PTC Inc. BUY Company Update : Software

July 30, 2020 PTC Inc. BUY Company Update : Software

PTC at 120

Over the past year, we have been on the sidelines in terms of our rating, as we considered the balance of, on the one hand, PTC’s financial results (bookings especially, as Jay Vleeschhouwer we saw 1Q19-3Q19) and, on the other, the important and [email protected] interesting dynamics within Technical Software generally and 646-442-4251 within PTC’s portfolio, partnering and execution (e.g., expense management). We have written often on the technology flux Stock Symbol NASDAQ: PTC within Technical Software and PTC’s strategy and plans (e.g., as shown at LiveWorx): and so, having considered that balance Current Price $84.03 – and having revised our FY20-FY23 estimates - we are 12 mos. Target Price $120.00 upgrading our rating to Buy. And in coincidence with our 120th Market Cap $9,458.0 mln PTC quarter, we are setting a $120 price objective, based as Shares O/S 116.2 mln always largely on our assessment of the FCF trajectory. Avg Daily Vol. (3 mos.) 1,271,663 shs. As important as PTC’s comments were concerning results and 52-Week Price Low/High $43.90 - $89.07 outlook (for bookings, costs and margins, and cash flow), the P/B 8.0x comments about product segments and the product plans have Price/ FCF 0.4x been in our view no less important – perhaps more so as the Fiscal Year End Sep effectivity of what it means to do in CAD-PLM-IoT/AR (and ROE 20% perhaps SLM too) will determine the progression of bookings, recurring revenues, and cash flow over the next half-decade EPS and more. There are important generational changes occurring within the industry…. FY 20E FY 21E FY 22E

Q1 (Dec) $0.57A $0.61E $0.84E It has been clear for some time that Technical Software has Q2 (Mar) 0.59A 0.65E 0.91E been in flux for CAD, PLM and simulation. This has been Q3 (Jun) 0.62A 0.72E 1.01E evident in part by the generally good demand (with a current Q4 (Sep) 0.55E 0.77E 1.09E detour) we’ve seen as customers in a number of important end-markets have been reinvesting-retooling-upgrading (and $2.33E $2.74E $3.85E sometimes displacing) their engineering, product development P/E 36.1x 30.7x 21.8x and operational/manufacturing processes. The Technical EV/Sales 5.5x 5.0x 4.4x Software companies have to varying degrees, depending in part on their product mix, seen the benefits (e.g., PTC’s active- 100 CAD base has increased by over 20% over the past four years) 90 - and once the current bio-economic conditions pass, they’re likely to do so again, depending, again, on their product mix, 80 technical competitiveness, sales capacities, and on the whole 70 their adaptability to changing requirements and needs for new

60 deliverables.

50 In PTC’s case, we’ve liked the articulation of the “closed-loop

40 lifecycle management” vision. CLLM predated the Onshape Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 acquisition, but the addition of Onshape into the portfolio PTC Inc. represented an important infusion, not so much for the intermediate revenue impact, but for what it represents as a new data platform and internal software development model upon which to build more than just cloud-y CAD. The comments therefore about its “Atlas” project have been important, as are, in the interim, the comments around the role of PLM, IoT/AR, simulation, and CAD (specifically generative design).

17 State Street, 3rd Floor, New York, NY 10004 • 212.509.9500 • www.griffinsecurities.com Please Review Disclosures on Page 28 of This Report PTC Inc. July 30, 2020

In the meantime…PTC reported 3Q20 revenues and non-GAAP earnings of $361.7 million, up 19%, and $0.62 a share, vs. our estimates of $345.14 million and $0.50 a share. PTC reported its fourteenth consecutive year/year increase in GAAP revenues since the commencement of the license model transition.

As of the beginning of FY20, PTC revised its income statement revenue-reporting line items from “subscriptions license”, “subscriptions support & cloud services”, “perpetual support”, “perpetual license”, and “professional services” to “recurring revenue”, “perpetual license” and “professional services”. In addition, it is providing “license revenue”, “support & cloud services revenues”; and “professional services”.

Under this new reporting, “recurring revenues” of $310.6 million were up 27% year/year and down $5.2 million from 2Q20. Perpetual revenues were $6.8 million, down 26%, were about $2 million above our model. Therefore, total software revenues were $317.4 million, up 25% year/year and down almost $7 million from 2Q20.

In addition, PTC reported “license revenues” of $118.2 million, up 88% year/year and down $9.4 million from 2Q20, and “support & cloud services revenue” of $199.1 million, up 4.5% year/year, and up $2.7 million from 2Q20.

Under the former revenue-reporting line items, which we have maintained in our model for historical comparability, we have derived L&S revenues of about $235 million, up 53% year/year and slightly down million from 2Q20, vs. our estimate of $229 million.

[The company did not disclose “support” (maintenance) revenues (the former reporting item), but it appears, by inference, that such revenues might have been about in line with our model. We are estimating that by FY23 support revenues will have declined to about $300 million, a cumulative decline of more than 55% from the FY14 peak, or a negative CAGR of about (9%) a year].

Services revenues were $34.3 million ($1 million above our estimate), down 18% year/year and down from $35.5 million in 2Q20. The largest part of services is accounted for by the “Core” business, or rather by PLM mostly (as CAD typically has a relatively low services overhead).

L&S bookings, we infer, were $79-$80 million, down 27%-28% year/year and down $15 million from 2Q20, vs. our estimate of $76.6 million; the implied subscriptions bookings mix was about 91.5%, consistent with 2Q20 but perhaps fractionally up from 3Q19. The subscriptions bookings were about $72 million, down 27% year/year and down about $14 million from 2Q20. The TTM L&S bookings, therefore, were about $444 million, down about 6%.

We have continued to derive and estimate bookings as a critical input to the business, while also modeling ARR as a critical output as well (there are, however, multiple unknowable variables - from the outside looking in -- within the ARR calculation, such as, contract signing/start dates, mix, ramp provisions and the like. It should all ultimately come out in deferred revenues and RPO.

Total ARR was $1.205 billion, up 9% year/year (10% in constant currency) and $26 million sequentially from 2Q20. ARR was equivalent to 3.88x recurring revenues, as compared with 3.73x in 2Q20, 3.79x recurring revenues in 1Q20, 3.95x in 4Q19, and 4.53x in 3Q19.

The Core ARR was 3.77x Core software revenues (vs. 3.62x in 2Q20); Growth ARR was 3.97x Growth software (vs. 3.55x in 2Q20); and FSG ARR was 3.78x FSG software (vs. 3.83x in 2Q20). .

Griffin Securities Equity Research 2 PTC Inc. July 30, 2020

At the beginning of the fiscal year, the company has altered its segment reporting from “Solutions Group”, which consisted of the CAD, PLM, and SLM business, and “IoT” revenues, to “Core” (CAD and PLM), “Growth” (IoT, AR, and Onshape), and “focused solutions group”, or FSG (i.e., SLM and ALM).

Under this new reporting, Core ARR was ≈$868.6 million, up 9% year/year (10% in constant currency) and up $21 million from 2Q20; “Growth” ARR was ≈$160 million, up 23% year/year (24% in constant currency) and almost 7$ million from 2Q20; and “FSG” ARR was ≈$176.6 million, down 1% year/year (0% in constant currency) and down $1.4 million from 2Q20.

The new “revenue by product group” tab shows “Core” software revenues of $230.4 million, up 33% year/year, and down $4 million from 2Q20. For the TTM, “Core “ software revenues (meaning L&S and support) were about $894 million. insofar as we continue to model the specific PTC brands, we derive that what used to be the CAD reporting segment (Creo) had revenues of nearly $140 million, up over 25% year/year, and down from 2Q20. For the TTM, we’ve derived “CAD segment” revenues of more than $550 million, up by a mid-teens percent.

Our preliminary calculation is that new Creo license volume was about 7,300-74,00 for the quarter, down about 4% year/year and down a few hundred from 2Q20. If our new-license inference is correct, then the TTM new Creo license volume would have been almost 31,000, about flat with the TTM ended 3Q19. In addition, we calculate that the active Creo base is now about 204,000-205,000, up about 5% year/year and up slightly from 2Q20. If our active base calculation is reasonable, then over the past four years – since the bottoming of the base – the CAGR for active seats has been about 4.5%.

