Tim Fox - Vice President, Investor Jim Heppelmann - Chief Executive Officer Andrew Million - Chief Financial Officer Barry Cohen - EVP, Strategy.

Sterling Auty - JP Morgan Matthew Hedberg - RBC Capital Markets Steve Koenig - Wedbush Securities Saket Kalia - Barclays Capital Matthew Williams - Evercore.

Good afternoon, ladies and gentlemen. Thank you for standing-by and welcome to the PTC’s 2015 Second Quarter Conference Call. During today’s presentations all parties will be on a listen-only mode. Following the presentation the conference will be open for the questions, [Operator instruction]. This call is been recorded.

If you have any objections you may disconnect at this point. I would now like to turn the call over to Tim Fox, PTC’s Vice President of Investor Relation. Sir, please go ahead. .

Thank you, Tory. Good afternoon and welcome to PTC’s 2015 Second Quarter Conference Call. On the call today are Jim Heppelmann, Chief Executive Officer; Andrew Million, Chief Financial Officer; and Barry Cohen, EVP of Strategy.

Today’s conference call is been broadcast live to an audio webcast and the replay of the call will be available later today at www.ptc.com.

During this call, PTC will make forward-looking statements including guidance such to future operating results because such statements deal with future events actual results may differ materially from those projected in the forward-looking statement.

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-10K, Form-10Q 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, April 29, 2015 and PTC assumes no obligation to publically 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 general accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most 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, Jim Heppelmann..

Great, thank you, Tim. Good afternoon everyone and thank you for joining us here on the call for the review of our second quarter 2015 results. We’ve changed some aspects of our earnings release process this quarter in an effort to better meet units and I hope you’ll appreciate this new approach.

Also given the complexity that currency and subscription transition have introduced this quarter, our remarks are probably longer today that we would intend to do in the future. Overall our Q2 results demonstrated solid execution across the business despite the very tough currency environment and somewhat uncertain macro economic conditions.

Revenue was above the midpoint of our guidance range and we delivered EPS above the high end of our guidance range which reflects our continued commitment to driving margin expansion and our earnings growth.

Once again, this quarter results were better than the headlines would suggest given the combined effects that foreign currency, our license model transition and our strategy to shift our professional services growth towards the partner ecosystem have on our announced results.

If you normalize for foreign exchange rates and for subscription mix than on an apples to apples basis our year-over-year license revenue would have grown 8% and our software revenue would have grown 10%. With our professional services results included, total revenue grew 5%, operating income grew 14% and earnings per share grew more than 20%.

These results are very consistent with the performance since you have been seeing from PTC for some time now.

While the ApEx headwind, our business model and the professional services strategy make a headline to results appear less attractive, we know the shareholders appreciate the longer term positive effects of the license transition and the services strategy.

Then consistent with the commitment I made 90 days ago, PTC has now taken action to address what we believe is the new normal in the currency environment. So before going any deeper into second quarter results, I’d like to provide more context around that corporate alignment that we announced three weeks ago.

In addition to mitigating the impact of foreign currency and potential macroeconomic headwinds, we also saw the opportunity to expand on our leadership and momentum in our Internet of Things business by increasing investments in sales and marketing and in product development will also accelerating some of the IOT related development work in our core cad and extended PLM solutions we see a great opportunity to further differentiate our industry leading CAD, PLM, ALM and SLM solutions by enhancing them with the connected approach.

We’ll be sharing more details about that connecting strategy in the core business at our LiveWorx event in Boston next week and even more so at our PTC live global event in June.

But probably you could imagine the value of the engineers can unlocked by understanding how their products are being used in the field and how the products are performing relative to the design intent and quality expectations.

Or for service technicians to proactively know what service the product will need even before they actually need it and to avoid the downtime by fixing the problem before the product actually fails.

Simply putting an industry that uses the phrase lifecycle management a lot, PTC stands alone at this point with the connectivity that enables true lifecycle management to continue after the product leaves the factory and enters what is the longest phases of its lifecycle.

We have had some remarkable customer meetings on the close loop lifecycle management topic lately, but it’s also important to note that we remain fully committed to executing on our core CAD and PLM solution roadmaps with the next major release of Windchill coming later this calendar year and the Creo 4.0 targeted for release in mid 2016.

Coming back into our second quarter results, we’re pleased with the early progress and customer feedback on our subscription licensing program with strong cash rates in our IoT business that is primarily subscription based and emerging customer interest across our core business including the new offerings for channel partners.

While the subscription bookings makes up 14% in the second quarter was slightly below our previous 15% estimates, subscription bookings in aggregate remained above 15% for the first half of 2015 and based on the profile of our current pipeline, we see the pace of subscription adoption ticking up slightly in the second half of the year.

We call that subscription offerings provide greater flexibility and value for many customers and interims will drive significant long term value for PTC.

