PTC 10-K & 10-Q changes, risk factors and insider trading

For example, customer demand for SaaS solutions is increasing. While our Arena, ServiceMax, and Onshape solutions are cloud-native SaaS solutions, and we have introduced our Windchill+, Creo+, and KepwareCreo+ SaaS solutions, customers may not adopt them as we expect. If we are unable to compete successfully with competitors offering SaaS solutions, we could lose customers and/or fail to attract new customers, which could adversely affect our business, financial condition, operating results, and prospects.

Our current and potential competitors range from large and well-established companies to emerging start-ups. Some of our competitors and potential competitors have greater name recognition in the markets we serve and greatermore financial, technical, sales and marketing, and other resources, which could limit our ability to gain customer recognition and confidence in our products and solutions and successfully sell our products and solutions, which could adversely affect our ability to grow our business.

In addition, we offer cloud services to our customers and some of our products, including our SaaS products, are hosted by third-party service providers, which expose us to additional risks as those repositories of our customers’ proprietary data may be targeted and a cyberattack or intrusion may be successful and material. Interception of data transmission, misappropriation or modification of data, corruption of data and attacks against our service providers may adversely affect our products or product and service delivery. Malicious code, viruses or vulnerabilities that are undetected by us or our service providers may disrupt our business operations generally and may have a disproportionate effect on those of our products that are developed and delivered in the cloud environment.

While we devote resources to maintaining the security and integrity of our products and systems, as well as performing due diligence of our third-party service providers, security breaches that have not had a material effect on our business or that of our customers have occurred, and we will continue to face cybersecurity threats and exposure. A significant breach of the security and/or integrity of our products or systems, or those of our third-party service providers, whether intentional or by human error by our employees or others, could disrupt our business operations or those of our customers, could prevent our products from functioning properly, could enable access to our sensitive, proprietary or confidential information or that of our customers, or could enable access to our sensitive, proprietary or confidential information.customers. This could require us to incur significant costs of investigation, remediation and/or payment of a ransom; harm our reputation; cause customers to stop buying our products; and cause us to face lawsuits and potential liability, any of which could have a material adverse effect on our business, financial condition, operating results, and prospects.

We have many strategic, technology, and software partner and system integrator relationships with other companies that provide technologies and software that we embed in our solutions, that provide implementation services to our customers, that we work with to offer complementary solutions and services, and that market and sell our solutions. If these companies fail to perform as we expect, or if a company terminates or substantially alters the terms of the relationship, we could experience delays in product development, reduced or delayed sales, customer dissatisfaction, andincur additional expenses, and our business, financial condition, results of operations, and prospects could be materially adversely affected.

Our continued growth depends in part on the ability of our existing and potential customers to use and access our cloud services or our website in order to download our software or encrypted access keys for our software within an acceptable amount of time. We use a number of third-party service providers that we do not control for key components of our infrastructure, particularly with respect to development and delivery of our cloud-based products. The use of these service providers gives us greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes us to additional risks and vulnerabilities. Third-party service providers operate their own platforms that we access, and we are, therefore, vulnerable to their service interruptions. We may experience interruptions, delays and outages in service and availability from time to time as a result of problems with our third-party service providers’ infrastructure. Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraudfraud, and/or security attacks that we cannot predict or prevent. Such outages could adversely impact our business, financial condition, results of operations, and prospects.

A large amount of our sales are to customers in the discrete manufacturing sector. Manufacturers worldwide continue to face uncertainty about the global macroeconomic environment due to, among other factors, the effects of recently imposed import tariffs and threats of additional import tariffs, the effects of earlier and ongoing supply chain disruptions, high interest rates and inflation, volatile foreign exchange rates and the current relative strength of the U.S. Dollar, and the U.S. government’s focus on technology transactions with non-U.S. entities. Customers may delay, reduce, or forego purchases of our solutions due to these challenges and concerns, which could adversely affect our business, financial condition, results of operations, and prospects.

If we fail to successfully develop competitive SaaS solutions and to transform our operations to support the sale of SaaS solutions and to develop competitive SaaS solutions, our business and prospects could be adversely affected.

