Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the PTC 2019 Third Quarter Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like the turn the call over to Tim Fox, PTC's Senior Vice President of Investor Relations. Please go ahead.

Thank you, Sue. Good afternoon, everyone, and thank you for joining PTC's conference call to discuss our fiscal Q3 '19 results. On the call today are Jim Heppelmann, Chief Executive Officer; and Kristian Talvitie, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. And these forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied in such statements. Additional information concerning these factors is contained in PTC's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included on this call represent the company's view on July 24, 2019. PTC disclaims any obligation to update these statements to reflect future events or circumstances. As a reminder, we will be referring to operating and non-GAAP financial metrics during today's call. The discussion of our operating metrics and these items excluded from our non-GAAP financial measures and a full reconciliation of GAAP to comparable non-GAAP financial measures under both ASC 605 and 606 are included in this afternoon's earnings release materials and related Form 10-K. I'd also like to remind everyone that starting with fiscal Q1 '19, we adopted ASC 606 on a modified retrospective basis. In our press release and prepared remarks, we have provided results under both 606 and 605 as well as under reconciliations between the two. We have also provided guidance under both standards. Finally, please note that the SEC requires the presentation of 605 results for comparability with the prior year results. Thus, for such comparability, our discussion on this call will focus on 605 results unless otherwise stated. Also please note that certain operating metrics such as bookings and ACV and non-GAAP financial measures such as free cash flow are the same under both 606 and 605. And with that, let me turn the call over to Jim.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. Before we discuss our third quarter results, I'd like to address the bigger picture regarding our performance to date and the outlook for the balance of the fiscal year and discuss why, despite having to navigate some near-term challenges, we remain confident about PTC's long-term growth opportunity and our ability to drive significant value for our customers and shareholders. Through the first three quarters of fiscal '19, we've seen relatively strong performance on revenue and ARR metrics. But on the bookings front, we're disappointed with our performance relative to the outlook we've provided at the outset of the year. With Kristian coming onboard and the benefit of his fresh perspective, looking at our first three quarters of performance and full year outlook, we studied how the year has evolved so far versus our plan. Through this analysis, it's become clear that the subscription transition has different impacts on different areas of the business. To be clear, there have been many, many areas of strong performance especially in our growth business of IoT and AR. What we had not anticipated were some aftereffects of our subscription transition that are causing stress in the system and creating meaningful headwinds to bookings growth this year. You can see these effects in our Q3 booking results and again in our Q4 guidance. Kristian will elaborate on the details but the subscription cutover has created 2 specific short-term challenges that I'd like to discuss. First, software bookings in geographies such as China and Russia, which are sold primarily through our channel, have declined materially following the end of perpetual license sales there. Fortunately, we don't have a significant exposure in these countries but this decline nonetheless cost us a few points of bookings growth…

Great. Thanks, Jim, and good afternoon, everyone. Before I review our results, I'd like to note that I'll be discussing non-GAAP results and guidance, and all growth rate references will be in constant currency. And as Tim mentioned earlier, we adopted the new rev rec standard, ASC 606 under the modified retrospective method on October 1, 2018. For year-over-year comparability purposes, I will be discussing our outlook and results under 605, unless otherwise stated. Also, please note that certain operating and non-GAAP financial metrics such as bookings, ACV and free cash flow are the same under 605 and 606. We've provided ASC 606 guidance in our press release and our prepared remarks. So starting with the long-range plan. We are resetting our long-range targets. To be clear, we remain committed to achieving $850 million in free cash flow. But given our year-to-date performance and the current outlook for this year, we believe that it's appropriate to plant that stake solidly in fiscal '24 ground. As Jim stated in his opening remarks, we're not satisfied with our overall performance this year. Transforming a complex global company comes with challenges, but fundamentally there's a very positive growth story here. The changes made throughout the course of this year have put in place the foundation for PTC to become a premier high-growth, high-profit, recurring revenue software company, and we remain firmly committed to that objective. We will provide more detail around both our fiscal '20 and long-range targets under ASC 606 in November on our normal time line. Now turning to guidance. Frankly, we're taking a prudent approach. There are some ongoing effects of the subscription transition within our channel primarily related to the end-of-life perpetual software -- end-of-life of perpetual software in certain geographies, and we don't expect this to improve in…

Thank you. [Operator Instructions] The first question comes from Ken Talanian with Evercore ISI. You may go ahead.

