PTC Inc. (PTC) | The Buildout — AI Infrastructure
The Verdict
PTC sells the software where a manufacturer's product data lives — the designs, configurations, bills of material and source code that engineering, software and service teams work in every day. It reports two product groups: PLM software (Windchill, Codebeamer, pure::variants, ServiceMax, Servigistics and Arena) and CAD software (Creo and Onshape). Management's framing is that customers cannot get value from AI without first modernizing the product data foundation underneath it, and that PTC's systems of record are that foundation. AI is embedded across the portfolio rather than sold as a separate segment, and management describes the stand-alone AI opportunity as multi-year.
| 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
- 95% of 2025 revenue is recurring, spread across more than 30,000 customers in five verticals.
- Constant-currency ARR excluding divested businesses was up 9.1% year over year at end Q3 FY26, above the high end of guidance. FY26 ARR-growth guidance was raised to ~9%–9.5%, a 9.25% midpoint.
- FY27 deferred ARR is roughly 2x the amount on hand a year earlier for FY26 — contracted revenue management points to as the visibility bridge.
- Margins are high: non-GAAP operating margin was 53.0% in Q2 FY26, and FY26 free cash flow is guided to ~$850M.
- AI is embedded across the portfolio and the release cadence is roughly doubling — 8 AI releases in 2025 and 14 more in 2026. Displacement value doubled year over year in Q3 FY26.
What We’re Watching
- Ex-deferred net new ARR was roughly flat year over year, per the CFO's one-word answer on the Q2 call. The forward step-up leans on banked deferred ARR rather than a proven like-for-like lift.
- Q4 FY26 net new ARR is guided to $79M–$92M, a large sequential step-up, and management says it still has to execute.
- Stand-alone AI monetization is not expected to be material in FY27, and the deal management calls its largest AI ever is described as near-7-figure against a $2.448B ARR base.
- Kepware and ThingWorx did not meet the criteria for discontinued operations, so prior periods were not recast and year-over-year comparisons stay distorted until the first clean post-divestiture print.
The thesis looks to be strengthening on trajectory but not yet confirmed on quality. PTC narrowed its portfolio, posted a fourth straight quarter of claimed go-to-market improvement, and raised and narrowed FY26 guidance for a second consecutive quarter. The judgment still to be made is whether the step-up is conversion of already-banked deferred ARR or a genuine like-for-like demand inflection — the CFO's own 'Approximately' on flat ex-deferred net new ARR leaves that question open.
Earnings Beat
Q3 FY26 revenue was $600M, below the midpoint of guidance, because a single large contract expansion had shortened duration — deals across the rest of the business held. Gross margin was 81.7% and EBITDA was $190.7M, a 31.8% margin. The standout metric was net new ARR of $60M, above the high end of the $40M–$55M guide, alongside constant-currency ARR of $2.448B excluding divested businesses, up 9.1% year over year and also above the high end. Free cash flow of $249M exceeded the $240M–$245M guidance range.
| 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% |
| Net new ARR | $60M | n/a | n/a | — |
| Free cash flow | $249M | $318M | $242M | +3% |
this sustained level of execution we've seen, quite frankly, over the last 4 quarters… gave Jen and I the confidence to assertively tell all of you, we've turned the corner.— Neil Barua, CEO, 2026-07-29
Management tone: Management's language escalated between the Q2 and Q3 calls. On Q2 (2026-05-06) the go-to-market line was that the machine 'is starting to work well'; on Q3 (2026-07-29) it became 'We have turned the corner, and we now have a new operating standard,' which the CEO tied to four consecutive quarters of improvement. Guidance was raised and narrowed for a second straight quarter, and the net new ARR midpoint went from $195M to $214M. Management was candid where it mattered — the CFO answered 'Approximately' when asked whether ex-deferred net new ARR is flat year over year — and less forthcoming on the precise Q4 deferred-ARR contribution, which the CFO declined to detail.