You’ll note in our financial disclosures that we’re now highlighting the performance of total software revenue which is the combination of license, subscription solutions including cloud services and support revenue.

Consistent with our strategy for professional services revenue to trend flat to down overtime as we grow our service partner ecosystem, we believe that the software revenue measure better reflects our top-line progress.

During the second quarter, the high margin software revenue grew 8% year-over-year on a constant currency basis and would have grown 10% if further adjusted for the subscription bookings mix.

The strong performance in software revenue was then offset by a 12% year-over-year constant currency decline in the lower margin professional services business consistent with our strategy.

Service partner bookings have actually been stronger through the first half of the year than we had anticipated as our partners continue to develop their PTC practices, so overall we’re pleased with our progress here.

In terms of geographic performance when adjusting for currency, we delivered very strong performance in Japan including a megadeal mid-single-digit software revenue growth in the Americas and Europe and flattish results in Asia Pac.

Software revenue results benefited from strong support revenue growth in all regions tempered by a year-over-year decline in license revenues in the Americas and Europe. Recall that we closed three megadeals in these two regions in Q2 of 2014 which makes for a tough year-over-year comparison.

In addition, we did see pockets of cautious buying behavior later in the quarter which impacted large deal close rates and timing. Economic reports have been mixed over the past few months especially for manufacturers with significant currency exposures. Many of our largest customers in the U.S.

in particular our multinationals did rely heavily on exports, so the rapid strengthening of the U.S. dollar could be impacting their business. We’re watching this closely. Turning to segment performance when adjusting for currency, our core business second quarter results were somewhat mixed.

CAD and SLM delivered solid results in line with our targets while extended PLM was at the lower end of our target range primarily due to a few large deals slipping out of the quarter. So starting with SLM, we were encouraged to see SLM post double-digit constant currency license growth in Q2.

We entered the year with a much stronger pipeline that we believed would enable our SLM business to return to growth in the second half and while it’s still too early to declare a victory, we’re encouraged by the performance this quarter and by the stronger pipeline as we enter the second half of the year.

During the quarter, we closed a number of strategic SLM transactions including commitments from Dell which continues to expand its SLM footprint with PTC. Lockheed Martin who is a large PLM customer also made a sizable SLM purchase in the quarter.

This demonstrates one of the key growth drivers for our SLM business which is our ability to leverage deep customer relationships to cross-sell in the PTC’s large CAD, PLM install base. We’re penetration of our SLM solution still in the early stages.

We’re excited about last week’s launch of our in-service technology, this is our next generation solution for technical and service parts information. This new software based on the -- technology that we acquired in 2013 and then leverage in our capital engagement.

The in-service software significantly enhances our service information solution capability by extending a customers CAD investment to deliver graphics to downstream service technicians and by extending at customers PLM investment to deliver product structures and service parts information downstream in the service as well.

The ability of downstream service departments to get as much utility of CAD and PLM data as the manufacturing organization already does is a powerful idea and there is nothing quite like this in the market decrease a powerful cross-sell the PTC sizable CAD and PLM install base, but the solution also in our operate with competitors CAD and PLM systems.

If you have a chance to come to our LIBOR’s event next week, you’re going to see some great examples of close low capability where we take a existing manufacture product add senses to what after the fact then user IoT platform to connect that product and sensors the cloud.

We see the sensor stream in the CAD to analyze the fitness of the design during the actual product use. We also analyze the sensor data with big data predictive analytics. And then finally we leverage PLM configuration data to deliver CAD graphics as were constructions through augmented reality into the hands of service technicians in the field.

That’s one of them out but when you see that running is really a truly amazing capability that can only be delivered when you combined our new technology platforms with our core enterprise applications.

Turning now to the other core businesses CAD constant currency software growth of 5% was in line with our expectations driven by new series modules and upgrades of --. Extended PLM at more mixed results were performance appears have been impacted by several large deals slipping out in the quarter as I mentioned.

Nevertheless, we continue to win new PLM customers to extend their footprint with an existing customer and the cross-sell adjacent solutions into our base.

During the second quarter for example, we close an enterprise wide the PLM deployment with Nordex Energy, a German base global leader and high efficiency win turbine technology and we secured a seven figure PLM expansion with brother industries, who you know is a leading electronics manufacture in Japan.

We also security follow-on ALM commitment with a leading major automotive customer in Japan, who continues to expand PTC’s footprint across this growing software engineering growth. The Q2 IoT results were stellar. Our IoT business once again delivered very strong performance and is already approaching 10% of our license revenue in the quarter.

While we’re certainly please with our revenue performance, I’ll remind you again that at this stage, our primarily goal is to when new logos and then to expand within these customers. Our experience suggested the initial IT platform win is -- to a design win in the semi-conductor world.

The first looking is not large, but have to demonstrating success with the initial IoT initiatives we can expect to expand within the account as we see across product lines, departments and business units.

