PTC (NASDAQ: PTC) has reported a robust start to fiscal 2026, with significant growth in annual recurring revenue (ARR) and free cash flow. During the company’s first-quarter earnings call, CEO Neil Barua highlighted a 9% year-over-year increase in constant-currency ARR, excluding Kepware and ThingWorx, and an 8.4% increase including those businesses. The CFO, Jen DiRico, noted that both operating cash flow and free cash flow surged by 13% compared to the previous year, with free cash flow reaching $267 million despite incurring $10 million in divestiture-related costs.
Barua described PTC as being in a phase of transformation, indicating the company is “turning the corner” as it enhances its product offerings and customer engagement strategies. He cited five key indicators of progress, emphasizing the increasing complexity of product development and the need for software-driven, regulated solutions. The company is advancing its “Intelligent Product Lifecycle” strategy, which focuses on connected systems of record and enterprise-wide cloud access to product data, integrating artificial intelligence (AI) into workflows.
Innovative Product Updates and AI Integration
Executives showcased recent advancements in their product portfolio. Barua pointed out the enhanced connectivity between Creo and Windchill, as well as ongoing integrations with Codebeamer, ServiceMax, and Onshape. Significant product updates include the December release of Codebeamer 3.2, which strengthens the connection with Windchill, and an October update that introduced a new user interface and improved change management features for supplier data sharing.
On the AI front, Barua noted an increasing demand from customers for AI capabilities embedded in trusted systems rather than standalone tools. In December, PTC introduced Codebeamer AI, designed to improve requirements quality and test case development, while Windchill AI Parts Rationalization was released in January to enhance part data consistency and identify duplicates. Barua also mentioned that the company is working on a unified AI infrastructure across its offerings, ensuring consistent governance and security standards.
During the question-and-answer session, Barua acknowledged that AI’s current financial impact is “immaterial,” but he anticipates it will become a significant economic driver as the technology matures and moves beyond pilot projects.
Deferred ARR and Strategic Expansion
Management also addressed the concept of deferred ARR, which they view as indicative of demand that has not yet translated into immediate revenue growth. Barua reported that PTC has increased seller capacity and improved quota attainment, leading to more than double the productivity of ramping representatives year-over-year. The company achieved record levels in large deal volume and competitive displacements during the quarter, with some contracts expected to convert to ARR by the fourth quarter of fiscal 2026.
Barua specifically highlighted an expansion with Garrett Motion, which is modernizing its operations with a cloud-first, AI-ready architecture. Garrett selected Windchill+ for product lifecycle management and Codebeamer+ for application lifecycle management, displacing competitors in the process.
DiRico confirmed that deferred ARR increased in the first quarter compared to the previous quarter, emphasizing that this trend is largely tied to strategic, cross-product deals and competitive displacements, driven by customer implementation cycles.
Capital Return Plans and Financial Outlook
Regarding capital management, DiRico announced that PTC repurchased $200 million of common stock in the first quarter and plans to buy back approximately $250 million in the second quarter. She indicated that the company expects its fully diluted share count to decrease to about 119 million shares, down from 121 million a year earlier.
Looking ahead, PTC maintained its guidance for fiscal 2026, projecting constant-currency ARR growth of about 7.5% to 9.5% excluding Kepware and ThingWorx, and 7% to 9% including those assets. For the second quarter, the company anticipates ARR growth of approximately 8% to 8.5% excluding Kepware and ThingWorx, and 7.5% to 8% with them. DiRico estimated free cash flow for the upcoming quarter to be between $310 million and $315 million, incorporating costs related to divestitures.
With the recent divestitures, PTC expects to return additional capital to shareholders, anticipating approximately $365 million in net after-tax proceeds. Overall, the company projects fiscal 2026 buybacks to reach between $1.1 billion and $1.3 billion.
In conclusion, PTC’s performance in the first quarter indicates a strong trajectory towards meeting its fiscal targets while focusing on innovative solutions and strategic growth in a dynamic market.