Management Guidance
For FY26, management guides constant-currency ARR growth of about 9%–9.5% excluding Kepware and ThingWorx (midpoint 9.25%, raised from ~7.5%–9.5%), net new ARR at a $214M midpoint (raised from $195M), revenue of $2.69B–$2.75B (midpoint raised and range narrowed from $2.580B–$2.820B), non-GAAP EPS of $7.87–$8.42, free cash flow of about $850M reaffirmed, and share repurchases of about $1.625B (raised from $1.225B–$1.325B). For Q4 FY26 specifically, net new ARR is guided to $79M–$92M and free cash flow to about $15M because of divestiture capital-gains outflows. The fully diluted share count is guided to about 116M for FY26, against 121M in FY25.
Trajectory
Reported revenue moves with contract duration and value mix, not just with demand. Quarterly revenue ran $893.8M in Q4 FY25, then $685.8M, $774.3M and $600.0M. Q2 FY26 beat its guide on longer-duration renewals; Q3 FY26 came in below its midpoint because one large contract expansion had shortened duration. ARR is the steadier signal: constant-currency ARR excluding the divested Kepware and ThingWorx businesses was up 9.1% year over year at end Q3 FY26. Margins compressed over the same stretch — Q3 FY26 gross margin was 81.7% and EBITDA margin 31.8%, against 83.8% and 42.5% in Q2 FY26 — and the code-computed signals read reported revenue as decelerating and margins as compressing.
The Model
The model projects FY+1 revenue of $2,930M with EBITDA of $1,204M, a 41.1% margin, and FY+2 revenue of $3,240M with EBITDA of $1,374M, a 42.4% margin. The near term is anchored on the raised FY26 ARR guidance and the deferred ARR already contracted for FY27. FY+2 depends on whether that deferred balance converts on schedule and whether stand-alone AI capabilities become a meaningful contributor to ARR — which management describes as a medium- to longer-term path rather than a FY26 or FY27 event.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $2.7B | $2.9B | $3.2B |
| YoY Growth | — | +7.0% | +10.6% |
| EBITDA | $1.1B | $1.2B | $1.4B |
| EBITDA Margin | 40.8% | 41.1% | 42.4% |
Projections are the median of 5 independent model runs. The model’s revenue sits 3.8% above analyst consensus.
For FY26, management guides constant-currency ARR growth of about 9%–9.5% excluding Kepware and ThingWorx (midpoint 9.25%, raised from ~7.5%–9.5%), net new ARR at a $214M midpoint (raised from $195M), revenue of $2.69B–$2.75B (midpoint raised and range narrowed from $2.580B–$2.820B), non-GAAP EPS of $7.87–$8.42, free cash flow of about $850M reaffirmed, and share repurchases of about $1.625B (raised from $1.225B–$1.325B). For Q4 FY26 specifically, net new ARR is guided to $79M–$92M and free cash flow to about $15M because of divestiture capital-gains outflows. The fully diluted share count is guided to about 116M for FY26, against 121M in FY25.
What Could Go Right — and Wrong
- Q4 FY26 net new ARR lands at the top of the guided range, supporting the low-double-digit FY27 ARR growth path management described.
- The roughly 2x deferred ARR balance for FY27 converts on schedule and net new ARR accelerates on a like-for-like basis, not just on banked deferred revenue.
- The flagged global ServiceMax AI expansion closes and AI SKUs scale beyond near-7-figure pilots, giving management a reason to begin sizing AI revenue.
- U.S. Army Windchill standardization translates into multi-agency federal ARR, as management describes it as a calling card to other agencies.
- Onshape API calls from AI-related start-ups — tripling in a few months — become a measurable revenue line.
- Q4 FY26 net new ARR comes in below the low end of the guided range, reframing the second half as a deferred-ARR timing effect rather than a demand inflection.
- Stand-alone AI monetization stays near-7-figure while competitors scale AI revenue far larger, leaving AI as narrative rather than revenue.
- Displacement growth stops doubling — Siemens and Dassault are making parallel modernization claims — narrowing the modernization tailwind.
- Revenue stays duration-sensitive, so a single contract can move the reported quarterly line in either direction.
- Professional-services gross margin stays negative (−6% in H1 FY26) while G&A and stock-based compensation pressure continues.
