PTC Inc Q1 2026 Earnings Call Transcript

PTC Inc (NASDAQ: PTC) Q1 2026 Earnings Call dated Feb. 04, 2026

Presentation

Operator

Good evening ladies and gentlemen. Thank you for standing by and welcome PTC’s 2026 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 Matt Shimon, PTC Head of Investor Relations. Please go ahead.

Matthew Shimao — Senior Vice President

Good afternoon. Thank you operator and welcome to PTC’s first quarter 2026 conference call. On the call today are Neil Barua, Chief Executive Officer, Jen Dirico, Chief Financial Officer and Robert Dada, Chief Revenue Officer. Today’s conference call is being broadcast live through an audio webcast and a replay of the call will be available later today at www.ptc.com. during this call, PTC will make forward looking statements including guidance as to future operating results. Because such statements deal with future events, actual results may differ materially from those projected in the forward looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements can be found in PTC’s Annual Report on Form 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, February 4, 2026 and PTC assumes no obligation to update these forward looking statements. During the call, PTC will discuss non GAAP financial measures. These non GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non GAAP financial measures to the most directly comparable GAAP measures can be found in today’s press release made available on our website. With that, I’d like to turn the call over to PTC’s Chief Executive Officer Neil Barroth.

Neil Barua — President and Chief Executive Officer

Thank you Matt and good afternoon everyone. I’ll begin today by welcoming Jen d’ Orico to her first PTC earnings call as our new cfo. I’m confident she’ll be a great CFO for PTC and a strong partner to our investor community. Turning to our results, we delivered a solid first quarter of fiscal 26. We grew constant currency ARR 9% excluding Capwar and Thing Works and 8.4% including them. And we grew free cash flow 13% year over year. These results reinforce our confidence in the transformation we are driving and the demand we are capturing. Our divestiture of Kepware and Thing Works is progressing and we are on track to close on or before April 1.

Before discussing execution in the quarter, I want to take a step back and talk about our transformation and my optimism for the road ahead. Every transformation has an important turning the corner phase where the end goal is still ahead, but you start to see collective forward momentum across the most important elements of the transformation. This is where PTC sits today. We see it clearly in the following ways. Number 1 accelerating Onyx roadmap releases 2 record deferred ARR under contract 3 higher seller productivity 4 customer commitments that are strategic and increasingly span the full lifecycle and five Consistent customer feedback that are Intelligent product lifecycle vision resonates with what they need.

To that end, how our customers develop products is changing significantly. Products are becoming more complex, more software driven and more regulated at the same time. Development cycles are compressing, competition is increasing, supply chains are fragmenting and the workforce is evolving to favor modern digital first systems and processes. The traditional product lifecycle built on disconnected tools, siloed data and manual processes simply can’t keep up. That is why the intelligent product lifecycle is essential for staying competitive. It is based on three core elements connected systems of record across the life cycle, enterprise wide cloud access to product data and AI embedded directly into enterprise workflows.

Together these elements turn product data from something that’s simply stored and audited into something that actually drives better decisions across engineering, manufacturing, service and the rest of the enterprise. The companies that will win are the ones that successfully leverage product data in this way and use it as a foundation of AI driven intelligence and transformation. We believe PTC is uniquely positioned to enable this. Our core products cad, plm, ALM and SLM are the systems of record across the lifecycle defining our product data is created, governed and used across the enterprise and we support an open ecosystem where this data can be exchanged with other trusted enterprise systems.

Our product and AI roadmaps are focused on making the intelligent product lifecycle real for our customers. Deeper product integrations are a high priority. The connection between CREO and Windchill is the gold standard and and we’re making good progress with our Windchill connections to CodeBeamer, ServiceMax and OnShape. In December we released CodeBeamer 3.2 which deepens the connection between Codebeamer and Windchill and improves how customers manage complex cross domain development. In October we released a new version of Windchill that includes the new Windchill UI for a more modern user experience and new change management capabilities that make it easier for customers to share relevant product data with suppliers.

Our AI roadmaps are progressing well and we are encouraged by customer feedback. Entering 2026 it became clear that customers don’t want AI as another standalone system or workflow. They want AI embedded directly into the systems of record they already trust for their enterprise workflow. That’s exactly where PTC is focused and customers are increasingly recognizing this as a point of differentiation. In Q1, we continued embedding AI across our portfolio to address our customers high value use cases and workflows. In December, we introduced CodeBeamer AI focused on improving requirements quality, accelerating test case development and supporting compliance before products move into production.

In January, we released Windchill AI Parts Rationalization, new AI functionality embedded in Windchill to help customers accelerate development and manage costs by identifying duplicate parts, making part data more consistent and reliable, and accelerating part searches. Next month we will launch a video series called AI in Focus where we will share our AI strategy in more depth, preview product specific roadmaps and show continued acceleration releases. We encourage you to tune in we are confident in our AI position because our customers tell us universally that structured contextual product data is their top priority. In addition to embedding AI in our products, we are building a common AI infrastructure across our product portfolio.

This will enable our users and AI agents to understand and use product data from cad, plm, alm, SLM and third party systems in the same way, all backed by data governance and security standards. Our vision keeps our products and AI closely coupled together, thereby encouraging broader adoption of PTC solutions over time. Turning to go to market execution, Our transformation is progressing well. In Q1 we increased seller capacity, improved code attainment and saw ramping reps more than double productivity year over year. This reflects territory balancing, improved enablement and greater vertical focus. Most importantly, we are expanding the scope of our customer and partner engagements from focusing on one stage of the life cycle to discussing the intelligent product lifecycle holistically centered on product data and AI.