Transforming our business to offer and support SaaS solutions requires considerable additional investment in our organization. Whether we will be successful and will accomplish our business and financial objectives is subject to risks and uncertainties, including but not limited to: our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, our ability to further develop and scale infrastructure, our ability and the ability of our partners to transition existing customer implementations to SaaS, customer demand, attach and renewal rates, channel adoption, and our costs. If we are unable to successfully establish these new offerings and navigate our business transition, our business, financial condition, results of operations, and prospects could be adversely affected.

We sell and deliver software and services,services and maintain support operations,operations in many countries whose laws and practices differ from one another and are subject to unexpected changes. Managing these geographically dispersed operations requires significant attention and resources to ensure compliance with laws of those countries and those of the U.S. governing our activities in non-U.S. countries.

We and our customers are subject to an increasing number of laws and regulations promulgatedenacted by multiple countries and jurisdictions that require new and expansiveextensive disclosuredisclosures on sustainability topicstopics, and, in some cases, remediation of adverse effects,effects. thatThis evolving regulatory environment will increase our compliance costs and expose us to risks associated with regulatory compliance.

The regulatory landscape for sustainability disclosures continues to evolve and expand and impose greater disclosure obligations on us. These laws and regulations include those promulgated pursuant to the European Union’s Corporate Sustainability Reporting Directive (“CSRD”) and its Corporate Sustainability Due Diligence Directive (“CSDDD”). CSRD requires new, and expansiveCalifornia’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Disclosure Act. These frameworks require extensive disclosures related to sustainability risks and opportunities. Additionally, the CSDDD will require us to conduct due diligence to identify, prevent, mitigate, and account for actual and potential adverse impacts on human rights and the environment arising from our own operations and those of our valuecustomers chainsand suppliers, and to remediate any such adverse impacts. Compliance with these directiveslaws and regulations requires significant investment in resources, including the implementation of new reporting systems, enhanced data collection processes, and robust due diligence procedures.

As manyMany of our customers and potential customers, particularly those in Germany and elsewhere in the European Union,customers are also subject to suchthese laws and directives,directives. As a result, those companies will increasingly be required to assess our sustainability efforts and impacts;impacts. ifIf we are unable to satisfactorily address their requests for information or other sustainabilitysustainability-related relatedrequirements requests,or contractingexpectations, periodscustomers may reduce or terminate their contracts with thoseus companiesand customers and potential customers may bechoose extendedalternative orsoftware those companies may elect to use other suppliers or switch suppliers,solutions, which could adversely affect our business, financial condition, results of operations, and prospects.

The regulatory landscape for sustainability disclosures and obligations continues to evolve and expandexpand, and the introduction of additional laws or regulatory requirements may impose further compliance burdens on us and further increase our compliance costs. We are committed to meeting existing and futureoperating regulatory requirements; however, the financial and operational impact of current and future laws and regulations remains uncertain and could materially adversely affect our business, financial condition, results of operations and prospects.costs.

We may be unable to adequately protect our proprietary rights, which could adversely affect our competitive position, business and our prospects.

Our software products are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patentspatents, and common law safeguards, including trade secret protection, as well as restrictions on disclosures and transferability contained in our agreements with other parties. Despite these measures, the laws of all relevant jurisdictions may not afford adequate protection to our software products and other intellectual property. In addition, we frequently encounter attempts by individuals and companies to pirate our software. If our measures to protect our intellectual property rights fail, others may be able to use those rights, which could reduce our competitiveness and adversely affect our business, financial condition, operating results, and prospects.

In addition, anyAny legal action to protect our intellectual property rights that we may bring or be engaged in could be costly,expensive, maydivert distractmanagement’s managementattention from day-to-dayregular operationsoperations, and may lead to additional claims against us, and we may not succeed,prevail, allany of which could adversely affect our business, financial condition, operating results, and prospects.

III. Risks Related to Acquisitions and Divestitures

Further, if we do not achieve the expected return on our investments, it could impair the intangible assets and goodwill that we recorded as part of an acquisition, which could require us to record a reduction toin the value of those assets.