Looking Ahead
Over the next twelve months the questions are execution and conversion. Q4 FY26 carries the largest net new ARR step-up of the year alongside the weakest guided free cash flow quarter, about $15M, because of divestiture capital-gains outflows. The FY27 framework lands with the Q4/FY26 print and will show whether the roughly 2x deferred ARR balance converts. PTC Jetstream, the supply-chain collaboration product now in beta, is set for general availability at the beginning of Q1 FY27, and the new $2B repurchase authorization takes effect October 1, 2026 and runs through the end of fiscal 2028.
- Q4 FY2026Q4 net new ARR guide — Tests the largest sequential step-up of the year.
- Q4 FY2026Q4 free-cash-flow trough — Guided to ~$15M on divestiture capital-gains outflows.
- Oct 1, 2026$2B buyback effective — New repurchase authorization runs through the end of FY28.
- Q4/FY26 printFY27 guidance — Tests whether ~2x deferred ARR converts into faster ARR growth.
- Beginning of Q1 FY27PTC Jetstream GA — Supply-chain collaboration product moves from beta to launch.
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 | $1.2B | +53.2% |
| EBITDA Margin | 31.7% | 40.8% | 42.1% | +907bps |
| Net Income | $376M | $734M | $1.2B | +95.0% |
| Free Cash Flow | $732M | $857M | $935M | — |
| 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 / Revenue8.1%
The Company
PTC is a Boston-based industrial software company with more than 7,000 employees and more than 30,000 customers. It sells the software where a manufacturer's product data lives — the designs, configurations, bills of material and source code that engineering, software and service teams work in. Its sales skew to industrials, federal/aerospace/defense, electronics/high tech, automotive, and medical technology/life sciences, sectors where engineering data is regulated and auditable. The business is subscription-based, and 95% of 2025 revenue is recurring in nature.
PTC reports two product groups — PLM software products and CAD software products — and the 10-Q confirms it operates as a single reportable segment. It makes nothing physical: the 10-K lists no plants and the company holds no inventory. It sells through a mix of channel and direct, and channel has grown faster — 12.6% year over year in ARR against 7.8% direct, every quarter this fiscal year, a question management has not resolved. On March 13, 2026 it closed the divestiture of Kepware and ThingWorx for $523M in cash at closing, recognizing a $463M gain ($360M net of tax), and now frames itself as concentrated on the Intelligent Product Lifecycle. Roughly 55% of revenue and 30% of expenses are transacted in currencies other than the U.S. dollar, and it depends on third-party cloud-infrastructure providers that the 10-K does not name.
Business Segments
Competitive Landscape
PTC's 10-K names its competitive set by product area: Autodesk, Dassault Systèmes SA and Siemens AG in enterprise CAD and PLM; IBM, Jama Software and Siemens in ALM; and Oracle, SAP, IFS AB, Microsoft and Salesforce in SLM, alongside point-solution providers. Management argues the structural advantage sits at the data and process level rather than the interface — CEO Neil Barua on the Q3 call: 'we see a lot of talk about new interfaces, but I want to be crystal clear, the structural advantage here at PTC is at the data and process level.' The displacement contest is being run by everyone: analysts noted Siemens and Dassault making parallel modernization claims, and the competitor set is converging into service workflows, with Autodesk's MaintainX acquisition described as an adjacency to ServiceMax.
- AutodeskNamed in the 10-K as an enterprise CAD and PLM competitor. Its MaintainX acquisition is described in the neighbor read-through as a competitive adjacency to ServiceMax.
- Dassault Systèmes SANamed in the 10-K as an enterprise CAD and PLM competitor. Analysts noted Dassault making parallel modernization and displacement claims.
- Siemens AGNamed in the 10-K as a competitor in both enterprise CAD and PLM and in ALM. Analysts noted Siemens making parallel displacement claims.
- MicrosoftNamed in the 10-K as an SLM competitor. In neighbor transcripts Microsoft reports Copilot above 30M paid seats and frames its moat as keeping the model harness separate from customer IP.
- OracleNamed in the 10-K as an SLM competitor. Its reported quarter included OCI revenue up 121% and more than $30B of new AI contracts.
Supply Chain
PTC is a subscription software company with no plants, no inventory and no disclosed sole-source dependencies. Its one real supply-side relationship is a cloud-infrastructure dependency, stated as a 10-K risk factor with no provider named — no AWS, Azure or GCP is identified. No neighbor transcript mentions PTC by name.
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