies have users overseas. But it hasn't really been sold to companies overseas with just a small exception. So the first thing we're going to do with the Arena for sure is go international with it. I mean, that's a good piece of growth we ought to be able to go after as a synergy. And then of course cross selling between Onshape and Arena ought to produce another synergy. And I think our channel ought to produce yet another synergy. So I'm sort of the opinion that there is a lot of upside to Arena, if not this year, certainly in the coming years, as we can take this business places that Arena themselves going to gone so easily. So that's maybe the first part. Then second on ANSYS, if I remember we had quantified that we thought there was $100 million potential opportunity with Creo Simulation Live in our base. I think that's before. I don't know if, Tim, did that include this mainstream simulation products. No. So I haven't quantified that, but well more than $100 million because the rest of the ANSYS suite actually comes at a higher price point. We probably get less penetration because some of them might already have purchased it from ANSYS or one of their distributors. But certainly $100 million would be the floor in terms of opportunity. Will we ever get 100% of that, no? But certainly is a sizable ARR opportunity for us.

Great. Thanks again.

Thank you.

Thank you. Our next question comes from Rich Valera with Needham. Your question please.

Thank you. Good evening, gentlemen. First, just a quick follow-up on that ANSYS question. I know you have the target of high single-digit percentage of new CAD ACV for this year. Can you say where it was last year, just so we have some perspective on how much growth that was. And then for the IoT products, it sounds like a solid performance this quarter, but I know last quarter you talked about bookings doubling quarter-over-quarter. I'm just wondering you can give us any sense of the kind of quarter-over-quarter momentum you saw in that business from Q4 to Q1. Thank you.

Do you have a quantification Kristian on the size ANSYS would have been in terms of new ACV within CAD last year?

Nominal.

Nominal. I mean, it would have been some, because we had some initial sales.

Will get it, but it was nominal.

Yes. It would have been low-single digits. So I think they were going from low-single digits to high-single digits, would be our aspiration here.

Got it. That's helpful.

And then on the Q4 to Q1. Q1 IoT bookings didn't have the same growth rate that they had in Q4, but again it was a healthy number, I mean in Q4, it was a very healthy number. And in both cases, a lot of that went into backlog. So you're seeing a situation where the backlog deficit we started this year with had a fairly good representation in IoT and that's slowing down our IoT growth rate. And some of the goodness that we're bringing in with new bookings is going into backlog and it will help next year, but it doesn't necessarily overcoming the deficit we started the year with. So anyway, we're still on plan. So it's not a bad thing. But putting more bookings in the backlog for next year and the year after is a good thing.

That makes sense. Thanks, gentlemen.

Thank you.

Thank you. Our next question is from Sterling Auty with JPMorgan. Your question please.

Hey, guys it's Jackson Ader on for Sterling tonight. Thanks for taking our questions. First one is a follow-up on the IoT bookings and kind of a good start to the year. Any particular verticals that really stuck out and maybe verticals that performed well outside of the Rockwell channel for IoT?

Yes. We looked at that data Jack and it really was pretty broad representation. Tim and I were studying that data and nothing really jumps out, it's sort of a little bit everywhere in more or less the percentage we kind of normally have. So broad based is how I would characterize that.

Okay. And then another bookings question and vertical question really on Onshape. If we think about the – up well over 150% from bookings, what if we stripped out education. What kind of mixes are the bookings coming from education versus non-education?

That's an easy one, Jack, because you don't have to strip it out. We've not been charging educational institutions for the software. However, we had a program that you can use it for free for the first year. So we do anticipate that as this school year ramps up and we move into next year, we're going to get a pretty decent conversion rate to pay. But in that good news that we have so far, it's all commercial sales.

Great. Okay. Thank you.

Thank you.

Thank you. Our next question comes from Saket Kalia with Barclays. Your question please.

Hi, guys. Thanks for taking my – hey, Tim, Jim and Kristian, thanks for taking my question here. I'll just keep it to one. Jim maybe for you. I think the business that surprised us all last year and I think continues to do here in Q1 is the performance in PLM. Maybe the question is how much of this do you think is from maybe an industry wide refresh, right? That's may be coming from just more digital transformation as you sort of hinted out before versus market share gains.