Today some of our largest IoT customers represent subscriptions in the range of 500,000 to more than 1 million per year and they’re still that partial penetration.

So with the influx of new logos, you can see how this business could become quite significant very quickly, as we begin to move past the proof-of-concept face and into the face wider production usage. Then following a strong Q1 performance on the logo front, where we secured 42 new IoT logos in Q1.

We closed 62 new IoT logos in Q2, which is a sequentially increase of 48%. To put this in perspective 62 represents one significant new IoT logo win every business day during the second quarter.

We believe we’re on page and exceed our target of 200 new IoT customers in fiscal 2015 and we might actually approach this goal by the end of Q3, as was the case in Q1 we again had a healthy mix of contribution from all our go-to-market channels with our new dedicated IoT sales force delivering about 60% of the new logos.

Our strategic account reps delivering about 25% and our go-to-market partners about 15%, the new logos were attracting come from a variety of vertical industries. They are planning IoT platform to many different use cases within their operations.

One new logo customer for example in Strachan is using our platform to develop remote service and remote access capabilities as well as to deliver automated software updates to their equipment in the field.

[Indiscernible] manufactures and services high end test equipment this sold in over 40 countries and by leveraging PTC IoT platform [instron] plans to significantly reduce onsite service calls and the associate cost. Well we believe that service remains the killer app for IoT. We also landing the new commitment from one of the leading U.S.

based aero space and defense manufacturers for a more advanced application of IoT. They are pursuing 5 separate IoT initiatives where they are innovating around new revenue producing services for their customers. In addition to new logos we measure IoT lead as an early indicator of business momentum.

Here we continue track over 1,000 opportunities in a global pipeline that could be worth $100 million in revenue. Given the early nature of this market we don’t expect close rates to give this pipeline to be as high as in our core business.

But we have the capacity in place to execute on this significant rate of lead generation and as mentioned before we believe we’re on track and meet or even beat our new logo target for the year.

PTC is growing leadership position and IoT will be on full display next week in Boston at our live works event, where industry experts will be sharing the latest updates on IoT technology product capabilities in business model.

We have a number of great key notes because lined up including Steve Wozniak the co-founder of Apple and Professor Michael Porter from Harvard business school who as many of you know co-authored with me the cover story in last November Harvard business review that talked about the impact of IoT on competition.

Live works attendees who have access to more than 50 sessions hosted by technology and business leaders who are sharing their challenges and successes across the broad range of IoT topics including analytics, big data, security, connected health, global connection and deployment strategies.

The response to this event and it’s been a bit overwhelming as we initially target 1,000 attendees. But now expect around 2,000 which has caused us to need to scramble to find a bigger venue for the all in key note audiences. This means that the attendance has increased more than 500% over the last year’s live worked event.

You are all invited to join us at this event to hear some of the exciting new on PTC products and partnerships. But please do reach out to the IR team for details and you ensure that we know you are coming. So we can the premium spot for you in the venue in case things get crowded.

We also invite you to consider attending our PTC live global event in Early June, which is here is going to be held the national. Whereas live works is more focused on IoT, PTC light global is more focused on the traditional core business.

In addition to offering insights and perspectives product road maps and customer case studies around our core products. There will be many opportunities as well to learn about our smart connected product strategy and the role of IoT in our core products.

Companies are excited to learn and to take advantage of what’s been called the most disruptive technology of our time. Before I turn the call over to Andy. Let me comment on our outlook for the balance of fiscal 2015. I think we have a lot of momentum in the business and on balance we feel good about the progress we’re making on many fronts.

We’re creating value for customers and for PTC as we move aggressively into an IoT leadership position and plant to enable our core products with [Indiscernible] activity driven enhancements as well.

We are also creating value for both our customers and for PTC by embarrassing the subscription business model; we expect however they will continue to encounter headwinds in our business due to a combination of currency exchange rates.

Our evolving license business mode and the manufacturing economy there is potentially softer than what we saw in fiscal 2014. We’ve adjusted our fiscal 2015 guidance for further depreciation on foreign currency an slightly higher mix of subscription bookings which we now expect to be 17% of total license bookings for 2015.

Besides, currency and mix, we’ve also adjusted our revenue outlook to factor in these somewhat more cautious macroeconomic outlook as well as lower professional services revenue driven by the acceleration of the transition of our customer engagements to partner ecosystem.

Nonetheless, we’re maintaining our guidance for 15% growth in non-GAAP earnings this year on a constant currency basis do impart to portfolio management approach to the business in our recent realignment actions.

We remain on track to deliver solid year with opportunity to drive increasing growth and value to customer through a combination of our core product focus, our leadership position in IT, our business model transition.

We remain on track to achieve our 2018 target business model and when combined with our commitment to return 40% of free cash flow to shareholders, we believe we’re well positioned to drive substantial value for our shareholder over time.

