Good afternoon, ladies and gentlemen, and thank you for standing by, and welcome to the PTC 2021 First Quarter Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

I would now like to turn the call over to Tim Fox, PTC's Senior Vice President of Investor Relations. Please go ahead..

Thank you, Karen. Good afternoon, everyone, and thank you for joining PTC's conference call to discuss first quarter 2021 financial results and the outlook for the remainder of the fiscal year. On the call today are Jim Heppelmann, Chief Executive Officer; and Kristian Talvitie, Chief Financial Officer.

Before we get started, please note that today’s comments include forward-looking statements including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements.

Additional information concerning these factors is contained in PTC's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. As a reminder, we will be referring to operating and non-GAAP financial measures on today's call.

Discussion of our operating metrics and the items excluded from our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures are included in our earnings press release and related Form 8-K. References to growth rates will be in constant currency unless otherwise noted.

And lastly, we will be referencing our earnings presentation, which you can find posted on our IR website. With that, I’d like to turn the call over to Jim..

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. I hope that you and your families continue to stay safe and well during this ongoing pandemic. Before jumping into our quarterly review, I would like to begin by discussing the news we shared two weeks ago about closing the Arena acquisition and some related organizational changes.

Turning to Slide 4 in the deck. First, we are very pleased to have closed the acquisition and we would like to formally welcome the Arena employees to the PTC team.

As we discussed at our recent Investor Day, we are excited to complement the strong momentum we have with Creo and Windchill in the traditional CAD and PLM market with the leading CAD and PLM solutions in the pure-SaaS market. Together Arena and Onshape represent a powerful pure-SaaS solution that's number one in technology, customers and revenue.

With this combo, we are positioned to capture the rapidly emerging shift toward SaaS for product development, manufacturing and support. There is clear evidence that the global pandemic has been driving a new normal in our industry and we are now in a position to lead the product development market well into the future.

We also announced an organization strategy that I am excited about. We are expanding our SaaS business unit initially built around Onshape and Vuforia to embrace Arena as well. This will put us in position to pursue technology, business process and revenue synergies across the SaaS portfolio.

The expanded business unit, which now accounts for about $100 million of ARR and about 20% of PTC's bookings, will be led by long time PTC leader, Mike DiTullio. Mike will focus on integrating the Arena team and leveraging the tremendous talent and expertise we have across our SaaS portfolio.

With his proven track record of aligning organizations to drive growth, I am confident that in this new role, Mike can help us fully capitalize on our SaaS leadership position. I am also pleased to announce that Jamie Pappas will succeed Mike as Head of Global Sales, reporting to our Chief Operating Officer, Troy Richardson.

Jamie is an accomplished 25-year PTC sales veteran and he has led Regional Sales in Asia, Europe, and most recently in North America. Jamie has a tremendous track record of success at PTC. So I am confident in a smooth transition as he assumed his new role.

With that, I'd like to turn to Slide 5 and review the three key elements of our strategy to deliver long-term shareholder value. First, let's cover the topic of market demand. We had outstanding bookings results in the first quarter, up more than 30% year-over-year versus the fiscal Q1 of last year that was largely unaffected by the pandemic.

The bookings helped the Q1 results, but they also beefed up the future backlog. We see the booking strength is reflecting a continuation of the secular demand trends we experienced in fiscal 2020 as customers accelerated their digital transformation initiatives in response to the new way of doing business.

Industrial companies are prioritizing initiatives like moving all product lifecycle processes online across their entire enterprise with PLM, remotely monitoring the products and factories with IoT, bringing digital productivity to their frontline production workers with AR and they are generally getting more and more interested in SaaS as they go forward.

For PTC this all translates into more demand for our unique product portfolio and we see a strong pipeline heading into the balance of the fiscal year.

Given that the global PMI number reached its highest point in three years in December, we also believe PTC's strong Q1 bookings may have reflected improved customer optimism around promising vaccine news, stimulus policies of the new administration in Washington and perhaps even some calendar year-end budget flush.

We hope that optimization or optimism continues, but with mixed news related to the global pandemic, including concerns about new strains of the virus, we are not sure that we are out of the woods yet, and we continue to think that our outlook for the year is prudent.

In the topline category, a combination of strong bookings and lower than expected churn translated into a very strong quarter with ARR growth of 16% or 12% in constant currency. This was at the high-end of our guidance range and was driven by continued momentum in our Core business and solid performance in the Growth business.

Revenue growth of 20% was well above guidance, resulting from strong large deal activity in the quarter. In the bottom line category, we delivered strong free cash flow of $111 million and non-GAAP EPS growth of 70%, reflecting a combination of strong topline results combined with continued operating expense discipline.

In the wake of this strong first quarter, we are increasing our guidance for the year and Kristian will share the details later in the call. With that as context, let's take a look at the respective contributions of the FSG, Core and Growth segments of our portfolio. Moving to Slide 6.