Well, I mean, first of all, I do think there is some real strong market share gains. I don't think other vendors are performing at the same level as we have been and it's been a long time since and have you guys asked me when Aeris was disrupting us. We kind of haven't heard that name in ages. So I think they're losing some real momentum. So I think it really is more companies are realizing that they – if they have PLM, they need to have it more broadly and more people need to use it. Like maybe the procurement guy could walk down the hall and talk to the engineers. But now they are working from home, we can't. And so we need to see it. So I think some of it is existing companies broadening and deepening their implementation. And then, I think there's a lot of companies who like the Terumo example we gave, who was doing their FDA compliance literally on paper, saying, okay, that's not going to work, we need to get a PLM system. We need to get it fast. So I think there's a lot of companies whose appreciation of PLM has deepened greatly in the last couple of years. First for digital transformation in general and then for COVID requiring it. And I think that of those companies who get religion around PLM, we're certainly not going down more than our fair share. That's how I would characterize that.

Got it. That's very helpful. I'll hop back in queue. Thanks.

Thanks.

Thank you. Our next question comes from Joe Vruwink with Baird. Your question please.

Hi, Joe.

Hi, everyone. I'll try to squeeze into one more near-term from the mid-December comments on ARR the quarter definitely it's been a stronger than that communication. Is there any activity that came in at quarter end? I know you talked about maybe some year-end budget plus. But anything else, the fact that large deal signings seem to be working back into the mix where you had may be point to quarter activity and think it perhaps as early but these developments are new and maybe to be extrapolated into something changing. And then the second question, it kind of gets back to the PLM question that was just asked. But the verticals of high-tech, life sciences, aerospace and defense, these have been really strong for PTC pretty consistently and now you're adding Arena, which is strong in those verticals as well. So is there something specifically about those markets and how they're viewing PLM that really has benefited the fact that PTC has good exposure there?

Yes. So let's take the first one. Our mid-December comments Kristian said, he anticipated, we'd be in the middle of the 9% to 12% range and we came in at 12%. So I think to be frank, what happened is we review the forecast every single week on Friday's and we raised it four times in December. So by the time we had that meeting with you. We had raised at once, but a couple of days later, we raised it again and then twice more. So if you study the PLM performance, of course we do, what you'd see is that it wasn't done the backs of any one geography or any one vertical or any one big deal. It was just a lot of deals of all sizes in all geographies across a bunch of different verticals. I mean, it just felt like just good solid business everywhere as opposed to some surprise. I think if you go to the verticals question you asked, I think Arena is very strong in high-tech and very strong in general in SMB. Now high-tech does tend to have a lot of SMB customers. And the other thing about high-tech is product life cycles tend to be very short. If you make 777's like Boeing does, it's very hard to switch CAD systems, because those products last for decades. But if you're making consumer handheld devices, the life on one those things pretty darn short and the next version isn't based on the last version. So you can switch tools much more easily. So I think in general, electronics and high-tech is a fast cycle market and it's easier to get a share shift to happen there, which helps both Onshape and Arena by the way. Now PTC does well in the…

That's great. Thank you very much.

Thanks, Joe.

Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. Your question please.

Hey, Matt.

Hey, guys. Good evening. Congrats on a really strong quarter here in Q1. Jim, I wanted to ask you a question about some of the CAD replacement deals. Obviously, this is really good to hear and obviously difficult to pull off. I'm wondering if you could provide a few more details on what drove those? And thinking longer-term with all your investment in SaaS, CAD and Atlas, I mean, do you think we might be in a scenario where you might see even more disruption in the future. Some of these CAD replacements, considering what you've done with SaaS versus some of your peers.

Yes. So there is two in particular. I'll talk about one really with SharkNinja. But let me cover the other one first. It was a European OEM, I can't tell you who it was, I will be able to at some point, but not yet. I don't yet have permission. But an OEM who had both our software and our CAD software and the competitors and use them both as many large OEMs do. And they decided that they didn't like that anymore. And they would really prefer to have one tool and if they had to go from two to one they will go into Creo. So that was a pretty substantial displacement of a very well-known high-end product. And then the other case really was a displacement of a very well-known low-end product. Where this account said – SharkNinja said, we really like what Creo can do and we really like CSL and so forth and we too don't like having two sets of tools. And if we had to pick one, we pick Creo. So kind of at opposite ends of the Creo range, if you will, we're displacing different products from the same vendor. And that vendor, you can guess who it is, it has kind of left their customers a little frustrated. Some of their business policies, some of their technical strategies are well accepted by the customers and it's creating some discontent and some of that discontent turns into switching, especially if you're looking at two tools and you're saying, I wish we had one. Well, I really like those PTC guys, their tools are great and are better to work with.

Thank you.

Thanks, Matt.

Thank you. Our next question comes from Gal Munda with Berenberg. Your question please.

