Item 1. Business

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PTC is a global software and services company that enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things (IIoT), and Augmented Reality (AR) markets. Our technology can be delivered on premises, in the cloud, or in a hybrid model.

Our customer base includes some of the world’s most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries. Our solutions enable industrial companies to create a closed loop of information shared across their organization’s entire value chain. This “digital thread” can drive excellence in engineering, efficiency in manufacturing operations and service delivery, and innovation across product offerings and business models. With our solutions, digital transforms physical.

As a purpose-driven company, we don’t just imagine a better world, we help create it. Our purpose statement - Power To Create – is a commitment to our customers to help them solve difficult challenges; a commitment to our employees to build a culture that supports diversity, equity, and inclusion so they can achieve their greatest potential; and a commitment to support the communities our employees live and work in globally.

We generate revenue through the sale of software subscriptions, which include license access and support (technical support and software updates); support for existing perpetual licenses; professional services (consulting, implementation, and training); and cloud services (hosting for our software and SaaS).

Our Strategy

There are three key elements to our strategy to deliver long-term shareholder value.

Align with market demand to deliver technology solutions aligned with secular market trends, including digital transformation, SaaS, remote collaboration and AI. We believe demand for solutions such as ours that enable work from home and/or office, global team and supply chain collaboration, remote asset management, and remote frontline worker training and support is strong. In addition, there is growing customer demand for SaaS offerings; we intend to increase our investment in SaaS initiatives, while better aligning with SaaS best practices in order to meet the needs of the market.

Drive sustainable top line ARR growth by expanding our footprint with existing customers, cross-selling complementary solutions in our customer base, adding new customers and by maintaining strong customer retention rates through our global field organization and partner ecosystem. FY’21 marked the fourth consecutive year of double-digit ARR growth, despite the manufacturing and macroeconomic environments over that period. In FY’22, we are evolving our organizational structure to align better with a traditional SaaS model and create a much-improved customer experience.

Grow operating cash flow through continued operating discipline within a recurring business model. Our organizational changes are designed to grow ARR, increase customer retention, and improve operating efficiency, we expect to grow our operating cash flow.

Our Principal Products and Services

In order to drive clear focus, we have divided our business into two key product groups: Digital Thread and Velocity. The Digital Thread business is focused on customers that are embracing digital transformation and the Velocity business is focused on customers that prioritize agile product development.

Digital Thread – Core

Digital Thread – Growth

Digital Thread – Focused Solutions Group (FSG)

Our IntegrityTM application lifecycle management (ALM) and model-based systems engineering capabilities enable users to manage system models, software configurations, and test plans and defects.

Our Servigistics® service parts management solution enables customers to effectively manage service parts, improve their products and services, and increase customer satisfaction.

Velocity

Our Markets and How We Address Them

We compete in the CAD, PLM, IIoT and AR markets. The markets we serve present different growth opportunities for us. We see greater opportunity for market growth for our IIoT and AR solutions for the enterprise and our SaaS solutions, followed by more moderate market growth for our on-premise CAD and PLM solutions, both of which have been growing faster than their respective market growth rates.

We derive most of our sales from products and services sold directly by our sales force to end-user customers. Approximately 30% to 35% of our sales of products and services are through third-party resellers. Our sales force focuses on large accounts, while our reseller channel provides a cost-effective means of covering the small- and medium-size business market. Our strategic alliance partners enable us to increase our market reach, offer broader solutions, and add compelling technology to our offerings. Our strategic services partners provide service offerings to help customers implement our product offerings.

Additional financial information about our segments and international and domestic operations may be found in Note 18. Segment and Geographic Information of Notes to Consolidated Financial Statements in this Form 10-K, which information is incorporated herein by reference.