You'll see that ARR in our Focused Solution Group or FSG was flat year-over-year, but ARR growth was robust in our much larger Core business once again and the mid 20s growth performance of our Growth business track to our guidance for the year.

You might note visually that the Growth business has now reached roughly the same magnitude as FSG and with Arena coming into the picture, it will soon step up about 30% and then with its higher growth rates, it will soon become much larger driving the combined portfolio toward higher growth rates as well.

Recall that our FSG segment has exposure to certain industries heavily impacted by the pandemic like retail and airline industries. However, our FSG products remain important and are very competitive and we continue to expect FSG to recover to low single-digit ARR growth in fiscal 2021 as economic conditions improve.

We've seen some good progress in retail already, but as you know, the airline business remains difficult for everybody. Naturally, we are very pleased about the 12% ARR growth of our Core business, which materially outpaced the market growth again. Q1 was the 13th consecutive quarter that our Core business ARR growth rate has been in double-digits.

As Jay Vleeschhouwer pointed out in the recent report, PTC has of late enjoyed the number one growth rate in the traditional CAD industry with Creo and our Windchill business has been doing even better.

Meanwhile, our Growth business had another strong quarter with year-over-year bookings growth of nearly 40% and delivered ARR growth in the mid-20s in line with our guidance for the year. Let's go a click deeper into the main elements of our Core and Growth segments. Turning to Slide 7.

Our Creo CAD team delivered another impressive quarter with ARR growth in the high-single digits.

The improvement in the demand environment that we started to see in Q4 continued this past quarter with strong performance across all major geos and in a market that tends to see very little replacement activity, we had some notable CAD competitive displacements, which speaks to the technological strength of the Creo product suite.

Our CAD technology leadership was further extended with the latest release of Creo 7, which incorporates our first Atlas-based offering, Creo Generative Design Extension or GDX as we call it, leverages the Frustum Generative Design Engine acquired in 2019 with the compute being uploaded to an Atlas pure-SaaS elastic computing environment from where it served to Creo sessions now and soon to Onshape sessions as well.

We also released the high-fidelity mainstream simulation capabilities of ANSYS, fully integrated into Creo, creating another highly differentiated leg of growth for our CAD business. Speaking of ANSYS, on Slide 8, we highlight a great Creo and Creo Simulation Live or CSL win with SharkNinja.

SharkNinja is becoming a household name and to respond to the growing demand for its products in a very competitive space, SharkNinja reevaluated its design technology and decided to phase-out competitive CAD systems and standardize on Creo, adding CSL to help accelerate the new product development cycle times.

Moving on to Slide 9 in our PLM business. You'll see that PLM continued to deliver very strong performance with another mid-teens ARR growth quarter. From a geographic perspective in Q1, PLM performance was broad-based with double-digit growth across all three major geographies, led again by the APAC region.

Thanks to its key role in digital transformation initiatives, PLM continues to be a major growth engine for PTC. From a vertical perspective, our PLM team continues to win big in the medical device space, but market traction in the first quarter was strong across a number of verticals, including automotive, aerospace and defense and high-tech.

Turning to Slide 10. A great proof point in A&D was a major extension and expansion at Airbus, which also happen to include a competitive displacement in one of their division.

Along with the Windchill footprint expansion, Airbus adopted ThingWorx and Vuforia in the manufacturing environment, which is another great example of the cross-sell opportunity within our product portfolio.

Given today's difficult air transportation market, airframe companies are being careful with spending, but thanks to this deal PTC is locked into a substantial long-term relationship with Airbus. You see on Slide 11 that we had a great cloud-based Windchill win at Terumo in the medical device space.

Terumo is replacing its paper-based FDA compliance system with an end-to-end digital thread based on Windchill's quality management solution. Moving on to our Growth segment, I'll begin with IoT on Slide 12.

Following strong bookings performance in Q4, IoT had a solid start to the year with a promising uptick in new logo bookings and the area that was pressured over the last year due to travel restrictions and lockdown.

Demand was broad-based across verticals and we had some sizable expansion deals in the process manufacturing space, which is greenfield for PTC. With the strong pipeline and encouraging signs of churn improvement in IoT as well, we expect to see continued solid ARR growth in fiscal 2021.

On Slide 13, we have an example of ThingWorx in the process manufacturing space at Griffin Foods. Operating in a market that has relatively thin margin, Griffin Foods was looking for ways to accelerate efficiencies in its production environment.

Leveraging the ThingWorx Smart Connected Operations or SCO solution, they are digitizing their production lines to capture key performance data and display it in a unified view to allow managers to see problems and make faster, more informed decisions on the plant floor. Let me shift to our AR business on Slide 14.

The Vuforia augmented reality team again delivered very strong results in Q1 with bookings up 80% year-over-year. Expansions drove over 50% of bookings in the quarter with three deals greater than $500,000, which was a new record for the AR team. Traction outside the Americas continued to gain momentum with strong growth in both Europe and APAC.

