PTC Inc. (PTC) | The Buildout — AI Infrastructure
The Verdict
PTC sells product lifecycle management and computer-aided design software—Windchill, Codebeamer, ServiceMax, Arena, Creo, and Onshape—that manufacturers use to design, engineer, make, and service complex products. Its software acts as the governed data and workflow layer that determines how much value customers can get from AI in engineering and service. The AI infrastructure buildout reaches PTC indirectly: companies designing data-center hardware, industrial automation, electronics, vehicles, and defense systems need structured product data before AI can be trusted on top of it.
| Market Cap | — |
| Revenue (TTM) | $3.0B |
| Revenue Growth | +19.5% |
| EBITDA Margin (TTM) | 42.1% |
| Net Debt | $1.3B |
| Earnings Beats | 7 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Constant-currency ARR excluding divested businesses accelerated from 8.5% in Q2 FY26 to 9.1% in Q3 FY26.
- FY27 deferred ARR was described as roughly 2x the comparable balance at the same point the prior year.
- About 95% of FY2025 revenue was recurring; Q2 FY26 non-GAAP gross margin was 87% and non-GAAP operating margin was 53%.
- Competitive displacement value doubled year over year, with management tying part of that to AI readiness.
- FY26 AI releases are planned at 14, up from 8 in 2025; Creo AI, PTC Orbit, Onshape Labs, Arena Connect, and Codebeamer AI have been delivered.
What We’re Watching
- Q4 FY26 net new ARR guidance of $79–92 million must confirm the deferred-ARR conversion; excluding deferred ARR, back-half net new ARR was approximately flat year over year.
- Q4 FY26 free cash flow is guided to about $15 million because of divestiture capital gains outflows.
- Management says FY27 AI monetization will be 'not overly material,' and the largest AI deal is near seven-figure.
- Q3 revenue of $600 million came in below the midpoint on one shortened-duration contract expansion, showing ASC 606 revenue lumpiness.
The thesis is strengthening on execution and AI-pull evidence but remains unproven on underlying demand acceleration. The go-to-market transformation language has shifted to 'turned the corner,' and ARR, cash flow, and AI deal proof points support that. The key open question is whether like-for-like net new ARR can accelerate after the deferred ARR balances convert, or whether the reported step-up is a one-time bridge.
Earnings Beat
PTC reported Q3 FY2026 revenue of $600 million, below the midpoint of guidance because of the shortened duration of one large contract expansion; gross margin was 81.7%. Constant-currency ARR excluding divested businesses reached $2.448 billion, up 9.1% year over year and above the high end of guidance; net new ARR was $60 million versus guided $40–55 million.
| Metric | Q3 FY2026 | Q2 FY2026 | Q3 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $600M | $774M | $644M | −6.8% |
| Gross margin | 81.7% | 83.8% | 82.9% | -120bps |
| EBITDA | $191M | $329M | $244M | −21.7% |
| EPS | $1.03 | $4.98 | $1.17 | −11.9% |
| Constant-currency ARR excluding divested businesses | $2.448B | n/a | n/a | +9.1% YoY |
| Net new ARR | $60M | n/a | n/a | Guidance $40–55M |
We have turned the corner with our go-to-market transformation.— Neil Barua, CEO, 2026-07-29
Management tone: Management's tone shifted from 'gains traction' in Q2 FY26 to 'turned the corner' in Q3 FY26. CEO Neil Barua said the go-to-market team reached a new operating standard. CFO Jennifer DiRico attributed the revenue miss to one contract and emphasized deferred ARR as forward visibility.
Management Guidance
Management raised FY2026 guidance for ARR, revenue, and EPS, and reaffirmed free cash flow. Constant-currency ARR growth excluding divested businesses is guided to ~9.0%–9.5%, net new ARR midpoint to $214 million, revenue to $2.690–2.750 billion, non-GAAP EPS to $7.87–8.42, and free cash flow to ~$850 million. Q4 net new ARR is guided to $79–92 million, and Q4 free cash flow to about $15 million because of divestiture capital gains outflows.
Trajectory
Reported revenue is noisy: $894M in Q4 FY25, $686M in Q1 FY26, $774M in Q2 FY26, and $600M in Q3 FY26. The audited data shows gross margin compressing 520 basis points and EBITDA margin compressing 2,050 basis points across recent quarters, while TTM free cash flow conversion is 76% of net income. The company's preferred metric points the other way: constant-currency ARR excluding divested businesses accelerated from 8.5% in Q2 FY26 to 9.1% in Q3 FY26, driven by Windchill, Codebeamer, and Creo demand.
The Model
The model's locked projections show FY+1 revenue of $2,820 million and EBITDA of $1,227 million, a 43.5% margin, rising to FY+2 revenue of $3,100 million and EBITDA of $1,435 million, a 46.3% margin.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $2.7B | $2.8B | $3.1B |
| YoY Growth | — | +2.9% | +9.9% |
| EBITDA | $1.1B | $1.2B | $1.4B |
| EBITDA Margin | 40.8% | 43.5% | 46.3% |
Projections are the median of 5 independent model runs. The model’s revenue sits 7.5% above analyst consensus.
