PTC continues to roll, reporting solid results for its fiscal first quarter ended December 31, 2011 and raising its forecasts for fiscal 2012. For the quarter, PTC reported total revenue of $318 million, up 19% from a year ago, helped by $18.5 million contributions from its MKS and 4CS Solutions acquisitions last year. For FQ2, PTC now forecasts revenue between $304 million and $319 million, including roughly $20 million from MKS and 4CS. For fiscal 2012, PTC targets revenue of $1,307 million to $1,327 million, with $90 million to $100 million from MKS/4CS. The full-year guidance assumes license revenue growth of about 17%, maintenance revenue growth of about 10% and services revenue growth of approximately 14%.
Perhaps more important than its FQ1 performance, PTC retired its fiscal 2014 goals since some of them had already been met and established new targets for 2015. As part of this redo, PTC is reorganizing to focus on 5 market sectors: CAD, Application Lifecycle Management (ALM), Supply Chain Management (SCM — sounds like PTC is more interested in providing analytics and optimization more than actual “management”), Service Lifecycle Management (SLM) and PLM. This new organization will help focus in more closely on the needs of these separate businesses and enable the company to improve operating margins. CEO Jim Hepplemann explained that each sector has different customers and value propositions that PTC will address with a matrixed organizational structure that makes each business unit “thinner” with fewer dedicated sales resources, but more focused on strategy and development specific to each market. This realignment, which eliminates about 3% of the company’s 6100 workers, will be completed by the end of the current quarter. No details were given about where staff are being cut. PTC said it will provide much more detail on its new structure and market focus during its investor meeting next month.
Most of PTC’s details are provided on a non-GAAP basis (which treats revenue acquired with MKS and 4CS differently than is required by GAAP). For FQ1, non-GAAP revenue rose to $320 million, handily ahead of analysts’ forecasts ($314 million) and at the top end of the company’s own earlier guidance for the quarter. Interesting details from the company’s prepared remarks and the earnings call:
For the quarter, non-GAAP license revenue was $89 million, up 18% year over year and up 12% without MKS and 4CS. PTC’s forecast for the year includes license growth in the mid-teens on an organic basis, so the company clearly sees this accelerating as the year progresses; CFOJeff Glidden said that “some major customers will give large follow-on orders” in the second half of the year, and that the company is adding sales capacity in all geographies that should become productive in H2. He sees orders coming from “Industrial (especially auto) high tech, and retail”.
Non-GAAP maintenance revenue was $155 million, up 18% or up 11% on an organic basis. Mr. Heppelmann thinks PTC can maintain “upper single digits [growth] organically” because of the company’s strong license renewal rates, which are in the “mid 80s” for desktop, while enterprise renewals are in the “mid to upper 90s”.
Services revenue was $76 million, up 27%, far ahead of the company’s guidance of 18% growth. Excluding MKS and 4CS, services revenue was 17%. Margins on the services business are going up (which makes investors very happy) but despite the growth in volume and profitability, PTC has “no plans to become a large services provider”, according to Mr. Heppelmann. The growth in the services business in FQ1 was due to engagements that PTC’s SI partners did not yet have capacity to handle. Mr. Heppelmann expects PTC’s services growth to be slower than license growth over the long term.
Using the company’s quadrant approach, total non-GAAP PLM revenue was $166 million, up 38% over last year. As expected, direct sales dwarf channel sales in this segment, coming in at $146 million; license revenue was up 45% to $41 million. Excluding MKS and 4CS, direct PLM license revenue was up 34%.
Total non-GAAP CAD revenue was $154 million, up 5%, even as license revenue declined 1% to $41 million. Direct sales in CAD slowed, with total revenue up 4% to $87 million. In contrast, indirect sales were up 7% to $67 million. Mr. Heppelmann sees 5% to 8% growth in desktop as sustainable, as the company continues “selling all the new stuff in Creo to the base and in displacements”.
Overall, the indirect business was up for the 8th consecutive quarter, with FQ1 revenue 12% to $86 million.
The company reports 24 large deals in FQ1, with a total revenue contribution of $69 million, up 18%. The average size of these deals was about $2.9 million, versus the more typical $2.2 million to $2.3 million because of two “mega” deals (over $5 million) to a European automotive company and a US electronics company.
On a geo basis, revenue from the Americas was $118 million, up 18%. Revenue from Europe was $134 million, up 24%. Mr. Heppelmann said that the European “pipeline is strong, win rate is strong, especially to global companies that ship products around the world, who are not tied only to what’s happening in the Eurozone.”
Revenue from Japan was $31 million, up 22%. Revenue from the Pacific Rim was $37 million, up 11% reflecting a “modest slowing in China in last 12-18 months.” Mr. Heppelmann says this is a “phase; we’re planning on a solid year rather than a blowout year” from China.
FQ1 is usually a break-even quarter in terms of cash flow; this year PTC generated $36 million in cash.
PTC’s CAD ASPs have been going down — but Mr. Heppelmann sees this as a good thing. He says that PTC now “has a much broader CAD offering with Creo that appeals to many more users. Sales of direct modeling seats have skyrocketed, also to more casual users, and having lower ASPs.”
Analyst questions, interestingly, focused on the company’s announcements about Hyundai Kia Motors and Caterpillar (the past) rather than on the restructuring and new market opportunities the company now sees. PTC’s press releases covered both of these deals well; the only new news from the earnings call is that PTC is involved in many ALM sales processes around the automotive industry and sees automotive as its biggest ALM opportunity. Analysts aren’t usually so polite, waiting until the company’s next meeting to probe realignments, and Mr. Heppelmann appeared willing to answer questions about the new areas of focus.
PTC says it is taking on new competitors in the SLM, ALM and SCM markets it now wants to target. What are those competitors not doing that PTC thinks it can provide? How does it plan to sell to those new customers, assuming it has the right products for these new markets? How does PTC intend to segue from its CAD/PDM roots into these new areas — does its current brand help or hurt? Lots of questions that didn’t get asked, let alone answered.
FQ1 was a definitely good. Revenue up ahead of/at expectations, improved profitability, solid execution around the world and a plan for the future are sending the share price up 18% in early trading on the NASDAQ. More details on that plan are coming in early February.