If we were to issue a significant amount of equity securities in connection with an acquisition, existing stockholdersshareholders would be diluted and our stock price could decline.

We have a substantial amount of indebtedness. As of November 14,21, 2024,2025, our total debt outstanding was approximately $1,668$1,270 million, $1$500 billionmillion of which was associated with the 3.625% Senior Notes and 4.000% Seniorsenior Notes (together, “Senior Notes”)notes issued in February 2020, which mature in February 2025 and 2028, respectively,2028 and are unsecured ("2028 Notes"); $177$301 million of which was borrowed under our credit facility revolving line, which matures in January 2028; and $491$469 million of which was borrowed under our credit facility term loan [(which began amortizing in March 2024]). All amounts outstanding under the credit facility and the Senior2028 Notes will be due and payable in full on their respective maturity dates. As of November 14,21, 2024,2025, we had unused commitments under our credit facility of approximately $1,073$949 million. PTC Inc. and one of our foreign subsidiaries are eligible borrowers under the credit facility and certain other foreign subsidiaries may become borrowers under our credit facility in the future, subject to certain conditions.

We and our subsidiaries might incur significant additional indebtedness and other obligations in the future, including secured debt. Although the credit agreement governing our credit facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions. The additional indebtedness incurred in compliance with these restrictions could be substantial. In addition, the credit agreement and the indenture governing our Seniorsenior Notesnotes due 2025 and 2028, will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, or we incur other obligations, the related risks that we now face could increase.

If we cannot make scheduled payments on our debt, we will be in default and the lenders under our credit facility could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings, the holders of our Senior2028 Notes could declare all outstanding principal, premium, if any, and interest to be due and payable, and we could be forced into bankruptcy or liquidation. These events could result in a loss of your investment.

changes in tax laws (for example, the introduction of an amendment to Section 174 of the U.S. tax legislation), regulations, and interpretations in multiple jurisdictions in which we operate;

Our Operating and Non-GAAP Financial Measures

Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively.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.

Despite the overall demand environment, which has been challenging for many quarters now, ARR grew 14%10% (12%8.5% constant currency) to $2.25$2.48 billion as of the end of FY'24FY'25 compared to FY’23.FY’24.

Cash provided by operating activities grew 23%16% to $750$868 million in FY'24FY'25 compared to FY'23.FY'24. Free cash flow grew 25%16% to $736$857 million in FY'24FY'25 compared to FY'23.FY'24. Our cash flow growth is attributable to solidresilient top-line growth due to our subscription business model and operational discipline. InterestIn paymentsFY'25, werewe $47made net debt repayments of $553 million higherand inrepurchased FY'24 compared to FY'23, mainly due to the payment of $30$300 million of imputed interest on a deferred acquisition payment associated with our 2023outstanding acquisition of ServiceMax and incremental interest expense associated with borrowings in FY'23 and FY'24.shares. We ended FY’24FY’25 with cash and cash equivalents of $266$184 million and gross debt of $1.75$1.20 billion, which debt carried an aggregate weighted average interest rate of 5.1%.4.9%.

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.

Approximately 50% of our revenue and 35% 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. Changes in foreign currency exchange rates were a slight tailwind to reported income statement results compared to constant currency results in FY’24.FY’25. ARR was positively impacted by improvementsmore infavorable currency exchange rates, particularly the Euro to U.S. Dollar exchange rate, as of September 30, 20242025 compared to September 30, 2023.2024.

The results of operations in the table above, and the tables and discussions below about revenue by line of business and product group present both actual percentage changes year over year and percentage changes on a constant currency basis. Our constant currency disclosures are calculated by multiplying the results in local currency for FY'24FY'25 and FY'23FY'24 by the exchange rates in effect on September 30, 2023.2024. If FY'25 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2024, ARR would have been lower by $33 million, revenue would have been higher by $21 million, and expenses would have been higher by $9 million. If FY'24 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2023, ARR would have been lower by $47 million, revenue would have been lower by $22 million, and expenses would have been lower by $10 million. If FY'23 reported results were converted into U.S. Dollars using the rates in effect as of September 30, 2023,2024, ARR would have been the same, revenue would have been lowerhigher by $17$34 million, and expenses would have been lowerhigher by $12$14 million.

