Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the PTC 2021, Fourth 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 Matt Shimao, PTC Head of Investor Relations. Please go ahead.

Good afternoon. Thank you, Paula. And welcome to PTC's 2021 Fourth Quarter Conference Call. On the call today are James Heppelmann, Chief Executive Officer, and Kristian Talvitie, Chief Financial Officer. Today's conference call is being broadcast live through an audio webcast, and a replay of the call will be available late today at www.ptc.com. During this call, PTC will make forward-looking statements, including guidance as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause these factual results to differ materially from those in the forward-looking statements can be found in PTC's annual report on Form 10-K, Form 10-Q, other filings with the U.S. Securities and Exchange Commission, as well as in today's press release. The forward-looking statements, including guidance provided during the call are valid only as of today's date, November 3rd, 2021, and PTC assumes no obligation to publicly update these forward-looking statements. During the call, PTC will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release made available on our website. With that, I'd like to turn the call over to PTC's Chief Executive Officer, James Heppelmann.

Thanks, Matt, and welcome again to PTC. It's been great to get you on board and thanks for your help in preparing for today's call. We have a lot of exciting news for our investors today, so we plan to allow a little more time than usual for the call. No doubt there will be follow-up interest, so we've also scheduled our Annual Investor Day. In mid-December, and we expect to be active on the IR circuit in the weeks ahead. Starting then with Slide 4. Given the news, we're going to follow a somewhat different agenda for today's call. I'm going to start with highlights of our Q4 and fiscal 2021 performance. Then I will take you through an abbreviated version of our product line results. Next, Kristian will complete our discussion of Q4 and Fiscal 2021 with his financial reviews. Then turning to the future, I'll address the changes we announced today, which are designed to accelerate our SaaS transition and margin expansion. Following that, Kristian will take you through our go-forward guidance and reporting structure. We've reserved extra time for your questions at the end. Moving to Slide 5, Q4 was an outstanding quarter for PTC and it capped off another strong year. We came in at the high end of our guidance for ARR growth and we exceeded our free cash flow guidance. Despite the pandemic, every part of the business performed well in fiscal '21, with growth in every product line and in every geography. Fiscal '21 was our fourth consecutive year of double-digit organic ARR growth and we're guiding for fiscal '22 to be the fifth. Furthermore, by continuing our strong focus on operational discipline, we've been able to translate our top-line growth into strong bottom-line free cash flow performance. Kristian will take you…

Thanks, Jim. Good afternoon, everyone. Before I review our results, I'd like to note that I'll be discussing non-GAAP results and guidance later in the discussion, and all growth rate references will be in constant currency. So turning to Slide 12. We delivered ARR growth at the high end of our guidance range. Fiscal '21 ARR of $1.47 billion increased 16% year-over-year, excluding Arena, ARR growth was 12%. FX was a small $4 million headwind in fiscal '21 for us. As Jim highlighted earlier, our bookings were very strong in Q4. With this, we had an uptick in -- within this, we had an uptick in ramp deals. And that's why our bookings performance did not result in even stronger ARR growth. Instead, the vast majority of our bookings up went into deferred ARR that will benefit future periods, primarily fiscal '23 [Indiscernible] Organic churn improved approximately a 130 basis points year-over-year, slightly ahead of our guidance of approximately a 100 basis points of improvement, primarily driven by strong execution and CAD, PLM, FSG, as well as modest continued improvement in both IoT and AR. Fiscal '21 free cash flow of $344 million grew 61% year-over-year and was slightly above our guidance. Note that our free cash flow for the year included an unforecasted $18 million outflow related to a foreign tax dispute, $15 million in acquisition-related fees, and $15 million in restructuring payments. These one-time headwinds were offset by other one-time tailwinds, including some one-time tax benefits, Arena working capital, versus original expectations. Improvements in AR aging also helped drive a one-time uptick in free cash flow in '21. Fiscal '21 revenue of $1.81 billion increased 24% year-over-year as reported, or 20% in constant currency, and was above guidance. As we've discussed previously, revenues impacted by ASC606. So in…