Now I’d like to introduce for the first time PTC’s new Chief Financial Officer, Andy Miller, who will be a key partner of mine as we look to drive the value for customers and shareholders going forward. Andy brings a truly unique skill set to PTC having experienced driving both growth and shareholder value at his previous companies.

This experience is already paying dividends and driving constructive change internally here at PTC. With that, I’ll turn it over to Andy..

Thanks, Jim and good afternoon everyone. Please not that I’ll be discussing non-GAAP results unless otherwise specified. Total second quarter revenue of 315 million was down 13 million year-over-year driven entirely by lower professional services revenue consistent with our strategy.

After adjusting for currency total revenue increased 4% year-over-year and when further adjusted for subscription mix revenue would have grown 5% year-over-year. On a reported basis, software revenue which consists on license subscription and support was flat year-over-year.

However, after adjusting for currency we delivered strong software performance with 8% growth. Further adjusting for license mix, software revenue would have grown 10%. Our strong software revenue performance was driven by support which was above our guidance and would have been up 10% year-over-year on a currency and mix adjusted basis.

This was partially offset by license revenue that was slightly below the midpoint of guidance but would have been up 8% year-over-year on a currency and mix adjusted basis. As Jim noted earlier in his opening remarks, we faced the tough Q2 2014 license comparison a quarter which we had 17 large deals including 3 mega deals.

We also believe some of the Q2 2015 large deal softness could be related to potential economic and certainty. Especially in the America but also in the Europe, we saw deal sizes compressed in some chases deals were delayed.

Approximately 59% in Q2 2015 revenue came from recurring business up from 52% a year ago reflecting growth in subscription and support. Clearly the growth in our recurring revenue represents a very positive trend in our business.

Turning now to our subscription licensing model, our subscription offering has been available for two quarters and we are pleased with the early indicators. We currently have underway a companywide imitative which we call subscription phase 2.

We believe that we can provide our customers more differentiated values through subscription offerings that in turn will enable us to increase customer lifetime value. Our program objective is to define the optimal license model and state for PTC and then to drive a rapid transition to that end state model.

In this initiative we are focused on completing marketing and pricing studies and then defining differentiated subscription offerings which will enable us to determine and then rapidly drive to our end state.

We're targeting completion of our program so that we can launch new pricing, licensing and product feature offerings by the start of the next fiscal year.

Thus far, our work shows many customers in many markets prefer subscription offering as it provides greater value for flexibility, ramping capability, paying overtime and usage of our operating reverse CapEx budgets. You can expect us to share more with you as we progress through our program during the second half of the year.

Moving to the income statement, gross margin increased by 120 basis points on a sequential basis and a 150 basis points year-over-year and was at the high-end of our guidance. After adjusting for currency and subscription mix, gross margin would have increased 210 basis points.

The key driver of our improved gross margin was our mix of software business which was 81% of total revenue this quarter up from 78% a year ago. We’re pleased to see a sequential improvement in professional services gross margin which was 16% in Q2 ’15 above our 15% target for the year.

Operating expenses in the second quarter were down 8.7 million or 5% from last quarter, a strong gross profit performance coupled with tight operating expense control resulted in operating margin of 23.4% in Q2 140 basis points above the high-end of our guidance.

Overall, net income for the second quarter was 61.4 million or $0.53 per share above the high-end of our guidance. Our EPS growth rate was 11% year-over-year and more than 20% when adjusting for currency and license mix.

Note that net income benefited by lower tax rate and share count in our second quarter relative to guidance which added approximately $0.02 to EPS. Moving to the balance sheet, cash and investments were 268 million up 7 million from last quarter including 92 million of cash flow from operations and 75 million repayment on our credit facility.

Relative to soft repurchases, now that the ASR is complete, we intend to begin repurchases again during Q3 and Q4 and expect to be on track by the end of the year with our goal of returning 40% of free-cash-flow to shareholders. Moving to guidance.

Based on the continued appreciation of the dollar against foreign currencies and the expectation of a higher mix of subscriptions in the back half, we are adjusting our top-line guidance.

Our top-line guidance factors in current exchange rates 17% subscription license bookings mix up from 15% assumption last quarter and also a slightly more cautious outlook on the near term economy.

Additionally, we are reducing our professional services guidance by 18 million as we continue to transition certain customer engagements to our partner ecosystem. With this in mind, we are now forecasting full year revenue in the range of 1.28 billion to 1.295 billion or 2% to 3% year-over-year growth on a constant currency basis.

This compares to our previous revenue guidance of 4% to 6% constant currency growth. On a license mix adjusted basis, our FY 2015 revised guidance would imply approximately 4% growth year-over-year at the midpoint in total revenue and approximately 8% growth year-over-year at the midpoint in software revenue.

As you consider the change in our full year top-line guidance, note that 23 million of the change is due to new assumptions regarding currency and subscription license and mix and 18 million of the change is due to our lower professional services expectations. Together these factors represent $41 million decrease in our revenue guidance.

