PTC (PTC) Risk Analysis

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 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 have implemented and continue to implement measures intended to maintain the security and integrity of our products, source code and IT systems. The potential for a security breach or system disruption has significantly increased over time as the scope, number, intensity and sophistication of attempted cyberattacks and cyber intrusions have increased – particularly cyberattacks and intrusions designed to access and exfiltrate information and to disrupt and lock up access to systems for the purpose of demanding a ransom payment. It is impossible for us to eliminate the risk of a successful cyberattack or intrusion, and, in fact, we regularly deal with security issues and have experienced security incidents from time to time. Accordingly, there is a risk that a cyberattack or intrusion will be successful and that such event will be material. 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 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. 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 are increasingly incorporating AI capabilities into many of our products to enable our customers to become more agile and productive. The integration of AI into our products presents risks and challenges, including that we may be unable to integrate AI technologies into our products when or as we expect, that our customers do not appreciate or realize the anticipated benefits of such technologies, that competitors may incorporate AI into their products more quickly or effectively, that our AI-based solutions could produce inaccurate results or have other unintended consequences, or that our AI-based solutions may expose us to lawsuits, regulatory investigations, or other proceedings, and subject us to legal liability as well as brand and reputational harm, all of which could negatively affect our business, financial condition, results of operations, and prospects. We also use AI tools internally to make certain business processes more efficient. While these technologies offer significant benefits, they also create risks and challenges. Although we implement measures to address the accuracy and appropriate use of AI tools, including internal AI policies and training, these efforts may not always be successful. Inadvertent selection of AI tools that introduce bias, errors, or hallucinations, as well as any failure by our employees, contractors, or partners to adhere to our AI policies, or inappropriate use of AI, could result in violations of confidentiality obligations, laws, or regulations, jeopardize our intellectual property rights, or expose our products or business systems to defects and malware, any of which could adversely affect our business, financial condition, results of operations, and prospects. II. Risks Related to Our Intellectual Property

We sell and deliver software and services and maintain support 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. Those laws include, but are not limited to, anti-corruption laws and regulations (including the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act 2010), data privacy laws and regulations (including the European Union's General Data Privacy Regulation), and trade and economic sanctions laws and regulations (including laws administered by the U.S. Department of the Treasury's Office of Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations Security Council and other sanctions authorities). Our compliance risks are heightened due to the go-to-market approach for our business that relies heavily on a partner ecosystem, the fact that some of the countries we operate in have a higher incidence of corruption and fraudulent business practices, the fact that we sell to governments and state-owned business enterprises, and the fact that global enforcement of laws has significantly increased. Accordingly, while we strive to maintain a comprehensive compliance program, an employee, agent or business partner may violate our policies or U.S. or other applicable laws, as has occurred in the past, or we may inadvertently violate such laws. Investigations of alleged violations of those laws can be expensive and disruptive. Violations of such laws can lead to civil and/or criminal prosecutions, substantial fines and other sanctions, including the revocation of our rights to continue certain operations, and also cause business loss and reputational harm, which could adversely affect our business, financial condition, results of operations, and prospects.

As a multinational organization, we are subject to income taxes as well as non-income based taxes in the U.S. and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our tax returns are subject to review by various taxing authorities. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes could be different from what is reflected in our reported income tax provisions and accruals. Our effective tax rate and tax payment obligations can be adversely affected by several factors, many of which are outside of our control, including: - changes in tax laws regulations, and interpretations in multiple jurisdictions in which we operate;- assessments, and any related tax interest or penalties, by taxing authorities;- changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;- changes to the financial accounting rules for income taxes;- unanticipated changes in tax rates; and - changes to a valuation allowance on net deferred tax assets, if any.

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.

Our success depends upon our ability to attract and retain highly skilled employees to develop and sell our products and solutions and to operate and grow our business. Competition for such employees in our industry is intense worldwide. If we are unable to attract and retain employees with the requisite skills to develop and sell our products and solutions, or to guide, operate and support our business, we may be unable to compete successfully, which would adversely affect our business, financial condition, results of operations, and prospects.