Thank you for taking the question. Could you give us a sense for the percent of LNS bookings relative to guidance that you've already closed in the quarter compared to what you typically close in July?

I don't actually think we have that data in front of us. I think it so far feels like a pretty normal quarter for Q4. So I mean, if you're really going to -- do we see some macro thing unfolding, I think the answer is no.

Okay. I guess you noted in the prepared remarks, you don't anticipate closing any megadeals in 4Q. Just to clarify, were there any deals in your guidance that are no longer there? And if they're in the pipeline, what are the main issues to getting them closed?

Yes, of course, just to remind everybody, if a deal is more than $1 million in PEB booking, we call it a large deal, and a megadeal, we refer to as more than $5 million in PEB bookings. So keep in mind that a lot of times these big deals might be associated with a conversion. And because we don't see the conversions happening at the rate that we had been enjoying, let's say, a year ago, we're a little reticent to assume that a deal that might be a large deal could be grossed up to a megadeal. So there's no deals we're losing. There certainly are deals that could come in smaller and meaningfully smaller than we might have expected a quarter or two ago when we were more confident about the impact that conversions would have. So I think we're just being conservative. We'd love to surprise you and show up with a megadeal. But I think at this point, given the trend that we see in the data, we don't feel like it would be prudent to guide that way.

Thank you.

Thank you. The next question comes from Ken Wong with Guggenheim Securities. You may go ahead.

Thanks for taking my question, guys. As I -- you guys mention VPAs or you guys had a tough time converting those. Of the VPAs you guys have remaining, any rough sense for I guess one, what percent of VPAs are still up to convert? And as we think about when you convert them, like what's the potential uplift that we could potentially expect here? Are you going to have to take that down from the kind of the 20%, 25% you guys have been seeing in the past?

You want to take that one?

Yes, sure. So I think that we can break the conversions out into 2 or 3 different cohorts. There's the large VPAs, of which we have converted approximately half of them over the past 2 to 3 years.

So let's say half in the first pass.

In the first pass. There's still more than -- about a couple of hundred left that have a significant support run rate. I think if we look over the past 3 years, while we were doing the conversions in the first pass for the large ones, we were seeing uplifts in the 40% to 50% range off that run rate. So we think there's still a significant opportunity for customers to get value out of this program as we modify it. And then, there's a couple of other tiers. There still tail of a mid-tier where there's a significant number of customers there as well, and then there's obviously the channel customers. And frankly, we've actually seen conversions in the channel space increasing this year significantly over the run rate from last year.

Yes, maybe just to clarify some data here associated with what Kristian said. The number of conversions is up. However, it's up most in the channel space where the conversions are smallest. It's flat to up a little bit in the direct but not volume purchase agreement cohort. And in the volume purchase agreement, the biggest accounts, it's down materially. And so while the number is up, the dollar value is down materially in aggregate.

Got it. Great. Thanks for the clarification, guys.

And maybe to clarify one other comment I said. Kristian mentioned we got about half of these customers to convert in the first pass. Ultimately, we plan to convert all of them. It's just we need to go back and look at the offering. Andy Miller always used to talk about the proverbial carrot and stick, and so we need to go back to that conversation and think about how to make the carrot sweeter and how to create another stick if need be. So we're going to do it. And over time, it's inconceivable that they won't all convert because everything we sell them from this point forward will be on a subscription contract. And so over time, even if they prefer perpetual support, it's going to get watered down with more and more subscription. So we'll get them all. It's just we are not getting them as fast here in fiscal '19 as we sort of had assumed they would, and so we need to go do some more work to rethink the offering and go back and try to get them in a second pass.

Got it. Very helpful, guys.

Thank you. The next question comes from Saket Kalia with Barclays. You may go ahead.

Hey, guys.

Hi, Saket.

Hey, Jim. Hey, Kristian. Thanks for taking my question here. I'll stick to the one question rule. Maybe the few drivers that we've talked about here for the lower outlook for Q4, Jim, if we sort of put some of the pricing things aside, can you just talk about just fundamentally the health of underlying demand in CAD and PLM that you've seen as you've talked to customers? I know you talked about you're not really seeing anything kind of unfolding in the macro front here in July, but I'd love if you could expand on it. And also, just given what one your competitors said this morning just about the competitive dynamics, I was wondering if you could talk about market share dynamics in those core CAD and PLM businesses as well.

