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PTC Reports: Total Revenue Down 13%, Lowers 2009 Forecast on fx

PTC today reported total fiscal Q2 revenue of $225.3 million, down 13% from a year ago.
License revenue was down a staggering 46% to $42.1 million; maintenance at $122.6
million was down 1% and services at $60.6 million was actually up slightly over last year.

Not surprisingly, large deals are hard to close right now (down from 16 in FQ2 last year to 9
this year and from a total of $37.5 million to $24.7 million), shifting focus to the channel
which must make up the gap. PTC has been growing its channel capacity so that 21% of
total revenue came from partners in fiscal 2007 and 25% in 2008. When asked where this
could top out, CEO Dick Harrison said that the company has a goal of 35% of revenue from
indirect sources in the next two to three years, "maybe with a natural end-point at 50/50".
That’s the first time the company has stated such an aggressive long-term goal. Indirect
revenue declined in FQ2, even though the company reports that it is supporting the channel
with zero percent financing, lead generation and co-marketing and that its recent layoffs did
not impact it channel partner team. "It’s tough for everyone right now," said Harrison.

The maintenance revenue decline is a natural outgrowth of the lack of new license sales in
recent quarters; PTC reports that its attach rate (the number of seats that normally buy
maintenance) is holding but that some customers are dropping ongoing maintenance as
their workloads decline. PTC expects this decline to continue in Q3, and to even accelerate
in the longer-term if new license sales do not improve.

The company discussed its guidance at length. North American business, down 10% in Q2,
"feels better" to CFO Neil Moses, "coming in at a higher number than forecast at the
beginning of the quarter. In Europe, business continues to be challenging, following the drop
in North America. We had a difficult quarter in Asia, with business in China down for the first
time in a number of quarters. Maintenance pricing has held up well." For fiscal Q2 it now
expects revenue between $220 million and $230 million and for fiscal 2009, ending
September 30, it sees total revenue of $940 million, down because of a currency

One style comment: This call was more cantankerous than usual. PTC’s management riffed
at length on their competitors’ products, "closed-mindedness", business practices and
more. Since PTC went first, let’s see if the competitors respond during their calls. Not at all
my style, but quite entertaining.

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