Let me share two examples that highlights the value of our broader AR suite. First, on Slide 15 is at BID Group, one of the largest integrated suppliers in the wood processing industry.

The BID Group replaced a do-it-yourself or DIY approach for industrial IoT and then added Vuforia Chalk to the mix to improve workforce productivity, while reducing travel costs. Turning to Slide 16, a second great AR success story is Royal Enfield, the world's oldest motorcycle brand.

As the COVID-19 pandemic unfolded, Royal Enfield was forced to reimagine a planned physical event for launching a new motorcycle. Leveraging Vuforia Studio in under a month, they built a dynamic sales training capability and deliver this highly effective interactive augmented reality experience to more than 3,000 remote participants.

Turning now to Slide 17, I'll wrap up my comments on our Growth business by discussing Onshape, which also delivered a very strong quarter. Onshape had record bookings up more than 150% from its initial quarter at PTC one-year ago, including a nice balance of new logo activity and expansion.

Onshape's pure-SaaS CAD solution is quickly becoming a disruptive force in the SMB space, shaking up a mature market segment where PTC has been underrepresented for years. I'd like to update you on the exciting trends we are seeing in the education market with Onshape.

As the COVID pandemic unfolded, we saw a real opportunity to help schools and universities because we have the only true school-from-home CAD solution that works on any device with no installed footprint.

PTC's academic team decided to pivot their focus to Onshape and set an aggressive goal to try to reach 1 million total education users by the end of fiscal 2021. To put that in perspective, it's double the number of users that were participating in our education program across all PTC products at that time.

I am happy to report that already in January, we've exceeded the goal of 1 million total Onshape education users, nine months ahead of schedule. Onshape is quickly becoming the education standard, thanks to one of the greatest sheer shifts I've experienced. Students and teachers love it.

Clearly, we caught a wave as world events and the changing needs in education have accelerated this achievement. It's been incredibly rewarding to see how many educators and students have been able to take advantage of Onshape. Students who would not normally have access to CAD are now able to engage in STEM classes.

Robotics teams are able to compete even when their season is canceled and educators have been able to seamlessly continue their instruction because of their access to Onshape.

On Slide 18, we highlight one of the many school systems supporting their K12 STEM Education Program by adopting Onshape, in this case across the Charlottesville City School System. Gaining 1 million student users is a huge milestone with significant implications for PTC well into the future.

Manufacturing companies at the very same needs a real-time collaboration and access to data from anywhere and on any device. I continue to think that COVID crisis is accelerating the SaaS tipping point for the engineering software industry by several years.

On Slide 19, you'll see a great example of a commercial company Stirling Ultracold doing the same thing. They are adopting Onshape to streamline communication between mechanical designers, supply chain managers, manufacturing and quality assurance teams to avoid the delays associated with sending CAD data back and forth by email like they used to do.

To wrap up on our Growth business, I think it's pretty clear that our solutions are uniquely positioned to help customers respond to the new normal they are facing today and they provide a very strong foundation for long-term growth for PTC. Let me provide some color on geographic performance, which was strong across the globe.

On Slide 20, you'll see that APAC had strong performance with ARR growth of 16%, reflecting the earlier reopening of those economies and much improved churn rates as our subscription licensing model gains increased acceptance.

Americas ARR growth of 13% was the second quarter in a row of double-digit growth, driven by broad-based demand across our Core and Growth segments, but partially offset by softness in FSG.

Europe ARR growth of 8% faced a tough year-over-year comparison, but delivered very strong bookings performance in both our Core and Growth segments along with some notable competitive wins. With that, now let me turn to Slide 21 and touch on our key alliance partners.

The Microsoft partnership had another strong quarter, delivering above plan for the third consecutive quarter and exceeding expectations in all geos. As you saw in their earnings release yesterday, Microsoft has a lot of momentum and we are drafting behind it.

With a solid pipeline and field engagement strengthening across the globe, we remain bullish on the Microsoft Alliance opportunity. Rockwell delivered over 20 expansion deals and had transactions in 27 countries.

The majority of Rockwell's deals continue to come from customers that are greenfield to PTC and in process industries that we have not traditionally targeted with our core products. I was pleased to see in their earnings release that Rockwell too is seeing a strong uptick in orders.

If you follow Rockwell, you may be aware that they have reorganized to have a software-focused business unit that owns the PTC partnership and yesterday they announced that they have hired Brian Shepherd to head up that unit. Brian worked directly for me at PTC for a dozen years.

So I know that Rockwell has found a very capable software leader and somebody who can help the PTC Rockwell relationship unleash its fullest potential. Congratulations to Brian. We are looking forward to working with him.

Lastly, on the Alliance front, our ANSYS-powered solutions had a solid quarter with 20% bookings growth and very healthy expansion activity that drove around half of Q1 bookings. To complement CSL in the market, we launched the broader and deeper Creo ANSYS simulation suite.

We are expecting these ANSYS-powered solutions to account for high single-digit percentage of our new CAD ACV in fiscal 2021. Before I wrap up, I'd like to highlight a great win we had with Microsoft on Slide 22.

The Colruyt Group was looking for an IoT platform to support a complete digital transformation of their shops, food production, energy production and logistics. Microsoft received an RFP in a competitive bid process and turned to PTC to partner on the opportunity. We ultimately won together, resulting in a multi-phase hybrid cloud IIoT project.

To wrap up and summarize my comments, turning to Slide 23. We are off to a great start in fiscal 2021 as customers continue to embark on digital transformation initiatives that leverage our full product portfolio. We had strong bookings in the quarter and churn performance was good as well.

We delivered ARR at the high-end of guidance, while adding to the backlog, we saw a great performance in Core and Growth segments and in our channel. The demand environment appears to be improving globally and our strategic alliances continue to grow and mature.

Plus, with the Arena team joining forces with Onshape, PTC is now positioned as the number one leader in SaaS-based CAD and PLM and along with Vuforia, the sizable pure-SaaS portfolio is paving the way toward an attractive future proof business model for PTC.

As Kristian will detail shortly, we are pleased to be raising our fiscal 2021 guidance in recognition of solid execution that demonstrates our capability to deliver strong topline growth, margin expansion and free cash flow generation. The necessary ingredients to drive significant shareholder value for years to come.

With that, I'll turn it over to you Kristian to take us through more details on the financial results and guidance..

Thanks, Jim and good afternoon, everyone. Before I review our results, I'd like to note that I'll be discussing non-GAAP results and guidance, and all growth rate references will be in constant currency. Let me start off with a brief review of our first quarter results and then spend the balance of the call on our revised outlook for fiscal 2021.

Turning to Slide 25. Fiscal Q1 ARR of $1.34 billion increased 12% year-over-year. As Jim noted earlier, we had very strong bookings performance in Q1, resulting in new ACV above expectations and consistent with recent trends, demand for ramp deals was strong, which contributes to backlog in future periods, primarily fiscal 2022 and beyond.

With solid new ACV results along with churn coming in better than expected, we were pleased to deliver constant currency ARR growth at the high-end of the guidance range. Reported ARR growth of 16% benefited from 400 basis points of currency, including a 200 basis point tailwind since the beginning of fiscal 2021.

Strong Q1 free cash flow of $111 million was a record Q1 results for PTC. Q1 revenue of $429 million increased 20% year-over-year and was well above the annual guidance range we had provided last quarter. Revenue performance was driven by very strong large deal results in the quarter, many of which had long contract duration.

As we've discussed previously, revenue was impacted by ASC 606, which in the case of Q1 drove a higher amount of upfront subscription revenue recognized in the quarter. Currency was also a modest revenue tailwind. The strong revenue growth along with continued financial discipline resulted in non-GAAP EPS growth of 70% year-over-year.

Turning to Page 26, I'll begin with our balance sheet. We ended Q1 with cash of $399 million and $1 billion of gross debt with an aggregate interest rate of 3.8%. Subsequent to the first quarter, we financed the Arena acquisition with $600 million from our revolving credit facility and cash on hand.

From a use of cash standpoint, we plan first to pay down the revolver until we are below our 3x debt-to-EBITDA ratio target, which should be within the next couple of quarters. Over the medium-term, we expect to continue to delever, while also resuming share repurchase.

Now turning to guidance, I'll begin on Slide 27 by highlighting a few of the key guidance assumptions. We continue to expect the macro environment to remain stable in the near-term with conditions improving in the second half of the fiscal year.

With this as context, we are also still expecting fiscal 2021 bookings growth in the double digits on a year-over-year basis. Given our strong Q1 performance, we are raising the low-end of our organic ARR growth from 9% to 10% resulting in a range of 10% to 12% growth for the fiscal year.

We are expecting Arena to add approximately 400 basis points of ARR growth and currency to add approximately 200 basis points of ARR growth relative to our previous guidance. Regarding ARR in fiscal 2021, on a constant currency basis, we continue to expect growth rates to be fairly linear each quarter throughout the fiscal year. Now for the specifics.

Turning to Slide 28. We are expecting fiscal 2021 ARR of $1.47 billion to $1.5 billion, that's a growth rate of 16% to 18%. Free cash flow is still expected to be approximately $340 million for the full-year, which is growth of approximately 60% year-over-year. Note that currency is also benefiting free cash flow by about $15 million.

However, this benefit is being offset by an un-forecasted foreign tax assessment related to a matter that's been open for a few years. This tax matter is also reflected in our GAAP results as you'll note a $35 million charge that covers the periods from 2011 to 2020.

This charge reflects the previous assessment paid in 2016, as well as the current expected assessment. We continue to believe that our position is correct and are fighting this issue in court and we do not expect a final resolution on the matter for at least another year.