Our guidance includes software revenue of 1.048 billion to 1.063 billion which when adjusted for FX and license mix is in the lower half of our prior guidance range. Note that our current assumptions around currency and subscription mix are negatively impacting our software revenue guidance by about $20 million.

Within our software guidance range, we expect the license revenue in the range of 360 million to 375 million and we expect support revenue of approximately 688 million. For professional services, we now expect revenue for the year of approximately 232 million.

As a final note, I want to quantify the expected full year impact of currency and the license model transition on our 2015 top-line results.

Given our current assumptions, we expect FX will negatively impact our revenue by 100 million as compared to last year and we expect the transition to subscription will negatively impact our revenue by 22 million as compared to last year. The total year-over-year impact of approximately 122 million on the top-line.

Moving to margins, despite the change in our revenue guidance, we continues to target full year operating margin of 24% to 25% due to the restructuring actions initiated in Q2 and we continue to target 15% professional services gross margin in FY 2015.

Notably after the restructuring action is completed in Q3, we expect related 2015 with operating margins that position as well towards our 2018 target. Turning to the bottom-line, on our constant currency basis, we continue to expect to deliver at least 15% EPS growth in FY215 in line with our prior guidance.

We are now forecasting full year EPS in the range of $2.18 to $2.30. Note that our current assumptions for currency and subscription license mix are negatively impacting our EPS guidance by approximately $0.08 as compared to last year.

So as in these changes to our assumptions, our EPS guidance will actually be higher than our prior guidance due to the lower tax rate assumption of 14%. For the third quarter, we are forecasting total revenue in the range of 307 million to 312 million, software revenue in the range of 253 million to 258 million and a subscription booking mix of 18%.

License revenue is expected to be between 85 million and 90 million and support revenue is expected to be across certainly 168 million. Professional services revenue is expected to be down sequentially to approximately 54 million. Operating margin is expected to be in the 22% to 23% range even timing of expenses. The EPS of $0.47 to $0.50.

Lastly, as it relates to our third quarter. It’s important to recall Q3 ’14 was a very strong bookings quarter for both perpetual license and subscriptions, we’ve 21 large deals include two main deals in the quarter.

As such, we will again be basic a very tough year-over-year comparison both on a recorded basis and viewed on a constant currency mix-adjusted basis. Let me just some item. In our press release today, we provided and update concerning the China matter.

We’ve began negotiations with year ’15 to reach revolution of its investigation and we expect to begin negotiations with the department of justice in the near future.

At this time, we are not able to estimate possible laws associated with resolve in this matter, its settlement are the amount could be material to our results of operations for the applicable fiscal period. I refer you to our SEC filings and today’s press release and prepared remarks for additional information.

Before I ramp up my commentary, let me share some of my thoughts and why I join PTC and why I’m very excited by the opportunity that’s in front of us to drive value for shareholders.

In PTC, I saw company and management team that it demonstrated the -- to transformers business by expanding operating margin 1,200 basis points and going EPS and cash flow north of 20% over the last five years.

And then doing my diligence on the company I became convinced of two substantial opportunities for PTC to drive improving growth over the coming years. I believe PTC remain extremely well positions and its core CAD and PLM markets with the deep and loyal customer base.

And now have the opportunity to deliver more value and by extension higher growth by leveraging new licensing and delivery model. Now add to this the early PTC is taken in IoT software platforms, which I believe is one of the most exciting software markets in the past 15 years. And I see PTC next grade growth opportunity.

IoT has the potentials to not only accelerate growth in a new software market, but overtime to enhance the differentiation and value proposition of PTC’s core solutions. I’m excited to be part of the team here PTC and look forward to medium knowledge you will be accelerate our investor out which over the coming quarter.

With that, I’ll turn it over to the operator to begin the Q&A..

Thank you. We will now begin question-and-answer session. [Operator Instructions] our first question comes from the line of Mr. Sterling Auty from JP Morgan. Your line is now open..

Thanks very much and Andy welcome to the team. One question, one follow-up.

Jim, On the IoT side when you look at the 62 logos that you brought in, what I’m curious about is what does the IoT stack look like for those companies meaning what portion of the IoT solution are you putting to the table and what commonly are you kind of connect in your meaning is a broad comp ships being provision by just for a wireless or synchronize and then you are getting the data feeds.

What does the total solution look like as much as you can say most common architecture within these companies?.

I think if I were to generalize it, what we are selling to you now is the software that a little modular software they will go into the product.

So assuming the product has a weird or a Wi-Fi or cellular ability to connect and they need the piece of software they carry on the conversation with the cloud so we are selling that little module that goes into the product.

he so called edge agent and then we’re selling the cloud piece that the edge agent talks to so the cloud, the database, the capacity that it receives his data and carry on the conversation from the cloud end and then we are selling the application enable that platform which is the plumbing to both build and run applications on their cloud talking by directionally with that product.

