PTC Inc.: Form 10-Q for the period ended Dec 31, 2025

Business Overview

PTC is a global software company headquartered in Boston, Massachusetts. We employ over 7,000 people and support more than 30,000 customers globally.

We primarily serve customers in the following industry verticals:

• Industrials
• Federal, Aerospace and Defense
• Electronics and High Tech
• Automotive
• Medical Technology and Life Sciences

Our customers are focused on improving their competitiveness in the face of global competition and increasing product complexity, and our suite of software offerings is a strategic enabler of this and their digital transformation initiatives. Given the breadth and openness of our portfolio, we enable the Intelligent Product Lifecycle: establishing a strong product data foundation in the engineering department and democratizing the access and use of that data across the enterprise to drive cross-functional collaboration, accelerate new product introduction timelines, and deliver higher product quality. By embracing the Intelligent Product Lifecycle, our customers establish the quality, consistency, and traceability of product data, ensuring the data is up-to-date, accessible, reliable, and actionable. Our customers can then go on to use this data to break down silos, streamline workflows, and achieve interoperability across departments, functions, and systems. This includes the growing emphasis on AI-driven transformation across our customers’ teams, operations, and processes. A product data foundation is the backbone of AI-driven transformation.

Our business is based on a subscription model and 95% of our 2025 revenue was recurring in nature. Compared to a perpetual license model, our subscription model naturally drives higher customer engagement and retention and provides better business predictability. This, in turn, enables us to make steady and sustained investments to support our customers and pursue mid-to-long-term growth opportunities.

Forward-Looking Statements

Statements in this document that are not historic facts, including statements about our future operating, financial and growth expectations, potential stock repurchases, and the expected timing of closing the sale of the Kepware and ThingWorx businesses (the "divestiture"), are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the macroeconomic and/or global manufacturing climates may not improve or may deteriorate due to, among other factors, the effects of import tariffs, threats of additional and reciprocal import tariffs, global trade and geopolitical tensions and uncertainty, volatile foreign exchange rates, high interest rates or increases in interest rates, inflation, and tightening of credit standards and availability, any of which could cause customers to delay or reduce purchases of new software, adopt competing software solutions, reduce the number of subscriptions they carry, or delay payments to us, which would adversely affect our ARR (Annual Run Rate) and/or financial results and cash flow and growth; our investments in our software solutions, including the integration of artificial intelligence (AI) capabilities into our software solutions, may not drive expansion of those solutions and/or generate the ARR and/or cash flow we expect if customers are slower to adopt those solutions than we expect or if they adopt competing solutions; customers may not build the product data foundations essential for the AI-driven transformation of their business when or as we expect, which could adversely affect our ARR and/or financial results and cash flow and growth; our go-to-market realignment and related initiatives may not generate the ARR and/or financial results or cash flow when or as we expect; the divestiture may not be consummated when or as we expect if, among other factors, regulatory approvals under applicable laws and regulations are not received when or as we expect, or if other closing conditions are not satisfied when or as we expect or are waived; the future thresholds upon which the additional contingent consideration of up to $125 million related to the divestiture would become payable may not be achieved; other uses of cash or our credit facility limits could limit or preclude the return of excess cash and the net proceeds of the divestiture to shareholders by way of share repurchases, or could change the amount and timing of any share repurchases; and foreign exchange rates may differ materially from those we expect. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including changes to tax laws in the U.S. and other countries and the geographic mix of our revenue, expenses, and profits. Other risks and uncertainties that could cause actual results to differ materially from those projected are described below throughout or referenced in Part II, Item 1A. Risk Factors of this report.

Our Operating and Non-GAAP Financial Measures

Our discussion of results includes discussion of our ARR operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures are described below in Operating and Non-GAAP Financial Measures. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures.

Executive Overview

ARR grew 13% (8% constant currency) to $2.49 billion as of the end of Q1’26 compared to Q1’25.