Competition

We compete with a number of companies whose offerings address one or more specific functional areas covered by our solutions. In our IIoT business, we compete with large established companies such as Amazon, IBM, Oracle, SAP, Siemens AG, and Software AG as well as customers’ homegrown solutions. There are also a number of smaller companies that compete in the market for IIoT products. For enterprise CAD and PLM solutions, we compete with large established companies including Autodesk, Dassault Systèmes SA, and Siemens AG. For our PLM solutions, we also compete with Oracle and SAP, but we believe our products are more specifically targeted toward the business process challenges of manufacturing companies and offer broader and deeper functionality for those processes than ERP-based solutions. For our AR products, our primary competitors include TeamViewer, ScopeAR and Re’Flekt. Although Microsoft is a partner (especially in IoT), it is a competitor in AR; the competing products are Microsoft Dynamics 365 Remote Assist and Dynamics 365 Guides.

Proprietary Rights

Our software products and related technical know-how, along with our trademarks, including our company names, product names and logos, are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection. The nature and extent of such legal protection depends in part on the type of intellectual property right and the relevant jurisdiction. In the U.S., we are generally able to maintain our trademark registrations for as long as the trademarks are in use and to maintain our patents for up to 20 years from the earliest effective filing date. We also use license management and other anti-piracy

technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of our products.

Our proprietary rights are subject to risks and uncertainties described under Item 1A. “Risk Factors” below, which is incorporated into this section by reference.

People and Culture

PTC’s commitment to building a diverse, equitable, and inclusive culture is fundamental to our purpose – the Power to Create, and critical to every aspect of our talent strategy. Our approach is focused on sustainable talent practices and core values that promote an agile culture, an increased sense of belonging, engaged work environments, and high-performing teams.

PTC at-a-Glance

As of September 30, 2021, PTC had 6,709 employees. Our population is geographically diverse and serves a geographically diverse customer and partner network.

Commitment to Diversity and Inclusion

We have been improving our systems and processes to enable us to better track, manage and develop our employees. With these improvements, we aim to better understand our demographic population and to develop demographic goals we can share.

Commitment to our values and diversity in our workforce has inspired our top-line company goals. They include a focus on increasing under-represented minority and gender representation in global leadership as a first and essential step to diversifying our employee population. In addition to hiring our first Chief Diversity & CSR Officer in 2020, we are building an extended team to support our diversity and inclusion initiatives. Key milestones include establishing a global employee DEI Champion network, launching leadership development experiences for our underrepresented minority and underrepresented group populations, designing training programs in psychological safety, inclusive leadership, and conscious inclusion, and enhancing our Employee Resource Group program.

Employee Health & Safety | COVID-19 Response

Throughout the COVID-19 crisis, PTC focused on protecting the safety and well-being of our employees and supported our local communities. PTC moved to fully remote work in March 2020. Employees may continue to work remotely until 2022. PTC will then move to a hybrid flex model with a blend of in-office and remote work.

Workforce Planning & Long-Range Plan

We believe that the transition of industrial software to SaaS is inevitable and is accelerating. To better position us to be a leader in this SaaS evolution by aligning our internal processes and resources with SaaS operating best practices, in November 2021, we committed to a plan to reorganize our workforce and consolidate select facilities. While this restructuring will result in a number of employee reductions to create operating efficiencies, it will enable us to invest in roles that will further our journey to SaaS. We expect we will continue to recruit and hire many new employees in FY’22, particularly in SaaS sales and engineering roles. For those employees adversely impacted by this realignment, we are providing separation packages and outplacement support to help make the transition as smooth as possible. It is never easy to reduce employee resources and we’re focused on supporting and treating all impacted employees with dignity and respect.

Website Access to Reports and Code of Business Conduct and Ethics

We make available free of charge on our website at www.ptc.com the following reports as soon as reasonably practicable after electronically filing them with, or furnishing them to, the SEC: our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. Our Proxy Statements for our Annual Meetings and Section 16 trading reports on SEC Forms 3, 4 and 5 also are available on our website. The reference to our website is not intended to incorporate information on our website into this Annual Report by reference.

Our Code of Ethics for Senior Executive Officers is embedded in our Code of Business Conduct and Ethics, which is also available on our website. Additional information about this code and amendments and waivers thereto can be found below in Part III, Item 10 of this Annual Report.

Executive Officers

Information about our executive officers is incorporated by reference from our 2022 Proxy Statement.

Corporate Information

PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts.