PTC, DS results highlight strategic differences
Earnings news from engineering IT companies has been a mixed bag of late: misses and downgrades of expectations for the remainder of 2012 but also some stronger-than-expected results. Why did each company report as it did and what can we learn about the demand for engineering IT solutions? Let’s start with the biggies, PTC and DS.
PTC reported fiscal fourth quarter results recently and they weren’t great. Total revenue of $325 million was down 4% as reported (and flat in constant currencies). License revenue of $101 million was down 9%.
CEO Jim Heppelmann told investors that demand increased in FQ4 in the Americas and Pacific Rim but couldn’t offset cautious buying behavior in Europe and Japan. He said that the license revenue decline was due to “pressure on larger license transactions due to soft economic conditions in the global manufacturing industry”. On the plus side, the PLM business delivered a record quarter in the Americas; large deal activity recovered in FQ4, with the company reporting closing 35 deals of over $1 million, primarily in the Americas — a territory that was in disarray earlier this year.
By region, the Americas reported revenue of $140 million, up 8% y/y and up 25% sequentially, driven by a 15% y/y increase in license revenue. For the year, revenue from the Americas was $480 million, up 12%.
Revenue in FQ4 from Europe was $111 million, down sequentially and down 16% y/y as reported and down 5% in constant currency. Europe was particularly strong for PTC a year ago, so made for a tough comparable — but the company pointed to a weakening manufacturing sector in Europe as the main cause for the decline. For the year, revenue from Europe was $480 million, up 3%.
Revenue from Japan was $31 million, down 13% y/y (down 12% in constant currency) on a very tough comparable — Japan was up 39% y/y in FQ4 2011. For fiscal 2012, revenue from Japan was $135 million, up 9%.
Revenue from the Pacific Rim was $43 million, up 3% y/y (and up 6% in constant currency). FQ4 revenue from China was up 11% y/y, though exact numbers weren’t given. For the year, revenue from the Pacific Rim was $161 million, up 9%.
For the full year, PTC reported revenue of $1.256 billion, up 8%, and closed a total of 118 large deals, roughly even with a year ago.
For Q1 F2013, PTC projects non-GAAP revenue of $315 million to $325 million, license revenue of about $80 million. For FY13, the company forecasts total GAAP revenue of between $1,356 million and $1,376 million, or an increase of about 9%. Servigistics is forecast to contribute about half of this growth, or $55 million.
Dassault Systemes, on the other hand, recently reported on its fiscal third quarter with results were often in stark contrast to PTC’s. DS blew by a number of forecast elements, including software revenue — both recurring and new — in CATIA and ENOVIA. Currency fluctuations helped, accounting for roughly 7% of the reported growth. The Gemcom acquisition appears to have contributed less €20 million, or about 4% of software revenue growth.
Total Q3 revenue was €499.5 million, up 15% as reported and up 8% in constant currencies. Software revenue was €455 million, also up 15% as reported and up 8% in constant currencies. PLM software revenue was €355 million, up 15%, while SolidWorks revenue was €99.9 million, up 18%.
By geography, revenue from the Americas was €146 million, up 26% as reported and up 12% in constant currencies. Revenue from Europe was €211 million, up 2% as reported and up 2% in constant currencies. Lastly, revenue from Asia was €143 million, up 23% as reported and up 16% in constant currencies.
In their comments to investors, CEO Bernard Charlès and CFO Thibault de Tersant said that North America and Latin America “improved” in the quarter while strong performance in Europe a year ago hurt the comparables last quarter. Even so, the company reports seeing a softening in Europe, especially in South Europe. Asia and China are “strong” while the company sees “continued improvement” in Japan. Overall, M. de Tersant said that he sees a “weakening macro-economic backdrop” and lengthening sales cycles for ENOVIA decisions.
M. de Tersant guided to Q4 non-IFRS total revenue of €550 million to €560 million, or growth of 6% to 8% excluding currency effects.
So. What can we learn from the two companies’ reports? First, that execution matters. PTC missed a step earlier this year in North America and, while the September quarter showed dramatic improvement, it wasn’t enough to erase the earlier problem. Second, large transactions by their nature give customers leverage to demand discounts on licenses, which hurt PTC’s reported software revenue. Finally, counting on big deals (as both likely do, though only PTC is public about it) is risky, since customers can change their minds and, suddenly, a quarter is missed.
The bigger issue is PTC’s reinvention at a time of uncertainty. Every end-user I speak with is trying to figure out how to grow revenue from existing customers — whether by selling them more, new products or recapturing services or support being done by third parties. PTC’s entry into the SLM space comes at a time when many companies are constrained by worries about Greece and Eurozone debt or the slowdown in China or some other crisis du jour. As Mr. Heppelmann told investors, “When our customers are nervous and see a slowdown in their revenues, the result has been a tendency to dial back spending in order to preserve their earnings”. That’s PTC’s real problem right now: the company is trying something new just as customers and prospects are reining in spending.
DS’ push to Experiences is quite different. More coming on this as I process what I learned at the 3DExperience Forum in Orlando, but the Experiences are really a repackaging/synthesizing/augmenting and focusing of existing offerings to specific user roles or processes. Even though it sounds new, it’s not nearly as risky as PTC’s expansion into SLM.
These are two great companies with very differing views on how to add more value to their offerings. PTC is absolutely on the right track with SLM and DS is too, as it looks to tailor its very broad portfolio to fit specific customer processes (and perhaps simplify the selling and buying processes). PTC’s path is a bit riskier, but both companies should be able to forge tighter relationships with their customers as these programs progress.
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