Our $340 million free cash flow target also includes approximately $15 million of acquisition-related fees and an additional $5 million of incremental interest we expect to pay this year due to the debt we took on to help finance the Arena acquisition.

And as a reminder, fiscal 2021 free cash flow also includes approximately $15 million of restructuring payments related to primarily to the headquarters relocation, as well as to cost actions we took early in fiscal 2020, that’s early last year.

Regarding the linearity of free cash flow in fiscal 2021, we still expect to generate more than 60% of our annual free cash flow in the first half as collections are stronger in the first half and this is offset by expenses increasing as we ramp hiring throughout the year. Now turning to P&L guidance.

We are raising our revenue and EPS guidance for the year. We are now expecting fiscal 2021 revenue of $1.69 billion to $1.73 billion, that's a growth rate of 16% to 19% and the increased revenue guidance is really driven by three main factors.

First, the strong large deal activity and longer than anticipated contract durations that we saw in Q1, which as we've mentioned before because of ASC 606 is driving higher upfront revenue recognition. This ultimately is contributing about 400 basis points of growth.

As a reminder, this change has no impact on ARR or free cash flow as we continue to build customers annually upfront. Second, the Arena acquisition, which will add approximately 300 basis points of growth. And lastly, FX or currency, which should add approximately 200 basis points of growth relative to our prior guidance.

On the expense front, we are now expecting operating expense growth of approximately 16% in fiscal 2021. This is an increase of approximately 600 basis points. Half of the increase is related to the Arena acquisition and half related to currency. Non-GAAP EPS is now expected to be $3.05 to $3.25, which is growth of 19% to 26%.

I'd also note here that GAAP guidance does not include the impact of Arena Solutions purchase accounting as the valuation of acquired assets and liabilities work is not yet been completed.

Wrapping up, we had strong financial performance again here in Q1, we delivered double-digit ARR growth, while maintaining discipline on our expense structure and continue to navigate in a very challenging macro environment.

The strong start to the year positions us well to deliver attractive double-digit topline growth and very strong free cash flow. With that, I'll turn the call over to the operator and we can begin Q&A..

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

Thank you. Good evening. Jim, let me start with a technology question for you having to do with the Arena acquisition. With that you now arguably have three code basis for PLM, Arena, Windchill and Onshape that's not unprecedented in the industry. As you know, as a result of acquisitions in technical software.

But could you talk about how you're thinking about the co-development or the conjoining of those technologies, particularly given the ultimate objective you seem to have had with Atlas of having a micro services architecture for example.

And then for Kristian, at the analyst meeting, you put up a very interesting slide on your customer engagement model showing seven categories of customer that I don't think you've shown before. How does your guidance encompass you're thinking about those various categories in terms of growth and contribution to fiscal 2021. Thank you..

All right, great. Thanks, Jay. Kristian, you start thinking about the answer to that, while I answer him. Yes. So it's a good observation. I mean, we have Windchill then we acquired Onshape and they were two different things and now we acquired Arena. So yes, in fact, we have three. But actually we do have a very well understood strategy.

So first of all, we will begin the process of looking at the best ways for Arena to use more and more of the Atlas platform that came to us with Onshape. And to be frank, Arena and Onshape don't do exactly the same things.

Onshape is more like file management except not really files but more like data management and collaboration and Onshape is more like bill of material. So those two things do different things, but they will over time share more and more of a common architecture called Atlas. So then that leads to Windchill.

So we have shared kind of a mid-term project that we are developing versions of Windchill and Creo that will use the Atlas platform to a great extent, so that they can be delivered in a SaaS model, but those products will retain full upward compatibility from the on-premise versions that exist today.

Now, we will continue to maintain an on-premise version. So you might say, we're going from 3 to 2 to 1.5 or something like that, but there is a good strategy here for how this stuff evolves and none of it's going to be revolution because we're bringing all the customers with.

But I definitely think this is a problem that will fade away and we've done that before. It's a problem that – I'm not sure it's a problem, but it's a situation that will be – that will evolve over time toward a cleaner kind of steady state in the end.

Kristian?.

Yes. Great. Jay, so I think what you're referring to is that S1 to S6 customer engagement model. I mean, I think here conceptually the right way to think about it is the largest piece of our ARR really comes from S1 – the S1 and S2 space that also actually where we still see a significant amount of new booking activity.

Those are our largest and customers with the biggest growth prospects. We have a lot of stable ARR in kind of the S3 and S4 space. And the new – really the land and expand activity happens primarily within the S5 and S6 space. And so I mean, if I was going to think about this.

I'd still put the largest chunk up in S1 and S2, we're seeing a lot of momentum in the S5 and S6. Tim or we actually mentioned in the – on the call that we've seen a little bit of a resurgence in new IoT customers coming back in the channel, which also operates in kind of the S5, S6 and the channel space continues to bring in new customers.