Thanks, Kristian. PTC is at an exciting point in our history. Despite bumpy macro conditions, we have established a 4-year track record of double-digit, top-line organic growth based on a recurring revenue model, and driven by widely recognized technology leadership positions in an industry increasingly motivated by digital transformation. In parallel, our decade long track record of strong operational discipline has driven our margins up. Enabling us to benefit significantly from leverage as we scale. You see that in the 61% free cash flow growth, I highlighted at the start of the call. Given the strength of our financial performance in Fiscal 2021, the restructuring we announced today might come as a surprise to some of you. But sit tight because I think you will like what we're doing. For some time now, I've been telling investors about our plans to leverage the Atlas platform that we acquired with Onshape to pivot the whole Company toward a SaaS future. As I had previously discussed it, much of the upside benefits of the SaaS pivot would come in fiscal 2024 and beyond. Many of you have asked why we wouldn’t invest more to get to that SaaS upside more quickly. Frankly, that was a good question and one that we've thought long and hard about. We even hired Mckinsey that help us think through it and develop a strategy. Today, I will explain how, thanks to the changes we're making. We will invest substantially more in our SaaS initiatives while actually decreasing our overall run-rate spending projections significantly. Let me hit the financial summary first on slide 16 and then explain the strategy and operational changes behind it. In terms of the financial view or the restructuring, we're reducing our spending run rate by approximately 60 million compared to fiscal 2021…

Thanks, James. I'll now take you through our financial guidance and go-forward reporting structure. Turning to Slide 24. First, let me reiterate how exciting a time this is for PTC. The restructuring that we're going through right now is really the single biggest somatic investment PTC has made that I can remember. This reorganization is designed to better align PTC to our SaaS future, and as an interesting consequence it should also derisk our path towards delivering on the midterm ARR and cash flow growth targets we discussed at our Investor Day last November. Starting with guidance on slide 24, we continue to target mid-teens ARR growth in the mid-term. Jim did a good job of outlining the many pathways we have to get into these targets with the SaaS opportunity in both the velocity and core businesses. With the addition of solutions to the portfolio starting with DPM, coupled with the general strength of the existing portfolio. More specifically, for fiscal22, we expect ARR of 1.

Ladies and gentlemen, please standby. Today's conference will resume momentarily. Thank you for your patience, your lines will once again be placed on music hold until we resume the call. All right. We are back.

This is James Heppelmann, I think we apparently got dropped from the call, which is a brand new experience for us, but I understand this happened just as Kristian was starting out with our FY 2022 guidance. So Kristian, can you pick it up again from the beginning of the FY 2022 guidance discussion.

Great. Thanks, Jim. So back to the financial guidance and go-forward reporting structure. First, let me reiterate how exciting time this is for PTC. The restructuring we're going through right now is really the single biggest somatic investment PTC has made that I can remember. This reorganization is designed to better align PTC to our SaaS future. And as an interesting consequence, it should also de -risk our path to delivering on the mid-term ARR and cash flow growth targets we discussed at our Investor Day last November. So starting with guidance on Slide 24, we continue to target getting to mid-teens ARR growth in the mid-term. Jim did a good job outlining many of the pathways we have to getting to these targets with the SaaS opportunity in both the velocity and core businesses with the addition of solutions to the portfolio starting with DPM, coupled with the general strength of the existing portfolio. More specifically, for fiscal '22, we expect ARR of 1.615 billion to 1.66 billion. That's a growth rate of 10 to 13% on a constant currency basis. Following four consecutive years of double-digit ARR growth. It's also worth mentioning that we expect continued churn improvement in fiscal 22 and are targeting another 100 basis points improvement. From a linearity perspective, we would again expect flattish ARR growth throughout the year on a constant currency basis. So using the midpoint of guidance that would imply about 11.5% ARR growth each quarter. Obviously this can fluctuate given bookings, performance, start dates, et cetera. But we believe we provided for that within the range outlined. The one thing worth pointing out is that ARR growth in Q1 of '22 are expected to be approximately 15% since Q1 '21 did not include ARR for Arena. In order to help…

Ladies and gentlemen, the floor is now open for your questions. We do ask that you please limit yourself to 1 question only. Your first question comes from Gal Munda of Berenberg.

Hi, thanks for taking my questions. The first 1 is just I'd like to understand a little bit around the dynamics around the ARR guide for next year. If you can help us unpack. The guidance is a little bit wider than we have this year to 13%. What you're thinking behind, and what gets you to the higher end of the range versus the lower end of the range? Yeah.

Everyone, please standby. One moment. Please standby the conference will resume momentarily. Once again, please standby on the conference will resume momentarily. We will return to music hold until the call cameras are on. Thank you for your patience.

Thanks. It will still be step-by-step? Yeah. However, it will start sooner and the phases will be dramatically compressed, thanks to $45 million in new spending, which is a lot of new spending.

Thanks James. Thanks a lot.

Thank you.

Your next question comes from Matthew Broome of Mizuho Securities.

Hey Matt.

