Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to PTC's 2024 Second Quarter Conference Call. [Operator Instructions] I would now like to turn the call over to Matt Shimao, PTC's Head of Investor Relations. Please go ahead.

Good afternoon. Thank you, John, and welcome to PTC's Fiscal 2024 Second Quarter Conference Call. On the call today are Neil Barua, 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 later 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 actual 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 and 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 this call are valid only as of today's date, May 1, 2024, and PTC assumes no obligation to 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, Neil Barua.

Thanks, Matt. I'm proud of what the PTC team accomplished during our second fiscal quarter. We again delivered solid results, which Kristian will take you through in detail. This quarter continues to demonstrate that PTC is on the right track and that our portfolio of products is resonating with customers. Before going into more detail about our strategy and discussing some proof points from the quarter, I'd like to address our mid-term targets, which we have updated today. To be clear, we are not changing our cash flow guidance. What we have updated is our mid-term ARR growth targets. We are now targeting constant currency ARR growth in the low double digits over the mid-term, which is consistent with the performance we have delivered over the past 5 years through varying macroeconomic conditions. In addition, we feel very good about our ability to hit our cash flow targets even while we appropriately reinvest into the business for product development. This is because we have a disciplined process to manage our internal spending based on the level of ARR growth we are seeing. This year, as an example, our internal spend framework assumed 10% to 12% ARR growth. In addition to adding incremental investment to drive multiyear growth, we are also proactively managing our existing spend. We are able to do this effectively by leveraging the skill sets of our global R&D teams where we could shift the focus of these resources towards the product areas that create the greatest customer value. In addition, we have confidence in generating increasing operating leverage from our go-to-market and G&A teams. The investments we make are aligned to the market environment and our 5 focus areas to ensure appropriate resource allocation towards the areas that create the greatest customer value. As an example, we…

Thanks, Neil. Hello, everyone. Starting off with Slide 8. PTC, again, delivered solid financial results in terms of both ARR and free cash flow in a challenging selling environment. As you know, we believe ARR and free cash flow are the most important metrics to assess the performance of our business. To help investors understand our business performance, excluding the impact of FX volatility, we provide ARR guidance and disclose our ARR results on a constant currency basis. At the end of Q2, our constant currency ARR was $2.075 billion, up 12% year-over-year and above our guidance range. Note that we acquired ServiceMax in Q2 of fiscal '23, so we're no longer excluding ServiceMax from our organic ARR results. In Q2 '24, our cash flow results also came in ahead of our guidance with operating cash flow of $251 million and free cash flow of $247 million, both of which were up 19% year-over-year. Our cash flow performance is driven by our ARR and operating efficiency. And in Q2, we extended our track record of disciplined operational management while continuing to invest in our key focus areas. Turning to Slide 9. Let's look at our ARR growth at a more detailed level. Starting with our product groups in CAD, we delivered 11% constant currency ARR growth in Q2 with the growth primarily driven by Creo. In PLM, our constant currency ARR growth was 13%, primarily driven by Windchill. Despite the overall demand environment, which has been sluggish for many quarters now, our top line has shown good resilience. Our solid ARR growth is supported by our unique portfolio with a solid footprint and higher growth segments of the market and the digital transformation journeys of our customers. These underlying strengths are further supported by our subscription model, our low churn…

[Operator Instructions] Your first question comes from the line of Nay Soe Naing from Berenberg.

Maybe if you could start with the update in your mid-term ARR growth outlook, please. Maybe break it down a little bit more in terms of -- obviously, you had reiterated your mid-teens growth outlook as recently as last quarter, it's only been probably 2 months or so now. So what's changed in those 2 months? And also, if you may, could you reference it back to the growth building blocks that you have provided in your previous earnings pack as well, please?