As a result, we are achieving stronger and more strategic demand capture. As previously discussed, we exited 2025 with record deferred ARR under contract. We continued this momentum with a record setting Q1 of large deal volume and strong competitive displacements and deferred arrangements. Some of these deals will begin converting to ARR in Q4 of fiscal 26 and most will ramp in fiscal 27 and fiscal 28. Jen will talk more about the positive impact of deferred AR on our outlook for the remainder of fiscal 26. We are confident our transformation is helping us build a more durable multi year growth engine.

An example of our momentum is the expansion deal we struck with Garrett Motion, a leading automotive supplier we won this on the strength of our Intelligent Product lifecycle vision and how it resonated with their leadership and across the company. Garrett is modernizing its product development environment on a Cloud first AI ready architecture. They were already using Onshape and selected Windchill for PLM displacing a PLM competitor and code Beamer plus for alm displacing an ALM competitor. Garrett’s goal is to unify product development with our connected systems, broaden access to product data beyond engineering, and establish a foundation for AI.

This is increasingly representative How Large Product Companies are Engaging with PTC Overall, Q1 demonstrated PTC’s momentum with the Intelligent Product Lifecycle. I credit Team PTC for driving forward with focused execution and and purposeful innovation. I’m energized by our progress and optimistic about where we are headed with that, I’ll turn the call over to Jen.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Thanks Neil and hello everyone. I’m excited and honored to join the PTC team at this significant time in the company’s transformation. Before Turning to our Q1 results, I thought I’d share my initial observations and key priorities. I’m impressed by the PTC team and how our Intelligent Product lifecycle vision is taking hold with customers. As Neil highlighted, product companies want to leverage AI for their high value use cases and workflows. The companies that succeed will be the ones that connect product data across the entire life cycle and then leverage that foundation to push AI driven intelligence.

It’s an exciting time because PTC is well positioned to help our customers address this challenge. In terms of my key priorities, I look forward to partnering with Neil and the leadership team to help PTC capture its growth opportunity, maintain strong financial discipline, and create meaningful value for our stakeholders. I’m committed to helping the investor community understand and value our business and I’m looking forward to engaging with you. Now let’s turn to our fiscal Q1 26 financial results. At the end of Q1, our constant currency ARR, excluding Kepware and ThingWorx was $2.341 billion, up 9% year over year.

Including Kepware and Thingworx, our constant currency ARR was $2.5 billion, up 8.4% year over year. Our Q1 operating cash flow and free cash flow both grew 13% year over year. Q1 free cash flow of $267 million included $10 million of Kepware and Thing Works divestiture costs finally, on the divestiture, we are still targeting a close on or before April 1st and there are no material changes to the figures we provided. Turning to share repurchases as previously guided, we repurchased $200 million of common stock in Q1 under our $2 billion share repurchase authorization in Q2 26, we intend to repurchase approximately $250 million of common stock.

Based on this, we expect to decrease in our fully diluted share count to approximately 119 million shares compared to 121 million shares one year ago in Q3 and Q4. This year we intend to repurchase $150 million to $250 million of common stock per quarter. On top of this, given current valuations, we now intend to return additional capital to shareholders. Following the close of the Kepware and ThingWorx divestiture, we continue to expect net after tax proceeds from the transaction of approximately 365 million DOL. Adding this to our original fiscal 26 plan means that we will buy back approximately 1.1 to $1.3 billion of our common stock this year.

With that, I’ll take you through our guidance in fiscal 26 for constant currency ARR excluding Kepware and ThingWorx, we continue to expect growth of approximately 7.5 to 9.5% including Kepware and ThingWorX. We still expect growth of approximately 7 to 9% in fiscal 26. In the appendix to our Earnings Deck, we provide an illustrative ARR model for fiscal 26 and you can see that our fiscal 26 ARR guidance midpoint is for $195 million of annual net new ARR in both scenarios. In Q2 for constant currency ARR excluding Kepware and ThingWorx, we expect growth of approximately 8 to 8.5% including Kepware and ThingWorX.

We expect growth of approximately 7.5 to 8%. In the appendix to our Earnings Deck, we also provide an illustrative ARR model for Q2 26 and you can see that our Q2 26 ARR guidance is for 35 to $50 million of sequential net new ARR in both scenarios. Looking at the second half of the year, our intent is to grow net new ARR in Q3 26 on a year over year basis and then deliver a step up in Q4. We are comfortable with that because starting in Q4 26 the demand capture we’ve been highlighting will have a positive impact on our ARR growth.

We have visibility to a large increase in the amount of deferred arrangements that will start in Q4 26 compared to previous Q4s and for clarity, the higher level of deferred ARR that is contracted to start in Q4 this year is attributable to the solid progress we’ve made with our go to Market initiatives as well as our commercial initiatives. Both drivers are contributing Moving to Cash Flow, Revenue and EPS Our guidance for these do not take into account the Kepware and ThingWorx divestiture except for the divestiture costs already recognized in Q1.26 and expected in Q2 26.

For Q2 26, we are guiding free cash flow of 310 $315 million including Kepware and Thing Works for the full quarter, which absorbs approximately $5 million of divestiture costs. Our business as currently constituted remains on track to deliver approximately $1 billion of free cash flow in fiscal 26 related to the Kepware and ThingWorx transaction. We still expect approximately $160 million of total cash outflows this year, which are not expected to recur in future years and will continue to provide visibility to these outflows in our reporting and guidance. When the transaction closes, we will update our guidance and I’ll host a call to take you through the changes.