Management raised FY2026 guidance for ARR, revenue, and EPS, and reaffirmed free cash flow. Constant-currency ARR growth excluding divested businesses is guided to ~9.0%–9.5%, net new ARR midpoint to $214 million, revenue to $2.690–2.750 billion, non-GAAP EPS to $7.87–8.42, and free cash flow to ~$850 million. Q4 net new ARR is guided to $79–92 million, and Q4 free cash flow to about $15 million because of divestiture capital gains outflows.
What Could Go Right — and Wrong
- Q4 net new ARR lands within or above $79–92 million, confirming the deferred-ARR conversion path.
- FY27 initial guidance shows ARR growth accelerating above 9% on a like-for-like basis, not just deferred conversion.
- PTC Jetstream reaches GA in Q1 FY27 and expands beyond engineering personas into supply chain and manufacturing.
- ServiceMax AI global expansion converts the near seven-figure North American deal into a larger recurring SKU.
- Federal/defense expands beyond the U.S. Army Windchill standard to other agencies.
- Deferred ARR conversion disappoints or like-for-like net new ARR turns negative, exposing the acceleration as timing.
- AI pilots do not scale into paid SKUs; FY27 AI monetization remains 'not overly material.'
- Large deal duration swings cause more revenue misses like Q3's $600 million below midpoint.
- Siemens, Dassault, Autodesk, Microsoft, or Oracle win more displacement accounts and reverse momentum.
Looking Ahead
The next 12 months center on Q4 FY26's net new ARR step-up, initial FY27 guidance, PTC Jetstream GA expected beginning Q1 FY27, and expansion of the first ServiceMax AI deals. Management expects meaningful deferred ARR to convert into ARR in Q4, but the durable test is whether like-for-like net new ARR accelerates behind that conversion.
- Q4 FY2026Q4 net new ARR step-up — Tests $79–92 million guide and deferred ARR conversion.
- Q4 FY2026Q4 free cash flow — Guided to ~$15 million on divestiture tax outflows; FY26 FCF ~$850 million.
- Q1 FY2027PTC Jetstream GA — Tests expansion beyond engineering into supply chain and manufacturing.
- FY2027FY27 guidance issued — Tests whether ARR guidance implies acceleration above 9%.
- FY2027Stand-alone AI monetization — Management says initial FY27 contribution, but 'not overly material.'
- October 1, 2026New $2B buyback authorization begins — Effective through FY2028; tests capital return execution.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $2.3B | $2.7B | $3.0B | +19.2% |
| Gross Margin | 80.5% | 83.3% | 84.1% | +278bps |
| EBITDA | $730M | $1.1B | $5.1B | +53.2% |
| EBITDA Margin | 31.7% | 40.8% | 42.1% | +907bps |
| Net Income | $376M | $734M | $1.2B | +95.0% |
| Free Cash Flow | $732M | $857M | $4.5B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)84.1%
- EBITDA Margin (TTM)42.1%
- Net Margin (TTM)41.4%
- ROIC18.7%
- FCF Conversion75.2%
- SBC / Revenue6.1%
The Company
PTC sells product lifecycle management and computer-aided design software, including Windchill, Codebeamer, pure::variants, ServiceMax, Servigistics, Arena, Creo, and Onshape. It has more than 7,000 employees and more than 30,000 customers, primarily serving industrials, federal/aerospace/defense, electronics/high tech, automotive, and medical technology/life sciences. Management says the strength of a customer's product data foundation determines that customer's AI ceiling, positioning PTC's software as the governed system of record for critical engineering and service work.
PTC is a subscription software business with about 95% of FY2025 revenue recurring. It reports two software segments: PLM software products and CAD software products. The Kepware and ThingWorx divestiture closed March 13, 2026, leaving the company focused on the intelligent product life cycle vision. It has minimal physical infrastructure: Q2 FY26 capex was $2.7 million, and headcount decreased 4% between Q2 FY25 and Q2 FY26 primarily because of the divestiture. About 55% of revenue and 30% of expenses are transacted outside the US dollar, with sensitivity to the Euro, Yen, Shekel, and Rupee.
Business Segments
Competitive Landscape
PTC's 10-K discloses competitors by product area: Autodesk, Dassault Systèmes SA, and Siemens AG in enterprise CAD and PLM; IBM, Jama Software, Inc., and Siemens AG in ALM; and Oracle, SAP, IFS AB, Microsoft, and Salesforce in SLM. Management says the aggregate value of displacements year over year doubled, and it acknowledged that Siemens and Dassault are also talking about displacement.
- AutodeskNamed in PTC's 10-K as a competitor in enterprise CAD and PLM.
- Dassault Systèmes SANamed in PTC's 10-K as a competitor in enterprise CAD and PLM; management acknowledged Dassault is also talking about displacement.
- Siemens AGNamed in PTC's 10-K as a competitor in CAD, PLM, and ALM; also named in Nvidia's engineering-tool acceleration commentary instead of PTC.
- MicrosoftNamed in PTC's 10-K as a competitor in SLM.
- OracleNamed in PTC's 10-K as a competitor in SLM.
Supply Chain
PTC is a software company with minimal physical supply chain. The supplied 10-K risk extract disclosed no sole-source designations.
More on PTC: Earnings recap