Yes. Thanks for the question. I'll start with the first one and Kristian could add. After taking over as CEO, Feb 14, I've been doing my assessment of the business, as I mentioned, across all dimensions on this one on the mid-term target and just to make sure we level set on this piece. For this year, we've updated our constant currency error guidance to 11% to 13%, as Kristian stated. For sake of understanding what low double digit means, I see that as plus or minus that range. And again, over the past 5 years, as you've been following the company, we've gone from 10% growth 1 year to 15% for an average of about 12% through varying macroeconomic conditions. So when I took a look at how I want to put my stamp in a credible way around the company moving forward in the view of the mid-term targets, I looked at all those variables. I also looked at the fact of the current conditions of the market and felt it was the appropriate thing to do to make the mid-term target towards that low double digits versus have the mid-teens target out there. Kristian, do you want to add?

Yes. I mean the only other thing that I would say is that every time we talk about mid-teens, we had to caveat the status of the economy and so on. So I think this is just cleaner way to do it.

Sorry, I literally just got disconnected and I got reconnected just now, but I'll just read the transcript afterwards. But I didn't catch any of the answers, unfortunately.

They were the best answers we've ever given.

I'm sure. So I'll eagerly wait for the transcript to come up.

The next question comes from the line of Daniel Jester from BMO Capital Markets.

Maybe on the balance sheet, you made great progress deleveraging well in advance of your leverage target that you want to hit by the end of the year. I guess, one, why not today sort of move forward with the reassessment of the capital deployment strategy. And maybe two, Neil, maybe you have any comments about how you view inorganic growth as the driver of longer-term opportunity?

It's Kristian. Thanks, Dan. So I think your question is around why are we not starting buybacks sooner? I guess that's maybe the gist of it. And I mean, I think I'll just try to hit it this way. Listen, we still have $2 billion-plus in debt outstanding. Interest rate environment is still not favorable. The rate on the revolving credit facility we have is almost 7%. And after today's comments by the Fed, it doesn't look like those are going to get any better anytime soon. We've got a couple of quarters left to get through the year here, and we'll revaluate.

And on the M&A piece, we've clearly done a number of M&A deals over the history of PTC. That continues to be something that we'll always look at as opportunities to accelerate the strategy of the business. However, given my assessment of the business, currently, I like the areas -- the focus areas that we are aligned towards as a company to execute across organically those priorities is extremely effectively over the next number of quarters and years. That being said, if there are tuck-in acquisitions or things that make a lot of sense to do, we'll always take a look at it. But currently, my focus on making sure the execution around the organic priorities of the business are well taken care of.

The next question comes from the line of Ken Wong from Oppenheimer & Co.

Great. This one is for you, Kristian. On the medium-term growth, I guess, we roughly estimate that maybe $100 million is coming out of ARR, yet you guys are still able to meet free cash flow targets. I guess, should we assume you guys have that same level of confidence in hitting those targets as you did previously?

Yes is the short answer.

All right. Fair enough. And then for you, Neil, in terms of best practices that you're trying to implement here, I guess maybe this kind of piggybacks on what I just asked Kristian, but like what do you -- what should we expect in terms of driving that incremental operating leverage?

As you know, Ken, we've been doing a nice job. The team has been doing a nice job for many years, driving greater effectiveness within the business. But I'm focused on the stones that I'm turning is making sure within the business around how we interact with our customers, the go-to-market motions from a direct and indirect standpoint are done as effectively as we can with the best practices that are out there, but also an assessment of what's the best thing for our customers and internally here at PTC. G&A, we've been efficient on that. We'll continue to turn over every rock there. As I mentioned, a two-pronged strategy every year around incremental investments and then what can we take and reposition existing spend to more focused areas that could drive greater customer value and ultimately, value for all the shareholders. And so we're taking a look at that, and we'll continue to drive forward around all those vectors to make sure we're driving the business with greater focus and effectiveness as we move forward.

[Operator Instructions] Your next question comes from the line of Andrew Obin from Bank of America.

