PTC, INC M&A announcement

Good morning, good afternoon, and thank you everybody for your continuous interest in Schneider Electric and joining us in short notice. We are pleased to welcome you today to discuss the definitive agreement announced earlier today for Schneider Electric to acquire PTC. As a reminder, we are in a quiet period ahead of our Q3 earnings call, and we will therefore not be commenting on our current performance. Joining me today are Olivier Blum, our Chief Executive Officer, and Nathan Fast, our Chief Financial Officer. During this call, we will take you through a presentation outlining the strategic rationale for the transaction. As usual, the presentation materials, together with the press release issued earlier today, will be available on our website following the call. I will now hand over to you, Olivier and Nathan, who will discuss the transaction in more detail before you open for Q&A.

Olivier, over to you. Thank you, Antoine.

Good morning to all of you, and thanks for being with us. Indeed, it's an important announcement we are making today. I'll go straight to the why we are doing this acquisition with PTC. First of all, what has been very obvious to us, the market has evolved in the past year. We've seen acceleration of energy everywhere, acceleration of digital, and we've seen our customer, and that's the most important factor, accelerating their transformation, their digital transformation, looking for more productivity, more efficiency, more resiliency, more sustainability. And with a very strong conviction that technology, digital, and AI will be the answer to achieve their business goals. By combining the strengths of Schneider Electric and, of course, AVEVA, Cognite, and now PTC, we believe we create really a very strong powerhouse in software, AI, and digital that can be scaled over the coming years.

We believe we create a unique platform which is open and interoperable for customers, where we can deliver strong business outcomes. At the end of the day, what is very important for us, and I'll come back on that, we create a unique digital system which is based on design, control, data, and intelligence. Our vision at Schneider Electric, and I will come back on that also, again, has been always that the world will be more electrical, more digital in the future, and the only way to deliver efficiency to our customer will be really to bridge the physical and the digital world. And you've seen what we've been doing in the past 10 years.

You've seen how technology has evolved, and we believe we are really at this time in our history, but in our industry as well, where you really can accelerate all the benefits to your customer if you are able to provide a digital system across the life cycle from design and build to operate and maintain. By doing that, and together with also the acquisition of Cognite, which you know is still between signing and closing, we believe we create a unified digital thread that can really help our customer across product, machine, and processes and energy system to accelerate the creation of energy and industrial intelligence. We've started. It's not that we are starting tomorrow, but we believe that everything can be accelerated. Of course, by combining those two companies, you create a lot of opportunity for cross-selling synergies.

We broaden the end market exposure for the two companies by increasing our leadership in energy and industry, and we can help both companies to grow faster. Last but not the least, that combination helps us to continue to bring high quality recurring revenue, supporting the realization of our digital flywheel ambition, as we explained to you during our Capital Markets Day, and contribute well to the financial profile of Schneider Electric. We'll come back on that, both on margin and cash generation standpoint with Nathan later on, which we believe at the end of the day is a compelling story for our shareholders from a value creation standpoint. We've not started today. As you know, it's a little bit of history for all of you to keep in mind where we come from. PTC complements the unique portfolio Schneider Electric has built step by step.

I told you that our ambition, our vision, has been always to connect the physical and the digital world to generate more efficiency and sustainability for our customer. This is our mission. Of course, the first milestone when we created EcoStruxure, which was really to make sure that every single product control system of Schneider Electric would be more digital in the future. We have accelerated big time when we've made the acquisition of Wonderware from Invensys in 2013, then AVEVA, which has been probably the biggest milestone in our industrial software journey, but also with ETAP, which has brought a lot of design and engine capabilities in energy system. Of course, we realized together that if we want to benefit in the future more from data, more from AI, it was an absolute must to get closer and closer to the data.

That's why the PI System, which was really absolute reference in the market of the industrial world, was very critical, really, in building our vision. Of course, I'm not going to come back to what we announced in July. In the world where AI is becoming extremely important, it was very important that we put Schneider Electric in the leading position at the contextualization layer. What Cognite will bring to you is basically lots of capability, knowledge graphs, to be able to contextualize data and to build the next really generation of industrial AI. Now, very logically, when we enter in this transaction with PTC, we bring the last brick in our portfolio, which is product and engineering intelligence through CAD, PLM, ALM, and SLM. Let me explain to you a bit more in detail what it means for us.

I'm going to introduce briefly PTC, that you know probably well. Very large company, having leading position across all its end markets, very strong position in CAD, PLM with products like Creo, Windchill, which are among many others, but very strong leadership brand in the market. We'll come back a little bit more on the financial later, but PTC has demonstrated strong financial performance, growth, profitability, cash generation. They have a very strong position in the U.S., but also in other geographies covering different end markets, and they can benefit from 7,000 plus employees who are extremely capable in digital AI across the world, mainly in the U.S. and India. It's a very strong company that we have been observing in the market.

We've seen how they perform, we've seen how they have evolved in the market, we've seen how they have started to build their AI orchestration layer, and we believe that beyond everything that I'm going to talk about on the technology, on the strategy side, there is also a very strong cultural fit between the team of PTC, AVEVA, and Schneider. I think we speak the same language with the same vision for innovation, for impacting the world thanks to all our solutions. Now let's go a little bit more in the detail of the strategic rationale and what is our vision. Our vision, as I said, is really to connect the physical and the digital world.

Everything starts from the assets and you know what has been the EcoStruxure story of Schneider Electric, having really this absolute obsession to make sure that every single product, machine, processes, energy system is connected where we can extract data. Building application on top of it that run to make those assets more efficient across the life cycle. As we have all understood in the past year, data becoming a very critical layer if eventually you want to benefit from AI technology to deliver more value at the enterprise level. When we mean more value at the enterprise level is to be able to help enterprise to make decisions, to act, to deliver business outcome, and making sure that AI will help you basically to generate those business outcome from the enterprise level, but go back to the physical layer. That's really our vision. When we see the evolution of technology in energy, in process, from IoT data and AI, we are really at a time where this vision is possible.

Was not probably the case 5 years ago, but now all the technology are making it possible. In order to be able to deliver that vision, we strongly believe that you need to provide to your customer a very structured set of digital systems. What I mean a set of digital system means that on top of the asset, it's important that you help your customer to design, to control, to have a very strong data fabric, and to build a very strong intelligence layer to act and make decision. That is basically the way we have seen really the construction of our portfolio over the past years, and even today when we announced the acquisition of PTC.

If we go a little bit more in detail on those systems, we believe that at the design stage, it is super important that you can help your customer to design both product, machine, processes, and energy system. This is where we see CAD engineering a very critical part of the portfolio. On the control layer, this is a place where we have been present Schneider Electric with leadership position in power and industrial SCADA with MES, with machine automation, and that is a place where Schneider Electric has been present creating leadership position. When you go to the data fabric layer, as I mentioned, we understood that having a very strong internal historian with PI System was absolute must to succeed in the future.

We have also understood that if you want to create a very strong data fabric, it is also important that you can be present across the life cycle of the product with PLM, ALM, and SLM. Last but not the least, that is something that I presented in July when we made the acquisition of Cognite, when we announced the acquisition of Cognite. We understood that creating the next level of intelligence will be possible if you are able to have those capabilities that will contextualize those data, that will be able to make those data AI native, on top of which you can build knowledge graph foundational model that would deliver the value that you want to deliver to your customer.