The good news: things are looking up enough for PTC to forecast actual growth for next year – not couched in terms of “constant currency” or using non-GAAP measures. Actual growth! The bad news, of course, is that 2009 was a dismal year by many measures. PTC issued a great deal of detail on its fiscal Q4 and 2009 results, so this piece will cover what I consider the highlights (or lowlights):
• Total Q4 revenue declined 18% to $246.3 million but came in a touch over the high end of PTC’s guidance (which topped out at $245 million) due to stronger than expected license sales. That’s the first positive surprise from license sales in quite a while.
• PTC sees the most strength in “large, Windchill-led engagements, notably in North America, while our SMB (Small and Medium Business) customers around the world still seem to be constraining spending given the ongoing macroeconomic climate.” That’s likely because PTC targets the hard-hit SMB market through channel partners and with Pro/Engineer and Microsoft Sharepoint-based Windchill products.
• The channel struggled in Q4, with revenue down 25% from a year ago and essentially flat with Q3. PTC has seen no bad debt issues despite the challenges partners have faced and believes the channel will recover more slowly than the rest of the business. But it should return to health b the end of fiscal 2010.
• Large deal activity was strong, with 19 large deals coming into Q4 for a total of $50.1 million in license and services. This is a nice recovery from earlier in the year but is still down by 17% from last year. For fiscal 2009, large deal activity was down 23%.
• License revenue in Q4 was $70.7 million, down 32% from a year ago but up 43% sequentially due primarily to orders by large, North American customers.
• Maintenance revenue in Q4 was down 7% year/year to $123.9 million but up 2% sequentially. Windchill and “Other” seats under maintenance declined sequentially and year/year; Pro/E seats declined year/year but grew slightly on a sequential basis. The only way to reconcile the decline in number of seats with a growth in revenue is that Pro/E maintenance brings in more revenue.
• Services revenue in Q4 was down 18% year/year to $51.7 million. Not surprising, training was down 33% year/year, while consulting was down 14% year/year.
• Lots more detail, including geographic info, at PTC’s investor page.
For fiscal 2010, PTC expects an economic recovery in what the company describes as “waves”: with North America recovering first, followed by Europe and Asia. PTC expects revenue in the first half of the year to be relatively flat with growth accelerating through second, as a recovery in license revenue is followed by maintenance and services.
Breaking it down, in FQ1 2010, PTC expects license revenue of $50 million to $60 million, essentially flat year/year and following the typical seasonal pattern. For the full fiscal 2010, PTC expects license revenue to be up 20%. PTC expects another slight sequential increase in maintenance revenue in FQ1 but that the low new seat sales in 2009 will lead to flat year/year maintenance revenue of about $500 million. For services in Q1 PTC expects revenue to total $50 million to $55 million as lower Windchill license revenue in prior quarters starts to affect services/implementation revenue. That said, PTC indicates that it has recently seen an increase in services bookings leading to optimism of improving utilization as 2010 moves forward. In total, FQ1 revenue is forecast to be between $230 million and $240 million; fiscal 2010 is expected to be around $980 million.
PTC was asked on the earnings call how it views the DS/IBM deal. CEO Dick Harrison responded that he likes it, that it make PTC’s job of selling the benefits of its products easier when compared to going up against an IBM sales rep and that it put Siemens, PTC and DS on a level playing field.
This was an upbeat call, a pleasant change from recent quarters. The company execs seem confident that their “domino strategy” will accelerate growth in new market areas, that their product strategy is sound and that the company does not depend on acquisitions for revenue growth. Even so, CEO Harrison ended the call by saying that “Q1 is going to be an interesting quarter. We have a nice pipeline but it’s hard to predict how quickly those wins will come.”