So you mentioned on the call that the selling environment has been sluggish. Has this bottomed out? And any view on what needs to happen for a macro uplift in the software environment? And also for an industrial guy, if you can point out which verticals are particularly weak, I would imagine maybe life sciences, ag, machinery, but just any color there.

I'll start, Kristian, you could add. I don't see right now any change in the selling environment. It's been tough going for at least 6 quarters now here at PTC. That didn't change in Q2 despite having solid results. So the team continues to deliver despite a challenging selling environment. We look at every metric, GDP, PMI, you name it. We have not seen a change yet given some maybe positivity, they have not turned into a trend. I will say from a broad base outside of industries -- outside of specific industries, the point that I think we're trying to articulate is the challenging selling environment really is punctuated in the larger deals. So these are the large digital transformation deals that are 7, 8 figure that I'm truly excited about seeing how the pipelines building on that. That continues to be challenged, the same by which it's been for the last 6-plus quarters around the large yield in getting those projects to be the key priority by which you could get the signed PO and begin implementation. That's the area we continue to work through. To be clear, we continue to do well around securing those, but those are the areas by which the challenging selling environment really impacts us the most, and I don't see that changing right now in the current environment. Kristian, anything to add?

No, I think that's right.

And any specific verticals that just stand out as being particularly weak within certain industries?

From our perspective, we are -- I feel good about the key industry verticals that you know we play in, Andrew, doing well. Some are doing better than others. I'd say, all are going through digital transformation in a very serious manner. So we feel good about our position in those verticals. It's a question of the largest deals in those verticals. How much can we actually execute and close within a certain quarter.

[Operator Instructions] The next question comes from the line of Saket Kalia from Barclays.

Okay. Great. Neil, I'll keep it to one, just maybe for you. When you joined, I think one of the things that was really interesting that you talked about was just being more discerning about resource allocation. And maybe very specifically putting more wood behind the arrow for PLM, while maybe managing other areas like IoT and AR. And you correct me there if I'm wrong. But maybe the question is, what's the next step in that evolution. And as you think about sort of that investment in PLM, what are the areas that you want to bolster the most inside that business? Does that make sense?

Yes. Great question, Saket. And just -- I want to make sure I make this point again. We did say and I did say put wood behind more -- wood behind the arrows that matter the most for customer value. We already have done that, started that process. This IoT, AR, those 2 sentences I mentioned, is a very significant first move of executing across that point that I made to all of you for the last 6 months. And what that will allow us to do is make sure in the concept of PLM, as you asked, Windchill, which is this wonderful system that I referenced a great customer is now getting enterprise adoption. There is more we can do around making sure that there's 3 components. Number one, Windchill and the ability for all the enterprise groups that I mentioned have really understanding and visibility and viewability of the data that is coursing through an engineering group as an example, right? And so the product development around making sure the user experience, the viewing of that data is best-in-class. We're working through that with these dollars that we're repositioning from IoT, AR. We're working through stronger integration points by which Creo and the CAD design tools can more seamlessly move through the enterprise within Windchill. We're working through Codebeamer and Windchill integration points by which software configuration management with hardware configuration management can be even more clearly done for an enterprise. We're working through a ServiceMax-Windchill integration, and we're going to keep working through that by which product data can now be seen in the field and vice versa. So those are the 2 big themes. And the third other theme that we're putting wood behind the arrow within PLM is using the foundation of Windchill and all the great things that AI could do and copilots could do with a seamless data stack within Windchill. Over time, we'll work through how does that create value for our customers as well in a differentiated way for them as they use this as an enterprise system. So a lot of great things, Saket, happening on that. And again, theme around focus on the priorities, focus on the core, and let's bring the cavalry behind it, because our customers are really needing it and requiring us for us to show up in this manner and the opportunities is there in front of us.

Your next question comes from the line of Jay Vleeschhouwer from Griffin Securities.