In recent years, we’ve developed a high degree of confidence in our guidance for free cash flow based on the predictability of our cash collections and the disciplined budgeting structure we’ve established. Continuing to deliver the strong financial discipline you’ve come to expect from PTC remains a priority. While our focus is on ARR and free cash flow, we’re also providing revenue and EPS guidance to help you with your models. We are raising our fiscal 26 guidance range for revenue to 2.675 billion to 2.940 billion and raising our non GAAP EPS guidance range to $6.69 to $9.15. In alignment with our Q1 26 results coming in above the high end of our guidance range, the key driver of our strong Q1.26 revenue and EPS was similar to last quarter.

We did a great job contracting customer commitments. As a result, our revenue growth significantly outpaced our ARR growth for a second consecutive quarter. In Q1. 26. Demand capture continued to outpace ARR growth, resulting in additional deferred arrangements that will support durable growth in future periods. Importantly, this dynamic reflects the quality, duration and the structure of customer commitments we’re contracting, not a change in revenue recognition practices. All in all, our results and guidance show that our focus on the intelligent product lifecycle is resonating with customers. We are on the right strategic path with a compelling set of product initiatives, go to market initiatives and commercial initiatives.

I want to thank the extended PTC team for their continued efforts and energy. Our people are our driving force and what I’ve seen thus far gives me confidence that we will deliver on our opportunity. With that, I’d like to turn the call back to the operator for the Q and A session.

Question & Answers

Operator

At this time, if you would like to ask a question, press Star, then the number one on your telephone keypad. To withdraw your question, simply press Star one. Again, please limit yourself to one question only. If you have additional questions, please return to the queue. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Yeon Kim with Luke Capital Market. Please go ahead.

Yun Kim — Analyst, Luke Capital Market

All right, great. Thank you. Congrats on a solid quarter, Neil, and welcome aboard. Jen, since this is your first time, I’ll ask a question to Jen first. So Q4 is the first quarter when we can see AAR contribution from those deferred AAR deals. What level of visibility do you have on that? If you can quantify that, if you can, what are, for instance, what are some of the variables behind those ramp or defer AR deals Getting recognized in Q4? And is the timing of that ramp, that ramp related to billings and would it affect cash flow?

Neil Barua — President and Chief Executive Officer

Thanks, Yuan. Thanks for the question. And Jen will add to my upfront, but since she’s four weeks in, let me take the upfront on the dynamics. Of the demand capture and then she could talk about some of the technicalities if I don’t cover it. So, you know, again, I think you heard and thank you for the acknowledgment. We feel really good about the progress of our go to market transformation and it’s showing up now in two quarters of demand capture that is now relating to, you know, the amount of deferred revenue deferred ARR that you spoke about in Q4. That’s about triple what we had last Q4 entering and double the deferred ARR that we’re building starting in 27 that we had coming into this year. So Rob and the go to market team is really doing a lot of great work on the demand capture and the crux of the deferred ARR is due to the fact that we’re winning strategic cross product and in some cases, and in many cases on some product lines, competitive displacements and so you know, we’re taking the commitment, which is committed dollars from the customer.

I’m cognizant that it’s not showing up right now in the in quarter ARR in Q1 and as we guide around Q2. But we’re very positive about how it’s starting to build into how will impact Q4 and in a more meaningful way than it did last year and also into the following year. And it’s all to do with the implementation cycles of our customers. And we feel good about it because the commitment’s there, it’s contracted and it’s set to come. Jen, anything to add?

Jennifer DiRico — Executive Vice President and Chief Financial Officer

I think you hit it, Neil. Thanks.

Yun Kim — Analyst, Luke Capital Market

All right, thank you so much.

Operator

Your next question comes from the line of Joe Brewing with Baird. Please go ahead.

Joe Vruwink — Analyst, Baird

Great. Thanks for my question and Jen, welcome. At the big event hosted by PTC’s user community about this time last year, there was some, I think, foreshadowing by PTC about AI capabilities that would get added to Windchill and the parts management areas. And at the time customers were really excited about this. I think that idea as a product is what PTC is now starting to come out with. I think it was released last week. I guess my question related to this, there’s obviously been a lot of AI releases from PTC across all the core products over the past year and not diminishing any of those, but are we maybe starting to see some that could prove more material in nature and this is going to start to register in a more noticeable way on demand decisions over the next year.

Neil Barua — President and Chief Executive Officer

So thanks for the question Joe, and thanks for acknowledging the the really good progress that we’re making around our AI strategy in concert with what customers really need. And as you noted here, our products are mission critical enterprise systems of records across the life cycle. And as you heard last year at the PTC User Group, the preponderance of our customers are now really wanting us to embed these AI releases. As you noted, the Windchill AI parts rationalization. We also did a code Beamer AI release as well and many others that are accelerating over the course of this year, which is really embedding AI capabilities to advise and assist and over time automate workflows within these systems of records that we are very well attuned to understand and train the models around it.

So we’re thrilled about the progress. Our customers are even more thrilled that we have built these and and now there’s a rapid iteration of releases to even make these more consumable over time. So we Feel good about where we are around our strategy. We feel very excited about the criticality of PTC to deliver AI to our customers given the strength and the complexity of our system of records within our customer environment. In terms of the impact of when Jen could start talking about the P and L impact, in terms of when we’ll see a lift, I’d say right now it’s immaterial in terms of how we think about the economic till coming into the company, but as these releases start taking hold and they move from POCs to scale deployments over the course of the next few years, this should be something we’ll be talking to you about and others around a real economic driver of the business.

