PTC (NASDAQ:PTC) used an investor update call to discuss the completed divestiture of its Kepware and ThingWorx businesses and to outline how the transaction affects fiscal 2026 guidance, cash flow expectations, and capital allocation priorities.
Chief Financial Officer Jen D’Errico said the company is “pleased to complete the divestiture” and will increase its focus on PTC’s “intelligent product lifecycle vision.” The transaction closed March 13, and the call was held March 16.
Transaction proceeds and updated estimates
- Transaction proceeds were $523 million, $2 million below the prior estimate of $525 million, due to working capital and indebtedness adjustments.
- Divestiture-related costs are now expected to be approximately $40 million, up $5 million from the prior estimate of $35 million.
- Cash taxes related to the transaction are now expected to be approximately $110 million, down $15 million from the prior estimate of $125 million.
Based on these updates, D’Errico said estimated net after-tax transaction proceeds are now $375 million, which is $10 million higher than the previous estimate of $365 million.
Free cash flow outlook and transition services agreement
PTC updated its fiscal 2026 free cash flow expectations to reflect the divestiture and the impact of a transition services agreement (TSA) with TPG Inc. D’Errico said PTC expects to generate net cash flow inflows from the TSA, which is expected to continue through fiscal 2026 and end sometime in fiscal 2027.
For fiscal 2026, she said cash inflows from the transition services are expected to “largely offset the absence of Kepware and ThingWorx free cash flow” following the divestiture.
PTC’s post-divestiture free cash flow guidance for fiscal 2026 is now $850 million, $10 million higher than the company’s previous estimate of $840 million.
While PTC is not providing fiscal 2027 free cash flow guidance at this time, D’Errico highlighted an updated modeling assumption tied to the TSA. Because the company is now factoring in an earlier end to transition services, PTC anticipates a free cash flow headwind of $70 million in fiscal 2027, up from its prior estimate of “less than $50 million.” She later clarified that the $70 million figure represents a combination of TSA and operating expenses.
Guidance updates and gain on sale
D’Errico said the guidance update is “in line with our expectations” and that the company is no longer including Kepware and ThingWorx in guidance for ARR. She added that for fiscal 2026 and the second quarter of fiscal 2026, PTC’s constant currency ARR guidance excluding those businesses is unchanged.
The company updated fiscal 2026 and Q2 fiscal 2026 guidance for free cash flow, revenue, and non-GAAP EPS to reflect that Kepware and ThingWorx are no longer part of PTC following the March 13 close.
PTC also updated its fiscal 2026 and Q2 fiscal 2026 guidance for GAAP EPS to reflect a $464 million gain on the sale, partially offset by the absence of earnings associated with Kepware and ThingWorx after the close.
Cash taxes and capital allocation priorities
On cash taxes, D’Errico said PTC has consumed its historical net operating losses, and as a result the company expects its cash tax rate to migrate toward its GAAP P&L tax rate over the midterm. She provided model-building ranges for cash taxes:
- Fiscal 2026 cash taxes (excluding divestiture-related cash taxes): $130 million to $150 million
- Fiscal 2027 cash taxes: $180 million to $220 million
- Fiscal 2028: cash taxes expected to be in the “same ballpark” as GAAP P&L taxes
During Q&A, when asked how rising cash taxes should affect expectations for free cash flow growth versus ARR, D’Errico reiterated the fiscal 2027 cash tax range and said she would provide more guidance and updates around fiscal 2027 in coming quarters.
On operating expenses, D’Errico reiterated PTC’s midterm expectation that non-GAAP operating expenses will grow at roughly half the rate of ARR, pointing to ongoing efficiencies and potential reallocation of investment, while declining to provide more granular expense detail for the divested businesses.
PTC also discussed share repurchases. D’Errico said the company intends to use the majority of its free cash flow to buy back shares, and she cited an expected range for “overall share buybacks” of $1.125 to $1.225. Asked about the broader approach to capital allocation and the decision to pursue an accelerated share repurchase, she said PTC believes buybacks are the right move based on the return potential and that the company will continue to evaluate its approach in fiscal 2027 and beyond.
D’Errico closed the call by thanking participants and said the company looks forward to speaking again on its Q2 fiscal earnings call.
About PTC (NASDAQ:PTC)
PTC Inc (NASDAQ: PTC) is a global technology company that develops software and services to help manufacturers design, operate, and service physical products. Founded in 1985 as Parametric Technology Corporation, PTC pioneered parametric, feature-based CAD with its Pro/ENGINEER product (now marketed as Creo) and has since expanded its portfolio to address product lifecycle management, Internet of Things (IoT), augmented reality (AR) and industrial connectivity.
Key product lines include Creo for 3D CAD; Windchill for product lifecycle management (PLM); ThingWorx, an IoT platform for connecting devices and building industrial applications; Vuforia, an AR platform for creating immersive service and training experiences; and Kepware, a suite for industrial connectivity and protocol translation.