Neil, your comments just now an answer to Saket's question, I think touched on an important point about the portfolio, where cross-selling necessarily has the corollary of increasingly integrating products across the portfolio. So more closely coupling the products rather than loosely coupling the products. So over time, what do you think that might mean in terms of, let's say, the regularity of the business. SLM historically was quite a variable lumpy business. the ALM business is on a good trajectory. But as you increasingly closely couple the various 3-letter acronyms of the business, how do you think about retention? How do you think about variability of the business?

Yes. Great question. Thank you for asking, Jay. It is a journey. And as a reminder, we've done a really nice job, and it will continue to have open integrations in the environment. We're not a closed system. And when a customer looks at us, they could see best-of-breed PLM, best-of-breed CAD, best-of-breed SLM, best-of-breed ALM, and we believe we have all of them, right? But the customer can choose from that and feel okay for the interoperability with other systems that they may choose for ALM, SLM, PLM or CAD. So that will be the philosophy we continue to have. That being said, our customers are really pushing on us because there's real value given the credibility PTC has with them of creating even more distinct integration points, UI interfaces that are seamless between Codebeamer and Windchill. Obviously, we have a very strong tightened integration already with Creo and Windchill, we could do more with that, right? And now as you mentioned, ServiceMax, which I will correct you for a little bit, ServiceMax is a very stable recurring revenue business that is native SaaS. So it takes away the lumpiness from the SLM business that might have existed historically. It helps with that. But the main point strategically is as we create better value props, as I answered in Saket's question, for the customer to have product data run, [ while we through ] their enterprise for all the collaboration, time-to-market benefits, quality benefits, we believe customers will choose PTC for a greater number of those best-of-breed solutions in a one-stop shop. But we will make it so it's customer value-driven versus edicts from us saying it's only us you could play within a closed system versus being open. So we're taking the customer view, and I think it's going to win out, Jay, in the long term.

In the meantime, for, let's say, the remainder of this year or early next year, how would you describe your pipeline of large deals that might have, as you saw in Q2, significantly pronounced 606 effects? Incremental, obviously, in the case of Q2, apparently in Europe, especially. So is there any way to predict the 606 effects and fold that into guidance?

If there was a way to predict the 606 effects, Jay, trust me, we'd be happy to share it with you.

Understood.

The answer is we can't do that, Jay.

Okay. Noted.

I will say, though, that the pipeline of large deals, we feel good about. It's healthy and sales team, all of us are focused on closing them. The timing of those always top, as I mentioned, but we have a really nice pipeline that's been growing on those large-sized deals across the world, quite frankly. So we feel good about what we're entering in the second half year.

And Jay, not trying to be snarky about the 606 thing. I mean you will remember that the main drivers are the kind of contract and there's the upfront contracts and there's the ratable contracts, the term length of the contract. So those are probably the 2 main drivers. Term length we can try and incent customers to move in a certain direction. But ultimately, they're going to make the right decision for them. And that includes both on new and renewal -- new and renewal transactions. And then as it relates to the ratable versus the upfront contracts, we still have a small base of perpetual support that we're still converting. So every time that happens, you're taking a ratable contract and moving it to an upfront contract. We have -- we're -- as you know, transitioning customers to SaaS. So every time you do that, you're taking an upfront contract and moving into a ratable contract. The moving parts, the volatility is -- well, you get the picture.

[Operator Instructions] The next question comes from the line of Stephen Tusa from JPMorgan.

So the net new ARR has been up nicely the last couple of quarters. You have it guided, I guess, down just year-over-year. You can kind of like cut these numbers any way you want. But any -- is that a reflection of the macro you were talking about? And then when does this now $10 million of deferred go live? Are you expecting that in the 3Q or the 4Q?