Hey guys. Just in terms of you mentioned that the $60 million of savings, now you're expecting to free up us as FY 2021. You did talk about saving money in your sales organization. But there are other areas where you are planning to spend less and any of those areas and revenue generating activities, just trying to get a better understanding of where that $60 million is coming from.

Apologies, everyone. Please standby. Once again, we will be on music hold until the conference can resume. Thank you so much for your patience. We are back and your back on with Matthew Broome.

Matt great to be on with you. Can you please re-ask your question? Thank you.

Maybe we should go to the next question.

Okay. The next question comes from Ken Wong of Guggenheim Security Partners.

Thanks for taking my questions and to make you feel better, supposedly HubSpot ran into some issues at the beginning as well. So not to this [Indiscernible].

Thanks. But no, it doesn't make us feel better.

I feel like someone in the [Indiscernible] that people forgot to make their picks for the question is now falling on me, this is great. So lots of moving pieces here. I just wanted to touch on -- as far as the Cloud transition as you guys are changing tires while the car is still in motion, should we think about the near-term guidance, the outlook as maybe being a little more conservative? And then as you look longer-term, you start to feel more confident because like you said, there are more, I guess there's more optionality. Is that the right way to think about how you're approaching the next few years? Or if I'm wrong there, please let me know if you guys have a different approach in terms of how we should be thinking about the numbers that you guys laid out.

Yeah. I mean, I think to a degree, right? For sure. I mean, setting aside and macro and the fact that we don't have a crystal ball there and everything like that. We're launching a major SaaS initiative, but don't have in our guide big assumptions it will hit this year. I think it will hit next year and hit even harder in the years that follow. But we haven't planned a lot into this year. Partly because, again, we need to get this earnings call out there, we need to launch everything, we need to start the sales cycles, and then we need to close the orders. And if you put 6 to 9 month sales cycles on things and we're not exactly sure how long it will take, but 6 to 9 months lands you in Q3 or Q4 already. And so we're just not sure. Then when the start dates might be and all that type of stuff. So we're fairly conservative about the cloud impact to fiscal '22, but quite bullish about it to fiscal '23, '24, '25, and beyond. The other thing is as we've said, we're a little bit conservative, more so than in past years as it relates to Rockwell. It could be wrong there, but we're just saying, let's not get ahead of ourselves in case they get distracted with this integration Plex. I don't think Rockwell thinks they'll get distracted, but again, we're just trying not to get out over [Indiscernible].

And as far as all the sales motion that are going to change the 2 in the box, I guess have you had efficiently factored in potential disruption to this year as you guys worked through that or is it kind of these motions or just kind of typical PTC and you guys feel you can pivot on the fly here.

Yeah well, what's happening on the sales side of the two in the box is pretty typical stuff that happens every year and which is to say not that extreme. A few more resources here and shifting a little bit what are overlays and not overlays, things like that. That's pretty typical. And I don't see any unusual degree of risk there whatsoever. What's happening on the other side is a little bit more dramatic, but frankly, most of that is what happens after the customer buys from us. And I actually think it's all good changes anyway. So I don't see that disrupting sales, I see it actually making customers happy because they stop getting passed around from one person to another and having to re-explain who they are and all that kind of stuff. So I don't know. I don't think it's a high-risk change. Certainly, I don't see it that way. And we're eager to go execute it.

Got it. Great. Thank you, guys.

Your next question comes from Matthew Broome of Mizuho Securities.

Okay Matt, sorry, we didn't get to you last time around. We're going to try to disconnect halfway through your questions.

Nowhere to tell. My question was just about the $50 million in relative savings of FY21. You did mention saving money in your sales organization, but in what other areas that you're spending less to free that money out? And is that likely to affect any sort of revenue generating activities?

Yeah, no. Again I want to be clear it's not in sales. It's really in customer success, where we used to have many organizations that took turns talking to customer. They all had management change. They all had overlapping responsibilities, etc. So the place we've taken the most money out of would be in customer success. The stuff that happens after the customer buys. And we're doing that not by just reducing capability, but by simply implementing a much more efficient model with many less silos, much less management involved, and so forth. So that's all, goodness. There are other places we'll have efficiencies. Let me give you an example. If you belong to a field organization working technical support, your mission is to make the customer happy even if it means solving the same problem dozens or hundreds of times quickly. If you're part of the product organization, your goal is to go back and talk to the product guys and tell them, make this product go away in the SaaS offering quickly, so that no other customers are even aware that it ever did exist. You can see those real efficiencies in terms of how you solve customer problems. Are you trying to make them happy while they have the problem? And repeat that hundreds of thousands of times or are you trying to make the problem go away so that the rest of the customers never knew it happened? Just to summarize. These are great efficiencies that we're going to go pursue.

