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PTC reported financial results for its second fiscal quarter ended March 31, 2023.

"In our second fiscal quarter, we again delivered strong ARR and cash flow results that exceeded our guidance ranges. We reported ARR growth of 23%, organic ARR growth of 11%, and organic constant currency ARR growth of 13%. Our ServiceMax^® and Codebeamer™ businesses added 13 points of ARR growth, taking constant currency ARR growth to 26%. In Q2, our cash from operations was $211 million, up 48% year over year, and our free cash flow was $207 million, up 48% year over year," said James Heppelmann, CEO, PTC.

"Our diverse product portfolio, now increasingly differentiated with the addition of ServiceMax, and our industry-leading SaaS capabilities align well to the manufacturing industry's push for digital transformation. Our subscription model and strong market position, coupled with solid execution, position PTC to deliver financial performance at peer-leading levels. We look forward to building on our momentum with customers and partners at our LiveWorx^® conference in May in Boston, and invite investors to join us," concluded Heppelmann.

Second Quarter 2023 Highlights

Key operating and financial highlights are set forth below. For additional details, please refer to the Q2'23 earnings presentation and financial data tables that have been posted to the Investor Relations section of our website at investor.ptc.com. The definitions of our operating and non-GAAP financial measures and reconciliations of non-GAAP financial measures to comparable GAAP measures are included below and in the reconciliation tables at the end of this press release.

Reconciliation of Q2'23 Cash from Operations to Free Cash Flow

Fiscal 2023 and Q3'23 Guidance

"Our financial results in the first half of our fiscal year were solid, driven by the resilience of our business model, consistent execution, operational discipline, and the actions we have taken to align our investments with our growth opportunities. We believe we have set our financial guidance appropriately, balancing our momentum and outlook with macroeconomic uncertainties. Based on our performance in the first half of FY'23 and outlook for the second half of FY'23, we are narrowing our guidance range for constant currency ARR and raising our full year guidance for cash flow, while increasing investment in long-term growth opportunities," said Kristian Talvitie, CFO, PTC.

Reconciliation of Cash from Operations Guidance to Free Cash Flow Guidance

Our FY'23 and Q3'23 financial guidance includes the assumptions below:

• We provide ARR guidance on a constant currency basis, using our FY'23 Plan foreign exchange rates (rates as of September 30, 2022) for all periods. Foreign exchange fluctuations during the first half of FY'23 had a favorable impact on our Q2'23 reported ARR, compared to our Q2'23 constant currency ARR. Using foreign exchange rates as of the end of Q2'23 and assuming the midpoint of our constant currency guidance ranges:
• Q3'23 reported ARR guidance would be higher by approximately $70 million, compared to Q3'23 constant currency ARR guidance
• FY'23 reported ARR guidance would be higher by approximately $73 million, compared to FY'23 constant currency ARR guidance
• We expect FY'23 organic churn to be to be approximately 5.5%, in-line with FY'22.
• For cash flow, due to invoicing seasonality, and consistent with the past 2 years, we expect the majority of our collections to occur in 1H'23 and for Q4'23 to be our lowest cash flow generation quarter.
• Compared to FY'22, at the midpoint of FY'23 ARR guidance, FY'23 GAAP operating expenses are expected to increase approximately 7% to 8%, and FY'23 non-GAAP operating expenses are expected to increase approximately 10% to 11%, primarily due to the acquisition of ServiceMax, foreign exchange rate fluctuations, and incremental investments in 2H'23
• FY'23 GAAP P&L results are expected to include the items below, totaling $284 million to $299 million, as well as their related tax effects:
• $185 million to $200 million of stock-based compensation expense
• $76 million of intangible asset amortization expense
• $18 million of acquisition and transaction-related expense
• $5 million of other non-operating expenses, primarily financing charges associated with a debt commitment agreement related to the ServiceMax acquisition
• Our FY'23 GAAP and non-GAAP tax rate is expected to be approximately 20%.
• FY'23 capital expenditures are expected to be approximately $20 million.
• Our long-term goal, assuming our Debt/EBITDA ratio is below 3x, is to return approximately 50% of our free cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic opportunities. Given the current interest rate environment, we expect to prioritize paying down our debt in FY'23 and FY'24.

PTC's Fiscal Second Quarter Results Conference Call

The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, April 26, 2023. To participate in the live conference call, dial (888) 330-2508 or (240) 789-2735 and provide the passcode 7328695, or log in to the webcast, available on PTC's Investor Relations website. A replay will also be available.

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