Strategic Shift and Financial Performance
CEO Neil Barua began the earnings call by highlighting a significant development: the definitive agreement for TPG to acquire PTC’s Kepware and ThingWorx businesses. He emphasized that this move is designed to enhance the value these products deliver, stating, “By partnering with TPG, Kepware and ThingWorx gained additional investment, expertise and operational focus.” For PTC, this shift allows the company to concentrate on its Intelligent Product Lifecycle vision, which includes CAD, PLM, ALM, SLM, and the growing emphasis on SaaS and AI.
Barua reported strong financial results, noting an 8.5% constant currency ARR growth and a 16% free cash flow growth year-over-year. He also highlighted improved execution on large strategic agreements, including the largest Codebeamer and Onshape deals ever secured. Additionally, he mentioned a “large windshield competitive displacement win in the med tech vertical.”
The appointment of Jon Stephenson as Chief Product Officer was announced, with Barua describing him as “an industry veteran” who will “increase the pace and predictability of road map execution.”
Financial Details and Future Outlook
CFO Kristian Talvitie provided further details on the divestiture, explaining that PTC could receive up to $725 million in total cash consideration if certain thresholds are met. He noted that the company expects either $565 million or $600 million upfront, depending on performance during the period leading up to the close.
Talvitie also shared that for fiscal ’25, ARR attributable to Kepware and ThingWorx was approximately $160 million, with a negative 1% constant currency ARR growth. Including perpetual license and professional services revenue, the total contribution from these businesses was around $200 million.
Looking ahead, Barua stated that for ARR growth, PTC is guiding to a range of 7% to 9% with Kepware and ThingWorx, and 7.5% to 9.5% without them. The company remains on track to deliver $1 billion of free cash flow in fiscal ’26, including Kepware and ThingWorx.
Talvitie added that the as-reported free cash flow for fiscal ’26 would be approximately $840 million, assuming an April 1, 2026, close of the transaction. He also noted that invoicing seasonality is expected to remain similar to the previous five years.
Management signaled continued investment in R&D and indicated a planned share repurchase of between $150 million and $250 million per quarter during fiscal ’26, starting with $200 million in Q1.
Strong Financial Results and Improved Efficiency
Talvitie reported that at the end of Q4, constant currency ARR using fiscal ’25 plan FX rates was $2.446 billion, up 8.5% year-over-year. Q4 revenue exceeded the midpoint of guidance by $140 million and the high end by $110 million. Talvitie attributed this to “a record amount of customer commitments” and longer average contract terms, noting that the average term length in Q4 increased from approximately 2 years in Q4 of ’24 to approximately 3 years in Q4 of ’25.
Free cash flow in Q4 was $100 million, and for the full fiscal year, it reached $857 million. Operating efficiency percentage expanded by 310 basis points to 45% in fiscal ’25 compared to 42% in fiscal ’24.
Analyst Questions and Management Responses
Analysts raised several questions during the Q&A session. Hoi-Fung Wong from Oppenheimer asked about the rationale behind the ThingWorx and Kepware divestiture. Barua explained that the decision was to focus resources on areas where PTC has the highest right to win, confirming that the transaction closing allows the company to fully focus on its Intelligent Product Lifecycle vision.
Jason Celino from KeyBanc inquired about the $1 billion free cash flow guidance and tax impacts. Talvitie replied that the tailwind from Section 174 is included in that number.
Clarke Jeffries from Piper Sandler questioned the nature of deal structures and customer motivations. Barua clarified that in some transactions, there were ramp deals, which are committed, contracted elements of the deal.
Blair Abernethy from Rosenblatt asked about TAM and net new ARR growth. Barua stated that he feels better than he did two years ago about the addressable market for the Intelligent Product Lifecycle.
Matthew Hedberg from RBC asked about further go-to-market changes. Barua and Dahdah indicated continued focus on vertical alignment and scaling the transformation, with Dahdah highlighting that the company now has a way to reach the C level that it didn’t before.
Jay Vleeschhouwer from Griffin asked about road map execution and RPO. Barua said that the rigor around ensuring road map items result in customer value is a newer element for the company. Talvitie shared that approximately 55% of the total RPO is expected to be recognized over the next 12 months.
Tyler Radke from Citi asked about growth drivers for the core business. Barua responded that the company is building momentum towards creating a repeatable way to consistently and sustainably grow net new ARR.
Sentiment and Strategic Focus
Analysts frequently sought clarification on strategic direction, deal structure, and growth drivers, with tones generally neutral but probing. Management maintained a confident and disciplined tone throughout, especially in prepared remarks. Barua repeatedly referenced focus and momentum, using phrases such as “we feel strongly” and “the good news is we’re looking at it, we’re being disciplined around our approach.”
Compared to the previous quarter, management’s tone has grown more assertive about strategic focus, and analysts’ questions have shifted from macro concerns to clarifying the implications and execution of the divestiture and go-to-market evolution.
Quarter-over-Quarter Comparison
The major strategic shift with the announced divestiture of Kepware and ThingWorx marks a departure from the prior quarter’s status quo. ARR growth guidance for fiscal ’26 is slightly lower (7%–9%) than the year-over-year growth in the prior quarter (9.3%). Continued emphasis on go-to-market transformation is evident, with added evidence of large, multi-product deals and increased contract durations in the current quarter.
Management’s tone grew more confident and focused, with analysts shifting from macroeconomic uncertainty to deal structure, portfolio focus, and execution risk. Guidance for free cash flow rises to $1 billion for fiscal ’26, including the divested businesses, up from $857 million in fiscal ’25.
Risks and Concerns
Management highlighted potential disruption from the Kepware and ThingWorx divestiture, modeling for “minimal customer disruption” but acknowledging “unexpected disruption” as a risk. The guidance range considers macroeconomic variability and possible deal structure volatility.
Analysts raised concerns regarding deal structures, pipeline certainty, and the impact of divestiture-related cash taxes and CapEx. Talvitie noted that the divestiture would result in “approximately $160 million of one-time cash outflows” related to fees and taxes, as well as a “modest impact to free cash flow” if the transaction closes sooner than expected.
Final Takeaway
PTC’s Q4 2025 results showcase a decisive strategic pivot as the company moves to divest its Kepware and ThingWorx businesses, sharpening its focus on the Intelligent Product Lifecycle vision with CAD, PLM, ALM, SLM, SaaS, and AI at the core. Management projects ARR growth of 7% to 9% for fiscal 2026 and targets $1 billion in free cash flow, supported by a robust deferred ARR base and an expanded capital return program. With large multi-product deals closed, a verticalized sales force, and new leadership in product development, PTC positions itself for sustained growth amid expected transaction-related disruptions and continued macroeconomic uncertainty.