NewsAs you undoubtedly know by now, PTC recently announced results for its fiscal first quarter. In a nutshell, FQ1 2013 non-GAAP revenue was $321 million, flat year over year but up 2% on a constant currency basis. License revenue was $79 million, down 11%; excluding acquisitions, organic license revenue was down 22%. Maintenance revenue (rebranded “support”) was $165 million, up 7% and inline with forecasts. Big deal activity slowed in FQ1, as PTC reported 27 large deals that totalled $61.8 million in revenue, down 10%. This smaller average deal size reflects the difficult selling climate of the “current macroeconomic environment.”

For fiscal 2013, PTC now expects non-GAAP revenue of $1,340 to $1,370 million, establishing a lower average target than at the end of fiscal Q4 2012. This includes a $10 million to $20 million positive bump from Servigistics but a $10 million decrease in the services revenue forecast. For FQ2, PTC now forecasts non-GAAP revenue of between $305 million and $325 million, with most of that uncertainty in the license revenue line. CEO Jim Heppelmann told analysts on the earnings call that this guidance is “built on a view that conditions will remain challenging for the balance of 2013, neither materially better nor worse than last quarter.”

You can read PTC’s detailed analysis of its results here.

What I found most interesting in the earnings release weren’t the specific numbers, but the continuing evolutions of how PTC views its addressable market. The company now sees itself operating in three broad categories of business: CAD, Services Lifecycle Management (SLM) and something it calls “Extended PLM”. CAD includes the company’s Creo/ProE and Mathcad brands; SLM is Arbortext and Servigistics. The last, Extended PLM, is Windchill plus Integrity, in a PLM combo that also includes Application Lifecycle Management (ALM) and Supply Chain Management (SCM).

PTC used this diagram in the earnings materials to describe its three markets:

Screen shot 2013-02-04 at 12.26.30 PM

Source: PTC’s FQ1 2013 Prepared Remarks

What this diagram doesn’t show is the relative importance of each business line. From its CAD business, PTC reported total revenue of about $145 million per quarter for the last 13 quarters. Early on in those 13 quarters, this was 50% of total revenue. Last quarter, it was $132 million, 41% of total revenue.

Extended PLM contributed around $130 million per quarter for the last thirteen; from a high of 50% of total revenue in FQ4 2012 to a low of 40% in FQ2 2011. Last quarter, the Extended PLM contribution was $142 million, 44% of total revenue.

SLM is clearly still a nascent business for PTC, with an average revenue contribution of around $77 million per YEAR for the last two years — but which jumped to $47 million last QUARTER. In FQ1, PTC SLM license revenue included 16% organic, constant currency growth and almost $10 million in license revenue from Servigistics. Interestingly, PTC notes that “Including Servigistics, license revenue performance was … driven by healthy large deal activity, supporting our view that the SLM market may be less economically sensitive than our CAD and Extended PLM markets.” The Servigistics acquisition closed on October 2; in total, it contributed $27 million in revenue to FQ1.

What does this all mean? In its own way, PTC is building a portfolio business to help balance risk and meeting broader customer needs. Autodesk does something similar by operating in AEC, manufacturing, civil and entertainment — no one is buying cars? Well, they still need roads and bridges. PTC is trying a different approach: reaching out to many different types of users within its manufacturing base, since end-buyers who may not be able to spend on new machines will need to service older ones. CEO Jim Heppelmann talked about this on the earnings release, saying that a large truck manufacturer told him that, at one point, “new truck sales were down 70% but their spare parts sales had gone through the roof”. PTC wants to support its customers at both end of that business, to capture revenue no matter what the economic climate dictates.

This portfolio approach also lets PTC adjust its go-to-market. PTC has traditionally sold its CAD solutions via direct and indirect channels and now lets select channel partners sell PLM solutions, too. The channel is not, at this point, selling ALM or SLM — those offerings are sold direct via the sales teams that grew up selling Windchill, MKS or Servigistics. That’s fundamentally different from the volume oriented CAD/PLM approach and it will be interesting to see if PTC develops an ALM/SLM channel over time, or if it decides to stay direct with this type of sale.

Finally, there’s the whole viral selling aspect of this portfolio approach. It’s been tough for PTC to push a Windchill or Pro/E (now Creo) win outwards from account wins to their partners or suppliers. This broader offering set lets PTC approach its customers’ partners with such a broad value proposition that something is bound to stick. PTC talked a lot on this last earnings call about its PLM win at Embraer; Mr. Heppelmann even told investors that “we don’t exactly have a strong business in Brazil. We have a limited organization. I mean, you can kind of count them on your fingers and toes. And so for us to win this business, we also had to convince them that even if we’re not the biggest company in Brazil, our technology is so strong, the gap is so different, that it’s worth going down this path with us.” You can bet that he’s repeating that message as often as he can throughout Embraer’s ecosystem and beyond.

Yes, FQ1 wasn’t spectacular but it was another step along PTC’s diversification path, leveraging its CAD roots to new customer engagements. Shortly after the earnings announcement, Parametric Technology Corporation finally legally changed its name to PTC. In that press release, Mr. Heppelmann says that “PTC has been evolving … expanding our vision, market scope, technology portfolio, and our ability to help our customers achieve competitive advantage.” For once on the earnings call, he wasn’t asked about coming acquisitions — maybe it’s time to digest what’s there and see how well the pieces play together.

Note: PTC sent us a small bag of blue M&Ms as part of the rebranding. The M&Ms were lovely, but in no way influenced the content of this blog post.

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