Joe Vruwink — Analyst, Baird

Thank you.

Operator

Your next question comes from the line of Adam Borg with Stifel. Please go ahead.

Adam Borg — Analyst, Stifel

Awesome. And thanks for taking the question. Maybe just on Creo and Windchill and as we think about those growth rates, any way to parse out the mix of growth coming from expansion versus competitive displacement? And given the new go to market emotions that seem to be having some success, what’s the opportunity to drive more on the competitive displacement front? Thanks so much.

Neil Barua — President and Chief Executive Officer

Yeah, let me start this. And Rob could add, given he’s. He’s really driving the team in a really disciplined manner the way he said he was going to when he started about 12 months ago. And we’re very proud of the progress.

Neil Barua — President and Chief Executive Officer

That team has made. What I’ll say is around Windchill, which we don’t break out the exact growth rate of Windchill. It’s a, it’s a aggregated PLN number. As you might know, Adam, we’re very enthused about the Windchill capabilities and the acceptance and the growth rates around Windchill as a standalone product. In addition to, by the way, Windchill plus where we’re seeing really strong traction. Creo, as you noted, continues to be a strong grower, a steady grower, and we feel good about its competitive dynamic in the CAD market. In addition to the fact that we have an amazing onshape capability that is also starting to be a very strong competitive takeaway off of some of the competitors on their estate.

So we feel good about CAD in terms of plm. In terms of the mix around expansion versus competitive displacement. I’d still say, Adam, that the significance is still around expansion. And even in expansion there’s competitive displacements that’s happening where customers are giving us their entire estate now of take all the DISREP systems and put it on Windchill. So you Saw some of the appendix slides you’re starting to see and we’re starting to see that being more of the types of deals we’re seeing. Part of it is because the customers are understanding to get the benefit of AI, you need contextual product data that’s put in one place in a system of record like Windchill.

And and so this advantages customers to expand with Windchill and then build in parallel with some of the AI capabilities. But we are also lastly seeing competitive displacements as I mentioned and we’re continuing to see more of that happen over the course of this year as we look at the pipeline. Rob?

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Yeah, the split’s correct that we get the majority from expansion but there is actual growth and accelerated growth in competitive displays and so we feel really good about that as a kind of a next step grower for us.

Adam Borg — Analyst, Stifel

Great, thanks again.

Operator

Your next question comes from the line of Ken Wong with Oppenheimer. Please go ahead.

Neil Barua — President and Chief Executive Officer

Jen.

Operator

One moment for Kin. Ken Wong, your line is open. Operator. Let’s go to the next. Come back to Ken. Your next question comes from Matt Hedberg with RBC Capital Markets. Please go ahead.

Matt Hedberg — Analyst, RBC Capital Markets

Great. Thanks for taking my question guys and congrats. I know the software environment seems a bit dicey these days, but it’s great to see the consistent results out of ptc, I guess. Neil, I wanted to ask you just talked about Windchill a second ago. I guess I was curious if you could talk a little bit more specifically on Windchill Plus, Creo plus, just kind of the broad SA portfolio, you know, are you starting to see increased customer demand for SaaS and you know, in those instances are you seeing, you know, customers spend, spend go even higher in those situations?

Neil Barua — President and Chief Executive Officer

Yeah, so thanks for the question. And we’ve been very, we’ve been very practical and also transparent with all of you around our journey around building our SaaS momentum. And I’ll take first the born in the cloud solutions that we’ve got and in particular OnShape Arena, ServiceMax and we feel good about to in some cases great about the momentum and the adoption of those capabilities and several competitive displacements that are happening across the three of those strong portfolios in addition to the AI capabilities we’re building on top of it. In terms of your question on Windchill plus and Creo plus, we’re having a bang up and we did have a bang up last year in terms of the momentum building for Windchill plus we had another strong demand capture quarter for Windchill plus, if not record Breaking.

We have plenty more to go and I want to make sure, I think Rob and I are measured about that. We’ve been saying for a while that the dam has not broken, where the entire market is flipping to our plus platform overnight. But we have been building momentum. We are working towards making sure we meet the customers where they are. The good news story is the following. And I’ve been saying this for two years consistently. SaaS starts working for Windchill plus and Creo plus when they’re scaled implementations with a great experience, with a backend experience.

That’s good. And the customers are happy. We’re starting to see that and we’re going to leverage that. We’re going to continue to build on the momentum. And so we feel really strongly about our position on SaaS. We feel like that will continue to be a growth driver. And to your last question, around Lyft on pricing. Yes, we are seeing the similar sort of lift that we’ve been saying around the one and a half to two and a half times kind of lift in terms of on prem to SaaS. Lift on arrangement.

Matt Hedberg — Analyst, RBC Capital Markets

Thanks, Pam.

Operator

Your next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead.

Joshua Tilton — Analyst, Wolf Research

Hey guys, can you hear me?

Neil Barua — President and Chief Executive Officer

Yep.

Joshua Tilton — Analyst, Wolf Research

Great. Thanks for sneaking me in here. I appreciate all the commentary on the improvement in sales productivity, but when we kind of like dig a little bit deeper in the numbers, it looks like the channel drove over 80% of net new ARR in the quarter. So I’m just trying to understand, like, are there any one offs in the direct business that we need to understand? Is this tied to the deferred ARR dynamic and maybe when can we start to see the direct business maybe contribute at a similar level to the channel going forward? Thanks, Jen.