[In terms of similar data for a direct competitor, Dassault Systèmes (DSY.fp, €133.55, Buy) we have calculated that SolidWorks units were down 18% year/year in 2Q20 and up slightly from 1Q20. SolidWorks new units are about double the Creo volume and the active base is more than double the Creo base. In addition, we calculated that TTM SolidWorks volume was about 71,000-72,000, down ≈8%. Catia units appear to have been down by about half year/year in 2Q20].

In addition, we derive that what used to be the PLM reporting segment (Windchill) had revenues of more than $135 million, up almost 20% year/year, and flat to slightly up from 2Q20. For the TTM, we’ve derived “PLM segment” revenues of almost $550 million, up by about a mid-teens percent.

“Growth” software revenues were $40.3 million, up 13% year/year, and down $3 million from 2Q20. For the TTM, Growth software revenues were $162.7 million.

“FSG” software revenues (i.e., mostly SLM) were $46.7 million, up 8% year/year, and up slightly more than $1 million from 2Q20. For the TTM, FSG software revenues were about $191 million.

Griffin Securities Equity Research 3 PTC Inc. July 30, 2020

REVISED FY20E-FY23E

 4Q20E. We’re revising estimated revenues and earnings to $356.5 million, up 6% year/year, and $0.55 a share, vs. a prior $353.5 million and $0.53 a share. The new estimate includes total recurring revenues of about $315 million, up 12%. Under the former reporting method, we’re estimating L&S revenues of $239 million, up 25%, vs. our prior estimate of $234 million. We’re assuming L&S bookings of $113-$114 million, down 24% (vs. down 3% in 4Q19);

 FY20E. We’re revising our estimate to $1.424 billion, up 13%, and $2.33 a share, from a prior $1.415 billion and $2.20 a share. The new estimate includes total recurring revenues of about $1.25 billion, vs. $1.017 billion in FY19. We’re estimating L&S revenues of about $932 million, up 39%. We’re estimating an operating margin of 27.9%, up ≈760bp.

We have revised our L&S bookings estimate for the year to $408 million, down 14%, from a prior $404 million. We estimate that positive year/year bookings comparisons may resume by 1QFY21.

PTC is now guiding to FY20 revenues and non-GAAP earnings of $1.415-$1.430 billion and $2.28-$2.35 share, vs. a prior $$1.400-$1.430 billion and $2.20-$2.35 a share. The midpoint of the revenue guidance range has been increased by $7 million. In addition, it is now guiding to ARR of $1.235-$1.255 billion, vs. a prior $1.220-$1.255 billion;

 FY21E. We’re revising our estimate to $1.558 billion, up 9%, and $2.74 a share, from a prior $1.556 billion and $2.70 a share. The model assumes L&S revenues of about $1.08 billion, up 16%, and L&S bookings of $560 million, up over 35% from FY20 (and almost 19% from FY19), with a nearly 96% subscriptions mix. We’re estimating an operating margin of 29.8%, up ≈190bp;

 FY22E. We’re revising our estimate to $1.801 billion, up 16%, and $3.85 a share, from a prior $1.80 billion and $3.79 a share. The model assumes L&S revenues of ≈$1.325 billion, up 22%, and L&S bookings of ≈$630 million, up 14%, with a more than 96% subscriptions mix. We’re estimating an operating margin of 34.1%, up ≈430bp; and,

 FY23E. We’re revising our estimate to $2.07 billion, up 15%, and $5.05 a share, from a prior $2.06 billion and $4.95 a share. The model assumes L&S revenues of ≈$1.6 billion, up 21%, and L&S bookings of more than $700 million, up 12%, with a more than 97% subscriptions mix. We’re estimating an operating margin of ≈37.9%, up ≈380bp.

The company’s subscriptions revenues are highly sensitive per 1 point delta of renewal/retention, as shown below:

. 4Q20E: ≈$2 million; . FY21E: ≈$24-$25 million; . FY22E: ≈$30-$31 million; . FY23E: ≈$36-$37 million.

Griffin Securities Equity Research 4 PTC Inc. July 30, 2020

SELECTED QUOTES FROM THE CONFERENCE CALL (AND OUR COMMENTS)

. “Our Q3 bookings were down mid 20% year-over-year, which is slightly better than the expectations we shared of down 30% to 50%. Based on the current forecast, we expect Q4 bookings growth rate to improve sequentially”. We continue to model bookings as an essential input – ARR is on the other hand an important output;

. “The impact on renewal rates continues to be muted and we believe our previous guidance, suggesting a modest downtick and renewals remains an accurate assessment”. See comments above on retention rate sensitivity;

. In commenting on the business or technology adoption effects, the company noted, “These needs very directly translate into elevated levels of interest for our PLM, IoT, Augmented Reality and SaaS solutions. The COVID situation is driving higher pipelines for Windchill for ThingWorx for the Vuforia and for Onshape”.

On the other hand, the company did note as well, “extended sales cycles for new IoT customers”. There was apparently a higher than usual percentage of business from expansion orders (consistent with a comment at one of the LiveWorx ThingWorx/IoT sessions on the trend of deployments. “We saw a balanced expansion across both the smart connected products use case and the smart connected operations use cases”.

Onshape had a busy quarter adding logos, though the company did not update the active commercial license number from the “5,000” at the time of the acquisition. It did say however, “the pipeline is 4 times larger today than when we acquired the company three quarters ago” (one interesting trend within the Onshape pipeline even before the acquisition was the increase in large transactions in the mix). Importantly, Onshape has been released for sale by a select group of resellers (“a couple of dozen”).

With regard to business and market dynamics, an important exogenous event that was not discussed on the call was the recent SAP-Siemens partnering announcement (we’ll comment more on that separately but this could be an important catalyst for additional PLM customer flux; . . “One of the most interesting upsell opportunities is the Vuforia Expert Capture, a more advanced AR solution, which was a key driver in large AR deals in Q3”;

. ”We’re proceeding full speed ahead on the Atlas program too, which aims to generalize the underlying Onshape SaaS architecture and put it to work more broadly across the entire PTC product portfolio…we’re working towards the day when there are versions of Creo and Windchill that are fully multi-tenant SaaS”;

. “Our partner, Rockwell had a relatively good quarter of AR and IoT sales with a strong sequential tick up in business…. Our partnership with Microsoft had a strong quarter across IoT, AR and PLM fronts”;

. “…we’ve now won a substantial expansion agreement to power a cloud-based digital transformation and modernization effort around the weapons readiness and war fighting capabilities of the Naval Sea Systems Command. This project will drive a fundamental change in the way the Navy operates and supports its fleet of ships and submarines… With additional options in place that could expand the ARR of this project to over $25 million in year five. This contract is poised to become PTC’s largest

Griffin Securities Equity Research 5 PTC Inc. July 30, 2020

run rate customer so long as we successfully execute”. PTC has long had a good presence in the A&D market (a mid-teens percent of the business) through both commercial customers and government agencies (the last large U.S. government was the USAF selection of PTC’s SLM).

The company did not provide detailed transactional or customer activity data arising from the partnerships with Microsoft (MSFT, $204.06, Buy) or Rockwell. However, we will note that during recent Microsoft industry events – such as its recent Inspire conference – it has been explicit about its commitment to the manufacturing vertical; the functions and use-cases it describes are directly relevant to the PTC relationship. see too our July 9th, 2020 industry report, “Making it so: on the renascent role of manufacturing software”, our April 10th, 2019 industry report (including the specific applications/use-cases Microsoft is pursuing) and our May 19th, 2020 Microsoft report (“Microsoft makes it so”).

In the case of Ansys (ANSS, $306.05, Buy), it noted “10 expansion deals across a number of verticals like automotive, medical device and industrials. And we inked our first seven figure CSL deal with a large US government agency”. The Ansys relationship will be expanded with a new simulation product due in the final quarter of the calendar year, as described in our review of the Liveworx conference.

Table 1. PTC, segment revenues, FY14-FY23E* ($, mlns.)

FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY23E CAD $581.5 $511.6 $462.3 $474.6 $499.8 $486.1 $569.7 $595.2 $663.4 $742.8 PLM $600.7 $524.7 $456.3 $454.3 $483.3 $493.1 $556.9 $621.0 $704.1 $797.1 SLM $169.6 $166.1 $141.6 $131.8 $119.4 $120.5 $120.7 $129.1 $147.8 $162.6 Solutions $1,351.8 $1,202.4 $1,060.2 $1,060.7 $1,102.5 $1,099.7 $1,247.4 $1,345.3 $1,515.3 $1,702.5 IoT $5.2 $52.9 $80.3 $103.4 $139.3 $155.9 $176.6 $213.1 $285.7 $367.2 Total $1,357.0 $1,255.2 $1,140.5 $1,164.0 $1,241.8 $1,255.6 $1,423.9 $1,558.4 $1,801.0 $2,069.6

Source: Company data, Griffin Securities estimates. * Based on prior segment nomenclature.

Sales & distribution. For 3Q20, the direct ARR was $835 million, up 6% year/year and up $14 million from 2Q20, accounting for 69.3% of total ARR (similar to prior quarters), and the channel ARR was $369.9 million, up 15% year/year and up $12 million from 2Q20.

Griffin Securities Equity Research 6 PTC Inc. July 30, 2020

Chart A. PTC, Onshape & SaaS (“Atlas”)

Source: LiveWorx 2020, Griffin Securities. Chart A comments. This chart was shown at the LiveWorx session hosted by Mr. Jon Hirschtick, PTC’s executive vice president, SaaS (and of course a co-founder/former CEO of SolidWorks and Onshape). This depicts the Onshape/Atlas platform as a “core set of services” (e.g., user provisioning, data management), upon which CAD are, or will be, built. We already knew that Vuforia AR and generative design were next, but the presentation made clear there would be others (this was, in fact, to be understood from the moment PTC bough Onshape last fall as a rationale or strategic intent for the purchase).

One of the possible implications of the new platform/architecture is whether it might become intrinsically tied to, or an enabler of, a consumption-model, in much the same way that there is clearly a conjoined path for Autodesk’s underlying platform/architecture. Autodesk has spoken of the “eventuality” of its having a (more of) a consumption model, though it made clear at its June 3rd, 2020 analyst meeting that it intends to have a hybrid model (not consumption-only). PTC has not spoken of this (it may be premature given the newness of the platform initiative and everything it has on its shoulders), but it, at least for us, something interesting to consider as to how it might become more of a PTC-as-a-service.

Griffin Securities Equity Research 7 PTC Inc. July 30, 2020

Chart 1a. PTC, CAD-PLM-SLM L&S revenue, FY06-FY23E

$175.0 $170.0 $165.0 $160.0 $155.0 $150.0 $145.0 $140.0 $135.0 $130.0 $125.0 $120.0 $115.0 $110.0 $105.0 $100.0 $95.0 $90.0 $85.0 $80.0 $75.0 $70.0 $65.0 $60.0 $55.0 $50.0 $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0

PTC - ProEngineer/Creo L&S ($) PTC - Windchill L&S ($) PTC - SLM L&S ($)

Source: Company data, Griffin Securities. 606 as of 1QFY20

Chart 1b. PTC, CAD-PLM-SLM TTM revenue, FY06-FY23E

$600.0 $575.0 $550.0 $525.0 $500.0 $475.0 $450.0 $425.0 $400.0 $375.0 $350.0 $325.0 $300.0 $275.0 $250.0 $225.0 $200.0 $175.0 $150.0 $125.0 $100.0 $75.0 $50.0 $25.0 $0.0

PTC - ProEngineer/Creo L&S ($) - TTM PTC - Windchill L&S ($) - TTM PTC - SLM L&S ($) - TTM

Source: Company data, Griffin Securities. 606 as of 1QFY20

Griffin Securities Equity Research 8 PTC Inc. July 30, 2020

Chart 2a. PTC, Creo active base, FY06-3QFY20

210,000 205,000 200,000 195,000 190,000 185,000 180,000 175,000 170,000 165,000 160,000 155,000 150,000 145,000 140,000 135,000 130,000 125,000 120,000

Creo (Pro/Engineer) active base

Source: Company data, Griffin Securities.

Chart 2b. PTC, Windchill active base, FY06-3QFY20

2,000,000 1,950,000 1,900,000 1,850,000 1,800,000 1,750,000 1,700,000 1,650,000 1,600,000 1,550,000 1,500,000 1,450,000 1,400,000 1,350,000 1,300,000 1,250,000 1,200,000 1,150,000 1,100,000 1,050,000 1,000,000 950,000 900,000 850,000 800,000 750,000 700,000 650,000 600,000 550,000 500,000 450,000 400,000 350,000 300,000 250,000

Windchill active base

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 9 PTC Inc. July 30, 2020

Chart 3a. PTC, IoT L&S revenue, FY15-FY23E

$125.0 $120.0 $115.0 $110.0 $105.0 $100.0 $95.0 $90.0 $85.0 $80.0 $75.0 $70.0 $65.0 $60.0 $55.0 $50.0 $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $0.0

PTC - IoT L&S

Source: Company data, Griffin Securities.

Chart 3b. PTC, IoT TTM L&S revenue, FY15-FY23E

$400.0 $375.0 $350.0 $325.0 $300.0 $275.0 $250.0 $225.0 $200.0 $175.0 $150.0 $125.0 $100.0 $75.0 $50.0 $25.0 $0.0

PTC - IoT L&S -TTM

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 10 PTC Inc. July 30, 2020

Chart 4a. PTC, revenues by direct & indirect channel, cal. 2006-2Q20

$300 $290 $280 $270 $260 $250 $240 $230 $220 $210 $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0

PTC - direct PTC - indirect

Source: Company data, Griffin Securities.

Chart 4b. PTC, TTM revenues by direct & indirect channel, cal. 2006-2Q20

$1,200 $1,150 $1,100 $1,050 $1,000 $950 $900 $850 $800 $750 $700 $650 $600 $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0

PTC - TTM direct PTC - TTM indirect

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 11 PTC Inc. July 30, 2020

Chart 5a. PTC, perpetual license & subscriptions bookings, FY14-FY23E

$250.000 $240.000 $230.000 $220.000 $210.000 $200.000 $190.000 $180.000 $170.000 $160.000 $150.000 $140.000 $130.000 $120.000 $110.000 $100.000 $90.000 $80.000 $70.000 $60.000 $50.000 $40.000 $30.000 $20.000 $10.000 $0.000

Perpetual bookings Subscription bookings Total L&S bookings

Source: Company data, Griffin Securities.

Chart 5b. PTC, perpetual license & subscriptions TTM bookings, FY14-FY23E

$900.000 $875.000 $850.000 $825.000 $800.000 $775.000 $750.000 $725.000 $700.000 $675.000 $650.000 $625.000 $600.000 $575.000 $550.000 $525.000 $500.000 $475.000 $450.000 $425.000 $400.000 $375.000 $350.000 $325.000 $300.000 $275.000 $250.000 $225.000 $200.000 $175.000 $150.000 $125.000 $100.000 $75.000 $50.000 $25.000 $0.000

Perpetual bookings - TTM Subscription bookings - TTM Total L&S bookings - TTM

Source: Company data, Griffin Securities estimates.

Griffin Securities Equity Research 12 PTC Inc. July 30, 2020

Chart 5c. PTC, perpetual license & subscriptions revenues, FY14-FY23E

$500.000 $475.000 $450.000 $425.000 $400.000 $375.000 $350.000 $325.000 $300.000 $275.000 $250.000 $225.000 $200.000 $175.000 $150.000 $125.000 $100.000 $75.000 $50.000 $25.000 $0.000

Perpetual revenues Subscriptions revenues

Source: Company data, Griffin Securities estimates.