Support and cloud services revenue growth in FY'24FY'25 was mainly driven by PLM (which included contribution from ServiceMax)growth in the Americas and Europe.PLM.

PLM ARR grew 15%10% (13%8% constant currency) from September 30, 20232024 to September 30, 2024.2025, primarily driven by Windchill and Codebeamer.

CAD ARR grew 13%10% (10%9% constant currency) from September 30, 20232024 to September 30, 2024.2025, primarily driven by Creo.

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

License gross margin grew at a higher rate than license revenue in FY'24FY'25 due mainly to license revenue growth. Total cost of license revenue in FY'25 remained consistent with FY'24, with lower intangible amortization expense.expense Excludingoffsetting intangiblegrowth amortizationin expense,other license gross margin percentage was consistent year over year.areas.

Support and cloud services gross margin growth in FY'24FY'25 was in line with support and cloud services revenue growth. Cost of support and cloud services grew 6% in FY'24FY'25, grewprimarily at a similar ratedue to revenue,increasing drivencompensation-related by higher intangible amortization expense, compensation expense,costs and royaltycloud expense.and software subscription-related costs as the business grows.

Professional services gross margin increaseddecreased in FY’24FY’25 compared to FY’23,FY’24, primarily due to lower outside service costs, partially offsetdriven by decreasesa sharper decrease in professional services revenue.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.

Interest expense includes interest on our revolving credit facilityfacility, loansterm loan, senior notes that were redeemed in Q2'25, and oursenior Senior Notesnotes due 2025 andin 2028. Interest expense in FY'23 also included $30 million of interest on a deferred acquisition payment associated with the ServiceMax acquisition. The decrease in interest expense was driven by thelower debt balances and lower aggregateinterest average of debt and deferred acquisition payment liability balances outstanding in FY'24 compared to FY'23.rates.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the IRS in the United States.U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions including Germany, Ireland, and Italy.jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses, and tax credits.

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 September 30, 2024,2025, we had cash and cash equivalents of $36$18 million in the U.S., $127$87 million in Europe, $86$63 million in Asia Pacific (including India), and $17$16 million in other non-U.S. 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 flows,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 increased by $139.1$118 million in FY'24FY'25 compared to FY'23.FY'24. This increase was driven by higher collectionscollections, (includinglower contributioninterest frompayments, ServiceMax),and whichlower werevendor disbursements, partially offset by higher salary-relatedtax payments and interesthigher severance payments. Interest payments in FY'24 were approximately $47.2$59 million higherlower in FY'25 than in FY'23FY'24, anddriven includeby the Q1'24 payment of $30.0$30 million of imputed interest on the ServiceMaxa deferred acquisition payment.payment associated with our FY'23 acquisition of ServiceMax, as well as lower interest payments in FY'25 due mainly to lower debt balances.

Cash Provided by (Used in) Financing Activities

As of September 30, 2024,2025, we were in compliance with all financial and operating covenants of the credit facility and the Seniorsenior Notenote indentures.indenture. As of September 30, 2024,2025, the annual ratesrate for borrowings outstanding under the credit facility revolverwas line and term loan were 7.0% and 6.9%, respectively.5.6%.

Our credit facility and our Seniorsenior Notes,notes, including the financial and operating covenants and limitations on the payment of dividends, are described in Note 9.8. Debt of Notes to the Consolidated Financial Statements in this Annual Report. As of September 30, 2025, $25 million of our debt associated with the credit facility term loan was classified as current. In Q2'25, we redeemed the 2025 senior notes using a draw on our revolving credit facility and cash on hand.

Our long-term goal is to return approximately 50% of our freeexcess cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic initiatives and acquisitions, which could cause us to reduce, suspend, or cease repurchases. We currently intendexpect to repurchase approximately $300$150 to $250 million of our common stock per quarter in FY'25.FY'26.