Neil Barua — President and Chief Executive Officer

You want to start and then Rob could add.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Yeah, I can take it. So I think what we’re seeing right now is good momentum in both the channel and the direction. What you’re seeing actually in the numbers in particular this past quarter, you know, one large deal does have an ability to influence this and oftentimes with a large deal you have both the channel and the direct. And ultimately it’s about customer preference and how they want that fulfilled. And ultimately that’s all that’s happening in those numbers right now. You can add, Rob.

Neil Barua — President and Chief Executive Officer

Yeah. And as we mentioned, you know, in prior, prior conversations, we’re working very hard to more deeply engaged with partners on this. So to create an environment where we can allow that flexibility at the customer and not have a battle that it’s direct against the channel but working together to fulfill it at the customer’s request. So we think you might see that from time to time. We did have a larger deal this quarter that fit that that picture but you might see it again in the future. But it’s not in any way some kind of visibility into weakness in direct.

We worked very closely together and you. Know, and lastly I want to make sure we’re very clear about this. The energy and enthusiasm, the turning the corner is around the actual indication and the contracted commitments that are building predominantly deferred ARR. So we feel really strongly about the go to market transformation actually doing the thing that we need to do which is capture customer demand. How it’s showing up in Q1 in our guidance for Q2 has only got to do with timing. And the good news is this is committed capture. By the way, this is going to show up also in another metric that you can look at.

It’s not completely indicative of it is RPO and CRPO that you’ll see in the queue. But all these metrics are leading us to make sure we all articulate that demand capture is strong. We got to continue that. And as that happens, ARR over time becomes durable and multi year in terms of the sustainability.

Joshua Tilton — Analyst, Wolf Research

Makes sense. Maybe just to clarify one thing around that, was there more deferred ARR added to the balance in 1Q than when you exited Q4?

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Yes there was. And just to reiterate what Neil said before, as we think about where we are, where we sit today versus one year ago for Q4 26 there’s triple the amount of deferred ARR on the books for Q4 26 and then in the same view for 27 there is double for 27 versus where there was last year for 26.

Joshua Tilton — Analyst, Wolf Research

Super helpful, appreciate the clarity. Thanks so much.

Operator

Your next question comes from the line of Blair Abernathy with Rose and Black securities. Please go ahead.

Blair Abernethy — Analyst, Rose And Black Securities

Thanks very much guys and welcome. Jen, just on the go to market side again, I just wondered maybe Rob can shed some color on this but in terms of new customer ads, what are you seeing out there in terms of interest in your portfolio? Is it skewed at all more towards the SaaS side, the SaaS products and also maybe you could provide a little more color on this, the startup aerospace and defense program. It looks like you’ve been winning some business there.

Neil Barua — President and Chief Executive Officer

Yeah. So a couple two questions as it relates to the new business and new logos. We definitely as mentioned earlier, have had a nice run and an increase in our competitive displacement. So we’re picking up what we would consider to be new logos in kind. Of the up market.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

As we bring on new customers, we default to cloud. So they’re coming in in a cloud environment and typically, you know, that’s been working very well for us and for the customer who want, who want to enter that way as they reduce their customizations and the complexity in their own environment and obviously try to capture some of the benefits of being in cloud, some of which are pretty obvious, others which will start to manifest in how AI is deployed. So yes, we’re seeing good traction with customers coming in new and that is our default setting as we bring on new logos into the cloud.

In defense, we do. It’s great that you noticed that you picked up on that. We have an opportunity there. We believe as we serve some of the largest customers in the world at the top of that stack, we have an opportunity now to incubate at the lower. And we’ve seen great reception there. Certainly we always learn and get better every month, every quarter. But the initial response has been really positive there and we have a number of ways to service that market as well. So we feel like we’re well positioned at both the top and the bottom and hopefully we’ll be able to report some great success stories that grew through there.

Blair Abernethy — Analyst, Rose And Black Securities

Great, thanks very much.

Operator

Your next question comes from the line of Ken Wong with Oppenheimer. Please go ahead.

Ken Wong — Analyst, Oppenheimer

Hey, can you guys hear me?

Neil Barua — President and Chief Executive Officer

Yeah, hello.

Ken Wong — Analyst, Oppenheimer

Okay, perfect. Appreciate the context around deferred ARR and when some of that timing could pop up, you know, when thinking through the unchanged fiscal year ARR guide and coupled with that commentary that it sounds like more is coming in Q4. Help us think through the seasonality, if you could. I mean, is it basically going to be even more back end loaded than you guys were thinking perhaps three months ago?

Jennifer DiRico — Executive Vice President and Chief Financial Officer

So I think right now, the way we think about it, as you heard me say in my prepared remarks, that we’ll have a step up in Q3 and a larger step up in Q4. I would say it’s similar to how we’ve been thinking about the business. Neil, you can correct me if I’m wrong, prior, but overall the shape of the curve is very similar to what we thought about when we guided for the full year.

Ken Wong — Analyst, Oppenheimer

Okay, perfect. Thanks a lot. Jim.

Operator

Your next question comes from the line of Daniel Jester with BMO Capital Markets. Please go ahead.