That's obviously also where I think relationships like Rockwell are, who also continue to bring in a lot of new greenfield customers, which are the foundation, really for us to continue to expand upon those relationships over time. So I don't know if that answers your question, but....

Let me add some color to that, I think it's a easier way to see it. I think if you look at it by product, you get a different story because the size, the relatively larger size of some products kind of overwhelms that story.

But Arena and Onshape are all about new accounts, they're basically competing in a space where we didn't previously have products competing. So there are almost entirely new accounts.

If you go to IoT and AR that's kind of 50-50 because those are products we can sell to our traditional accounts, but of course, there's a lot of demand and interest in IoT and AR and we have new partners like Rockwell that also take us to a lot of new places.

And then if you go back to Creo and Windchill, I mean, that would be majority of the bookings coming from companies we've been doing business with, but sometimes we knock one offer, there is a consolidation play or something like that and as well the channel is bringing this new accounts.

So I think it's almost all new for Onshape and Arena, roughly half and half-ish for IoT and AR and sort of majority maybe 70/30 in favor of installed base with Creo and Windchill..

Thanks very much..

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

Hey, guys, and thanks for taking the question. Maybe just two real quick. First on Arena. Can you just remind us on Arena's kind of international footprint and what's the plans to kind of expand that both direct and via channel? And then maybe two different answers.

So thanks for the color of how you're thinking about Creo Simulation Live and Creo Simulation Growth over the back half of the year. But when you think more broadly, how addressable is the Creo Simulation technology to your broader installed-base. Thanks for that..

Yes. So let me say, on your first question Arena. Arena is predominantly a U.S. business, it's been almost – to a very great degree sold to American companies, although some American companies have users overseas. But it hasn't really been sold to companies overseas with just a small exception.

So the first thing we're going to do with the Arena for sure is go international with it. I mean, that's a good piece of growth we ought to be able to go after as a synergy. And then of course cross selling between Onshape and Arena ought to produce another synergy. And I think our channel ought to produce yet another synergy.

So I'm sort of the opinion that there is a lot of upside to Arena, if not this year, certainly in the coming years, as we can take this business places that Arena themselves going to gone so easily. So that's maybe the first part.

Then second on ANSYS, if I remember we had quantified that we thought there was $100 million potential opportunity with Creo Simulation Live in our base. I think that's before. I don't know if, Tim, did that include this mainstream simulation products. No.

So I haven't quantified that, but well more than $100 million because the rest of the ANSYS suite actually comes at a higher price point. We probably get less penetration because some of them might already have purchased it from ANSYS or one of their distributors. But certainly $100 million would be the floor in terms of opportunity.

Will we ever get 100% of that, no? But certainly is a sizable ARR opportunity for us..

Great. Thanks again..

Thank you..

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

Thank you. Good evening, gentlemen. First, just a quick follow-up on that ANSYS question. I know you have the target of high single-digit percentage of new CAD ACV for this year. Can you say where it was last year, just so we have some perspective on how much growth that was.

And then for the IoT products, it sounds like a solid performance this quarter, but I know last quarter you talked about bookings doubling quarter-over-quarter. I'm just wondering you can give us any sense of the kind of quarter-over-quarter momentum you saw in that business from Q4 to Q1. Thank you..

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

Nominal..

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

Will get it, but it was nominal..

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

Got it. That's helpful..

And then on the Q4 to Q1. Q1 IoT bookings didn't have the same growth rate that they had in Q4, but again it was a healthy number, I mean in Q4, it was a very healthy number. And in both cases, a lot of that went into backlog.

So you're seeing a situation where the backlog deficit we started this year with had a fairly good representation in IoT and that's slowing down our IoT growth rate.

And some of the goodness that we're bringing in with new bookings is going into backlog and it will help next year, but it doesn't necessarily overcoming the deficit we started the year with. So anyway, we're still on plan. So it's not a bad thing. But putting more bookings in the backlog for next year and the year after is a good thing..

That makes sense. Thanks, gentlemen..

Thank you..

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

Hey, guys it's Jackson Ader on for Sterling tonight. Thanks for taking our questions. First one is a follow-up on the IoT bookings and kind of a good start to the year.

Any particular verticals that really stuck out and maybe verticals that performed well outside of the Rockwell channel for IoT?.

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

Okay. And then another bookings question and vertical question really on Onshape. If we think about the – up well over 150% from bookings, what if we stripped out education.

What kind of mixes are the bookings coming from education versus non-education?.

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

But in that good news that we have so far, it's all commercial sales..

Great. Okay. Thank you..

Thank you..

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

Hi, guys. Thanks for taking my – hey, Tim, Jim and Kristian, thanks for taking my question here. I'll just keep it to one. Jim maybe for you. I think the business that surprised us all last year and I think continues to do here in Q1 is the performance in PLM.