Chart 5d. PTC, perpetual license & subscriptions TTM revenues, FY14-FY23E

$1,750.000 $1,700.000 $1,650.000 $1,600.000 $1,550.000 $1,500.000 $1,450.000 $1,400.000 $1,350.000 $1,300.000 $1,250.000 $1,200.000 $1,150.000 $1,100.000 $1,050.000 $1,000.000 $950.000 $900.000 $850.000 $800.000 $750.000 $700.000 $650.000 $600.000 $550.000 $500.000 $450.000 $400.000 $350.000 $300.000 $250.000 $200.000 $150.000 $100.000 $50.000 $0.000

Perpetual revenues - TTM Subscriptions revenues - TTM

Source: Company data, Griffin Securities estimates

Griffin Securities Equity Research 13 PTC Inc. July 30, 2020

Chart 5e. PTC, total L&S revenues & bookings, FY14-FY23E

$500.000 $475.000 $450.000 $425.000 $400.000 $375.000 $350.000 $325.000 $300.000 $275.000 $250.000 $225.000 $200.000 $175.000 $150.000 $125.000 $100.000 $75.000 $50.000 $25.000 $0.000

Total L&S revenues Total L&S bookings

Source: Company data, Griffin Securities estimates

Chart 5f. PTC, total TTM L&S revenues & bookings, FY14-FY23E

Total L&S revenues - TTM Total L&S bookings - TTM

Source: Company data, Griffin Securities estimates

Griffin Securities Equity Research 14 PTC Inc. July 30, 2020

Chart 5g. PTC, total L&S and maint. TTM revenues, FY14-FY23E

Total L&S revenues - TTM Maintenance revenues - TTM

Source: Company data, Griffin Securities estimates. Maintenance = perpetual support.

GEO REVIEW

Americas ARR was $543 million, up 9% year/year and $10.5 million from 2Q20. In its prepared remarks, the company noted that ARR growth was driven by “mid-20s% ARR year/year constant currency growth of our Growth products and high-single-digit ARR year/year growth of our Core products”.

Americas software revenues were $142 million, up 31% in constant currency and up from $139 million in 2Q20.

Europe ARR was $454 million, up 8% year/year (10% in constant currency, and up over $9 million from 2Q20. The growth driven by “mid-40s ARR year/year constant currency growth of our Growth products and low double-digit ARR year/year constant currency growth of our Core products”.

Europe software revenues were $107 million, up 20% in constant currency, but down from $132 million in 2Q20.

Asia ARR was $208 million, up 10% year/year (11% in constant currency, and up over $6 million from 2Q20. The growth was driven by “upper-30s ARR year/year constant currency growth of Growth products and low double-digit year/year ARR year/year constant currency growth of our Core products”.

Asia software revenues were $68 million, up 28% in constant currency and up from $53 million in 2Q20.

Balance sheet & cash flow. The company had $403.3 million in gross cash, vs. $861 million at 2Q20, $266.3 million at 1Q20, $297.5 million at 4Q19, and $300.9 million at 3Q19.

Griffin Securities Equity Research 15 PTC Inc. July 30, 2020

With the repayment of the net cash as of 3Q20 was ($689.5) million, vs. ($747) million at 2Q20, ($829.8) million at 1Q20, ($342) million at 4Q19, and ($376.4) million at 3Q19.

The company redeemed, as previously disclosed, all $500 million of its 6% senior notes due 2024 (the net effect will be to reduce its aggregate interest rate for the remaining debt). See to our February 4th, 2020 industry report (“Very interest-ing”) on its refinancing.

Deferred revenues were $404.7 million, vs. $417.2 million at 2Q20, $368.1 million at 1Q20, $396.6 million at 4Q19, and $382.6 million at 3Q19.

[The company did not yet disclose unbilled deferred revenue. This line item had been $738 million as of 4Q19 under 606 (and $881 million under 605), $623 million as of 3Q19 ($764 million under 605), and $579 million as of 2Q19 ($769 million under 605)].

The FY19 10-K had disclosed of the unbilled deferred, PTC expected to invoice customers for $504 million over the next twelve-months (i.e., FY20); the 1Q20 10-Q disclosed that 1Q20 revenues included $178.2 million that was in deferred revenues as of the end of FY19 (equivalent to 50% of total 1Q20 revenues) and that there had been additional deferrals of $147.0 million in the quarter; and, the 2Q20 10- Q disclosed that 2Q20 revenues included $105.2 million that was in deferred revenues as of the end of FY19 (equivalent to 29% of total 2Q20 revenues) and that there had been additional deferrals of $154.3 million in the quarter

Cash flow from operations was $104.5 million for the quarter, vs. $87.8 million in 2Q20, $7.5 million in 1Q20, $55.2 million in 4Q19, and $67.6 million in 3Q19. Therefore, cash flow for the TTM was $2550 million, vs. $291.9 million for the TTM ended 3QFY19.

We’re estimating FY20 OCF of $232 million, vs. our prior estimate of $223 million; our GAAP FCF estimate is $211 million. We estimate that GAAP FCF could approach $650 million by FY23. Our estimated cumulative OCF for FY20-FY23 is $1.78 billion.

Chart 6a. PTC, operating & free cash flow, 2008-2023E

$750.0 45.0% $725.0 44.0% $700.0 43.0% $675.0 42.0% $650.0 41.0% 40.0% $625.0 39.0% $600.0 38.0% $575.0 37.0% $550.0 36.0% $525.0 35.0% $500.0 34.0% $475.0 33.0% $450.0 32.0% $425.0 31.0% $400.0 30.0% 29.0% $375.0 28.0% $350.0 27.0% $325.0 26.0% $300.0 25.0% $275.0 24.0% $250.0 23.0% $225.0 22.0% $200.0 21.0% $175.0 20.0% $150.0 19.0% 18.0% $125.0 17.0% $100.0 16.0% $75.0 15.0% $50.0 14.0% $25.0 13.0% $0.0 12.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E

PTC - OCF PTC - FCF PTC - operating margin

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 16 PTC Inc. July 30, 2020

Chart 6b. PTC, net cash, cal. 2008-2Q20 $500.0 $450.0 $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 ($50.0) ($100.0) ($150.0) ($200.0) ($250.0) ($300.0) ($350.0) ($400.0) ($450.0) ($500.0) ($550.0) ($600.0) ($650.0) ($700.0) ($750.0) ($800.0) ($850.0) ($900.0) ($950.0) ($1,000.0)

PTC net cash

Source: Company data, Griffin Securities.

Chart 6c. PTC, billed & unbilled deferred revenue, FY15-3QFY20

$600.0 $575.0 $550.0 $525.0 $500.0 $475.0 $450.0 $425.0 $400.0 $375.0 $350.0 $325.0 $300.0 $275.0 $250.0 $225.0 $200.0 $175.0 $150.0 $125.0 $100.0 $75.0 $50.0 $25.0 $0.0 1Q15 2Q15 3Q15 4Q151Q162Q163Q164Q161Q17 2Q173Q174Q17 1Q182Q183Q184Q181Q192Q193Q194Q191Q202Q203Q20

PTC - billed deferred

Source: Company data, Griffin Securities. 605 data.

Griffin Securities Equity Research 17 PTC Inc. July 30, 2020

Chart 7a. PTC, total open positions, 2012 – July 2020

300 290 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50

PTC - total

Source: Company data, Griffin Securities.

Chart 7b. PTC, open positions, by geo, 2012 – July 2020

150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

PTC - Americas PTC - Asia PTC - EMEA

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 18 PTC Inc. July 30, 2020

Chart 7c. PTC, open positions, by R&D & sales, 2012 – July 2020

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

PTC - R&D PTC - sales

Source: Company data, Griffin Securities.

Chart 7d. PTC, total open positions, July 2019 – July 2020

300 290 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50

PTC - total

Source: Company data, Griffin Securities.

Griffin Securities Equity Research 19 PTC Inc. July 30, 2020

Chart 7e. PTC, open positions, by geo, July 2019 – July 2020

150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0

PTC - Americas PTC - Asia PTC - EMEA

Source: Company data, Griffin Securities.

Chart 7f. PTC, open positions, by R&D & sales, April 2019 – April 2020

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0

PTC - R&D PTC - sales

Source: Company data, Griffin Securities.

Charts 7a-7f comments. PTC had ≈113 openings as of the end of July 2020, as compared with ≈113 at the end of the quarter, ≈86 three months ago, ≈210 six months ago, and ≈190 a year ago. The 2019 average was ≈210 (the highest month we’ve counted to date was February 2019, with more than 265), or an average of 3.5% of actual headcount during the year.

Griffin Securities Equity Research 20 PTC Inc. July 30, 2020

As compared with a three months ago, R&D (“software development”) was about the same (23), while sales were up from a mere 6 to more than 30 positions. The 2019 monthly average for R&D had been 32 and for sales the average had been almost 60, including a peak of almost 80 in May 2019.

As compared with a six months ago, R&D was down by more than half, while sales was up by a few positions.