So we are actually selling quite a bit of technology stack. Now in terms of what is that product have been turned inside it already in terms of hardware and software.

Well, I sell over the map from products that had the ability to connect, but didn’t know what to connect to, in some cases people who are slapping a raspberry pie and no pie could never had the ability to connect and giving the ability to connect. So it varies a lot in terms of what’s inside the product.

But our solution to go from product to cloud and then to build and then to run applications against that product is fairly consistent. So of course it vary a little..

Okay and then separately when you talk about the uncertain economic environment. I guess we understand kind of the exporting in the dollar and euro exchanged. But when we look at some of the PMI’s coming out Europe, it feels like investors are more looking at possibility of recovery in Europe.

So the time when you were talking about, just pushing this, is a little bit confusing. So maybe you can help kind of clarify that..

Yes, so Sterling my view is that Europe situation is okay and mostly stable to PMI data. I’m looking at it says just tick down a tiny bit from 52 in change the 51 in change in last month. I think the bigger difference and bigger risk for us is in the U.S. where the PMI has been pretty strong.

But I think it’s coming down quickly, tick down much more and what we really saw was particularly in the month of March is customers panicking a little bit because they were looking at their own forecast and seeing what currency was doing their top line and their bottom line and they were sort of just slapping the breaks on everything.

So we saw in particular the U.S. now I wouldn’t have characterized the U.S. economy is difficult, I don’t think I did on the previous earnings call.

But I think to that currency swing was so far and so abrupt that it just let people kind of in a bit of a deer in the headlights or panic mode moment saying let’s just stop and try to figure out where this is going, maybe it will stabilize and we go back to business as usual that would nice, maybe it won’t.

So I think we’ve just tried to hedge a little bit saying there probably is a situation here and we’re the average U.S. based global company now has a different looking set of guys in front of their investors and they are trying to figure out what to do about it much as we were..

Thank you. [Operator Instructions]. Our next question comes from the line of Mr. Matthew Hedberg from RBC Capital Markets. You may now proceed..

I know you talked about the move to subscription revenue still early and again you indicated in the prepared remarks that you might consider a more rapid transition.

I’m wondering, does this imply a scenario where license revenue wouldn’t be an option at all in the future?.

Well I think our program is right now is to figure out what that end-state is so we’re looking at customer segment both size of customer the markets that are in and also by product segment to really figure out where the what offering makes sense for each customer and then we’re going to design the offering differentiating the pricing the win they take and frankly the feature sets that are offered there.

And so we’re going into with an open mind but I think if you look at what’s happening broadly in software you see that there are so many market segments and customer segments it is the preferred way to buy and it continues to move in that direction, so we’re doing a number of marketing and pricing studies now to come up with that end state and I would expect that we’ll tell you more as we kind of complete these studies over the next few months and then our goal is to actually launch new offerings at the start of next fiscal year..

That’s great, thanks Andy.

And then I’m curious if you could give us a sense for what percentage of your subscription bookings were some core CAD PLM this quarter versus maybe the past several quarters?.

Yes the IoT business remains primarily subscription. We saw some of the core business go subscription, but it was actually less than last quarter.

There’s variability in these early stages as we look at the pipeline next quarter we’re seeing a little bit more those subscription, but I think at this stage there’s variability and frankly I think we can the reason we’re doing work on really the packaging aspect of it is so that we really have very differentiated offerings.

Those people who care about could be total cost of the product over say four year to five year timeframe will want a different offering and that person is trying to optimize it over 10 years.

The one who wants more flexibility to ramp and exchange product exchange fees will probably prefer subscription and so that’s really what we’re assessing at this point in time and then have to have truly a two distinct and different offerings [indiscernible]..

Maybe I could squeeze one last one in here. I’m curious, what percentage of your [LNSS] bookings came from large deals? I think last quarter was maybe 32%, I think the year before was maybe 42% and I think in the prepared remarks you talked about in line with your historic average.

I’m curious, what historic average are you using there for that assumption?.

It’s somewhere in the 30s. Yes, it’s basically somewhere in the 30s. It was clearly a little bit less this time because of the fact that we only have 13 of them..

Thank you. Our next question comes from the line of Mr. Steve Koenig of Wedbush Securities. Sir, your line is now open, kindly proceed..

I’ve got a few questions that are all pretty historic hopefully.

One is, can you all disclose so that we can do in our genetic calculation the revenue contribution from [indiscernible] which I don’t believe were present a year ago?.

Yes what I can share with you there organically the constant currency mix adjusted business grew just above the mid-single-digits as oppose to the 9% of the total. We’re only going to disclose revenue contribution from acquisitions if they materially serve with our results but it was just above the mid-single-digits in the 6% range this quarter..

6% okay, so Andy on that number since the mix a lot of that mix is from the new business [indiscernible].

Can you possibly disclose just the constant currency adjusted organic contribution?.