Maybe the question is how much of this do you think is from maybe an industry wide refresh, right? That's may be coming from just more digital transformation as you sort of hinted out before versus market share gains..

Well, I mean, first of all, I do think there is some real strong market share gains. I don't think other vendors are performing at the same level as we have been and it's been a long time since and have you guys asked me when Aeris was disrupting us. We kind of haven't heard that name in ages. So I think they're losing some real momentum.

So I think it really is more companies are realizing that they – if they have PLM, they need to have it more broadly and more people need to use it. Like maybe the procurement guy could walk down the hall and talk to the engineers. But now they are working from home, we can't. And so we need to see it.

So I think some of it is existing companies broadening and deepening their implementation. And then, I think there's a lot of companies who like the Terumo example we gave, who was doing their FDA compliance literally on paper, saying, okay, that's not going to work, we need to get a PLM system. We need to get it fast.

So I think there's a lot of companies whose appreciation of PLM has deepened greatly in the last couple of years. First for digital transformation in general and then for COVID requiring it. And I think that of those companies who get religion around PLM, we're certainly not going down more than our fair share. That's how I would characterize that..

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

Thanks..

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

Hi, Joe..

Hi, everyone. I'll try to squeeze into one more near-term from the mid-December comments on ARR the quarter definitely it's been a stronger than that communication. Is there any activity that came in at quarter end? I know you talked about maybe some year-end budget plus.

But anything else, the fact that large deal signings seem to be working back into the mix where you had may be point to quarter activity and think it perhaps as early but these developments are new and maybe to be extrapolated into something changing. And then the second question, it kind of gets back to the PLM question that was just asked.

But the verticals of high-tech, life sciences, aerospace and defense, these have been really strong for PTC pretty consistently and now you're adding Arena, which is strong in those verticals as well.

So is there something specifically about those markets and how they're viewing PLM that really has benefited the fact that PTC has good exposure there?.

Yes. So let's take the first one. Our mid-December comments Kristian said, he anticipated, we'd be in the middle of the 9% to 12% range and we came in at 12%. So I think to be frank, what happened is we review the forecast every single week on Friday's and we raised it four times in December. So by the time we had that meeting with you.

We had raised at once, but a couple of days later, we raised it again and then twice more. So if you study the PLM performance, of course we do, what you'd see is that it wasn't done the backs of any one geography or any one vertical or any one big deal. It was just a lot of deals of all sizes in all geographies across a bunch of different verticals.

I mean, it just felt like just good solid business everywhere as opposed to some surprise. I think if you go to the verticals question you asked, I think Arena is very strong in high-tech and very strong in general in SMB. Now high-tech does tend to have a lot of SMB customers.

And the other thing about high-tech is product life cycles tend to be very short. If you make 777's like Boeing does, it's very hard to switch CAD systems, because those products last for decades. But if you're making consumer handheld devices, the life on one those things pretty darn short and the next version isn't based on the last version.

So you can switch tools much more easily. So I think in general, electronics and high-tech is a fast cycle market and it's easier to get a share shift to happen there, which helps both Onshape and Arena by the way.

Now PTC does well in the larger electronics and high-tech customers who probably are selling stuff that ends up in a rack in the data center and big machines that have a lot of electronics in them and so forth. That aren't necessarily so short cycle and whatnot.

In the case of aerospace and defense, I mean, Arena does have some aerospace and defense accounts that are generally small suppliers to larger firms, but I would say probably, that's not necessarily the best spot to sell Arena, other than if you're low in the supply chain and there are a lot of small suppliers in the aerospace and defense supply chain in part because the government encourages that.

So I think Onshape and we're also coming out with ITAR version of Onshape for the same reason that these smaller accounts need something and really just don't have the wherewithal for the bigger heavier enterprise systems that masters at the top of their supply chain would prefer.

So I think maybe a long way of [indiscernible] Arena and Onshape are very complementary [indiscernible] Creo and Windchill, they do the same thing but they appeal to different segments of the market. And the low end of the market doesn't want the high-end products and the high end of the market today doesn't want the low end products.

That may happen over time. But right now it's all incremental upside as far as I'm concerned..

That's great. Thank you very much..

Thanks, Joe..

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

Hey, Matt..

Hey, guys. Good evening. Congrats on a really strong quarter here in Q1. Jim, I wanted to ask you a question about some of the CAD replacement deals. Obviously, this is really good to hear and obviously difficult to pull off.

I'm wondering if you could provide a few more details on what drove those? And thinking longer-term with all your investment in SaaS, CAD and Atlas, I mean, do you think we might be in a scenario where you might see even more disruption in the future. Some of these CAD replacements, considering what you've done with SaaS versus some of your peers..

Yes. So there is two in particular. I'll talk about one really with SharkNinja. But let me cover the other one first. It was a European OEM, I can't tell you who it was, I will be able to at some point, but not yet. I don't yet have permission.