We believe that existing cash and cash equivalents, together with cash generatedinflows 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, including redemption of the 3.625% Senior Notes in February 2025,months and to meet our known long-term capital requirements.

For contracts that include annual values that increasechange over time, which we refer to as ramp contracts, 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.

In addition to otherthe 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.

Statements in this document that are not historic facts, including statements about our future operating, financial and growth expectations, and potential stock repurchases, and the anticipated benefits of the sale of the Kepware and ThingWorx businesses (the “divestiture”)repurchases 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, including the recent military conflict in Iran, 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 those capabilities are not made available when or as we expect, if customers are slower to adopt those solutions than we expect, or if customers 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 proceeds we receive under the Transition Services Agreement entered into in connection with the divestiture of the Kepware and ThingWorx businesses may be lower than expected and/or may not offset our expenses and/or the cash flow impact of the divestiture to the extent expected; the divestiture and/or performance of the Transition Services Agreement may disrupt our business to a greater extent than we expect; other uses of cash or our credit facility limits could limit or preclude the return of excess cash 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.

ARR grewwas 3% (1% constant currency) to $2.36$2.41 billion as of the end of Q2’26Q3'26, comparedflat towith Q2’25,Q3'25, and grew 2% on a constant currency basis, with growth impacted by the Q2'26 divestiture of the Kepware and ThingWorx.ThingWorx Excludingbusinesses. ARR growth excluding the divested businesses fromin Q2'25Q3'26 ARR,compared ARRto growthQ3'25 wouldwas have been 11%7% (8.5%9% constant currency).

Cash provided by operating activities grew 14%7% to $321$261 million in Q2'26Q3'26 compared to Q2'25.Q3'25. Free cash flow grew 14%3% to $318$249 million in Q2'26Q3'26 compared to Q2'25.Q3'25, impacted by higher capital expenditures related to moving a major R&D center to a new office. In Q2'26,Q3'26, we made $5$9 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 Q2'26,Q3'26, we usedrepurchased $626$525 million to repurchaseof outstanding shares, includingof $375which $500 million was paid uponin entrythe intoquarter, anpartially Acceleratedfunded Shareby Repurchase$225 agreementmillion (ASR).of net debt borrowings under our credit facility.

Revenue grewdecreased 22%7% (15%8% constant currency) to $774 million in Q2'26Q3'26 compared to Q2'25,Q3'25, reflecting the value and durationdivestiture of contracts that commenced in the period. Operating margin grew by approximately 310 basis points in Q2'26 compared to Q2'25, reflecting higher revenue and continued operating discipline, offset by the impact of divestiture-related charges of $27 million. Diluted earnings per share grew 270% to $4.98 in Q2'26 compared to Q2'25, primarily driven by the Q2'26 recognition of a $360 million gain, net of tax on the Kepware and ThingWorx divestiture.businesses in Q2'26 as well as lower license revenue due primarily to the shortened duration of a single large contract renewal and expansion. There was $46 million of revenue attributable to Kepware and ThingWorx in Q3'25. Operating margin decreased by approximately 480 basis points in Q3'26 compared to Q3'25 and diluted earnings per share decreased 12% to $1.03 in Q3'26 compared to Q3'25, primarily due to lower revenue in Q3'26 compared to Q3'25.

If reported results for the sixnine months ended MarchJune 31,30, 2026 were converted into U.S. Dollars using the rates in effect as of September 30, 2025, ARR would have been higher by $23$36 million, revenue would have been higher by $3$9 million, and expenses would have been materially consistent. If reported results for the sixnine months ended MarchJune 31,30, 2025 were converted into U.S. Dollars using the rates in effect as of September 30, 2025, ARR would have been higherlower by $68$12 million, revenue would have been higher by $50$61 million, and expenses would have been higher by $17$21 million.

Under ASC 606, the value, mix, and duration of contract types (support, SaaS, on-premises subscription) commencing 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. Over time, as we expand our SaaS offerings, release additional cloud functionality into our products, and migrate customers from on-premises subscriptions to SaaS, a higher portion of our revenue would be recognized ratably. Given the different value, mix, and duration of contracts commencing in any period, year-over-year or sequential revenue can vary significantly.