So let's start the -- I guess, we'll go in reverse order. The $10 million of deferred is also split probably pretty evenly between Q3 and Q4. The other $10 million, let's just be clear, those are still contractual commitments that will -- that have just moved to a future period, right? So they haven't gone away. They've just gotten larger and moved to a future period. In terms of the macro. Again, I think Neil mentioned earlier, we haven't really seen any change really in any direction here over the past few quarters. And as it relates to tying that back to Q2 results, Q3 guidance in any given quarter, there can be a little volatility around lumpiness of deals, start dates and prediction of those that can cause minor swings in either direction. So all in all, we're pleased with the results for Q2. We think we've set the Q3 guidance appropriately and steady as she goes.

And then just one last one on the -- in the appendix, you had in the last presentation, I believe, guided for like cash taxes in '25 and '26. I think it was -- that wasn't in the appendix this time around. Anything moving around on that cash tax guide for the next couple of years?

No, not specifically. I think we were just trying to again, tighten up the disclosures. And it was -- to be honest, it was a little weird. We were giving points on certain line items and not other line items. And so we just tidied up the more detailed disclosures to fiscal '24. And otherwise, we remain on target for the other -- for '25 and '26. But there is...

Sorry, one more just to get Neil involved. Is there a dynamic here where your customers are evaluating their IT budgets in regard to AI and that's slowing these pipelines from closing because they've obviously been faced with a different kind of choice that seems like a bit generational in nature. And so is that something you're seeing as far as these extended close rates that there's potentially a bit of reallocation into these new technologies?

Absolutely not. And the reason why I say it was such firmness is because in our segment of the market, there is plenty of POC-ing and experimentation and conversations. And what I will say is we're involved in those, right, on a fair number of them. Because while I'm not coming out promoting this on calls like my other peers, we are building and working through a number of ideas around practical use cases for copilots. We've actually put out, like I mentioned last earnings call, a beta for GenAI solution for service that we're getting good feedback on. Where I'm going with this, Steve, is that I believe that AI is not taken away from IT prioritization currently as they're thinking through what the POCs are and what the use cases are, and quite frankly, what they're going to do with it. And vice versa, what are vendors actually going to charge for. So we've got some work to do as an industry around it. I actually think it will happen, but there's no way in which causing anything different than the selling environment because now we have an AI coming on the top of ERP, CRM or PLM migrations. We still are at the top of the heap in terms of the large systems because lastly, and I'll summarize this, I think most of our customers have realized that a digital foundation is necessary before you do anything practical on AI at scale. And that's why you need a system like what we have to offer a PLM, ALM, CAD, SLM, and I think the customer base is primed for that. So we feel good about that dynamic, Steve.

[Operator Instructions] Your next question comes from the line of Blair Abernethy from Rosenblatt Securities.

Neil, just one more on the product side, Onshape, CAD, Arena PLM, that's SaaS part of the business, how is adoption going there and growth rates in those businesses? How are they faring this year? And then secondly, as you look to deemphasize some of the other areas, AR and IoT as an example, would that be something you would consider spinning off at some point?

So on Onshape and Arena, I want to be clear. Those are very important parts of our business. I'm not talking to them on a call like this up until a question is asked. Because the 5 focus areas drive the greatest amount of customer value and ultimately, economic value for us currently. Now the Onshape and Arena team are tasked with getting on those 5 priority lists, sooner rather than later, and they are working hard at that. And what I will give you color on is I'm very enthused about what's happening in Onshape right now. I think the dynamic of a great product at a time when we have the openness, the customer friendliness of that tool in a SaaS platform is a huge differentiator versus the others that are out there, right, outside of PTC. So we feel good about the strategic positioning. I feel good about what I'm seeing so far in terms of Onshape momentum, and we're keeping a close eye as that evolves around the momentum and by which that becomes part of the top 5 priorities of the company. Arena, similarly, we're seeing good trends there. PLM, they have a very strong set of capabilities, particularly with supply chain. And the module there is catching some really interesting themes. I feel good about the progress we're seeing in Arena for the last couple of quarters. We're staying close to them and making sure that, that momentum builds. But in summary, those 2 businesses, I'm actually really rooting for them with the resources they have, with the attention that they've got from a great leader in Dave Katzman to make sure that they make it on the high priority list. They're not being ignored, they got the momentum and we're making sure that…

The next question comes from the line of Matt Hedberg from RBC Capital Markets.