But an OEM who had both our software and our CAD software and the competitors and use them both as many large OEMs do. And they decided that they didn't like that anymore. And they would really prefer to have one tool and if they had to go from two to one they will go into Creo.

So that was a pretty substantial displacement of a very well-known high-end product. And then the other case really was a displacement of a very well-known low-end product. Where this account said – SharkNinja said, we really like what Creo can do and we really like CSL and so forth and we too don't like having two sets of tools.

And if we had to pick one, we pick Creo. So kind of at opposite ends of the Creo range, if you will, we're displacing different products from the same vendor. And that vendor, you can guess who it is, it has kind of left their customers a little frustrated.

Some of their business policies, some of their technical strategies are well accepted by the customers and it's creating some discontent and some of that discontent turns into switching, especially if you're looking at two tools and you're saying, I wish we had one.

Well, I really like those PTC guys, their tools are great and are better to work with..

Thank you..

Thanks, Matt..

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

Hey. Yes, thank you for taking my question. Jim, I have a question for you in terms of the IoT. In the past you've said that a lot of your IoT growth in the future will be obviously rely on some of the partners and then bring on incremental new opportunities mainly talking about Rockwell obviously and also Microsoft.

Recently, few days ago, you've announced kind of partnership with Fujitsu Smart Factory on the IoT initiative. And I was just wondering how much – how does that compared to something like Rockwell? And how complementary it is versus how much is it as a competitive channels or something like Rockwell as well, which clearly isn't exclusive for other.

Thank you..

Yes. There is no exclusivity there would happened with Fujitsu, as I understand the story. First they implemented our software in their factories and it was quite successful.

And then there is a system integrator arm of Fujitsu who said, we'd like to take this showcase we've built in our own company and take it down the road and sell it to other companies. And so that's the nature of that announcement. But Fujitsu as an SI is no Rockwell. So I don't really – they're much more localized in certain pockets and so forth.

And they're important partner and we're glad to have them. But I don't think it's meaningful at the level of a Rockwell partnership, certainly not yet maybe we'll get there someday. But just think of them as two different tiers..

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

Yes. I mean, a lot of SI's want to sell with us where we sell the software and they do the project. And that's motion has been working very well. And then some SI's, in some cases like Fujitsu say, well, could we just sell it, because we have some clients we'd like to go.

Basically sell them what we've done in our own company and we'd like to take that order. But think that for every Fujitsu. There is multiple SI's that we sell with rather than thrilled..

Got you. Thank you..

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

Thanks very much. Hi Jim, Kristian and Tim. Thanks for squeezing me in. So just in terms of the new SaaS business unit.

Is that more of an operational structure? Or is it also responsible for driving future SaaS strategy, including M&A and maybe the migration of your co-products?.

Yes. I mean, it's a business unit that's quite complete. It has R&D and marketing and sales, doesn't really new services because we don't so much need that. But it's really a pretty complete business unit. It has the P&L, it has growth targets, we will make acquisitions for them. In fact, Arena was an example.

But we've made a couple other little tuck-ins that we didn't announce because they were too small. But definitely, that's a business and the way I look at it, they are paving the path for a future PTC.

Because at some point, our industry will really go to SaaS, I mean it's starting to and that's good, but at some point it will tip right over like other industries have. And at that point that business unit will be bigger and bigger and may in fact be the future inner gravity for PTC. It's not big enough at $100 million – let's call it $1.4 billion.

So it's not yet 10% but you put Arena in there and it steps up closer to 10% and then you let that growth rate run for a while and it won't be long before it's quite meaningful to us. But that's what they're doing, their paving the path for a future PTC..

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

Yes. Well, I think what it really comes down to is does a customer want SaaS or not. If they want SaaS, then the win rates exceptionally high, but they might decide they don't want SaaS for whatever reason. And it might be that other people in their company already use SolidWorks or what have you.

But think of Onshape as a really good CAD system on a completely different deployment and business model. And the deployment and business model is even more differentiated – is more differentiated in the product itself is.

So I think, smaller companies, say, I really like the idea of being able to get to this data without having a server, without having a system administrator, without having – I'd like to be able to pick up my work at home on my Macintosh if I worked on at all day on a Windows workstations. I mean, that's great. I like the real-time collaboration.

Onshape is a multi-user system were multiple users work together on the same designs at the same time as opposed to multiple users working independently and pass the data back and forth, which is how most other CAD systems work.

So I think again, I often say, think of it like electric vehicles versus internal combustion engines, it's religion at some level. And very few people get down to a shortlist that has three of each.

Somewhere in the decision making process they either say, I want to electric and now I'm down to a shortlist of electric vehicles or I don't want electric, I'm going to stay with internal combustion and they end up with that shortlist. But I'm saying for those customers who say, I think I want SaaS.

This is a good chance, we're going to win that deal..

Thanks. All right, thanks very much..

Thanks, Matt..

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

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

Have a great evening..

Thank you, everybody..

Thanks, everybody..

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