Daniel Jester — Analyst, BMO Capital Markets

Hey, great, Good evening. Thank you for taking my question. Maybe, you know, in the slide deck there was a good story about ServiceMax and an expansion there. You know, last year was maybe a little bit of a tougher year for ServiceMax and so maybe just an update about what we’re, what we’re seeing there and in terms of the cross sell opportunity for fiscal 26, thank you so much.

Neil Barua — President and Chief Executive Officer

Yeah, let me start and Rob could add if I miss anything. Look, as we’ve mentioned a few times, starting last year we’ve been working through very specific churn Events in ServiceMax for.

Neil Barua — President and Chief Executive Officer

A number of quarters. Now as I mentioned, I think last.

Neil Barua — President and Chief Executive Officer

Call that where we’ve got some still residual churn that kind of hit us in Q1 and most of it we’re trying to work through the system by the end of this quarter. That being said, a ray of sunshine in terms of some green shoots we’ve been talking about, like the cross sell opportunity you saw, you noted the one in the appendix. We’ve had some good strong demand capture as we’re calling it, that is contractual commitments of service Max. That was very encouraging. As we saw the end of Q4 and throughout the entirety of Q1, we need that replicated over the next number of quarters.

We obviously want to ensure that churn is mitigated versus what we’ve seen in prior quarters. And lastly, the integration of ServiceMax into the Intelligent product lifecycle. And in particular how our AI strategy allows for agents to work across our systems of record where we have a very differentiated offer. And ServiceMax we believe is a competitive differentiation. In particular with some of these competitive displacements when customers are giving us plm. Part of it is to do with the fact that we actually do have such a strong system record at ServiceMax and ultimately in that AI world we’re at advantage.

So not out of the woods but making progress. And you know, we’re staying in real focus to make sure we continue on some of the buildup of some of those green shoots that we’re seeing.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Yeah, and as part of the alignment we go vertical and start to look at how we rebalance just the go to market teams. We’ve made this a very important part of our elevated messaging and so it’s being brought to market more widely. In addition, we, you know, on a tactical level really instituted as part of the comp plans in a way to make sure that everybody’s got some incentive to bring this in front of the customers. So in addition to the benefit to the customer, there’s internal benefits also. So we’re trying to make sure the whole company’s aligned to get the Message out.

Daniel Jester — Analyst, BMO Capital Markets

That’s great. Thank you so much.

Operator

Your next question comes from the line of Jason Salino with Keybanc Capital Markets. Please go ahead.

Jason Celino — Analyst, Keybanc Capital Markets

Hi, thanks for taking my question. Sorry to belabor another ARR question, but this actually relates to the Q2 error guide. I know there’s an implied decline in net new dollars added for Q2. Did you see any deals from the Q2 pipeline closed earlier in Q1, or are you expecting more of the deals in Q2 to also have this bigger deferred component? Thank you.

Neil Barua — President and Chief Executive Officer

It’s a great question, Jason. This is all to do with our assumption as we sit here today around how these deals will come into the in quarter start affecting ARR for that this has nothing to do with demand being lesser than the momentum that we’re talking about. It has simply to do with the structuring and our assumption of that being the case. Quite frankly, it is another quarter where we believe we will continue to build on the deferred ARR to make this a durable multi year sustainable growth engine going forward.

Jason Celino — Analyst, Keybanc Capital Markets

Perfect. Thanks.

Operator

Your next question comes from the line of Sidi Panagri with Mizuho. Please go ahead.

Siti Panigrahi — Analyst, Mizuho

Thanks for taking my question. Congrats Jen and look forward to working with you. So it’s good to see some of the initiative on AI side you’re doing and also buyback. But Neil, I want to ask about the macro that you talked about earlier. A little bit. You’re conservative there. What kind of trend are you seeing in Q1 and what’s assumed in your guidance? And specifically if you could give some color in terms of vertical, if you’re seeing anywhere strength or weakness there.

Neil Barua — President and Chief Executive Officer

Yeah. Rob, could add about the vertical piece, but just broadly we’ve been in a very difficult macro city. We’ve talked about this for many years now, for a long time and we are still delivering and capturing the types of results that we’re talking about, particularly on the demand capture commentary that we gave that is across regions, across verticals, we’re seeing that strength and the reason for it, despite the macro having so much uncertainty and volatility, despite policies being uncertain, is because, you know, as an example, today we had one of the larger industrial manufacturers in all of Europe join us at the cxc.

And while they are dealing with so much change, they need to modernize and they need to make sure prioritization of modernizing and creating a strong product data foundation in this case Windchill and the expansion windshield is what they’re looking at with the additional code beamer to make sure they take advantage of AI as they think about their multi year journey and competitiveness. So we feel good that even in this environment our end customers, as you know, Citi has not modernized as fast as almost every other end market of companies. They are getting the urgency to move.

And now with this intelligent product lifecycle, it’s a comprehensive holistic story for them to actually be competitive with technology provided by ptc.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Yeah, just in terms of the actual strength within the verticals and the geographies, there’s while there may be in a particular vertical a geography that hasn’t performed, some other geography has stepped up to outperform. And so if you look across the verticals, they’re all, our big five are all performing fairly well. And then if you look at any geography, there’s no geography that has just been depressed. If they’re down in one industry, they pick up in another. And so, you know, across our three or four biggest geographies and across the five verticals, we have some pretty good numbers.

We feel like every one of those is a place that has some upside.

Siti Panigrahi — Analyst, Mizuho

Great, thank you both.

Operator

Your next question comes from the line of Nae so Nong with Beringberg. Please go ahead.