Positions related to Onshape – including for R&D and sales – have held up relatively well: now about 12 (vs. 14 three months ago and 17 six months ago), accounting for about a tenth of total openings (at the time of the acquisition, Onshape’s headcount was equivalent to less than 2% of PTC’s total headcount). .

PTC MODEL (in millions, except EPS data) FY16A FY17A FY18A 1Q19A 2Q19A 3Q19A 4Q19A FY19A 1Q20A 2Q20A 3Q20A 4Q20E FY20E FY21E FY22E FY23E L&S revenues $291.8 $412.6 $591.7 $190.2 $173.3 $182.3 $194.0 $739.8 $222.2 $236.2 $234.8 $239.0 $932.1 $1,081.9 $1,324.5 $1,596.1 Services & support revenues $848.7 $751.4 $650.2 $148.6 $142.2 $140.1 $140.8 $571.7 $133.9 $123.4 $116.9 $117.5 $491.8 $476.5 $476.5 $473.6 Total revenues $1,140.5 $1,164.0 $1,241.8 $338.8 $315.5 $322.4 $334.8 $1,311.5 $356.1 $359.6 $351.7 $356.5 $1,423.9 $1,558.4 $1,801.0 $2,069.6 Cost of revenues $325.7 $329.0 $326.2 $75.2 $78.0 $81.2 $83.8 $318.2 $87.4 $83.0 $79.2 $82.9 $332.6 $338.6 $346.2 $353.4 Sales & marketing $352.8 $357.6 $389.6 $97.6 $99.9 $107.7 $104.8 $409.9 $100.2 $100.3 $95.2 $100.9 $396.5 $433.5 $480.0 $532.4 Research & dev. $219.2 $222.1 $238.4 $55.9 $56.2 $55.8 $56.9 $238.4 $58.4 $55.2 $55.8 $56.9 $239.9 $257.8 $272.3 $296.2 Gen. & admin. $111.3 $110.3 $107.9 $26.2 $26.2 $26.7 $28.4 $107.5 $34.0 $28.1 $28.7 $29.1 $119.9 $113.7 $121.8 $131.4 Amortization $33.2 $32.1 $31.4 $5.9 $5.9 $5.9 $6.1 $23.8 $6.8 $7.3 $7.3 $7.3 $28.7 $26.1 $16.3 $11.3 Acq., non-recur. costs $76.3 $7.9 $3.8 $18.5 $27.0 ($0.0) $5.7 $51.1 $23.6 $18.2 $0.1 $0.0 $32.3 $0.0 $0.0 $0.0 Total costs $1,175.6 $1,123.1 $1,168.6 $305.6 $317.1 $290.0 $297.2 $1,223.4 $325.7 $309.6 $288.3 $301.3 $1,238.4 $1,265.2 $1,334.0 $1,426.3 Operating income ($35.1) $40.9 $73.2 $33.2 ($1.6) $32.4 $37.6 $101.6 $30.4 $50.0 $63.4 $55.1 $199.0 $306.7 $467.0 $643.4 Other income, net ($30.2) ($42.3) ($44.6) ($9.7) ($10.3) ($10.1) ($12.8) ($42.9) ($11.4) ($34.2) ($18.9) ($17.6) ($82.1) ($60.3) ($40.8) ($27.2) Pretax income ($65.3) ($1.4) $28.7 $23.5 ($11.9) $22.3 $24.9 $58.7 $19.0 $15.8 $44.5 $37.5 $116.9 $246.4 $426.2 $616.2 Income taxes ($12.2) ($7.6) ($23.3) $4.2 $0.1 $10.6 $40.8 $55.7 ($16.4) $8.6 $9.8 $7.5 $9.5 $56.7 $98.0 $141.7 Net income ($53.0) $6.2 $52.0 $19.2 ($12.0) $11.7 ($15.9) $3.0 $35.5 $7.2 $34.7 $30.0 $107.3 $189.7 $328.1 $474.4 EPS, non- GAAP $1.19 $1.17 $1.44 $0.57 $0.37 $0.36 $0.45 $1.75 $0.57 $0.59 $0.62 $0.55 $2.33 $2.74 $3.85 $5.05 EPS, GAAP ($0.46) $0.05 $0.44 $0.16 ($0.10) $0.10 ($0.14) $0.03 $0.31 $0.06 $0.30 $0.26 $0.93 $1.64 $2.83 $4.10 Shares 114.6 116.9 118.2 119.6 119.3 117.0 115.0 117.8 115.7 116.0 116.2 116.2 116.0 116.6 116.6 116.8

Windchill revenues $366.2 $378.5 $407.0 $109.1 $102.6 $106.8 $108.8 $427.3 $120.6 $118.7 $84.6 $120.1 $477.6 $538.6 $621.5 $713.9 Creo revenues $407.3 $424.8 $447.9 $125.3 $108.1 $109.0 $111.6 $453.9 $126.8 $135.6 $127.6 $127.3 $517.3 $537.1 $598.0 $669.0 IoT revenues $80.3 $103.4 $139.3 $40.6 $42.6 $43.8 $48.6 $175.6 $44.7 $44.1 $43.1 $44.7 $176.6 $213.1 $285.7 $367.2

License revenues 25.6% 35.4% 47.6% 56.1% 54.9% 56.5% 57.9% 56.4% 62.4% 65.7% 66.8% 67.0% 65.5% 69.4% 73.5% 77.1% Services & support revenues 74.4% 64.6% 52.4% 43.9% 45.1% 43.5% 42.1% 43.6% 37.6% 34.3% 33.2% 33.0% 34.5% 30.6% 26.5% 22.9% Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues 28.6% 28.3% 26.3% 22.2% 24.7% 25.2% 25.0% 24.3% 24.5% 23.1% 22.5% 23.3% 23.4% 21.7% 19.2% 17.1% Sales & marketing 30.9% 30.7% 31.4% 28.8% 31.7% 33.4% 31.3% 31.3% 28.1% 27.9% 27.1% 28.3% 27.8% 27.8% 26.7% 25.7% Research & dev. 19.2% 19.1% 19.2% 16.5% 17.8% 17.3% 17.0% 18.2% 16.4% 15.3% 15.9% 16.0% 16.8% 16.5% 15.1% 14.3% Gen. & admin. 9.8% 9.5% 8.7% 7.7% 8.3% 8.3% 8.5% 8.2% 9.6% 7.8% 8.2% 8.2% 8.4% 7.3% 6.8% 6.4% Acq., non-recur. costs 6.7% 0.7% 0.3% 5.5% 8.6% 0.0% 1.7% 3.9% 6.6% 5.1% 0.0% 0.0% 2.3% 0.0% 0.0% 0.0% Total costs 103.1% 96.5% 94.1% 90.2% 100.5% 90.0% 88.8% 93.3% 91.5% 86.1% 82.0% 84.5% 87.0% 81.2% 74.1% 68.9% Oper. Margin: non-GAAP 15.0% 16.0% 18.5% 27.8% 20.8% 18.9% 22.4% 22.4% 26.1% 28.7% 29.4% 27.3% 27.9% 29.8% 34.1% 37.9% Oper. Margin: GAAP -3.1% 3.5% 5.9% 9.8% -0.5% 10.0% 11.2% 7.7% 8.5% 13.9% 18.0% 15.5% 14.0% 19.7% 25.9% 31.1% Pretax income -5.7% -0.1% 2.3% 6.9% -3.8% 6.9% 7.4% 4.5% 5.3% 4.4% 12.7% 10.5% 8.2% 15.8% 23.7% 29.8% Income taxes 18.7% nmf -81.4% 17.9% -1.2% 47.5% 164.2% 94.9% -86.3% 54.6% 22.1% 20.0% 8.2% 23.0% 23.0% 23.0% Net income -4.7% 0.5% 4.2% 5.7% -3.8% 3.6% -4.8% 0.2% 10.0% 2.0% 9.9% 8.4% 7.5% 12.2% 18.2% 22.9% Year-over-year L&S bookings 16.1% 4.3% 11.2% -2.9% 13.2% -3.5% 0.3% 1.4% -2.9% 13.2% -3.5% 0.3% -13.5% 37.2% 13.0% 12.0% L&S revenues -16.2% 41.4% 43.4% 41.9% 27.7% 19.5% 14.5% 25.0% 16.8% 36.2% 28.8% 23.2% 26.0% 16.1% 22.4% 20.5% Support & service revenues -9.1% 2.1% 6.7% 10.5% 2.5% 2.4% 7.1% 5.6% 5.1% 14.0% 9.1% 6.5% 8.6% 9.4% 15.6% 14.9% Creo L&S revenues* -19.2% 53.3% 53.5% 55.8% 25.1% 15.1% 10.1% 25.2% 14.6% 103.3% 77.1% 30.4% 49.7% 9.5% 16.9% 16.9% Windchill L&S revenues* -26.6% 52.5% 56.5% 37.8% 28.9% 24.7% 19.4% 27.2% 34.1% 81.2% 77.9% 38.0% 55.0% 22.3% 22.3% 20.2% Total revenues -9.1% 2.1% 6.7% 10.5% 2.5% 2.4% 7.1% 5.6% 6.4% 23.8% 19.0% 19.0% 13.4% 9.4% 15.6% 14.9% Source: Company data; Griffin Securities estimates. * excluding maintenance