Software revenue growth in Q2'26Q3'26 and the first sixnine months of FY'26 compared to the corresponding FY'25 periods was driven by license revenue growth, which was drivenimpacted by the valuedivestiture of the Kepware and durationThingWorx businesses. Software revenue attributable to Kepware and ThingWorx was $45 million and $131 million in Q3'25 and the first nine months of contractsFY'25, that commenced in the period.respectively.

Software revenue growth in the first nine months of FY'26 was driven by license revenue growth, which reflects the value and duration of contracts that commenced in the period. Support and cloud services revenue growth in Q2'26 and the first sixnine months of FY'26 compared to the corresponding FY'25 periodsperiod was mainly driven by growth in both CAD and PLM.

Professional services revenue decreased in Q2'26 and the first sixnine months of FY'26 as we continue to execute on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves.

CADPLM software revenue growth in Q2'26 and the first sixnine months of FY'26 was driven by CreoWindchill license revenue growth in the Americas.Americas and Europe, offset by the impact of the divestiture.

CAD ARR grew 10%6% (8% constant currency) from Q2’25Q3’25 to Q2’26,Q3’26, primarily driven by Creo. CAD ARR grew 13%8% (7%8% constant currency) in Europe,the 10%Americas, 5% (11% constant currency) in Asia Pacific, and 8%4% (7% constant currency) in theEurope Americas,from Q3'25 to Q3'26, primarily driven by Creo in eachall region.regions.

License gross margin growthchanges in Q2'26Q3'26 and the first sixnine months of FY'26 wascompared to the corresponding FY'25 periods were in line with changes in license revenue growth.revenue. Cost of license revenue was higher in the first sixnine months of FY'26 compared to the first sixnine months of FY'25, primarily due to higher royalty expenses.

Support and cloud services gross margin growth in Q2'26Q3'26 and the first sixnine months of FY'26 compared to the corresponding FY'25 periods was in line with support and cloud services revenue growth. Cost of support and cloud services revenue increased 9% and 10%7% in Q2'26 and the first sixnine months of FY'26, respectively, compared to the corresponding FY'25 periods, primarily due to higher cloud and software subscription-related costs and compensation-related costs.

Professional services gross margin increased in Q3'26 compared to Q3'25 due to an increase in professional services revenue. Professional services gross margin decreased in Q2'26 and the first sixnine months of FY'26 compared to the corresponding FY'25 periods,FY'26, primarily due to a sharper decrease in professional services revenue than in professional services expense. The decreasesdecrease in professional services revenue and costs areis due to our continued execution onof our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves.

Total headcount in Q3'26 decreased 4%5% betweencompared Q2’25to and Q2’26Q3'25 due to the divestiture of the Kepware and ThingWorx divestiture.businesses.

Operating expenses in Q2'26Q3'26 increaseddecreased compared to Q2'25,Q3'25, primarily due to the following:

$27income millionunder inthe chargesTransition Services Agreement associated with the divestiture of the Kepware and ThingWorx divestiturebusinesses, (which is primarily included in General and administrative);

a $14$20 million decrease in severance costs primarily related to our FY'25 go-to-market realignment (which was mainly included in Sales and marketing); and aincome $7under millionthe decreaseTransition Services Agreement associated with the divestiture, which is primarily included in outside services, driven by FY'25 consulting services related to our go-to-market realignmentGeneral and other corporate initiatives.administrative.

Interest expense in FY'26 and FY'25 includes interest on our revolving credit facility, term loan, and senior notes due in 2028. Interest expense in Q2'25 and the first sixnine months of FY'25 also included interest on our senior notes due in 2025, which were redeemed in Q2'25. Interest expense decreased in Q2'26Q3'26 and the first sixnine months of FY'26 compared to the corresponding FY'25 periods due to lower debt balances during FY'26 and lower interest rates.

Other income, net increasedwas higher in Q2'26 and the first sixnine months of FY'26 compared to the correspondingfirst nine months of FY'25 periods due to the Q2'26 recognition of a $463 million gain on the divestiture of the Kepware and ThingWorx divestiture.businesses.

