Fiscal 2023 and Q2'23 Guidance

"Q1 was a solid start to the year, driven by the resilience of our business model, our consistent execution, operational discipline and the actions we have taken to align our investments with our growth opportunities. While we saw incremental signs of a softening economy in Q1, we believe we have set our financial guidance appropriately, balancing our momentum and forecast with macroeconomic uncertainties. Based on our performance in Q1'23 and forecast for FY'23, we are raising our cash flow guidance and narrowing the ARR guidance range we presented at our investor day in November 2022, which includes the ServiceMax acquisition," said Kristian Talvitie, EVP and CFO, PTC.

Reconciliation of Cash from Operations Guidance to Free Cash Flow Guidance

Our FY'23 and Q2'23 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 Q1'23 had a favorable impact on our Q1'23 reported ARR, compared to our Q1'23 constant currency ARR. Using foreign exchange rates as of the end of Q1'23 and assuming the midpoint of our constant currency guidance ranges:
      
  
• Q2'23 reported ARR would be higher by approximately $62 million, compared to Q2'23 constant currency ARR
     
• FY'23 reported ARR would be higher by approximately $67 million, compared to FY'23 constant currency ARR
• We expect FY'23 organic churn to be ~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 the first half of our fiscal year and for Q4'23 to be our lowest cash flow generation quarter.
    
• Our GAAP P&L expectations, including our GAAP tax rate, do not include the impact of ServiceMax purchase accounting as the valuation of the acquired assets and liabilities has not been completed. The purchase accounting will include valuing acquired assets and liabilities and is expected to have a material impact on our financial statements.
    
• Compared to FY'22, at the mid-point of FY'23 ARR guidance, FY'23 GAAP operating expenses, excluding the impact of ServiceMax purchase accounting, are expected to increase approximately 6% to 7%, and FY'23 non-GAAP operating expenses are expected to increase approximately 10% to 11%, primarily due to the acquisition of ServiceMax and foreign exchange rate fluctuations.
      
• FY'23 GAAP P&L results, excluding the impact of ServiceMax purchase accounting, are expected to include the items below, totaling $253 million to $268 million, as well as their related tax effects:
    
  
• $180 million to $195 million of stock-based compensation expense, with the increase from our previous assumption of $165 million to $180 million primarily due to the acquisition of ServiceMax
    
• $57 million of intangible asset amortization expense
    
• $16 million of acquisition and transaction-related expense
• Our FY'23 GAAP tax rate, excluding the impact of ServiceMax purchase accounting, is expected to be approximately 22%. Our FY'23 non-GAAP tax rate is expected to be approximately 22%.
    
• 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.