I don’t have that number in front of me. Yes, sorry..

Let’s see, can you tell us last quarter you told us a very useful statistic which was the [LNSS] bookings per sales and marketing spend was part of your prepared remarks you wouldn’t happen to have that again this quarter, would you?.

It was up 7% and it’s in the prepared remarks I believe. 1.12 and up 7% year-over-year, yes..

Okay, I failed my Evelyn [indiscernible] so..

That’s the downside of the new process Steve..

That’s okay, we’ll get used to it. Just couple of quick ones and couple of more.

Do you believe you’re still on track to achieve 40 million to 50 million in IoT revenue and subscription booking?.

Yes and we haven’t changed that guidance. We didn’t mention it in this particular script but yes that would correct. That remains our guidance there..

Okay and the Nugget deal in Japan, what product areas was that in? [Indiscernible].

Probably majority KI minority POM might a bit some other stuff in there..

And did you say what vertical that was?.

No, we didn’t..

Little more strategic here, can you talk a little bit about progress integrating SOM with the IoT technology and when the application integrations will be available as that kind of turnkey solution for [indiscernible]?.

Yes, I mean let me say we’ll have some big announcements on this front next week and I hate kind of scooped here in the call. But we are making good progress and it’s quite exciting and we are making some interesting progress with partners in that area too. Other companies who might like similar strategies..

Thank you. [Operator Instructions] our next question comes from the line of Saket Kalia from Barclays Capital. Your line is now open. Kindly proceed..

Thanks for taking my questions and welcome Andy.

So first on the services business, Andy, how much of that is now consulting [Audio Gap]?.

If you look at our IoT business there is almost no consulting in that business. So we kind of like the idea of moving to a business that’s either rich in subscription or rich in software.

How are we going to measure it, but really focused on software with that would give us a path to much higher margins than we’ve been talking to you about year-to-date..

The other positive thing that’s also driving the lower professional services, numbers going forward as we’ve got more of these BRD’s speaking more of these basically out of the box solutions consulting offerings. So that they from the customers are bringing their products at much faster, with much smaller engagements that they have in the past.

So that’s the positive for them and positive for us their higher margin as well..

Got it, that makes sense and then for my follow up. Jim, outside of IoT we are a subscription pricing resonating most in your customer basis and with the particular vertical our particular product maybe SNV versus large. Just any color on sort of where those preliminary marketing studies are showing subscription being successful offering..

We are one quarter into the offering of subscription into the S&P space and we did do a number of transactions there and I think it’s interesting to that space because a lot of those S&P companies are let’s say cash challenged and this gives them [indiscernible] commit all the cash up front, then I think if you go into the bigger accounts to be frank it’s probably not I’m not sure there is a strong association to a vertical or geography.

I think it’s really more to a financial strategy of the customer. Some customers don’t like capital commitments and they rather buy everything on the OpEx basis and so forth. So I think it’s really down more to the financial strategy of the company that whether they are automotive industrial or retail..

Thank you. Our next question comes from the line of Mr. Matt Williams from Evercore. Your line is now open. Please proceed..

Thanks very much and thanks for taking the question guys and welcome Andy. Just I’m curious with IoT getting as much attention as it is, from a budgeting standpoint with the customers that you are talking too.

Are they trying carve out budget for IoT from existing budget or you starting to see instances where there sort of setting that aside and dedicate it your allocated dedicated resources towards trying to build out an IoT strategy and I guess just putting color on how they thinking about that from a budgeting stand point..

Yes, I think the thing involved it very differently Matt from how they will think about CAD and PLM, CAD and PLM Mark somewhat mature markets and budgets are set well in advance and tend to have some kind of a cyclical effect tied to PMIs or macroeconomic or whatever. I think this IoT discussion is completely different than that.

This is a very strategic initiative. The CEOs are involved.

It’s a corner office topic to doing it for strategic reasons they would cut other budgets to make room for if they have to, but I think it’s that double effect and interesting little story from this past quarter Professor Porter and I held a event around the HBR article in Chicago and it was co-sponsored by the NAM the National Association of Manufacturers who was eager to be associated with the topic and they actually had asked us, could we co-sponsor that event because quite frankly we were going to do it anyway.

And we said sure, but can you help us with audience acquisition and they said we’d love to. So this was an event where we targeted 75 CXOs with an emphasis on CEOs as the registration started coming in at a 120, we had to say I’m sorry there’s just no room in the room.

We made the PTC people and the NAM people stand against the wall at the edge of the room, so all the customers could take every last spot at the tables in the theatre room and that was that. So I’m just saying it just kind of shows the level of interest here.

I’ve never seen a topic in my time at PTC that so quickly was something that would get you to the corner office and in a very strategic conversation. So I don’t think we’re drawing from the CAD and PLM budget I think we’re onto something that’s acyclical because of how strategic it is..