Griffin Securities Equity Research 21 PTC Inc. July 30, 2020

PTC RESEARCH LIBRARY - #1-#113 ET AL # Date Subject 1 6/3/2011 Initiation of coverage 2 6/21/2011 Review of "PlanetPTC" conference 7/22/2011 Preview 3Q11 results 3 7/26/2011 Preliminary review of 3Q11 results & outlook 4 7/27/2011 Final review of 3Q11 results & outlook 8/25/2011 Review and comparison of CAD/PLM revenue mix & performance (2006-2011) 9/8/2011 Acquisition of 4CS Solutions, for services lifecycle management 5 10/28/2011 Review of 4Q11 results & outlook 12/20/2011 Review of FY11 10-K new data 1/19/2011 Announced it has completed the first phase of deployment of Windchill at Hyundai Kia 6 1/26/2012 Preliminary review of 1Q12 results & outlook 7 1/26/2012 Final review of 1Q12 results & outlook 8 2/9/2012 Review of 2012 analyst meeting 3/27/2012 Large deal announcement 9 4/5/2012 Comment on 2Q12 pre-announcement 4/17/2012 Review of industry conference & update on PTC's 2Q12 pre-announcement 10 4/26/2012 Final review of 2Q12 results & outlook 5/9/2012 Review of 2Q12 10-Q new data 11 6/11/2012 Review of "PlanetPTC" conference 6/25/2012 Detailed review & comparison of direct & indirect channels (2006-2012) 7/25/2012 Preview of 3Q12 results 12 7/26/2012 Review of 3Q12 results & outlook 8/1/2012 Review of 3Q12 10-Q new data 13 8/8/2012 Servigistics acquisition 9/11/2012 Detailed review and comparison of CAD-PLM revenue trends and share (2006-2012) 9/12/2012 Review and comparison of direct and indirect channel revenues (2006-2Q12) Completed Servigistics acquisition; review of CAD-PLM-Simulation industry 10/9/2012 conference 14 11/5/2012 Review of 4Q12 results & outlook; initiated FY14E 11/19/2012 Review of FY12 10-K new data 11/21/2012 Review and comparison of direct and indirect channel revenues (2006-3Q12) 1/2/2013 2013 industry outlook 15 1/25/2013 Review of 1Q13 results & outlook 1/29/2013 CAD pricing 2/13/2013 Review of 1Q13 10-Q new data 2/21/2013 PDM Essentials product announcement 4/22/2013 Technical Software earnings preview 16 4/26/2013 Review of 2Q13 results & outlook 17 5/10/2013 Review of 2Q13 10-Q new data 18 6/14/2013 Review of "PTC Live Global" conference highlights 19 7/26/2013 Review of 3Q13 & outlook; initiating FY15E 20 8/8/2013 Review of 3Q13 10-Q new data 9/12/2013 NetIDEAS acquisition 11/4/2013 Preview of 4Q13 21 11/8/2013 Review of 4Q13; revision of FY14E-FY15E 22 11/26/2013 Review of FY13 10-K new data 23 12/12/2013 Review of 2013 analyst meeting 12/17/2013 Review and comparison of direct and indirect channel revenues (2006-3Q13) 24 12/31/2013 ThingWorx acquisition & 1Q14 pre-announcement 25 1/23/2014 Review of 1Q14; revision of FY14E-FY15E 26 2/5/2014 Review of 1Q14 10-Q new data

Griffin Securities Equity Research 22 PTC Inc. July 30, 2020

4/10/2014 Review and comparison of direct and indirect channel revenues (2006-2013) 27 4/24/2014 Review of 2Q14; revision of FY14E-FY15E 28 5/8/2014 Review of 2Q14 10-Q new data 29 6/17/2014 Review of "PTC Live Global" conference & Technical Software comparative analysis 6/24/2014 Additional review of "PTC Live Global" conference & Dassault comparative analysis 7/10/2014 Initiation of 2016 estimates 30 7/25/2014 Review of 3Q14; revision of FY14E-FY16E 31 8/6/2014 Capital allocation plan & CFO transition 32 8/8/2014 Review of 3Q14 10-Q new data 8/19.2014 Review and comparison of direct and indirect channel revenues (2006-2Q14) 9/8/2014 U.S. PMI data & Technical Software license & maintenance revenues. 33 10/2/2014 4Q14 pre-announcement 34 11/10/2014 Review of 4Q14; revision of FY15E-FY16E 11/11/2014 PLM revenue comparative analysis (Enovia, Windchill) 35 11/17/2014 Review of 2014 analyst meeting 11/18/2014 Review of design software company hiring plans 11/25/2014 Review and comparison of direct and indirect channel revenues (2006-3Q14) 36 12/8/2014 Review of FY14 10-K new data 37 1./13/2015 Initiation of 2017 estimates 1/28/2015 Introduction of PLM Cloud 38 1/30/2015 Review of 1Q15; revision of FY15E-FY16E-FY17E 2/12/2015 Design software comparative cash flow analysis (2005-2017E) 39 2/13/2015 Review of 1Q15 10-Q new data 3/4/2015 PLM Cloud pricing 4/1/2015 Review and comparison of direct and indirect channel revenues (2006-2014) 40 4/6/2015 Pre-announcement of 2Q15 & restructuring 41 4/8/2015 Spot check of open positions pre-restructuring 42 5/4/2015 Review of 2Q15; revision of FY15E-FY16E-FY17E 43 5/14/2015 LiveWorx conference 44 6/12/2015 LiveGlobal conference & comments on new model 45 7/1/2015 LiveGlobal product roadmaps 46 7/10/2015 Pre-announcement of 3Q15 47 7/30/2015 Review of 3Q15; revised FY15E-FY17E 8/10/2015 CAD industry update; highlights of hosted conference call with OnShape management 48 8/12/2015 Review of 3Q15 10-Q new data 9/20/2015 PLM industry update; highlights of hosted conference call with Aras management 10/13/2015 Vuforia acquisition 49 10/29/2015 Review of 4Q15; revised FY16E-FY17E 50 11/9/2015 Review of license model: "Parametric Bookings Configurator"( ("PBC") 51 11/13/2015 Review of annual analyst meeting 52 11/30/2015 Review of FY15 10-K new data 12/14/2015 Windchill 11 12/28/2015 Review of design software job openings new data 53 1/11/2016 Initiation of FY19E-FY21E; revised FY16E-FY18E 54 1/25/2016 Review of 1Q16; revised FY16E-FY21E 2/23/2016 IoT event comments & ThingX suite announcement 55 2/23/2016 Review of 1Q16 10-Q new data 3/10/2016 Review and comparison of direct and indirect channel revenues (2006-2015) 4/18/2016 Preview of 2Q16 results 56 4/21/2016 Review of 2Q16 results; revised FY16E-FY21E 57 5/6/2016 Revised estimates for debt issuance 5/9/2016 FlexPLM 11 for retail & consumer markets 5/9/2016 Industry update: "the state of Technical Software"