Nay Soe Naing — Analyst, Beringberg

Hello. Hi. Thank you for taking my question and again, looking forward to working with you. My questions on the deferred ARR. I think Neil, you attribute it to the fact that the booking to AR conversion will begin from Q4 as a result of implementation of customers. I was wondering if you could share with us how much visibility of control you have over that implementation timeline. Customer, is there any potential risk that the implementation process might take longer or on the flip side it could be shorter than Q4. That’s coming up. Thank you.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Yeah, so sorry I was a little unclear, but I want to make sure your question was clear. Just the audio was a little low. But just in terms of the deferred ar, this is Rob, this is contractual commitment. So when we engage and sign these contracts, these are contractually committed amount of ARR. That’s what we hear Neil talk about the durability and the predictability of the business. So, you know, they have a great incentive to be on time in their implementation. But if they’re not, that ARR comes. So we believe that, you know, in addition to obviously the predictability, the benefit to the customer and the way we’ve contracted is that it’s allowing them time to ensure that they are aligned to the cycle of the contract.

And so why we’re also excited about how we’ve had these quarters and what we call demand capture is because in addition to timing them appropriately, we’ve done them on the proper commercial conditions. Not in any way tried to strain the deal by pulling it forward just to hit a current quarter that doesn’t match the implementation cycle or market conditions in those out years. And so these are contractually obligated, they’ll hit in these quarters. We are hoping and we’re planning to be fully aligned with their implementations. And in addition to that, hopefully as we get to those out cycles, there’s actually upside even in those.

Nay Soe Naing — Analyst, Beringberg

Okay, that’s super helpful.

Operator

Your next question comes from the line of Tyler Radtke with Citi. Please go ahead.

Tyler Radke — Analyst, Citi

Hi, thanks for taking the question. So I know you’ve been asked, you know, almost every question on deferred ARR, but I guess I was just wondering if you could help us understand, you know, I guess the magnitude in which that surprised you in the quarter and then how that changes for the year because clearly you’re seeing some good things on the rep productivity side. But you came in a little bit below the high end of the guidance and then is that something you’re just contemplating or risk adjusting more in the outlook? It looked like there was on the net new ARR for Q2 and then.

Sorry, just to clarify.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

If you think. About the stacking of these ramped ARR deals, I think it implies that your overall ARR growth should reaccelerate in Q4. And if that’s the case, would you expect that to be durable just given the visibility you have? Thank you Tyler.

Neil Barua — President and Chief Executive Officer

Thanks for the question. I just wanted to take one step back. The work that we’ve done and undertaken around go to market transformation, the hard work that we did up front and the precision and process that we’ve undertaken for the last 12 months and we’re continuing on, you know, going forward this year and into next. In addition, the product innovation that we’re talking about, AI is around bringing PTC back to a consistent demand capture environment by which we’re winning and engaging in strategic cross product deals across the core priorities that actually build towards this intelligent product lifecycle that’s so fundamental to our customers.

And so that process that Rob and CK and the go to market team started off 12 months ago and is showing the fruits of all that process in demand capture that happened in Q4 and in Q1. And as we alluded to, we intend to continue that momentum into Q2 that is not showing up yet in net new ARR and the way we showed you the guidance for Q1 was clearly not a surprise in which we gave you the range because we know that the whole whole game is build a durable, accelerating growth company. And the way you do that is by capturing great demand in a quality deal that fills deferred ARR and allows CHURN to continue to stay low and keeps building new ACV into the quarter.

That we’re playing in. And we believe in summary that that inflection, the turning the corner and the turn the corner starts becoming more apparent in Q4 of this year and substantially into 2027 and 2028. And that’s what we’re playing for, Tyler. And that’s the results and the work that we’re doing at this current time. Just so we’re, you know, being transparent with all of you.

Tyler Radke — Analyst, Citi

Thank you.

Operator

Your next question comes from the line of Jay Fleischauer Griffin securities. Please go ahead.

Jay Vleeschhouwer

Thank you. Good evening. Neil, your references this evening to large transactions, coming of similar comments back in Q4 when you clearly had a large number of large transactions leaves me to ask the following. And there’s quite a bit of deja vu here for me which is if you think about ANSYS 6, 7, 8 years ago, they too had gone through a significant go to market change. They too had evolved and broadened their portfolio. So there’s some similarities here that lead me to ask if you are anticipating a fundamental change in your deal profile or propensity that you will start seeing more frequently the number of eight figure transactions as you did in Q4 and as they did over a number of years.

And then secondly, I can’t help asking about your presence at CES last month, which was quite significant. I think the almost the entire sea level team seemed to be there. There was a significant automotive flavor to your presence there, particularly around ALM and Windchill. The question is, do you think that you can broaden your momentum in auto beyond the tip of the sphere that ALM has been giving you, plus some wind chill so that you can in fact start seeing a broader, more impactful growth or share contribution in auto, you know, as you’ve done for example at Toyota, Ford, dw, et cetera, et cetera.

Neil Barua — President and Chief Executive Officer

Yeah, Jay, thanks for the question and let me start with ces. So we were more than proud, but more than proud. We were very enthused by the reception we got at the first ever CES that PTC has been involved in. And not only from automotive. But Jay, if you were there, you saw all around our booth was industrial manufacturers around the world that actually came to our booth as executives asking of us, how can we deploy more Windchill, Most of them being our customers already, Jay, which you’re probably familiar with, but really trying to understand.