And maybe just one quick follow up on the SLM business obviously a little bit results there and you guys have talked in the past that the pipeline seems to be there and there’s sort of in a mix of some execution and deals cycles elongating a little bit.

So, could you give any update around the SLM I guess pipeline number one? And then, what you’re seeing in terms of deal cycles, is it shortening at all and just a general update there?.

Yes I think we’ve sort of framed up at our SLM sales cycle. These are enterprise initiatives -- sold top-down and consulted it way around business process transformation and those are never short sales processes.

So I would put them in four to six kind of quarter range, so just to remind you of what the story we’ve been sharing with you over the past few quarters is in 2013 we didn’t have a dedicated selling organization for SLM and we felt like we didn’t have enough attention on it and the pipeline got a little soft because we didn’t have enough expertise enough focus.

In 2014, we put on a dedicated sales force, but we said it will take some time to build up the pipeline and to run these deals through the cycle and if you look at four, six, seven whatever quarter of sales processes that means it should start to show up in the back half of 2015. So the pipeline does look quite robust now. We feel good about that.

We did see a better result here in the past quarter. Like I said I don’t think we want to declare victory on that yet one quarter doesn’t make a trend, but that quarter is consistent with the trend we would expect to see based on the actions we’ve taken in the pipeline that we’ve developed..

Thank you. Our next question comes from the line of Mr. Jay Vleeschhouwer of Griffin Securities. Sir, your line is now open, kindly proceed..

This is Gavin [ph] in for Jay. Wanted to start on the press release about the restructuring and expense reductions where you referred to assessing pricing and packaging practices. Did you mean something short term such as raising local non U.S.

prices to offset currency? Or did you mean something more substantial and longer term than that?.

We’re basically assessing our pricing and these studies we’re doing relative to the perpetual and subscription offering and the feature offerings as well kind of come up with the good, better, best type of strategy for various products for example so that’s pricing strategic you don’t want to just do a quick kneejerk reaction to something going on in the market we compete against German companies frankly who have much less U.S.

based business than we do. So they’re actually seeing – as you saw some of our competitors that their reported results are higher than the constant currency results, so kind of the inverse of us. So we’re doing it from a more strategic perspective..

Yes and I can say one of the great things as Andy has got a lot of experience here. So it’s great to have them on the team, because he is one of these guys are come into the office filled with great ideas and lots of execution energy and so forth. So we’re off executing vigorously subscription Phase II and strategic pricing and things like that.

I think we always wanted to do and now we got the talent to do it..

Okay, good.

And under what circumstances would you for see increasing the expected or target proportion of subscription licenses to say 25% or more?.

Basically it’s going to drive greater overall value to us from the customers. I mean, we’ll going to get more revenue from the customer, because that’s more valuable offering to the customer and that we’re going to drive there..

Yes I just, if I could add here. When we launched into this program at the beginning of the year. We said, we want to run this for a year without trying to steer it. So that we can here the voice of the customer and then we want to steer it.

So when Andy talks about subscription Phase II, he means grabbing the controls and steering this to some destination that we think is the right destination so that we move through this process and there is an end to it.

So that’s really what we’re talking about, we’re collecting data and beginning now to say okay, what is the data telling us and what’s the destination and how quick can we get there. So that we kind of come through the valley of the transformation and come out the other side with the benefits. So that’s what we’re working on..

Understood.

Is this feasible to reinvest in most, if not all of the expense savings from the restructuring layoffs back into the IoT business?.

I mean, in gross terms we reinvested half. So we took some money output and put half back in and other half fell to the bottom-line. Is it feasible, I mean could we spend more money, let me tell you we’ve spend a lot money.

I mean I don’t know that we need to spend any more money, I will tell you, we’re playing to win and when somebody has good idea and a good initiative or if we see for a need for sales capacity we’re funding it.

So there is nobody going hungry here in the IoT business, we’re trying not to be cavalier but we’re playing to win and we do intend to win in this business. And I think quite frankly the data suggest and the analysts are starting to suggest that we are winning..

Okay, great. And lastly in terms of cash flow.

What is your estimated FY ’15 operating cash flow and is a possible that your FY ’16 cash flow can return to fiscal ’14 levels or more?.

Okay. So I’m going to guide FY ’16 today. FY ’15 here it tends to follow non-GAAP pre-tax earnings, we do have two unusual items that we disclosed and it is in the prepared remarks.

One is the computer vision, pension that is closing out this year, we don’t have a final estimate on the amount, but it’s roughly 45 million and the others of course the restructuring, which is in that 40 million range..

Thank you. [Operator Instructions]..

Okay. Can I assume there is anybody else in the queue because it’s been more than an hour now and just to be respectable over an everybody’s time. If there is no other questions we should probably thank you all for participating.

And we look forward to talking with you again in the next 90 days and hopefully we’ll have good solid report for you then as well. Thank you..

Thank you. And that conclude today’s conference. Thank you all for joining. You may now disconnect..