The cloud goes +
The mythical Greek character held the entire world on his shoulders, and so Atlas would do the same for all PTC software -- in five to ten years. Programs like the Creo mechanical CAD software would strictly become SaaS (Software as a Service, the fancy term for subscription paid and running off remote servers, aka cloud).
But then PTC went all quiet on Atlas; nary a mention was made during recent quarterly conference calls with financial analysts, other than the news that Onshape was selling really well in terms of increased percentage sales -- albeit from a small base.
This month, during the Q1 2023 conference call, PTC brought up the new name for Atlas: + (plus). So far, there is Creo+ for design and Windchill+ for multi-tenant PLM (product lifecycle management), and apparently a dozen customers are already trying out Windchill+. Creo+ has been in beta since last August at https://community.ptc.com/t5/Creo-Beta-Program/cmp-p/grouphub:Creoplusalphaprogram.
What Is Creo+?
I don’t know much about the Plus version of Creo, except that it is some kind of cloud-enabled version of Creo.
When three years ago PTC bought Onshape for over half a billion dollars, the idea was that the newly-acquired IP (intellectual property) would kickstart the cloudification of Creo and PTC’s other software much more cheaply and quickly than if PTC were to start from scratch -- a three-year headstart, PTC’s ceo said at the time. Pure-cloud Creo was promised to arrive in five years or so, at least as I understood it.
As best as I can guess, PTC's dream of a true-cloud Creo collapsed (but I could be wrong), just as it has for Autodesk and Dassault Systemes. (Siemens never got into the cloudCAD scene.)
After a decade of false starts and dead ends, these megaCAD vendors finally realized that CAD belongs on the desktop, and that some ancillary functions can be allowed to operate in the cloud. We see that with Fusion, Autodesk’s newer MCAD system that still is a 2GB download, and Solidworks, Dassault’s American stepchild that successfully resisted 15 years of attempts by the French company to move it to the cloud.
That’s what I think Creo+ is: the old MCAD program running on the desktop and connecting to remote servers to execute functions like generative design and analyses. I think it'll be released in 2023 as version 10. The + suffix is a bit unfortunate, as it gets thrown at all kinds of names these days, like Disney+. Creo+ also is the name of the management consulting firm in Poland (https://creoplus.pl/).
The new vision will be unveiled to the public in May at PTC's annual LiveWorx conference. During last week's conference call some more details were pre-leaked. Here are questions asked by financial analysts, and answered by PTC executives.
(Some text has been edited for brevity and clarity.)
Q & A
Matt Hedberg (financial analyst): With your Plus strategy, do you think the opportunity for PLM and CAD replacements could accelerate as well?
PTC: When deals come in at SaaS, they come in twice the size as they would have been had they've been on-premise.
On the competitive replacement opportunity, I do think that some of our competitors are laggards with SaaS or they're doing SaaS in a pretty hokey way. For example, we have a French competitor, who is trying to become a hyperscaler. And when you place an order with them, they turn around by hardware to host it on. And between you and me, I don't really think that's the right strategy. And I think a lot of companies are going to say, "I don't actually want to buy into a strategy like that, because the day it all collapses, I'm a little bit out in the cold."
At PTC, we have mature, proven products like Creo and Windchill that will be available in an honest-to-god true SaaS form not unlike, for example, Microsoft Office 365. And then on the other hand, if you want to go full bore, clean slate, right from the start pure SaaS, well we have Onshape and Arena, which are the SaaS-est products in our entire industry.
Tyler Radkev (financial analyst): Can you just talk about maybe the strength you're seeing in PLM more broadly?
PTC: SAP has given up share, Oracle has given up share. In our view, Dassault has given up quite a bit of share, because we passed them in the last year and we're opening up quite a gap now. And we think Siemens has given up some share.
Siemens has been posting actually negative numbers in terms of PLM growth of late, and it will be interesting to see the next earnings report. I encourage you all to dig in and try to parse it apart, because I think Siemens is losing a lot of momentum. They have some structural changes happening, so it's a little hard to kind of tease it all out and they don't provide much disclosure. Siemens would be our toughest competitor, and you're going to see us post growth rates approaching 20%. It wouldn't surprise me if theirs has a negative number on the front of it when they report this quarter.
Saket Kalia (financial analyst): I'd love to dig one level deeper just into sort of that dichotomy of the softer bookings but also the lower churn.
PTC: Creo and Windchill represent roughly 70% of our ARR [annual recurring revenue], just those two products. And if you took the churn rate for Creo and Windchill in the quarter and you annualized it for the entire year, it would be less than 3% churn on those two massive product bases. We're talking about fundamentally strong adoption of our technology, mission-critical technology.
You can't switch from it. You can't stop using it. You can't stop paying for it, I mean, unless you're winding your business down.
Jay Vleeschhouwer (financial analyst): Since we've gone through so many evolutions of both those [CAD and PLM] markets over the last many years, what from here do you think are the critical functionalities within CAD and PLM to continue or sustain the growth in those businesses, maybe GD or something else that you care to mention?
And then secondly, maybe for Kristian you've done well in terms of product releases, adhering to the road map, but you do have the smallest R&D [research and development] budget in your peer group [of CAD vendors].
PTC: In terms of some of the critical functionality, yes, generative design is important. The ANSYS simulation is important.
But the thing I think that is really carrying the day is this concept that our guys call "model-based enterprise." And what that really means is that companies are trying to make 2D drawings go away.
In the world of engineering, there has been forever a really messed up process, where engineers create 3D models to really conceptualize the parts and how they fit together and to simulate them with technologies like ANSYS and everything is done in 3D.
And then the very last step is: they convert that all to 2D drawings. They dumb it down and leave a lot of information behind and then drawings get sent out to the supply chain and to the factory and everything else. And then, for example, at suppliers they get these drawings and they turn around and remodel them in 3D. And the factory gets the data and they might have to remodel, so they can generate tool paths off it and whatnot.
Now that requires a lot more adoption of CAD, because suddenly now a lot more people need a CAD suite rather than an Acrobat viewer, PDF suite, if you will. We're not just talking about viewing a PDF file; we're now talking about interacting directly with the 3D data.
So I think that's a driver for the whole industry, but I certainly can tell you here at PTC, it's a driver. Many more suites of CAD software are sold when a company decides to move away from drawings. And on their side, they can shut a whole department down: it's a department that not only leaks value, it actually actively destroys it by dumbing data down that then has to be smartened back up by somebody else downstream.
Now, finally, on your last question about the smallest R&D budget. I'm an R&D guy, so I'm not going to lose and we have not been losing the product battle. We've actually been winning the product battle. R&D is not about body count, it's about strategy, it's about project selection, it's about execution.
Some of our larger competitors spend a lot of time and energy developing nonsensical products; products that don't work; don't make any sense. Autodesk was famous for that for many years. But some of our French and German competitors, French in particular, they've developed a lot of 3D experience, blah, blah, blah, that these are products that actually mean anything to anybody, but there's engineers working on them.
Creo has 500 engineers working on it. Windchill has 500 engineers working on it. If you have a 1,000 engineers on it, you just have more people tripping all over each other.
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To read the full transcript, consult https://seekingalpha.com/article/4574459-ptc-inc-ptc-q1-2023-earnings-call-transcript