Yes, Saket, I think if you set aside the situations that have external influences like VPA renewals or conversions and this discussion about certain geographies that don't really like perpetual, if you say, aside from that how does demand look, how is the business doing, the business is doing very well. The combined IoT, AR, CAD and PLM business were not affected by those external forces, is up 20% year-over-year, bookings up 20%. So I think we feel like the fundamental demand where companies are buying for the first time, where they're expanding I think is very good, and our competitive dynamic is very strong. And we're seeing good success with the ANSYS stuff and so forth. Again, these other effects though are material, and so they've taken a lot of the wind out of the sail. And so what should be a double-digit bookings growth year overall gets watered down to what's going to be a single-digit bookings growth here. And that's unfortunate, but we feel like because the underlying fundamentals are so strong and because these headwinds have now become diminish-sized, the base that the headwinds apply to is actually becoming quite small, we feel pretty confident going forward. So we feel like this year, we didn't make the progress we hope to this year, but when we look going forward, we feel just as confident as we ever did.

And anything on market share that you can talk about on CAD and PLM, Jim? Of course, I'm referring to a little bit about what Dassault had talked about on the call earlier, any sort of share shift that you're seeing in CAD and PLM?

I mean I think, if anything, PTC is holding its own. You can say in the quarter our CAD business didn't grow, but I think the SolidWorks business grew 4%. So I don't think really Dassault is crushing it either right now. But I think there's not a significant share shift going on. I think again, if we don't talk about geographies where we have this perpetual subscription thing happening, which actually has nothing to do with fundamental demand, it's more a business model change, and if we look then generally at the SMB and sort of medium-sized account, it's very strong. So I don't know. We don't certainly don't think we are losing any share. And I think from quarter-to-quarter, there can be little ups and downs brought on by external influences like we're seeing right now. But I think fundamentally, we feel like the CAD business, the PLM business and the IoT and AR businesses are fundamentally very competitive, very strong. And we expect that we're going to be in a position to have a strong growth here next year.

Very helpful. Thanks.

Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. You may go ahead.

This is actually Matt Swanson on for Matt. Jim, I know at the beginning of the year when we talk about restructuring towards growth areas, the focus was not to do this in a bunch of small steps but to align the company up with kind of a long-term strategic outlook. After the large shift, do you feel that at this point maybe that you've over-rotated and maybe you need to invest resources back towards CAD and PLM? Or is the disruption just kind of a natural risk that comes with the change and...

So Matt, let me be clear, we did not shift resources out of CAD and PLM into IoT and AR. We shifted resources out of places like ALM, SLM and what we call our classic product groups, small brands that rarely even get mentioned on an earnings call. So we shifted resources out of low-growth, high-margin businesses to make them potentially lower-growth and higher-yet margin and move those particular go-to-market resources into a high-growth business where we felt like to fuel the growth, we needed a lot more resources. So yes, the consequence of that was successful on the high-growth business. We're getting good growth. But we had actually thought we would give up some bookings growth ground, and we gave up more than we expected. Now it's not worth putting resources back there. Those businesses are small to begin with, and they're even smaller now. They're very highly profitable to us. They're kind of our small cash cows that don't get talked about that much but help generate profit for us. The bookings -- the size of those businesses is small enough that what happens next year is not really going to be that impactful. I mean, they were pretty small already from a bookings standpoint. And having given up some ground this year, they're actually pretty small going forward. So we would not put resource back there. We hope to see them stabilize and be flat next year and that would be just fine. But they cannot go down as much next year in terms of bookings as they did this year because there isn't room to do that, just to put it in perspective. And then separate from this discussion about bookings, I want you to understand the revenue and profit is going up in these businesses because in fact, the churn rates are very, very low and the bookings still exceed the churn. So the size of these small profitable businesses is growing and the profit, of course, is growing even faster because we've taken quite a bit of resources out. So I don't want anybody to think these businesses are in decline. The growth rate of bookings is in decline. The businesses themselves continue to grow in both revenue and profit.

That’s helpful color. Thanks.

Thank you. The next question comes from Tyler Radke with Citi. You may go ahead.

Hello, Tyler.