We've spent a lot of time in the past, it feels like several years talking about above-average PLM growth, but seeing CAD continued to grow double digits is really impressive. I guess when you think about -- obviously, macros remain still a bit uneven, but like what are the core drivers there beyond just SaaS, which Creo+ is still early. I guess what I'm trying to get is like this above pure growth rate. How do we explain it? Because it's a question that we often get from folks and it feels like you guys continue to outperform on that line item.

So I'll start, and Kristian, if you want to add anything. The -- you're right. We are happy with what we're seeing in terms of our CAD growth rate. And I believe, given my work on this and talking to customers, it's because we have a really great product in Creo. And subsequent to that, we have a growing, very small business in Onshape, right? That's as I mentioned, doing well, and we expect to do even better as the years come by, given the competitive dynamic. So I believe we have a really strong product. I also believe tying this into, as I mentioned, the customer example of the med tech company that's deploying Windchill. What I didn't mention is they had disparate CAD systems as well. And when they went through the Windchill consolidation to make sure Windchill seats expanded within the enterprise, they actually did the same thing with their CAD systems, right? Which helped the business for PTC on that area. So there's a level of customers seeing the digital thread and having PTC be part of that, that's helping, I think, the CAD piece. And so that's one theme. And then two is, around the world, there has been more interest and movement from 2D to 3D. In Japan, that I was in just a couple -- a month ago, the world is still in 2D. They are now moving to digitize, and that's moving to 3D models, which allows for potentially Creo and Onshape to be competitive, some of the offerings out there. So there's a bit of the competitive positioning occurring. I don't think it's the majority of the growth, but it helps us as we display some of the seats in other competitors with some of the dynamics that we have with the full portfolio.

Yes. And then, of course, in addition, I know everybody knows this, but the model, we've talked about that before the subscription model, the sales model that we have or contracting model also adds to that growth rate.

Appreciate it, guys. Well done.

The next question comes from the line of Joshua Tilton from Wolfe Research.

This is Arsenije Matovic on for Joshua Tilton. Just a quick question on indirect performance versus direct channel. I think indirect was diluted from growth, about 2 points on a tougher comp. I guess, what's your expectations for the performance of the channel throughout the year? Are they facing any macro headwinds that direct channel isn't facing? And then one brief follow-up.

Yes. I've been spending much more time with the channel had out there in Europe with some of our bigger ones next week. What I'll say is, we're -- and under my leadership, we're really making sure the channel is operating with the same sort of energy and focus as the direct side, which, as you could see, we've been delivering solid results on. And by that, I mean, how do we really position our channel partners to really think through the driving of the pipeline and the bookings and the ARR growth that we've been seeing on the direct side and the consistency that we've been showing. And so we're working through that through enablement, through, again, prioritizing the focus areas, showing them what's been working, et cetera, supporting them like I will be next week. So we're making sure that we revitalize the trend lines of the channel to deliver the growth on ARR versus just renewed deals. And so we're going to push on that. And I have a high expectation that if we have the channel partner, they must also deliver the same type of results as we're seeing and pushing our direct teams to do so.

The next question comes from the line of Adam Borg from Stifel.

Awesome. Maybe for Neil. Obviously, it's great to hear the strategy around the 5 focus areas. And just maybe drilling into the fifth area of SaaS. Maybe just an update on how Creo+, the Windchill+ are resonating. Obviously, we've talked about this being a decade-long journey. But maybe just give us an update on how these conversations are going and how we should think about that in the coming years.