The effective tax rate for the first sixthree months ofended FY'26June 30, 2026 was higherlower than the effective tax rate for the corresponding prior-year periodperiod, primarily due to changes in the geographic mix of income before taxes. For Q2'26the three and nine months ended June 30, 2026, the provision for income taxes included $14 million of tax expense related to the Varian Medical Systems, Inc. v. Commissioner tax court ruling and a $7 million tax benefit related to a strategic solar energy investment, each as discussed in Note 9. Income Taxes. For the first sixnine months of FY'26, the provision for income taxes includesalso included a $96 million tax expense of $102 million on the gain on sale of $463 million related to the Kepware and ThingWorx divestiture.divestiture The effective tax rate for the first six months of FY'26 also reflectedand a net$7 incomemillion tax benefit of $7 million related to the reversal of a prior-year tax charge associated with IRS procedural guidance, as described below. The first six months of FY'25 included a benefit of $10 million associated with the impact of tax reserves related to prior years in aNote foreign9. jurisdiction.Income Taxes.

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.

We invest ourOur cash and cash equivalents are invested 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. Cash balances are higher as of Q2'26the comparedend toof Q3'26 than as of the end of Q4'25, reflectingwhich primarily reflects the timing of expected tax payments and payment of divestiture-related charges associated with the Kepware and ThingWorx divestiture. A significant portion of our cash is generated and held outside the U.S. As of MarchJune 31,30, 2026, we had cash and cash equivalents of $27$33 million in the U.S., $269$158 million in Europe, $122$144 million in Asia Pacific (including India) and $21$16 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 increased $71$88 million in the first sixnine months of FY'26 compared to the same period in FY'25. Growth was driven by higher collections,collections and lower interest payments, partially offset by higher tax payments andpayments, higher payroll and related payments.payments, Additionally,and the first six months of FY'26 included $15$24 million of divestiture-related payments.

Cash Provided by (Used in) Investing Activities

Cash provided by investing activities in the first sixnine months of FY'26 was driven by $523 million in consideration received for the divestiture of the Kepware and ThingWorx businesses.businesses, partially offset by a $50 million strategic solar energy investment.

Cash used in financing activities in the first sixnine months of FY'26 was driven by $826$1,326 million of repurchases of common stock, includingpartially $375offset by $225 million associatedof withnet theborrowings ASRon enteredour intocredit in Q2'26.facility. Cash used in financing activities in the first sixnine months of FY'25 included net payments of $360$517 million on our outstanding debt, including the redemption of our 2025 senior notes primarily using a draw on our credit facility, and $150$225 million of repurchases of common stock.

As of MarchJune 31,30, 2026, we were in compliance with all financial and operating covenants of the credit facility and the note indenture. As of MarchJune 31,30, 2026, the annual rate for borrowings outstanding under the credit facility was 5.1%.5.0%.

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 MarchJune 31,30, 2026, $25 million of our debt associated with the credit facility term loan was classified as current.

Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $2 billion of our common stock in the period October 1, 2024 through September 30, 2026, and up to $2 billion of our common stock in the period October 1, 2026 through September 30, 2028. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued. In Q2'26, we entered into an ASR to repurchase $375 million of our outstanding common stock as described in Note 4. Earnings per Share (EPS) and Common Stock. Final settlement of the ASR is expected to occuroccurred in Q3'26.

We believe that our existing cash and cash equivalents, together with cash inflowsgenerated from operations and amounts available under theour credit facility, will be sufficient to meet our working capital, capital expenditure, and capitalcommitted expenditurecash requirements throughfor at least the next twelve monthsmonths, andas towell meetas our known long-term capital requirements.

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 itsthe most closely comparable GAAP measure on our financial statements.

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 Q2'25, adjustments exclude a $4.9 million benefit related to the tax impact of tax reserves related to prior years in foreign jurisdictions, of which $4.2 million was a non-cash benefit. In the first sixnine months of FY'25, adjustments exclude a $10.4 million benefit related to the tax impact of tax reserves related to prior years in a foreign jurisdiction.jurisdictions.