Now that makes a lot of sense. If I could also just ask just given the [Indiscernible] how the unfavorable change in relationships with the channel and does it change that rolling in anyway?

Yeah, I think if you look at the different classes of partners, it affects them differently. Let's start with Microsoft elated about this as you might expect, because it will bring a lot of business their way. If you look at Rockwell, Rockwell too is leaning into SaaS, and frankly, all of our SaaS products are easier for Rockwell to digest and to deliver onto their customers then would be the on-premise variance. So I think Rockwell quite likes the strategy and maybe some of their own thinking about SaaS was born in our boardroom i don't know. You'd have to ask Blake that, but I might speculate.

And then I think if you look at our resellers, it'll change their world a little bit, they still need to go sell the software. They won't be as evolved in delivering it, but then they are very much involved in the implementation of it at the customer side. So I don't want you to think as it relates to resellers or SIs that SaaS companies don't have SI partners. My God, Salesforce has a massive SI ecosystem. They just don't install software and perform upgrades at the customer site. They do system integration, they do adoption, and they do business process transformation. They do all that stuff which still has to happen. So that's kind of long term. I think SIs have to take the posture they have relative to Salesforce and all those other SaaS companies, which will help them through and the bigger ones like Accenture already know that play. And then for the smaller resellers, the other thing worth noting is that most of our resellers sell Creo and Kepler. And those products are further out on the SaaS road map anyway, so that will be several years down the road before we even really come to that bridge.

Right. Thanks, Jim.

Your next question comes from Jason Celino at KeyBanc Capital Markets.

Hi Jason.

Hi Jason.

Hi guys. Thanks for fitting me in. A little deja vu here with the transition, but maybe sell the subscription transition on the pricing change. With that transition will be a deployment change. When we think about the Cloud opportunity for PLM, when we think about the sources of possible acceleration, will it be more of a share gain type story or a pricing uplift from the lift and shift?

Yes. I think it will be both, but let me first redefine pricing up lift so we don't confuse anybody. We will deliver more value to the customer and they will pay us more for that value while saving money on their side, above and beyond. So is that a pricing increase? I don't know. It's a value increase. And that could drive a tremendous amount of business. Creo and Windchill are a billion-dollars and you could double $750 million of that over a decade with that $750 million of more value delivered to the customer base and monetize. However, what we're seeing with Arena and to a degree with Windchill is we have the cloudiest sassiest solutions in the market and that does help take share. Every piece of business that Arena is winning. They're taken from somebody else or it's a start-up Company that they're winning on somebody else's expense. And Arena is a fastest growing P1 solution in the market right now. So I do think it's both, and you know exactly what the balance would be, I don't know. I do think monetizing the customer base by delivering more value is a high probability and it will drive a lot of growth by itself.

Excellent. Thank you.

Welcome.

The next question comes from Joe Vruwink of Baird.

Hey Joe.

Hi. Great. Hi everyone. Just focus on new Digital Thread Business Unit. It maybe seems like there is rising interest in both platform deals. I just think about the way Rockwell expanded, the scope of the partnership so with more products or even both. I think when they were talking about the big CAD PLM deal, they spoke about this better pairing with existing IoT they have set up in their clients. So I'm just wondering, A, am I characterizing the demand environment correctly and then B, does the new business unit actually allow you to maybe better execute time cross-sold, done house than the case?

Yeah well, let me hit the second question first. The new business unit is fundamentally formed to help us better execute on cross sells, because we do see that platform deal structure happening more and more. The example you gave with Global, I could repeat a dozen more examples of that, of customers who started with 1 product and pretty soon they have 2 and then 3 and they're trying off the fourth one and so forth. And we think that our products Creo, Windchill ThingWorx, Vuforia work beautifully together. Like voices in a choir, they make beautiful music together. And rather than selling these things separately, yes, we can use them all as entry points, but let's pursue entry points that then can be up-sold and cross-sold, And so, I think Troy Richardson was one of the first people to ask, why don't you guys configure differently -- us guys now that he's here, but why don't we configured differently and go pursue this harder, this cross-sell motion, so that's exactly what we're doing is that's a little bit how the name digital thread came to be.

Great thank you very much.

Your next question comes from Tyler Radke of Citi.

Hey, Taylor.

Hey, good evening. I wanted to ask you a little bit more about the TLM SaaS transition. It sounds like that's starting now, so assume that in some ways that products already obviously, it's probably going to get better over time. But how are you thinking about pricing as a lever to push customers towards that? Whether it'd be price increases on the on-time side or maybe initial discounts to get early customers over to the SaaS offering.