Hey. Thank you for taking – hi. Good to talk to you guys. So you talked about a macro backdrop that's not super helpful right now. I was wondering if you could expand on that. And then how do you think about the uptake of IoT in a weaker macro backdrop, especially if some of these projects are more greenfield and a little bit more in the pilot phase? Like how does that -- how do you factor that into your assumptions relative to IoT with the macro backdrop? Thanks.

Yes. Tyler, so I think the IoT business, frankly, is new enough that we haven't really been through a cycle. But certainly, we have no reason to believe it would be a cyclical business. And frankly, we have evidence to the contrary that suggests it's a secular business. The level of interest in digital transformation is very, very high. And the level of demand and the level of bookings growth and revenue growth in our IoT and AR businesses is very high even in this situation where the PMIs, for example, have kind of broken through 50 on the way down. So we think and the data to date would suggest that IoT and AR are secular businesses. Now CAD and PLM historically have shown some correlation to PMI. They are a little bit more cyclical. CAD, for example, is largely tied to headcount. If you hire more engineers, you need more CAD seats. If you're not hiring engineers, you don't. But I don't see anybody cutting heads. I just really don't. I couldn't name a single customer that's reducing engineering headcount right now even though the PMIs are low. So I think we're in a funny situation where the job market is so strong that -- and I think also the fears people have about the economy are so sort of short term like, let's see what happens with China next week and maybe this isn't the problem after all. So I don't think like this is a fundamental economic decline. It's just a period of uncertainty related in large part to trade and politics and nonsense like that, that's got people nervous. But they're not acting on that nervousness, it appears, in ways that hurt us. So we don't think at this point that the macro situation is any kind of a significant factor. It might be a small factor in tiny pockets like I'll give you one example. A lot of our Kepware software is sold with capital equipment. Somebody buys a machine, and then they buy a copy of Kepware to go with it. Maybe the sales of capital assets are down in our Kepware business, which is part of our IoT business. That small pocket was a little bit weak, but it's not a big business. It's not a big part of IoT, and frankly, it wasn't that weak. So I think it could be a secondary factor in pockets. It's not thus far -- so far as we can tell, a primary factor in what our issues are here in 2019.

Great. And if I could ask a follow-up on the conversion to subscription. You mentioned some customers that kind of proceeded with the maintenance price increase which caused weaker subscription conversions. What's the plan of attack there in terms of converting those over going forward? Are you having to change your strategy there? Could you just help us walk through what the strategy is? Thank you.

Sure. I think again, you need to go back and think in terms of these 3 cohorts: the large direct customers who had volume purchase agreements; all of the rest of the direct customers, being the second cohort; and the third cohort being all the channel customers. These really are three different situations. And situation one has been challenged, but situation two is okay, and situation three, cohort three is doing well. So I think in the first cohort, we need to go back and sweeten up the value proposition, this proverbial carrot and stick I was talking about. We need to give them more incentives to convert because, in fact, they've already paid part of the tax in the first pass by paying more support costs. So we need to sweeten it up, and we'll do that. We will take a look at it. And I think like I said, in the end, they will all convert. It's just a question of at what pace. And thus far in 2019, the pace has been slower than we would have expected. So we need to go back and think about what can we do to sweeten it up and get them to convert faster. In the end, when you check back in a couple of years, they will all be subscription customers, I'm pretty sure of that.

I might even say, it's not necessarily just sweetening it. It's making sure that we understand what the real value driver for them is. There was a current value proposition that resonated very well with a segment of customers.

Yes, with the first half.

And so now we just need to go back and make sure we understand what the real value driver is going to be for the second half and adjust accordingly.

Yes. And I might add, there are well-known techniques here. For example, Autodesk raised the support pricing materially, and that created another incentive. And we haven't done that yet. Not at all to the extreme level they did. But at some point, we might do that. We'll do some variation of that to incent people really to move on to the subscription business model.

Thank you. The next question comes from Jay Vleeschhouwer with Griffin Securities. You may go ahead.

Thank you.

Hello, Jay.

Hi. Welcome back, Kristian.

Thanks, Jay.