Hey. Yes, thank you for taking my question. Jim, I have a question for you in terms of the IoT. In the past you've said that a lot of your IoT growth in the future will be obviously rely on some of the partners and then bring on incremental new opportunities mainly talking about Rockwell obviously and also Microsoft. Recently, few days ago, you've announced kind of partnership with Fujitsu Smart Factory on the IoT initiative. And I was just wondering how much – how does that compared to something like Rockwell? And how complementary it is versus how much is it as a competitive channels or something like Rockwell as well, which clearly isn't exclusive for other. Thank you.

Yes. There is no exclusivity there would happened with Fujitsu, as I understand the story. First they implemented our software in their factories and it was quite successful. And then there is a system integrator arm of Fujitsu who said, we'd like to take this showcase we've built in our own company and take it down the road and sell it to other companies. And so that's the nature of that announcement. But Fujitsu as an SI is no Rockwell. So I don't really – they're much more localized in certain pockets and so forth. And they're important partner and we're glad to have them. But I don't think it's meaningful at the level of a Rockwell partnership, certainly not yet maybe we'll get there someday. But just think of them as two different tiers.

Got you. But the idea is to really expand that channel partnership within the FY Q2 kind of [indiscernible].

Yes. I mean, a lot of SI's want to sell with us where we sell the software and they do the project. And that's motion has been working very well. And then some SI's, in some cases like Fujitsu say, well, could we just sell it, because we have some clients we'd like to go. Basically sell them what we've done in our own company and we'd like to take that order. But think that for every Fujitsu. There is multiple SI's that we sell with rather than thrilled.

Got you. Thank you.

Thank you. And our last question will be from Matthew Broome with Mizuho Securities. Your question please.

Thanks very much. Hi Jim, Kristian and Tim. Thanks for squeezing me in. So just in terms of the new SaaS business unit. Is that more of an operational structure? Or is it also responsible for driving future SaaS strategy, including M&A and maybe the migration of your co-products?

Yes. I mean, it's a business unit that's quite complete. It has R&D and marketing and sales, doesn't really new services because we don't so much need that. But it's really a pretty complete business unit. It has the P&L, it has growth targets, we will make acquisitions for them. In fact, Arena was an example. But we've made a couple other little tuck-ins that we didn't announce because they were too small. But definitely, that's a business and the way I look at it, they are paving the path for a future PTC. Because at some point, our industry will really go to SaaS, I mean it's starting to and that's good, but at some point it will tip right over like other industries have. And at that point that business unit will be bigger and bigger and may in fact be the future inner gravity for PTC. It's not big enough at $100 million – let's call it $1.4 billion. So it's not yet 10% but you put Arena in there and it steps up closer to 10% and then you let that growth rate run for a while and it won't be long before it's quite meaningful to us. But that's what they're doing, their paving the path for a future PTC.

Okay, that makes sense. And then maybe just quickly, could you give us any idea in terms of what the win rates are for Onshape versus the competition.

Yes. Well, I think what it really comes down to is does a customer want SaaS or not. If they want SaaS, then the win rates exceptionally high, but they might decide they don't want SaaS for whatever reason. And it might be that other people in their company already use SolidWorks or what have you. But think of Onshape as a really good CAD system on a completely different deployment and business model. And the deployment and business model is even more differentiated – is more differentiated in the product itself is. So I think, smaller companies, say, I really like the idea of being able to get to this data without having a server, without having a system administrator, without having – I'd like to be able to pick up my work at home on my Macintosh if I worked on at all day on a Windows workstations. I mean, that's great. I like the real-time collaboration. Onshape is a multi-user system were multiple users work together on the same designs at the same time as opposed to multiple users working independently and pass the data back and forth, which is how most other CAD systems work. So I think again, I often say, think of it like electric vehicles versus internal combustion engines, it's religion at some level. And very few people get down to a shortlist that has three of each. Somewhere in the decision making process they either say, I want to electric and now I'm down to a shortlist of electric vehicles or I don't want electric, I'm going to stay with internal combustion and they end up with that shortlist. But I'm saying for those customers who say, I think I want SaaS. This is a good chance, we're going to win that deal.

Thanks. All right, thanks very much.

Thanks, Matt.

Thank you. And ladies and gentlemen, this ends our Q&A session. I will turn the call back to Tim Fox for final remarks.

Thanks, Karen, and thanks everybody for joining us today on the call. Will be out on the road virtually over the next quarter, participating in a number of events, please check out our website for details. And we do look forward to seeing you this over the next coming months and certainly in 90 days. And thank you for your interest in PTC. Have a great evening.

Thank you, everybody.

Thanks, everybody.

And thank you for your participation in today's conference. You may now disconnect.