Sure. Great question. It is a priority. We continue to build momentum there. We have not slowed down in terms of our approach, our customer conversations and our intensity to make sure we work through all the automation and back-office elements to make the experience really great. We're working through a number of conversions where we're learning a lot and making sure we continue to sharpen our sword, so to speak, to make sure the next conversion happens more seamlessly. As I mentioned, to reiterate, I see this as a 10-plus year journey. We will do it hand-in-hand with customers so the experience is good. So I think that's been working well. We've also put out new releases of Windchill+ specific to the med device sector, that has greater emphasis around compliance and regulatory issues that we've embedded into our product. We're looking forward to continued view of how that is received in the marketplace. So we are not laying off the accelerator within our Plus strategy across even Creo. We're just -- we're putting out a release now, Creo+. So we continue to invest into it. Again, it will be a long journey. As I mentioned, I view 10-plus years. It might happen earlier. We're building the rep, so to speak, to make sure that we're ready for at-scale conversion into our Plus strategy, and we continue to invest our resources and attention on that front and feel progress is okay to good on that front over the last few quarters.

Next question comes from the line of Joe Vruwink from Baird.

Neil, just going back to the big deals in PLM, this is something we're hearing more regularly as well, particularly, it seems like it comes up as part of enterprise ERP decisions. But also, the feedback seems to be more recently that customers just need to end up spending more time studying what PLM can do and the studying process and I think appreciating the workloads that matter, it just contributes to longer sales cycles. So I'm wondering if you could maybe characterize how you think about close rate assumptions on this big pipeline. And if you converted at a high rate and these are very large ACV deals, what might that mean for kind of the upper bound of ranges? I imagine the low double-digit ARR growth rate, you're talking about that's probably more of a base case planning assumption. So I guess I'm poking at what the upper end of ranges could be ultimately.

Yes. So we have a broad portfolio, not just large PLM expansion deals or displacements to be clear, right? And there's some parts of the portfolio are faster cycle, close rates, some are longer. Very large deals, to your point, like PLM deals take a while given some of the closing dynamics that we mentioned. What I can say is I can't predict when the close rate and selling environment changes. I'm not smart enough to tell you when the world gets steadier, geopolitics becomes less of an issue, interest rate, whatever all the dynamics that causes stress in the system for our customers, I can't predict that. But what I can do is control the level of conversations, the clarity of describing to our customers the value of enterprise PLM, which is what we're internally working on in execution to the external market by which they all know that if you don't deploy enterprise PLM, you as a product company will no longer exist in a few years. And I fundamentally believe that, that is how important a construct of PLM is to our customers, because cycle times, new product introductions, quality, collaboration across the entire enterprise to deliver great products and customer experience. If you don't do that, we're seeing it across the board, you're dead. And I believe our job is to show what others have already done at PTC using Windchill as well as ALM, CAD as well as SLM and make sure we show the business value. And so if you just heard what's happening internally, we're working through that aggressively so that this conversation becomes an easier way in which the customers can see, even if I'm in a stressed macro environment, I need this. Because many customers are already doing this, as you can see from results, but there's plenty more of wood to chop for us. And if the selling environment changes and we have a large pipeline, you guys do math better than me, clearly, we have greater opportunity to execute around ARR growth, that's higher than what we put in terms of our aspirations, but I'm not assuming that until I see that change.

Ladies and gentlemen, this concludes our Q&A session. I would like to turn the call over back to Neil for closing remarks.

Thank you, everyone, for joining us today. Here's what's ahead specific to investor conferences. May 14, Kevin Wrenn, our CPO, will attend the Bank of America Industrials Conference in New York; May 20, KT and I will be at the JPMorgan Conference in Boston; Early June, KT will attend the Baird Conference on the 4th and the Wolfe Conference on the 5th in New York City. On June 4, I'll attend the Stifel Conference in Boston. PTC will also join 2 virtual conferences this quarter, KT at the BMO Conference on June 11, and Steve Dertien, our CTO, will attend the Rosenblatt Conference on June 12. On behalf of the entire PTC team, thank you again, and we look forward to engaging with you.

Thanks, everyone.

This concludes today's conference call. Thank you for your participation. You may now disconnect.