Jim, you mentioned a number of short-term and external influences, looks like in the bookings outlook and I guess, performance. On the other hand, you also spoke about some positives in the business, M&A in IoT, the momentum behind CAD and PLM and support. So there remains, of course, that disconnect to the bookings outlook, and ultimately, the cash flow outlook. So I'd like to ask you about what may be a missing ingredient here in your commentary thus far, and that is your product roadmap. There was some detailed descriptions about last month at LiveWorx, but to the extent that customers think in multiyear terms about the roadmaps of their vendors, when we think about what you're doing to CAD and PLM, particularly PLM, is there perhaps an issue here? There are positives. I can see that in the roadmaps. But might there be some issues nevertheless that are cumulatively adding up to [just to be elements] to your future business outlook? Might there be some solutions that you need to offer in terms of not just pricing and sweetening, like you mentioned, but perhaps new configurations, new packaging, something else or something more fundamental or architectural that is deep down perhaps what's going on here in terms of long-term bookings CAGR?

So Jay, I'm going to tell you, no, I don't believe that's the case, and I want to say that pretty firmly, because if we go through our products one by one, let's pick the easy ones. There's nothing like our AR product out there. It's phenomenal. People love it. There's nothing like our IoT product out there. We've won every Magic Quadrant-like analysis that's been published in the last 4, 5 years. If we drop down to PLM, in fact, PLM had a pretty decent quarter. And sometimes, people like to say, "Oh, Aras is disrupting PTC." And I'm telling, you it's hogwash. Our business is doing well. By the way, there was just a third Magic Quadrant-like report published just in the past week here, and PTC is the winner once again. So I'm just saying, every piece of external data suggests PTC is best-in-class in PLM, and our bookings are pretty strong. So I feel like the story actually about PLM as a backbone for digital transformation, which for example, I told in my keynote at LiveWorx, our customers are super excited about that. So I don't think there's a product issue in PLM. Now let's come over to CAD. If you look at what we're doing with generative design and what we're doing with real-time simulation, there's nothing like that in the market. Customers are so excited about this stuff because the value that you can create in terms of high-quality products coming to market much faster, it's unbelievable. So I don't want to say we couldn't do creative packaging and so forth, yes, there's always room for that. But if we go to the fundamental competitiveness of our products, I feel like they're incredibly strong in each and every one of these four major businesses…

Thanks very much.

Thank you. And the next question comes from Adam Borg with Stifel. You may go ahead.

Great. Thanks for taking the question. I don't think you guys talked about the various stages of the IoT journey with pilots, production and expansion. And I know you called out a few larger IoT expansion this quarter, but I guess when you look at the broader cohort of IoT more broadly, maybe you could just dissect a little bit more how pilots production expansion did?

Yes, I mean we said that 60% of the bookings again came from expansion. So I think that's a pretty healthy number. We have a lot of sales guys out there selling new deals, the new deals tend to be small, and then we come back and we want to expand them and grow them all into significant ARR run rates. We've seen this pattern of roughly 60% of our bookings coming from expansion for as many quarters as I can remember in IoT. Maybe, I don't know if 60% is the perfect number or not, but it feels like a good number where a lot of business comes from people buying more, even though far more energy is spent winning new accounts. So I think that's probably a decent ratio, and it shows that we're having success of selling and turning small accounts into big ones.

Great. Thanks, again.

Yes.

Thank you. Our next question comes from Steve Koenig with Wedbush Securities. You may go ahead.

Hello, Steve.

Thank you. Just maybe stepping back and thinking about -- and by the way, I appreciate the granular detail on the headwinds that impacted you this quarter and the discrete nature of a bunch of those things. If we step back and just think about fiscal '19 versus fiscal '18, it's kind of a very different year. And so you've had a bunch of headwinds. And if you think about the execution levers you had to pull to make fiscal '20 a better year than fiscal '19, how would you kind of rank those things? What are your priorities in terms of what you want to do to maybe execute more consistently?