Cash provided by operating activities grew 13% to $270 million in Q1'26 compared to Q1'25. Free cash flow grew 13% to $267 million in Q1'26 compared to Q1'25. In Q1'26, we made $10 million of divestiture-related payments. Our cash flow growth is attributable to resilient top-line growth due to our subscription business model and operational discipline. In Q1'26, we repurchased $200 million of our outstanding shares.

Revenue grew 21% (19% constant currency) to $686 million in Q1'26 compared to Q1'25, driven by growth in license revenue due to the higher total value and longer average duration of renewal contracts that commenced in the period. Operating margin grew by approximately 1180 basis points in Q1'26 compared to Q1'25, reflecting higher revenue as well as continued operating discipline. Diluted earnings per share grew 104% to $1.39 in Q1'26 compared to Q1'25, driven by revenue growth.

In Q1'26, we entered into an agreement to sell our Kepware and ThingWorx businesses and classified related assets and liabilities as held for sale. We may receive up to $600 million upon closing of the transaction, subject to adjustments as set forth in the purchase agreement. For further detail, refer to Note 5. Acquisitions and Divestitures to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. The transaction is expected to close on or before April 1, 2026. Our expected use of the net after-tax proceeds will follow our overall capital allocation strategy of returning excess cash to shareholders via share repurchases.

Results of Operations

(Dollar amounts in millions, except per share data)

(1) See Operating and Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP financial measures and Impact of Foreign Currency Exchange on Results of Operations below for a description of how we calculate our results on a constant currency basis.

(2) Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and hosting services revenue.

Impact of Foreign Currency Exchange on Results of Operations

Approximately 55% of our revenue and 30% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Our constant currency disclosures are calculated by multiplying the results in local currency for the quarterly periods for FY'26 and FY'25 by the exchange rates in effect on September 30, 2025.

If Q1'26 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2025, ARR would have been higher by $6 million, revenue would have been higher by $4 million, and expenses would have been higher by $1 million. If Q1'25 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2025, ARR would have been higher by $102 million, revenue would have been higher by $16 million, and expenses would have been higher by $6 million.

Revenue

Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, on-premises subscription) starting or renewing in any given period can have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period over period. We recognize revenue for the license portion of on-premises subscription contracts when we deliver the licenses to the customer, typically on the start date, and we recognize revenue on the support portion of on-premises subscription contracts and stand-alone support contracts ratably over the term. Revenue from our cloud services (primarily SaaS) contracts is recognized ratably. We expect that over time a higher portion of our revenue will be recognized ratably as we expand our SaaS offerings, release additional cloud functionality into our products, and migrate customers from on-premises subscriptions to SaaS. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue can vary significantly.

Revenue by Line of Business

(Dollar amounts in millions)

Software revenue growth in Q1'26 was driven by license revenue growth, which reflects the higher total value and longer average duration of contracts that renewed in the current-year period.

Support and cloud services revenue growth in Q1'26 was driven by growth in both PLM and CAD.

Professional services revenue decreased in Q1'26 as we continue to execute on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves.

Software Revenue by Product Group

(Dollar amounts in millions)

PLM software revenue growth in Q1'26 was primarily driven by Windchill revenue growth in Europe.

PLM ARR grew 13% (9% constant currency) from Q1'25 to Q1'26, primarily driven by Windchill and Codebeamer. PLM ARR grew 24% (12% constant currency) in Europe, 15% (13% constant currency) in Asia Pacific, and 6% (6% constant currency) in the Americas.

CAD software revenue growth in Q1'26 was driven by Creo revenue growth in the Americas and Europe.

CAD ARR grew 13% (8% constant currency) from Q1'25 to Q1'26, primarily driven by Creo. CAD ARR grew 20% (7% constant currency) in Europe, 12% (10% constant currency) in Asia Pacific, and 7% (7% constant currency) in the Americas.

Gross Margin

(Dollar amounts in millions)

(1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.

License gross margin growth in Q1'26 was in line with license revenue growth. Cost of license revenue grew in Q1'26 compared to Q1'25, primarily due to higher royalty expenses.