Wait a second, now you have something called CodeBeamer. Now what are you doing with AI? How can we supercharge our windshield base or Our CREO base? ServiceMax in some cases? What can we do? And that was just a really great puff your chest moment for PTC around. We’re in the big stage now. We deserve it. And we’re at the fundamental level of transforming these really amazing companies around the world, including automotive, but a lot of industrial manufacturers as well. On automotive, I will say right now, Code Beamer is the tip of the spear. And, and that tip of the spear is very substantial for us.

And there’s plenty more to go in terms of Code Beamer displacements, not only manual processes, but also competitive solutions. As you see, that product is really gaining scale. We’re adding Code Beamer AI functionality, which the market is really energized by. So, you know, we’re, we’re happy to get all of automotive onto Code Beamer and that, that’s, we’re marching towards that end for what it’s worth. Same on Windchill with automotive, we are continuing to see an ability for Windchill, while in some accounts in automotive, it is there. As you know, Jay, we’re seeing this theme of like, let’s consolidate on Windchill.

Let’s take all the disparate PLM system and put it all onto Windchill and we’re going to continue to go down that path. Lastly, ServiceMax. So Lamborghini was a marquee customer at our, at our booth. They’re deploying Service Max now that’s tied back into their windshield instance so that they could deploy the right parts and services to their end customers faster. We’re going to go down that path as well. Ultimately, one day we’re going to talk about cad, but right now we feel really good about in automotive, ALM, PLM, and over time, as we’re seeing ServerGistics, our ServiceMax product and SOM suite of products there.

Jennifer DiRico — Executive Vice President and Chief Financial Officer

Rob, anything I’d say is in addition, of course we have to continue to take down the rest of the automotive industry when it comes to alm, but we are seeing it start to go into other industries. It’s not, we have not made any type of deliberate decision to knock off. We actually have customers now exploring it and actually in places that you wouldn’t even imagine. So we’re, we’re pretty excited about the possibilities there and there’s obviously a huge white space outside.

Robert Dahdah — Chief Revenue Officer

And your first question, Jay, around are you seeing this dynamic of cross product larger scale deals and you know, these large scale deals, they take a lot of effort. Timing, you know, is always an art and we have one of the best artists in the world and Rob kind of with his team landing though, so, but, but a big part of what has been the up level messaging that we’ve been talking about, the going to partners, getting to the gsi, revealing what you know, Jay, I think is like the greatness of ptc, the importance of PTC to be at the same system of record as the big players, you know, worldwide in software.

That’s beginning to happen and the more we get there, the more we’re starting to construct these larger deals when they come in and is going to be on Rob. But we’re enthused about the fact that they’re starting to actually build into the pipeline and you know, we’re looking at very optimistic ways in which how we could close that over the next number of years.

Jay Vleeschhouwer

Thank you very much.

Operator

Your next question comes from the line of Joshua Tilton with Wolf Research. Please go ahead.

Joshua Tilton — Analyst, Wolf Research

Hey guys, thanks for sneaking me in again. And I hate to ask one more on deferred ARR but if I kind of, you know, sum up all the takes of the questions that we’re getting sent on the call, I think some of us have, you know, remembering or PTSD or whatever you want to call it from prior communication around deferred ARR that kind of didn’t pan out as we were all hoping for in the year. And I’m just, I guess what I’m asking, is there anything that you can tell us or give us to instill confidence that this deferred ARR balance will come through in the fourth quarter.

And then on top of that, is there a way to think about how much of that balance is currently baked into the guidance? Thanks guys.

Neil Barua — President and Chief Executive Officer

Yeah, so let me just on the confidence level and again I can only speak about what we’ve been doing since. We’Ve been transforming the business across all fronts. And I want to make one reference back to 12 months ago when we talked about all the levels of what we’re doing in go to market translation. One of it was far tighter linkage between sales and customer success. And Rob made plenty of organizational decisions, process decisions to align the two and the reason why that’s important. Answering your question is customer success that is in that team has the implementation expertise when a deal is underway. They’re the ones that actually advise the customer around. Here’s what we see as the way in which the technology can actually be implemented.

In addition to a third party, that linkage is tighter. And because it’s tighter, we believe that in the contracting process it’s eyes wide open around when the implementation should occur, when the customer should pay for it and what’s the right thing to do for the process of the actual project itself. And so we feel confident that we put the right diligence. Number one, and there’s far tighter linkages now than there was 12 months ago. Number two is, you know, I think Rob alluded to this. I want to just punctuate it is we’re doing deals to build a durable, multi year growth, sustainable business, not telling the customer, if you let us maximize AR for this quarter, you know, you’ll get these certain attributes.

We’re doing the deals the way they should be the do the deals. And so the risk profile of a customer coming back and saying the implementation schedule is different than what you said is low, lower than I’ve seen. And at the end of the day, Rob’s got a discipline that says since we were transparent with you, it’s in contract, you’re going to pay for it. So summary of all that long diatribe is that we feel little risk in that deferred ARR for you to have that PTSD of saying that disappeared or moved out.

Joshua Tilton — Analyst, Wolf Research

Love it. Thanks for the clarity, really appreciate it.

Operator

That concludes our question and answer session. I will now turn the call back over to Neil Barua for closing remarks.

Neil Barua — President and Chief Executive Officer

Thank you all for joining. We really appreciate the questions and the attention. We’re going to be on the road the next number of weeks, meeting in conferences and investors and so we look forward to seeing you. And again, thank you for joining the call.

Operator

Ladies and gentlemen, this concludes today’s call. Thank you all for joining. You may now disconnect.