Griffin Securities Equity Research 23 PTC Inc. July 30, 2020

58 5/11/2016 Review of 2Q16 10-Q new data 5/16/2016 Review of design software job openings new data 5/26/2016 Thingworx 7 59 6/20/2016 Liveworx conference 7/19/2016 Technical Software earnings previews 60 7/21/2016 Review of 3Q16 results; revised FY16E-FY21E; increased PO to $45 61 8/12/2016 Review of 3Q16 10-Q new data 9/7/2016 Review and comparison of direct and indirect channel revenues (2006-2Q16) 9/21/2016 Design software comparative cash flow analysis (2006-2018E) 62 10/5/2016 Pre-announcement of 4Q16 results 63 10/27/2016 Review of 4Q16; revised FY17E-FY21E; raised PO to $52 64 11/8/2016 Subscriptions model update & revised FY18E-FY21E 65 11/21/2016 Review of FY16 10-K new data 11/21/2016 Creo 4 & GE IoT relationship 12/5/2016 Review and comparison of direct and indirect channel revenues (2006-3Q16) 12/28/2016 Review of PTC's headcount by function & region 1/4/2017 Review of design software job openings new data (#14) 66 1/19/2017 Review of 1Q17; revised FY17E-FY21E; raised PO to $55 67 2/13/2017 Review of 1Q17 10-Q new data 68 3/6/2017 IoT business update conference call highlights 69 3/9/2017 Highlights of hosted management meetings in New York 70 3/31/2017 Revised commercial bank credit agreement 4/42017 Review and comparison of direct and indirect channel revenues (2006-4Q16) 4/10/2017 Industry update: "the state of Technical Software" 71 4/17/2017 Preview of 2Q17 results 4/17/2017 Introduction of Kinex brand 72 4/20/2017 Review of 2Q17; revised FY17E-FY21E; raised PO to $65 4/21/2017 Review and comparison of direct and indirect channel revenues (2006-2016) 73 5/15/2017 Review of 2Q17 10-Q new data 74 5/23/2017 Liveworx day 1 flashnote 75 5/30/2017 Liveworx 2017 conference 6/7/2017 "Customers' Labor-atory" - design software customers' job openings data 6/12/2017 Review and comparison of direct and indirect channel revenues (2006-1Q17) 7/5/2017 CAD industry license volume analysis (2006-1Q17) 76 7/20/2017 Review of 3Q17; revised FY17E-FY21E 8/1/2017 PMI index & Technical Software (July 2017 data) 77 8/9/2017 Review of 3Q17 10-Q new data 8/10/2017 Apple-Amazon-Facebook ("Appazonbook") & design software 8/23/2017 Review of design software job openings new data (#15) 9/1/2017 PMI index & Technical Software (August 2017 data) 78 9/5/2017 Management meeting comments 9/25/2017 Design software comparative cash flow analysis (2010-2020E) 10/2/2017 PMI index & Technical Software (September 2017 data) 10/5/2017 "Customers' Labor-atory" (#2) - design software customers' job openings data 10/23/2017 Technical Software & EDA earnings preview 79 10/26/2017 Review of 4Q17; revised FY18E-FY21E; raised PO to $71 11/1/2017 PMI index & Technical Software (October 2017 data) 80 12/4/2017 Review of FY17 10-K new data 12/4/2017 PMI index & Technical Software (November 2017 data) 12/6/2017 Review and comparison of direct and indirect channel revenues (2006-3Q17) 12/19/2017 Design software comparative cash flow analysis (2010-2020E) 12/21/2017 CAD industry license volume analysis (2006-2020E) 12/27/2017 Review of design software job openings new data (#16)

Griffin Securities Equity Research 24 PTC Inc. July 30, 2020

12/27/2017 Stock-based compensation comparative analysis 1/3/2018 PMI index & Technical Software (December 2017 data) 81 1/11/2018 Toyota & support conversions 82 1/18/2017 Review of 1Q18; revised FY18E-FY21E; raised PO to $77 83 1/30/2018 Microsoft IoT partnership 2/1/2018 PMI index & Technical Software (January 2018 data) 84 2/10/2018 Review of 1Q18 10-Q new data 3/1/2018 PMI index & Technical Software (February 2018 data) 3/12/2018 Review and comparison of direct and indirect channel revenues (2006-2017) 3/19/2018 Stock-based compensation comparative analysis (#2) 85 3/22/2018 Creo 5 update & CAD segment estimates 4/2/2018 PMI index & Technical Software (March 2018 data) 86 4/16/2018 Preview of 2Q18 results 87 4/19/2018 Review of 2Q18; revised FY18E-FY21E; raised PO to $88 4/23/2018 Review of design software job openings new data (#16.5) 5/1/2018 PMI index & Technical Software (April 2018 data) 88 5/8/2018 Review of 2Q18 10-Q new data 5/17/2018 Review of design software job openings new data (#16.6) 6/1/2018 PMI index & Technical Software (May 2018 data) 89 6/11/2018 Rockwell partnership & investment in PTC; raised PO to $100 Liveworx 2018 conference & analyst meeting; initiated FY22E-FY23E; raised PO to 90 6/19/2018 $115 7/2/2018 Stock-based compensation comparative analysis (#3) 7/2/2018 PMI index & Technical Software (June 2018 data) 7/9/2018 Review of design software job openings new data (#16.7) 91 7/19/2018 Review of 3Q18; revised FY18E-FY23E 92 8/1/2018 Review of 3Q18 10-Q new data & Rockwell strategic alliance agreement 8/1/2018 PMI index & Technical Software (July 2018 data) 8/29/2018 Design software comparative cash flow analysis (2006-2021E) 9/4/2018 PMI index & Technical Software (August 2018 data) 9/24/2018 Review of design software job openings new data (#16.8) 10/1/2018 PMI index & Technical Software (September 2018 data) 93 10/29/2018 Review of 4Q18; revised FY19E-FY23E 10/31/2018 Review of design software job openings new data (#16.9) 11/1/2018 PMI index & Technical Software (October 2018 data) 94 11/18/2018 Review of FY18 10-K new data 95 11/25/2018 Frustum acquisition; CAD market data & estimates 12/3/2018 PMI index & Technical Software November 2018 data) 12/19/2018 Review of design software job openings new data (#17) 12/26/2018 Stock-based compensation comparative analysis (#4) 1/3/2019 PMI index & Technical Software (December 2018 data) Ansys-Dassault simulation software comparative analysis (#5) & simulation market 1/3/2019 commentary 1/16/2019 "Customers' Labor-atory" (#2) - design software customers' job openings data 1/24/2019 Review of design software job openings new data (#17.1) 96 1/24/2019 Review of 1Q19; revised FY19E-FY23E; revised PO to $105 2/1/2019 PMI index & Technical Software (January 2019 data) 2/5/2019 Engineering software acquisitions review 97 2/7/2019 Review of 1Q19 10-Q new data 2/19/2019 Review of design software job openings new data (#17.2) 3/1/2019 PMI index & Technical Software (February 2019 data) 3/29/2019 Review of design software job openings new data (#17.3) 3/31/2019 Stock-based compensation comparative analysis (#5)

Griffin Securities Equity Research 25 PTC Inc. July 30, 2020

4/1/2019 PMI index & Technical Software (March 2019 data) 4/8/2019 Design software comparative cash flow analysis (2006-2021E) 4/1/2019 Review of 2019 COFES conference 98 4/27/2019 Review of 2Q19; revised FY19E-FY23; reduced PO to $100 5/1/2019 PLM industry update; Aras conference comments 5/2/2019 PMI index & Technical Software (April 2019 data) 5/9/2019 Review of design software job openings new data (#17.4) 5/9/2019 Review of 2Q19 10-Q new data 6/2/2019 PMI index & Technical Software (May 2019 data) 99 6/12/2019 Liveworx 2019 conference & analyst meeting 100 6/20/2019 Liveworx 2019 product roadmaps 7/1/2019 PMI index & Technical Software (June 2019 data) 7/12/2019 Review of design software job openings new data (#17.5) 101 7/25/2019 Review of 3Q19; revised FY19E-FY23E; reduced rating to Neutral 8/1/2019 PMI index & Technical Software (July 2019 data) 102 8/9/2019 Review of 3Q19 10-Q new data 8/13/2019 Review of design software job openings new data (#17.6) 9/3/2019 PMI index & Technical Software (August 2019 data) 9/10/2019 CAD industry license volume analysis (2006-2021E) 10/1/2019 PMI index & Technical Software (September 2019 data) 10/2/2019 Stock-based compensation comparative analysis (#6) 10/7/2019 Review of design software job openings new data (#17.7) 103 10/27/2019 Review of 4Q19; revised FY20E-FY23E; OnShape acquisition 11/4/2019 PMI index & Technical Software (October 2019 data) 104 11/20/2019 Review of FY19 10-K new data 105 11/26/2019 Review of analyst meeting financial highlights & OnShape acquisition 12/2/2019 PMI index & Technical Software (November 2019 data) 1/3/2020 PMI index & Technical Software (December 2019 data) 1/12/2020 Review of design software job openings new data (#18.1) 1/15/2020 Simulation process & data management (Ansys & Aras partnership) 106 1/23/2020 Review of 1Q20; revised FY20E-FY23E 107 1/27/2020 Review of 1Q20 10-Q new data 2/3/2020 PMI index & Technical Software (January 2020 data) 108 2/4/2020 Autodesk & PTC debt refinancing 3/2/2020 PMI index & Technical Software (February 2020 data) 109 3/8/2020 Highlights of hosted management meetings 110 3/10/2020 Model review conference call 3/17/2020 Design software comparative cash flow analysis (2009-2023E) 3/25/2020 Comparative 2020E-2021E results sensitivities 4/1/2020 PMI index & Technical Software (March 2020 data) 4/5/2020 Review of design software job openings new data (#18.3) 111 5/1/2020 Review of 2Q20; revised FY20E-FY23E 5/4/2020 PMI index & Technical Software (April 2020 data)

