As noted yesterday, PTC reported reported second fiscal quarter revenue of $269 million, up 23% from a year ago, driven in large part by growth in the enterprise CAD business. Net income more than doubled from last year’s Q2, at $19 million or $0.16 per share.
There’s a lot to be learned from the details, so let’s get right to those:
• The Desktop (CAD) business showed healthy progress, as the buzz around Creo reignited interest in PTC’s CAD products. Total revenue was $155 million, up 15%. Sales to the large enterprise CAD market were up 21% to $91 million with license revenue up 57% to $31 million. Overall, CAD license revenue was up 41% to $49 million, services revenue was up 21% to $11 million and, most important, maintenance was up 4% to $95 million.
• Total Enterprise (PLM) revenue of $114.4 million was down 5% sequentially, but up 8% over last year. Sales to large enterprise PLM customers were up 7% from a year ago (to $101 million) even as license revenue was down 19% (to $21 million). The company ascribed the decline to Federal, Aerospace & Defense deals in North America that didn’t close because of delays in coming up with a US Federal budget (but PTC sees these closing later in the year). Enterprise license revenue was down 15% to $25 million, while services revenue was up 17% to $52 million and maintenance was up 15% to $37 million. Sales of PLM solutions to the SMB space were up 16% to $13.2 million — but are stuck at 5% of total PTC revenue.
• Interestingly, PTC says that strong demand for Creo took sales cycles away from Windchill, which also contributed to the Windchill shortfall in Q2. CEO Jim Heppelmann mused aloud that this may be a capacity issue, implying that this is not a temporary problem and, I assume, one he is delighted to fix.
• Looking at the quarter by revenue type, total license revenue of $74 million was up 15%. Services revenue of $63 million was up 19%, primarily, the company says, due to strong license revenue and engagements with PLM customers, including training. Maintenance revenue of $132 million was up 7%, and PTC reports having 1.259 million active maintenance seats, with 1% sequential seat growth for Creo (Pro/E) and Windchill (up 5% and 11%, respectively, when looked at year/year).
• By channel, direct sales were up 13% to $193 million (72% of total revenue), driven by 21% growth in the large enterprise CAD revenue but pulled back by 7% growth in large enterprise PLM revenue. PTC currently has 303 direct sales teams, which closed 24 large deals (where license and services revenue totals more than $1 million) in Q2, versus 22 in Q1 and 18 a year ago. The company said several times that it is not seeing the mega-deals it had seen before and, indeed, the average deal size in Q2 was $2.2 million, at the lower end of the range in the last two years. Indirect sales were $77 million, up 9%, from 420 channel partners. PTC believes this market "continues to be more heavily impacted by macroeconomic factors… We are continuing to see an important sign of improvement in the SMB space: license and total revenue are up year over year in both the lower left and lower right boxes for the 5th quarter in a row."
• By geography, revenue from the Americas was $94 million, up 12% on increases of 13% and 9% in direct and indirect revenue, respectively. License revenue in the Americas was up 20% driven by direct revenue increases of 23% and indirect revenue, 8%. Revenue from Europe was $106 million, up 13% (14% in constant currency), on increases of 17% and 7% in direct and indirect revenue, respectively. License revenue in Europe was up 26%, with direct revenue up 30% and indirect revenue up 20%. Revenue from Japan was $33 million, up 10% (up 1% on a constant currency basis) on revenue increases of 13% and 4% in direct and indirect revenue, respectively. Q2 license revenue in Japan was up 16% compared with last year, with direct revenue up 23% and indirect revenue up 2%. Finally, revenue from the rest of the Pacific Rim was $36 million, up 8% (6% in constant currency), reflecting revenue increases of 3% and 23% in direct and indirect revenue, respectively. Q2 license revenue was down 5%, with direct revenue down 16% and indirect revenue up 29%. Within Pac Rim, revenue from China decreased 1%. (Results in Pac Rim are skewed by a large Windchill order a year ago, which makes the overall comparable, as well as the direct and license components look bad.)
• When asked specifically about the effects of the earthquake and tsunami in Japan on PTC’s outlook, Mr. Heppelmann said that he has traveled there several times recently (both before and after the quake) and saw far less devastation than is depicted in the American media — but he quickly added that he did not intend to minimize the effects of the disaster, which have affected family members of PTC’s 250 staff based in Japan. He sees the impact on PTC being minimal, citing Japan’s economic resilience and the execution of PTC’s management team in Japan.
Looking ahead, PTC expects Q3 revenue of $275 million to $285 million with earnings per share in the range of $0.16 to $0.20, excluding any impact from the recent acquisition of MKS (expected to close in June). This would have total revenue increase 15%, based on 15% to 25% year-over-year growth in license revenue, and "low teens" growth in the combined services and maintenance businesses.
For fiscal 2011, the company expects revenue of $1.120 billion to $1.130 billion, non-GAAP earnings per share (EPS) of $1.20 to $1.25 and GAAP EPS of $0.73 to $0.78. The fiscal 2011 forecast anticipates license revenue growth of 15% to 20%, services revenue growth in the"low- to mid-teens:, and "high single-digit" maintenance revenue growth. This new range is a slight upward adjustment of the bottom end, based on slower license revenue growth offset by stronger and more predictable services and maintenance revenue.
Looking way ahead, PTC reiterated its target of revenue of $1.6 billion in 2014.
To some extent, PTC’s success in Q2 is a happy almost-accident. Said Mr. Heppelmann, "we’re all extremely surprised at the 57% growth in the enterprise CAD license revenue — if we can get it all firing together, this is a different company". One always hopes that customers will like a new product, but it does seem as though PTC was unprepared for the level of interest the marketplace has expressed in Creo. It will be interesting to see how the company responds and how much of this growth is sustainable. We’ll know more in June, when PTC holds an investor day at PlanetPTC.