PTC outlines 7%–9% ARR growth guidance for 2026 as it divests IoT businesses and sharpens SaaS, AI focus

Earnings Call Insights: PTC Inc. (PTC) Q4 2025

MANAGEMENT VIEW

* CEO Neil Barua opened by highlighting the definitive agreement for TPG to acquire PTC's Kepware and ThingWorx businesses, stating, "For our Kepware and ThingWorx customers, this move is designed to enhance the value these products deliver. By partnering with TPG, Kepware and ThingWorx gained additional investment, expertise and operational focus." He emphasized that for PTC, "this move increases our focus on the area central to our Intelligent Product Lifecycle vision. CAD, PLM, ALM and SLM and the growing emphasis on SaaS and AI."
* Barua reported, "We delivered 8.5% constant currency ARR growth and 16% free cash flow growth year-over-year." He noted improved execution on large strategic agreements, winning the largest Codebeamer and Onshape deals ever, and a "large windshield competitive displacement win in the med tech vertical."
* He announced the appointment of Jon Stephenson as Chief Product Officer, describing him as "an industry veteran" who will "increase the pace and predictability of road map execution."
* CFO Kristian Talvitie provided details on the divestiture, stating, "We could receive up to $725 million in total cash consideration if certain thresholds are achieved. We expect either $565 million or $600 million upfront, depending on performance during the period up to close."
* Talvitie explained that for fiscal '25, "ARR attributable to Kepware and ThingWorx was approximately $160 million, and constant currency ARR growth was negative 1%. Including perpetual license and professional services revenue, the revenue contribution of Kepware and ThingWorx was approximately $200 million."

OUTLOOK

* Barua stated, "For ARR growth, we are guiding to a range of 7% to 9% with Kepware and ThingWorx; at 7.5% to 9.5% without Kepware and ThingWorx. We are also well on track to deliver $1 billion of free cash flow in fiscal '26, including Kepware and ThingWorx."
* Talvitie added, "Our as-reported free cash flow would be approximately $840 million in fiscal '26" assuming an April 1, 2026, close of the transaction. He also noted, "We expect similar invoicing seasonality compared to the previous 5 years."
* Management signaled continued investment in R&D and indicated a planned share repurchase of between $150 million and $250 million per quarter during fiscal '26, starting with $200 million in Q1.

FINANCIAL RESULTS

* Talvitie reported, "At the end of Q4, our constant currency ARR using our fiscal '25 plan FX rates was $2.446 billion, up 8.5% year-over-year."
* Q4 revenue exceeded the midpoint of guidance by $140 million and the high end by $110 million, which Talvitie attributed to "a record amount of customer commitments" and longer average contract terms, stating, "our average term length in Q4 increased from approximately 2 years in Q4 of '24 to approximately 3 years in Q4 of '25."
* Free cash flow in Q4 was $100 million, and for the full fiscal year, free cash flow was $857 million. Operating efficiency percentage expanded by 310 basis points to 45% in fiscal '25 compared to 42% in fiscal '24.

Q&A

* Hoi-Fung Wong, Oppenheimer: Asked about the rationale behind the ThingWorx and Kepware divestiture. Barua explained the decision was to focus resources on areas "where we have the highest right to win" and confirmed, "I feel good now that with the transaction closing, we have an ability now to fully focus all our portfolio and energy across...the Intelligent Product Lifecycle vision."
* Jason Celino, KeyBanc: Inquired about the $1 billion free cash flow guidance and tax impacts. Talvitie replied, "the tailwind from Section 174 is included in that number."
* Clarke Jeffries, Piper Sandler: Questioned the nature of deal structures and customer motivations. Barua clarified, "in the larger deals, in some transactions...there was ramp deals. And those are committed, contracted elements of the deal."
* Blair Abernethy, Rosenblatt: Asked about TAM and net new ARR growth. Barua stated, "I feel better than I did about the addressable market that we're playing into with Intelligent Product Lifecycle than I did 2 years when I took the job."
* Matthew Hedberg, RBC: Asked about further go-to-market changes. Barua and Dahdah indicated continued focus on vertical alignment and scaling the transformation, with Dahdah highlighting, "we can make all of our efforts fixed on elevating the message...we have this -- a way to get now to the C level that we didn't before."
* Jay Vleeschhouwer, Griffin: Asked about road map execution and RPO. Barua said, "just the rigor around making sure road map items result in customer value...is actually an element of what we've done in alignment that is newer to the company than the last 10 years." Talvitie shared, "approximately 55% of the total RPO we'd expect to recognize over the next 12 months."
* Tyler Radke, Citi: Asked about growth drivers for core business. Barua responded, "we're building momentum towards putting all the foundational layers to come and create a repeatable way to say we're going to consistently and sustainably continue to grow net new ARR."

SENTIMENT ANALYSIS

* Analysts frequently sought clarification on strategic direction, deal structure, and growth drivers, with tones generally neutral but probing, reflecting interest in the impact of the divestiture and management's confidence in long-term strategy.
* Management maintained a confident and disciplined tone throughout, especially on prepared remarks. Barua repeatedly referenced focus and momentum, using phrases such as, "we feel strongly," and "the good news is we're looking at it, we're being disciplined around our approach."
* Compared to the previous quarter, management's tone has grown more assertive about strategic focus, and analysts' questions have shifted from macro concerns to clarifying the implications and execution of the divestiture and go-to-market evolution.

QUARTER-OVER-QUARTER COMPARISON

* Major strategic shift with the announced divestiture of Kepware and ThingWorx, compared to prior quarter’s status quo.
* ARR growth guidance for fiscal '26 is slightly lower (7%–9%) than the year-over-year growth in the prior quarter (9.3%).
* Continued emphasis on go-to-market transformation, with added evidence of large, multi-product deals and increased contract durations in the current quarter.
* Management’s tone grew more confident and focused, with analysts shifting from macroeconomic uncertainty to deal structure, portfolio focus, and execution risk.
* Guidance for free cash flow rises to $1 billion for fiscal '26 including the divested businesses, up from $857 million in fiscal '25.

RISKS AND CONCERNS

* Management highlighted potential disruption from the Kepware and ThingWorx divestiture, modeling for "minimal customer disruption" but acknowledging "unexpected disruption" as a risk.
* The guidance range considers macroeconomic variability and possible deal structure volatility.
* Analysts raised concerns regarding deal structures, pipeline certainty, and the impact of divestiture-related cash taxes and CapEx.
* Talvitie noted that the divestiture would result in "approximately $160 million of onetime cash outflows" related to fees and taxes, as well as a "modest impact to free cash flow" if the transaction closes sooner than expected.

FINAL TAKEAWAY

PTC’s Q4 2025 results showcase a decisive strategic pivot as the company moves to divest its Kepware and ThingWorx businesses, sharpening its focus on the Intelligent Product Lifecycle vision with CAD, PLM, ALM, SLM, SaaS, and AI at the core. Management projects ARR growth of 7% to 9% for fiscal 2026 and targets $1 billion in free cash flow, supported by a robust deferred ARR base and an expanded capital return program. With large multi-product deals closed, a verticalized sales force, and new leadership in product development, PTC positions itself for sustained growth amid expected transaction-related disruptions and continued macroeconomic uncertainty.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ptc/earnings/transcripts]

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