5/17/2020 Review of design software job openings new data (#18.4) 6/1/2020 PMI index & Technical Software (May 2020 data) 112 6/10/2020 Liveworx 2020 conference 6/16/2020 CAD industry license volume analysis (2008-2023E) 7/1/2020 PMI index & Technical Software (June 2020 data) 7/7/2020 Review of design software job openings new data (#18.5) 113 7/8/2020 3QFY20 pre-announcement 7/9/2020 Manufacturing software industry review Source: Griffin Securities. Unnumbered items indicate industry report or comment in The Software Standard industry

Griffin Securities Equity Research 26 PTC Inc. July 30, 2020

update

Griffin Securities Equity Research 27 PTC Inc. July 30, 2020

Disclosures

ANALYST(s) CERTIFICATION: The analyst responsible for covering the securities in this report certify that the views expressed in this research report accurately reflect their personal views about the subject Companies mentioned and its securities. The analyst responsible for covering the securities in this report certify that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in this research report.

MEANINGS OF RATINGS: Our rating system is based upon 12 to 36 month price targets. BUY describes stocks that we expect to appreciate by more than 20%. HOLD/NEUTRAL describes stocks that we expect to change plus or minus 20%. SELL describes stocks that we expect to decline by more than 20%. SC describes stocks that Griffin Securities has Suspended Coverage of this Company and price target, if any, for this stock, because it does not currently have a sufficient basis for determining a rating or target and/or Griffin Securities is redirecting its research resources. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NR describes stocks that are Not Rated, indicating that Griffin Securities does not cover or rate this Company.

DISTRIBUTION OF RATINGS/IB SERVICES: IB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [BUY] 10 83.33 0 0.00 HOLD [HOLD] 2 16.66 0 0.00 SELL [SELL] 0 0.00 0 0.00

COMPANIES MENTIONED:

Ticker Company Name Rating

PTC PTC Inc. Buy ANSS Ansys, Inc. Buy MSFT Microsoft Corp. Buy PTC PTC Inc. Buy

MARKET MAKING: Griffin Securities does not maintain a market in the shares of these Companies or any other company mentioned in the report.

COMPENSATION OR SECURITIES OWNERSHIP:

The analyst Jay Vleeschhouwer who is responsible for covering the securities in this report receives compensation based upon, among other factors, the overall profitability of Griffin Securities, including profits derived from investment banking revenue. Jay Vleeschhouwer who prepared the research report, did not receive any compensation from the Companies or any other companies mentioned in this report in connection with the preparation of this report.

The analyst Jay Vleeschhouwer who is responsible for covering the securities in this report currently does not own common stock in the Companies or any other companies mentioned in this report, but in the future may from time to time engage in transactions with respect to the Companies or other companies mentioned in the report.

Griffin Securities Equity Research 28 PTC Inc. July 30, 2020

Griffin Securities from time to time in the future may request expenses to be paid for copying, printing, mailing and distribution of the report by the Companies and other companies mentioned in this report. Griffin Securities expects to receive, or intends to seek, compensation for investment banking services from the Companies in the next three months.

Rating and Price Target History for: PTC Inc. (PTC US) as of 07-28-2020

10/26/17 01/18/18 04/19/18 06/11/18 06/19/18 01/24/19 04/29/19 07/25/19 B:$71 B:$77 B:$88 B:$100 B:$115 B:$105 B:$100 H:NA 110 100 90 80 70 60 50 40 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2

Created by: BlueMatrix

Rating and Price Target History for: Autodesk, Inc. (ADSK US) as of 07-28-2020

08/25/17 03/07/18 08/24/18 11/21/18 03/01/19 05/24/19 08/28/19 11/27/19 02/11/20 06/03/20 B:$135 B:$165 B:$170 B:$175 B:$188 B:$193 B:$184 B:$186 B:$235 B:$249 260 240 220 200 180 160 140 120 100 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2

Created by: BlueMatrix

Rating and Price Target History for: Ansys, Inc. (ANSS US) as of 07-28-2020

09/12/19 11/08/19 01/17/20 05/07/20 B:$240 B:$248 B:$284 B:$289 350

300

250

200

150

100 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2

Created by: BlueMatrix

Griffin Securities Equity Research 29 PTC Inc. July 30, 2020

Rating and Price Target History for: Dassault Systemes (DSY FP) as of 07-28-2020

10/26/17 02/06/18 04/26/18 06/26/18 07/26/18 02/07/19 04/29/19 07/29/19 02/07/20 04/27/20 B:$96 B:$110 B:$115 B:$135 B:$140 B:$145 B:$153 B:$155 B:$167 B:$160 180

160

140

120

100

80 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2

Created by: BlueMatrix

Rating and Price Target History for: Microsoft Corp. (MSFT US) as of 07-28-2020

10/27/17 02/01/18 04/27/18 07/23/18 10/25/18 04/25/19 07/01/19 07/19/19 10/24/19 01/02/20 01/30/20 04/30/20 07/23/20 B:$103 B:$109 B:$119 B:$124 B:$130 B:$145 B:$150 B:$158 B:$162 B:$180 B:$192 B:$200 B:$249 220 200 180 160 140 120 100 80 60 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Q1 Q2

Created by: BlueMatrix

FORWARD-LOOKING STATEMENTS: This Report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the “Risk Factors” section in the SEC filings available in electronic format through SEC Edgar filings at www.SEC.gov on the Internet.

GENERAL: Griffin Securities, Inc. (“Griffin Securities”) a FINRA member firm with its principal office in New York, New York, USA is an investment banking firm providing corporate finance, merger and acquisitions, brokerage, and investment opportunities for institutional, corporate, and private clients. The analyst(s) are employed by Griffin Securities. Our research professionals provide important input into our investment banking and other business selection processes. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

Griffin Securities may from time to time perform corporate finance or other services for some companies described herein and may occasionally possess material, nonpublic information regarding such companies. This information is not used in preparation of the opinions and estimates herein. While the information contained in this report and the opinions contained herein are based on sources believed to be reliable, Griffin Securities has not independently verified the facts, assumptions and estimates contained in this report. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information and opinions contained in this report.

The information contained herein is not a complete analysis of every material fact in respect to any company, industry or security. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is

Griffin Securities Equity Research 30 PTC Inc. July 30, 2020

for the general information of clients of Griffin Securities. It does not take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, clients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. Certain transactions - including those involving futures, options, and other derivatives as well as non-investment-grade securities - give rise to substantial risk and are not suitable for all investors. The material is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information contained in this report is subject to change without notice and Griffin Securities assumes no responsibility to update the report. In addition, regulatory, compliance, or other reasons may prevent us from providing updates.

DISCLOSURES FOR OTHER COMPANIES MENTIONED IN THIS REPORT: To obtain applicable current disclosures in electronic format for the subject companies in this report, please refer to SEC Edgar filings at www.SEC.gov. In particular, for a description of risks and uncertainties related to subject companies’ businesses in this report, see the “Risk Factors” section in the SEC filings.

Griffin Securities Equity Research 31