Well, I mean, I think we want to certainly stabilize this productivity zone, ALM, SLM and what we call classic product scope. Again, I want to be clear, though, we could not have as big a falloff because there's no room for it. So even in the very worst case, where bookings went to 0, it would be less of a headwind. But that's not going to happen, and I'd like to see them being flat to up because I feel like our execution left some business hanging out there that we could go get. That's the main thing. With respect to, for example, the problem of geographies that don't want to buy subscription, prefer to buy perpetual, I think we need to keep pushing on that. It may just be a transitory thing, but nonetheless, it's also not a big thing. We're really talking about a small percentage of our bookings, but that small percentage declined quite a bit in the last couple of quarters. But again, from this run rate, it can't decline a lot more because it's pretty small at this point. So I think, to me, the big headwinds, there's no room for the headwinds to be that big this coming year of fiscal '20. Meanwhile, the execution on everything else has been very, very good. And I think if we can just contain the headwinds, then the beauty of how well we're doing in general is going to shine through in fiscal '20. And that's really the way we are looking at it. We'll give you the data in roughly 90 days, but I think you're going to see us come out with a growth plan that we're pretty confident in next year. And it's because we are going to be growing off a baseline that's very, very solid with a lot of wind in our sails in terms of product momentum, new sales capacity, all that type of stuff that should be -- should put us in a position to do well.

Got it. Thanks, Jim.

Thank you. The next question comes from Matthew Broome with Mizuho Securities. You may go ahead.

Hi, Matthew.

Thanks very much. Hi. How is net retention for subscription revenue during the quarter?

Yes, it's Kristian. So net retention has been really stable, I think, on a sequential basis for the subscription space. I think we've seen a slight improvement from last year. And we have programs in place to try and continue to improve these over the coming years. But no meaningful change.

Okay. Thanks very much.

Thank you. The next...

I might add that - I'm sorry. If I could add, if you look at some of the metrics Kristian talked about where the recurring software revenue is up 13% and the margins for the year should be up 400 to 500 basis points and so forth, we don't have a problem with the business we have in-house. It's really more a headwind of bringing in the new bookings and then comparing it to last year where we didn't have some of those headwinds.

Thank you. And the next question comes from Sterling Auty with JPMorgan. You may go ahead.

Hey, thanks. Hi, guys. This is Jackson Ader on for Sterling tonight. Just a couple of quick questions on the IoT growth. So if subscription is growing, approaching 40% but the overall business growing mid-20s on a constant-currency basis, so that's suggesting maybe that we've reached a point in the industry where machines are coming with some preconfigured software to integrate to the IoT and maybe don't need the Kepware layer like maybe we did a couple of years ago?

No, I don't think so. I mean, keep in mind, when you go into a factory, there's no new factory that has only new equipment in it. So if a factory has 100 pieces of automation equipment in it and somebody buys a new one that doesn't need Kepware, well great, the other 99 still do. And I've actually said before publicly several times that maybe at some point in time the world won't need Kepware because all the machines will be brand-new and upgraded to the latest protocols. But I can't actually imagine that scenario happening in the time frame that I'm still employed in the business because there's 20, 30, 40, 50, 60-year old machines in these factories. And they're not going anywhere because they're fully amortized and they work well and so forth. So I think that I don't want you to think Kepware had a bad quarter. It didn't do quite as well as we expected, but it did grow year-over-year. Just we had more ambitious growth plans. But nonetheless, it grew from a bookings and a revenue standpoint, and it's been a good, strong performer for us. It never was the fastest-growing part of our IoT suite, but it's a very, very important part because it brings together the ability for a brand-new machine to co-exist with the machines that are 5 years, 10 years, 15, 20, 40, 50 years old altogether in 1 automated information system. One other thing, just to clarify so that we don't have the wrong impression here. I talked about how the combination of CAD and PLM and IoT and AR were not influenced by these external factors was growing 20%. But that's a combination of AR and IoT growing much faster than 20%, and of course, CAD and PLM are not growing at the 20% level. So that was sort of an average of some moderate growers and some fast and some superfast growers coming together.

Okay. And then actually one quick follow-up on -- rather than Kepware, that was really helpful explanation. The follow-up would be -- was -- is there any mention, maybe we missed it, of the fiscal '21 targets? Are they still in place? Or are you doing any shifting to those targets today?

Yes, I think it's safe to say that when we come out in November and provide fiscal '20 targets and then revised 2024 targets that there will be a change in '21 as well.

Let me say, though, from a guidance standpoint, I know how Kristian feels about this, we -- first of all, we feel that PTC in the scale of things is quite disclosive. What we'd like to do is guide for the current year, guide for the next quarter and then give you a 5-year guide. But every time the 5 year guide becomes a 4 year guide or a 3 year guide because a year has passed, I don't think we want to keep updating all these numbers because at some point, we'd be giving you a number for every one of the next 5 years, and that's just a little too precise, I think, for what we're capable of doing. So we are not trying to take anything off the table, but we're also not want to keep updating everything we ever said even though it no longer fits into the scheme. Hopefully, you understand that. Again, we'd like to give you a 1-year guide, a 1-quarter guide and a 5 year guide and leave it at that and let that all roll forward.