Support and cloud services gross margin growth in Q1'26 was in line with support and cloud services revenue growth. Cost of support and cloud services revenue grew 11% in Q1'26 compared to Q1'25, primarily due to increasing compensation-related costs and cloud and software subscription-related costs as the business grows.

Professional services gross margin decreased in Q1'26 compared to Q1'25, primarily driven by a sharper decrease in professional services revenue than in professional services expense. The decreases in professional services revenue and costs are due to our continued execution on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves.

Operating Expenses

(Dollar amounts in millions)

Total headcount increased 4% between Q1’25 and Q1’26.

Operating expenses in Q1'26 increased compared to Q1'25, primarily due to the following:

• a $10 million increase in acquisition and transaction-related costs, driven by costs associated with the Kepware and ThingWorx divestiture; and
• a $6 million increase in travel-related expenses;

partially offset by:

• a $6 million decrease in compensation expense (including stock-based compensation), mainly driven by severance in Q1'25 related to the go-to-market realignment (which was primarily included in Sales and marketing).

Interest Expense

(Dollar amounts in millions)

Interest expense in both Q1'26 and Q1'25 includes interest on our revolving credit facility, term loan, and our senior notes due in 2028. Interest expense in Q1'25 also included interest on our senior notes due in 2025, which were redeemed in Q2'25. Interest expense decreased in Q1'26 compared to Q1'25 due to lower debt balances.

Income Taxes

(Dollar amounts in millions)

The effective tax rate for Q1'26 was higher than the effective tax rate for the corresponding prior-year period primarily due to changes in the geographic mix of income before taxes. The effective tax rate for Q1’26 also reflected a net income tax benefit of $7 million related to IRS procedural guidance, as described below. Q1’25 included a benefit of $5 million associated with the impact of tax reserves related to prior years in a foreign jurisdiction.

In Q1’26, our rate included the effects of IRS procedural guidance requiring consent for previously automatic changes of accounting method. In 2024, we requested consent from the IRS to change our tax accounting method for the treatment of certain deductions. In Q1’26, upon receiving consent from the IRS, we released the reserve established in 2025 related to the procedural guidance, which resulted in a net income tax benefit of $7 million for the reversal of the associated accrued interest and indirect effects on GILTI and FDII in 2024.

On July 4, 2025, the “One Big Beautiful Bill Act” (the “Act”) was enacted into law. The Act includes changes to U.S. tax law that are applicable to us beginning in FY'26. These changes include provisions allowing accelerated tax deductions for qualified property and research expenditures. Our financials reflect the impact of the provisions of the Act that are applicable beginning FY'26.

Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimates in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2025 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accounting pronouncements. We are evaluating the impact of ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software and ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets and have not yet determined whether they will have a material impact.

Liquidity and Capital Resources

(in millions)

Cash, Cash Equivalents and Restricted Cash

We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Due to the stability of our subscription model and consistency of annual, up-front billing, we aim to maintain a low cash balance. A significant portion of our cash is generated and held outside the U.S. As of December 31, 2025, we had cash and cash equivalents of $23 million in the U.S., $101 million in Europe, $69 million in Asia Pacific (including India) and $17 million in other countries. We have substantial cash requirements in the U.S. but believe that the combination of our existing U.S. cash and cash equivalents, cash available under our revolving credit facility, future U.S. operating cash inflows, and our ability to repatriate cash to the U.S. will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.

Cash Provided by Operating Activities

Cash provided by operating activities increased $31 million in Q1'26 compared to Q1'25. Growth was driven by higher collections and lower vendor disbursements, partially offset by higher tax payments and higher salary and related payments. Additionally, Q1'26 included $10 million of divestiture-related payments.

Cash Provided by Investing Activities

Cash provided by investing activities in Q1'26 and Q1'25 was driven by inflows from the settlement of net investment hedges.

Cash Used in Financing Activities

Cash used in financing activities in Q1'26 included $200 million of repurchases of common stock. Cash used in financing activities in Q1'25 included net payments of $205 million on our credit facility and $75 million of repurchases of common stock.

