Neil Barua
Chief Executive Officer at PTC
Thanks, Matt. In Q3, we again delivered solid constant currency ARR growth, up 12% year-over-year, demonstrating that our portfolio of products is resonating with customers. Our Q3 free cash flow growth was also solid, rising 29% year-over-year. Kristian will take you through our quarterly results and forward-looking guidance in detail. Before we get into more detail, I want to recognize Mike DiTullio, who will transition out of the President and Chief Operating Officer roles at the end of the fiscal year and continue as an adviser to me into 2025.
Mike's part in PTC's success has been profound over his tenure of more than 25 years. We certainly wouldn't be the company we are today without him. In addition, he's been a great partner to me as I've stepped into the CEO role. We've been discussing his future plans, and we both agree that it's the right time to start this transition process. When we start fiscal '25, we'll no longer have the COO position within our leadership structure.
At this stage of my CEO tenure, my approach is to be close to the business and be more directly involved with operations and execution, especially for our key priorities. Accordingly, I will be assuming many of Mike's responsibilities. Additionally, I'd like to reiterate what I said on last quarter's call, which is that I'm turning over lots of stones and looking at everything in this company in order to usher in a new phase of focus and effectiveness across the entire company.
To that end, while Mike's change was externally visible because we filed an 8-K, there are numerous other changes that we have already made and are making across many different areas of the organization. This is an ongoing process that we're doing with the intent of driving more effectiveness in the pursuit of our incredible growth potential. Let's move now to slide four, which highlights our product portfolio and strategy.
As a reminder, our five focus areas are: one, PLM, which is driven primarily by our Windchill product; two, ALM, which is driven by our Codebeamer product; three, SLM, which is primarily driven by ServiceMax; four, CAD, which is driven primarily by Creo; and five, our continued focus on SaaS. These are the areas where we can create the greatest customer value and are the areas where we are focusing our resources and attention. At the most basic level, our customers need to introduce new products at a faster pace and with higher quality.
It is not unusual to hear from customers that they need to shorten their new product introduction time lines in half. That's not possible without digital transformation across their workflows, which is exactly what our products enable. It's also worth highlighting that we are bringing our suite of software offerings together to help product companies improve their competitiveness. Given the unique breadth and openness of our portfolio, we can enable end-to-end Digital Thread initiatives, which leverage a connected flow of product data across design, manufacturing, service and ultimately, reuse.
Our Digital Thread enables product companies to break down silos, streamline workflows, and achieve interoperability across departments, functions and systems with a single version of truth. It also secures the quality, consistency and traceability of product-related data, ensuring that the data is up-to-date, accessible, reliable and actionable. With the digital thread, the right data is delivered to the right people at the right time and in the right context across the value chain.
The demand drivers for our core offerings are strong, and our differentiated capabilities to drive Digital Thread initiatives are increasingly important to our customers. There is so much we can do to help our customers drive better business outcomes. To unlock this potential, I have started to focus on our operations, taking a fresh look at ways to continue driving improvements. On last quarter's call, we discussed rebalancing some R&D resources away from creating new standalone IoT and augmented reality applications to instead support growth of our core products.
That was just the first step. Putting in place an organizational design that enables us to scale more programmatically will set us up for continued success in the future. We are now primarily turning our attention to optimizing our go-to-market and G&A activities. As I mentioned upfront, we've leaned out the go-to-market management structure, so there are less layers between me and our customers. At this point, we are moving forward without the Chief Operating Officer and Chief Revenue Officer roles, and I will be working directly with our Head of Sales and Head of Customer Success.
We are actively looking at every facet of our business to continue driving alignment and effectiveness across our entire company. It is about focus on customer value and getting more effective with each dollar we spend to support them and capture that demand. The opportunities to achieve this are significant here at PTC. We are in the early innings of doing this work, and we expect the heavy lifting to continue in fiscal '25. I'd like to turn now to discuss three of our focus areas to illustrate the significant value we bring to customers.
This quarter, I'll touch on what we have been seeing with customers of our Windchill PLM, Codebeamer ALM and ServiceMax SLM products. Starting with PLM on slide five. This is Product Lifecycle Management, and Windchill is our flagship PLM product. PLM systems tend to be really sticky and are mission-critical for our customers. This is software that historically had the function of helping CAD engineers keep track of their CAD files. Now PLM is at the epicenter of digital transformation initiatives and product companies.
As I explained last quarter, product companies are increasingly focused on compressing the time it takes to get new products to market. And at the same time, their products continue to get much more complex, both to design and produce. The complexity becomes untenable, quality and time to market gets impacted. Sooner or later, it becomes very clear that having an advanced PLM system is a strategic necessity. In general manufacturing companies have a long way to go in terms of their digital transformation journeys.
And when a product company gets really serious about optimizing and automating their design and manufacturing processes we tend to see large PLM expansion projects and step function increases in ARR as customers expand their Windchill deployments in terms of both seats and functionality. A good example of this is our Q3 win as a supplier to the automotive industry that specializes in cabling and wiring harness solutions.