Okay. Thanks, guys.

Thank you. The next question comes from Alex Tout with Deutsche Bank. You may go ahead.

Yes. Hi, guys. Thanks for taking the question. Just kind of a follow-up to the last question. I know you don't want to give a precise number on FY '21 right now. But if I look at $850 million in FY '24 and your new guidance for free cash flow this year it's implying 29% free cash flow CAGR from FY '19 to FY '24. You did 15 -- or you're on track to do about 15% constant currency this year. So would you expect a sort of linear acceleration after that 29% level post FY '19? Or if you can give us any kind of idea of what to expect there. And also given everything that you've said about the headwinds going away after FY '19 from a bookings perspective, is the low teens bookings growth still something that you can adhere to post FY '19? Thanks.

Yes. So it's Kristian. Thanks for the question. Listen, I understand and appreciate the desire for more information. I think we're just going to stick to we're going to provide a detailed plan and outlook in November when we get there. I think that the -- that's just the easiest way to do it. So we're just going to stick to that.

Could I just ask as a follow-up, the support revenues were a little bit light in the quarter. We talked about the churn rates in subscription, but have you seen an increase in the churn rates on the support side of things? And to what would you attribute that?

No, we actually haven't seen a deterioration in support retention. And as we said earlier, actually, the conversion program in -- effective in the channel actually is working quite well, and we've seen that tick up quite a bit from last year.

Kristian, there was another factor here that might explain a little bit of this, and that is that the quarter ended on June 29 for us this quarter. And I'm wondering if that maybe would also play a little bit into this. During the course of the year, we closed our quarters on the Saturday rather than the last day of the month. And so keep in mind that any revenue that would have been recognized on the last day of the quarter, meaning June 30, actually for us ends up in the next quarter. So sometimes, just the quarter ends affect this stuff by little bit, and I'm guessing that's probably what you're seeing.

Operator, we have time for one more question, please. Thanks.

Okay. Thank you. The next question comes from Jason Celino with KeyBanc Capital Markets. You may go ahead.

Hey, guys. Thanks for taking my question. So when I think about the kind of your channel commentary, and I appreciate what you're saying around China and Russia, but the areas of -- like your channel has been performing better, above market growth in CAD and PLM. Outside of areas in China and Russia, how did those do in the quarter?

In general, the channel had a respectable quarter.

What is it still above...

With significant drop-off in certain geos where we just did not succeed in selling subscription software to people who are used to buying perpetual software from us.

But outside of areas, your CAD and PLM growth was still above industry CAD/PLM growth?

I don't know if it was above, but it was respectable. Not significantly above, not significantly below. I mean, it was not a great quarter for the channel. I think we were clear on that. And that means that most geos did well or decent, respectable. And then a few really took a hit. And it's really that hit from a few geos that affects the overall growth rate. All right. So I think we're out of time, but let me just thank everyone for joining us. I want to reflect actually on a few things that Kristian said as he was talking here. We're talking about a disappointing year, but nonetheless recurring software revenue is going to be up 13%, operating margin is going to be up 400 to 500 basis points, EPS is going to be up 21% at the midpoint, and free cash flow will be around $260 million to $270 million. So actually, though we're disappointed in bookings for the reasons that we elaborated on, the business moved forward quite a bit. And because of the bookings situation, we pushed this very attractive target back a year. But I think it's as attractive as it ever was, and I think it's very, very credible that from this point forward, we can accomplish that target. And you heard Kristian. He has confidence behind it. He's got models behind it. We feel like it's doable. I mean we've got to do it, for sure, but it's certainly an achievable target. So we feel that this has essentially become a transition year. And the fundamentals of the business are very strong, and we're going to continue to grow the ARR and cash flow to very attractive levels. We look forward to talking to you in about 90 days if we don't cross paths sooner, and at that point, we'll be prepared to share a lot more specific financial details with you about what we think fiscal 2020 will look like. So thank you very much, and goodbye.

Thank you. That does conclude today's conference. All participants may disconnect. Thank you for your participation.