Outstanding Debt

(in millions)

As of December 31, 2025, we were in compliance with all financial and operating covenants of the credit facility and the note indenture. As of December 31, 2025, the annual rate for borrowings outstanding under the credit facility was 5.2%.

Our credit facility and our senior notes are described in Note 10. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. As of December 31, 2025, $25 million of our debt associated with the credit facility term loan was classified as current.

Future Expectations

We believe that existing cash and cash equivalents, together with cash inflows from operations and amounts available under the credit facility, will be sufficient to meet our working capital and capital expenditure requirements through at least the next twelve months and to meet our known long-term capital requirements.

We expect to use the net after-tax proceeds of the Kepware and ThingWorx divestiture to repurchase shares, in line with our long-term goal of returning excess cash to shareholders.

Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we retire other debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended, or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.

Operating and Non-GAAP Financial Measures

Operating Measure

ARR

ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, SaaS, hosting, and support contracts as of the end of the reporting period. We calculate ARR as follows:

• We consider a contract to be active when the product or service contractual term commences (the “start date”) until the right to use the product or service ends (the “expiration date”). Even if the contract with the customer is executed before the start date, the contract will not count toward ARR until the customer right to receive the benefit of the products or services has commenced.
• For contracts that include annual values that change over time, we include in ARR only the annualized value of components of the contract that are considered active as of the date of the ARR calculation. We do not include any future committed increases in the contract value as of the date of the ARR calculation.
• As ARR includes only contracts that are active at the end of the reporting period, ARR does not reflect assumptions or estimates regarding future contract renewals or non-renewals.
• Active contracts are annualized by dividing the total active contract value by the contract duration in days (expiration date minus start date), then multiplying that by 365 days (or 366 days for leap years).

We believe ARR is a valuable operating measure to assess the health of a subscription business because it is aligned with the amount that we invoice the customer on an annual basis. We generally invoice customers annually for the current year of the contract. A customer with a one-year contract will typically be invoiced for the total value of the contract at the beginning of the contractual term, while a customer with a multi-year contract will be invoiced for each annual period at the beginning of each year of the contract.

ARR increases by the annualized value of active contracts that commence in a reporting period and decreases by the annualized value of contracts that expire in the reporting period.

As ARR is not annualized recurring revenue, it is not calculated based on recognized or unearned revenue and is not affected by variability in the timing of revenue under ASC 606, particularly for on-premises license subscriptions where a substantial portion of the total value of the contract is recognized as revenue at a point in time upon the later of when the software is made available, or the subscription term commences.

ARR should be viewed independently of recognized and unearned revenue and is not intended to be combined with, or to replace, either of those items. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results.

Non-GAAP Financial Measures

Our non-GAAP financial measures and the reasons we use them and exclude the items identified below are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2025.

The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:

• non-GAAP gross margin—GAAP gross margin
• non-GAAP operating income—GAAP operating income
• non-GAAP operating margin—GAAP operating margin
• non-GAAP net income—GAAP net income
• non-GAAP diluted earnings per share—GAAP diluted earnings per share
• free cash flow—cash flow from operations

The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based compensation expense; amortization of acquired intangible assets; acquisition and transaction-related charges included in General and administrative expenses; Impairment and other charges (credits), net; non-operating charges (credits), net; and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 and as reflected in the reconciliation tables.

The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are recurring, and other items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.

(in millions, except per share amounts)

(1) In Q1'26, we recognized a $0.8 million financing charge related to a debt commitment agreement associated with our anticipated divestiture of the Kepware and ThingWorx businesses.

(2) Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, in Q1'25, adjustments exclude a $5.4 million benefit related to the tax impact of tax reserves related to prior years in a foreign jurisdiction.

Operating margin impact of non-GAAP adjustments:

28

There have been no significant changes in our market risk exposure as described in Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our 2025 Annual Report on Form 10-K.

Evaluation of Effectiveness of Disclosure Controls and Procedures

Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.

We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2025.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that occurred during the period ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In addition to other information set forth in this report, you should carefully consider the risk factors described in Part I. Item 1A. Risk Factors in our 2025 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.