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, fraud, and/or security attacks that we cannot predict or prevent. Such outages could adversely impact our business, financial condition, results of operations, and prospects. If we are unable to renew our agreements with our cloud service providers on commercially reasonable terms, or any of our agreements are prematurely terminated, or we need to add new cloud services providers to increase capacity and uptime, we could experience interruptions, downtime, delays, and additional expenses related to transferring to and providing support for these new platforms. Any of the above circumstances or events may harm our reputation and brand, reduce the availability or usage of our platforms and impair our ability to attract new users, any of which could adversely affect our business, financial condition, results of operations, and prospects.

The markets for our products and solutions are rapidly changing and characterized by intense competition, disruptive technology developments, evolving distribution models and increasingly lower barriers to entry. If we are unable to provide products and solutions that address customers' needs as well as our competitors' products and solutions do, or to align our pricing, licensing and delivery models with customer preferences, we could lose customers and/or fail to attract new customers, which could adversely affect our business, financial condition, operating results, and prospects. 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+ and Creo+ 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 more 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.

We have acquired, and intend to continue to acquire, new businesses and technologies. If we fail to successfully integrate and manage the businesses and technologies we acquire, if an acquisition does not further our business strategy or return a level of sales as we expect, or if a business we acquire has unexpected legal or financial liabilities, our business, financial condition, results of operations, and prospects could be adversely affected. The types of issues that we may face in integrating and operating the acquired business include: - difficulties managing an acquired company's technologies or lines of business or entering new markets where we have limited or no prior experience or where competitors may have stronger market positions;- unanticipated operating difficulties in connection with the acquired entities, including potential declines in sales of the acquired entity;- complications relating to the assumption of pre-existing contractual relationships of an acquired company that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business;- litigation arising from the transaction, including potential intellectual property claims or disputes following an acquisition;- diversion of management and employee attention;- challenges with implementing adequate and appropriate controls, procedures and policies in an acquired business;- potential loss of key personnel in connection with an acquisition; and - potential incompatibility of business cultures. 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 in the value of those assets. Divestitures of businesses or assets may not achieve the intended strategic or financial benefits and may otherwise adversely affect our business and prospects. We have divested, and may in the future divest, businesses, product lines, or other assets as part of our ongoing business strategy. If we fail to successfully execute and manage these divestitures, if a divestiture does not yield the anticipated financial or operational benefits, or if the businesses or assets we divest have unexpected legal, financial, or operational liabilities, our business, financial condition, results of operations, and prospects could be adversely affected. The types of issues that we may face in connection with divestitures include: - difficulties separating the operations, technologies, or personnel of the business to be divested from our ongoing operations;- disruption to our remaining business, including loss of revenue or customers associated with the divested business or asset;- unanticipated costs or liabilities, including indemnification obligations, retained liabilities, or disputes with purchasers;- diversion of management and employee attention from ongoing operations;- challenges in reallocating resources and personnel following the divestiture;- potential loss of key personnel who may leave as a result of the transaction;- adverse impacts on our relationships with customers, partners, or suppliers;- potential incompatibility of business cultures or systems during transition; and - litigation arising from the transaction, including disputes over purchase price adjustments, indemnities, or other contractual terms. Further, if investors or analysts do not like or understand the divestiture or if they believe we did not receive a fair price for the business or assets, they may sell their shares or alter their view of our prospects, which could cause our share price to decline.

We expect that our international operations will continue to expand and to account for a significant portion of our total revenue. Because we transact business in various foreign currencies, the volatility of foreign exchange rates has had and may in the future have a material adverse effect on our revenue, expenses, cash flows and operating results. Other risks inherent in our international operations include, but are not limited to, the following: - difficulties in staffing and managing foreign sales and development operations;- exposure of our operations and employees to political instability and armed conflict in the countries and regions in which we operate, including Israel;- increased financial accounting and reporting burdens and complexities;- increased regulatory and compliance risks;- inadequate local infrastructure; and - greater difficulty in protecting our intellectual property.