Yes. Well, let me comment on the first part of your question and then the second part. So again, we've been on boarding customers' SaaS for a while with PLM. And think of it that they're coming in at one margin and what our goal is to make improvements behind the scenes that take them to another margin even at the same cost to the customer. So whether it's single-tenant, multi-tenant, if you're the customer on the customer end, you don't even know. But we on the PTC end, we see the efficiencies we're gaining or not gaining, we do know. And so a lot of our investment is aimed at making the product more efficient for PTC to deliver, as opposed to different from the usage end at the customer side. Now that said, if you look what we did with the subscription program, we pulled every lever we could come up with. Do you remember that program when we used to talk about it, we used to say, and I don't know Kristian. Kristian actually was the program executive. We had 28 work-streams and 300 people working on it. We changed pricing and packaging to favor subscription over at the time perpetual. We paid more commission on a perpetual deal. We had certain offerings they were only -- I'm sorry we paid more commission I said that wrong on a subscription deal. We had certain offerings that were only available, attractive sexy offerings including the answer stuff by the way, there was only available subscription. So we basically stack the deck in every customer conversation in a way that everybody wanted it to go subscription. We got the band back together, we're putting the same program together, and we’ll stack the deck again in favor of SaaS this time.

Thank you.

Your Next question comes from Adam Borg of Stifel.

Hello, Adam.

Thanks so much for taking the question. Just real quickly on IoT, I think you mentioned during the prepared remarks that it was slightly below our expectations in the quarter. So maybe to talk a little bit more about what led to that. And the confidence you have in that improving in fiscal '22, maybe even in the context of DPM. Thanks so much.

Yes. So first Adam, let's be clear. Exactly what I said. Bookings in the quarter were very strong. However, much of the bookings in a Q4 does not land in the ARR in the Q4, it's back to that start base discussion. What I said is that ARR was less than we wanted it to be. It was mid-teens and frankly, we've said we wanted to have a 2 handle. Now, bookings in every quarter of fiscal '21 were higher than the previous year quarter in fiscal '20. So there is some bookings momentum happening. And then another thing is we launched this DPM solution that frankly we've been working for 2 years. It's a major piece of software that we launched in, already has quite some customer interest. So we feel like the combination of the bookings momentum we have including and especially in Q4 and then the launch of DPM and the trends we're seeing. They bode well for what should happen next year.

Great, thanks so much.

Hi, Operator. I think we have time for maybe one more question.

Certainly. Your final question comes from Blair Abernethy of Rosenblatt Securities.

Hey, Blair.

Hey, Blair.

Hey guys. Thanks for taking the time. Just two quick things. First on the DPM, Jim, what's sort of the -- is there a shift in the go-to-market with this solution of R and are their more solutions coming this year, next year in behind us.

Yeah, I think what she should I think first of all, is it DPM, will become a category of solutions. And what we're launching first is DPM for factory. Digital performance management of what happens in a factory. There will be solutions that are more focused on digital performance management of a fleet of products out in the field at customer sites. But fundamentally what we are trying to do is move from selling a toolkit where the customer does the solutioning themselves to selling a turnkey solution with a very strong value proposition, sold to executives not to developers, sold on the basis of the business value it will generate, and then implemented quickly in the production. So yeah, it's a very different sales motion. I mean, number one, we're selling to executives not selling to developers. Number 2, we're selling business value, not speeds and feeds, technical stuff. And I think it's really where we wanted to take this business for a while. So I'm very pleased with the solution. It took us a while to develop it, as I said, but it's a powerful piece of software and it really gives us a new platform to build on going forward with IoT. It makes IoT f I could, a lot like how we sell PLM. We sell PLM to executives based on business value. We were selling IoT to developers as a toolkit, and now we'll sell PLM and DPM as business value to executives. Different executives mind you but executives. Great. Thank you. Well, Operator maybe I'll just take it from here. First again my apologies. This is like the strangest earnings call I've had again, and it's the 44th one as CEO. So it's a bit odd, but nonetheless, I think we got a lot of good information out there and you guys had some great questions and I appreciate it. So in closing, I mean, we're in a great place. I really like PTC setup going forward. The changes we announced are good for growth, they're good for profitability. They're going to put us in a stronger position to hit both the top-line and bottom-line targets that we have out there. So we're looking forward to continuing a discussion with you on follow-up calls at investor conferences. I'm going to be at the Berenberg Conference, at least virtually next week or I guess it's 2 weeks out maybe, it’s No, it's next week. And we look forward to seeing you at our investor meeting on December 15th. So thanks, everybody, and have a good evening.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's call. You may now disconnect.