Given the rise of software-defined vehicles and the importance of electronic wiring systems, the role of this company in the automotive supply chain has grown. It's interesting that this company already appreciate the value of leveraging their PLM system beyond engineering to drive better business outcomes. They are using Windchill within R&D, but they're currently using homegrown tools to drive collaboration across their engineering, supply chain, manufacturing and quality assurance teams.
Over time, maintaining their homegrown system became unsustainable from both the complexity and cost standpoint. They found it compelling that extending Windchill beyond engineering is easy to implement and provides quick time to value, and they decide to standardize on their Windchill system as their backbone for enterprise-wide collaboration around their product data. Turning to slide six. The second customer example for today is a medical equipment customer that has been using our Creo CAD and Windchill PLM products for years now.
What's interesting is that this customer wants to unlock value by going with the Digital Thread approach I highlighted a few minutes ago. Our Codebeamer ALM product helped to complete their Digital Thread vision. After being a Codebeamer customer for about a year testing out the product, they decided they were all-in and ready to move forward with their digital thread initiative.
And in Q3, they signed a deal with us that will expand their ARR by 190%. As a reminder, ALM or Application Lifecycle Management helps engineers keep track of product requirements and test to ensure that all requirements are met. This traceability is very important in safety-critical and regulated industries, including the automotive and medical equipment markets and has been growing in importance across other industries because of the trend towards software-driven products of all types.
Products now contain more embedded software than ever. And for many products, there's been an explosion in the number of unique software configurations that need to be developed and updated over time. Codebeamer is a next-gen platform that enables industrial companies to manage this increasing level of complexity. Codebeamer is differentiated from legacy ALM offerings in two key ways: first, Codebeamer has industry-leading traceability capabilities; and second, Codebeamer also helps with time to market by supporting agile development processes.
Consider, for example, what happens when a company has a product in the field that fails. Regulators immediately want to understand which version of the software that product had and might even demand that more stringent new requirements be placed on new products the company makes. Codebeamer is becoming the solution of choice to deal with this new reality. Codebeamer is a big part of completing the Digital Thread vision for this customer because software plays such a critical role in their new product innovations.
Before having Codebeamer, they faced challenges managing their high volume of software requirements, which led to unnecessary delays in getting new products to market as well as exposure to risk. As a medical equipment company, software innovation and regulatory traceability are front and center for this customer, and the value Codebeamer brought to them gave them the confidence to rely on PTC in a more holistic way.
They are expanding their Windchill and Codebeamer deployments and will use Windchill as the foundation for their digital thread. The digital thread is becoming increasingly strategic to customers across many industries, as product companies see the potential to improve their competitiveness by managing the complete life cycle of their products in a more integrated manner. What is most important to thread together can be different for different customers, but having visibility to a more complete picture and being able to gain actionable insights through a Digital Thread of product data is becoming table stakes as the competitive environment continues to intensify across many industries.
Turning to our third customer example for today, which is a ServiceMax SLM win on slide seven. SLM is Service Lifecycle Management and one of our main product here is ServiceMax. The industry leader in field service management for high-value, long lifecycle products. In Q3, we landed a new PTC customer because of ServiceMax. This customer engineers, manufactures and services, industrial and electrical power systems around the world, and they like that ServiceMax has become part of PTC. The drivers behind this win were similar in many ways to the elevated company win we highlighted on last quarter's call.
The point is that many product companies are not only focused on managing complexity and accelerating time to market, they are also looking for new sources of top line and bottom line growth. In this example, the customer had a CEO-led initiative to better leverage their installed base to grow aftermarket revenue in a repeatable and cost-effective manner. Because of organizational silos, the customer currently has fragmented service business operation, which impacts their field service productivity and customer service.
They struggle to compete with smaller, local vendors for aftermarket contracts to service their own products. The customer made the strategic decision that it was time to transform their service operations and they selected ServiceMax. The ServiceMax system will be their software foundation and single source of truth for their aftermarket services and customer service initiatives.
Before going out into the field, the ServiceMax application will help their service technicians understand everything they need to know about the specific product that needs servicing so that they can bring the right parts with them. The ServiceMax application will also schedule and route the field technicians efficiently and guide the field technicians through complex procedures.
As typical of ServiceMax deals, the selection process was very thorough and ServiceMax came on top based on product capabilities that are aligned with the priorities of the customer to drive more proactive customer service, improved visibility into their installed base of products, drive higher aftermarket attach rates and improve field technician utilization. Lastly, we also remain encouraged by our other focus areas that i didn't provide examples for this quarter, which are CAD and SaaS.
We have been reinvesting in our business, consistently growing our annual R&D investment footprint to provide greater value to our customers. In Q3, we made incremental progress in each of our five focus areas towards executing in a scalable fashion and focusing our investments on the product advancements that customers care the most about.
As I emphasized earlier, you should expect to see a continued focus on aligning all our resources across all operational functions in this company behind our five focus areas. This is foundational work, and we will be disciplined about seeing it through. It will take time and progress may not be linear, but we will leave no stone unturned, as I said, as we focus on scaling our business and further improving the consistency of our execution.
With that, I'll hand the call over to Kristian to take you through our Q3 financial results and future guidance.