EarningsEarlier this evening, PTC  reported fiscal third quarter (ended June 30) results that were at the bottom end of expectations — but the headline is that the company sees a tough economic outlook and decided to lower its Q4 forecast. Again. CEO Jim Heppelmann said during the last earnings call that the rest of fiscal 2013 (through September) was going to be tough, and that certainly seemed to be the case. Mr. Heppelmann said today in prepared remarks that FQ3 presented a “continuing difficult macroeconomic environment. Our license revenue of $80 million was down 5% year over year (down 1% on a constant currency basis) … [W]e had a strong quarter in the Americas and Japan, which was positively impacted by a large transaction … and soft results in Europe and the Pac Rim, reflecting the challenging macro environment in Europe and China.” He also said that large deals, usually a staple of PTC’s revenue reports, “continue to be difficult to close”. It’s not all gloomy. Mr. Heppelmann also said that “we saw a strengthening in our [future sales] pipeline, which we view as a positive sign for the longer-term … We remain encouraged by the interest in our SLM solutions in the market, however, the macro environment continues to weigh on our overall business.” More details below, but PTC now sees FY2013 as 2% to 3% growth, 2014 at “low to mid-single digits” and 2015 at 11% to 13% growth. I’ll be interested to hear the plans to get to that level. Back to the June quarter. Total GAAP revenue was $315 million, up 1% year/year (y/y), and at the bottom of the range it announced at the FQ2 earnings call. That’s well below the analyst consensus of $323 million so, depending on what Dassault Systèmes says over night, investors could be mildly to a lot unhappy. On a non-GAAP, constant currency basis, revenue was up 4%. The details:
  • License revenue was down 5% y/y to $80 million, though flat with the prior quarter. Performance was characterized as ”strong” in Japan (up 41% y/y, due in part to a large deal) and the Americas (up 44%) and “soft” in the Pacific Rim (down 30%, especially China) and Europe (down 31%). Clearly, two questions for the earnings call are (1) how was license revenue in the Americas up 44% when Servigistics was only $4.5 million in total? And (2) why has Japan has been able to close large deals in FQ2 and FQ3 when it seems tough elsewhere? Excluding Servigistics, license revenue was down 10%.
  • Support (aka maintenance) revenue was up 7%, to $162 million, including $9 million in non-GAAP support revenue from Servigistics. Almost the entire gain in the Support line is from Servigistics; organic revenue was up 1%.
  • Service revenue was down 3% y/y to $73 million, reflecting continued pressure on large license transactions. Excluding Servigistics, service revenue was down 16%, likely a steeper decline than planned.
  • By solution type, CAD revenue was down 5% y/y to $135 million. License revenue was $37 million (down 11%), support revenue was $93 million (down 2% y/y). Strength in the Americas and Japan couldn’t offset lower revenue in the Pac Rim and Europe. Channel revenue (40% of the CAD total) was down 2% y/y.
  • Extended PLM (=PLM + SCM + ALM) revenue was $141 million, down 4% y/y. PTC doesn’t break the category down any further but said that overall Extended PLM performance was stronger in the Americas and Japan and softer elsewhere. SCM license revenue was “strong” over a soft quarter a year ago; PLM and ALM license revenue was “soft”.Extended PLM license revenue was $36 million, down 1% y/y, while support revenue was $54 million, up 8%.
  • SLM revenue was $40 million, up 82% y/y on the strength of the Servigistics acquisition which offset a 51% decline in organic license revenue. License revenue was $8 million; services, $16 million and support, $16 million.
  • By region, revenue from the Americas was $130 million, up 15% as reported but down 1% when excluding Servigistics. Organic license revenue was up 22%, support was up 4% but services was down 24%.
  • Revenue from Europe was $116 million, down 4% as reported and in constant currencies. License revenue was down 31% in FQ3.
  • Finally, revenue from Japan was $34 million, down 2% as reported but up 20% in constant currencies due, in part, to a mega deal closed in the quarter. The rest of the Pacific Rim reported revenue of $36 million, down 17% as reported and in constant currencies. License revenue was down 30%.
  • The company reports signing 1 mega (>$5 million) and 32 large deals (>$1 million recognized in the quarter), with the mix of software:services again skewed to services — meaning less license revenue.These deals totaled  $68 million, up $10 million from last quarter but down 9% from last year. While the number of deals in FQ3 was high, the average deal size was $2.1 million, well below the FQ2 level of $2.4 million. Commentary in the prepared remarks said that “the timing of closing and the size of large deals is being impacted by the [economic] environment.” Another question for tomorrow’s call: where, how badly, consistently or in some industries?
  • Servigistics reported Q2 GAAP revenue of $22 million ($5 million from licenses, $8 million from support and $8 million from services), flat in comparison to last quarter and in line with expectations.
PTC again lowered its outlook for the rest of 2013. Today, we’re at $1,277 to $1,287 million, down $120 million from the  $1,356 million to $1,376 million forecast last October. That’s a measly 2% or so growth over the 2012 total and includes a 1% to 4% decrease in license revenue. Even with a $90 million total revenue contribution from Servigistics. I know that’s a lot of numbers and not a lot of context. We’ll get more details in the morning, when PTC holds its investor conference call. DS’ call is at the same time, so it’ll be a hectic morning. Look for updates on twitter (@monica_schnitge) and I’ll post again if warranted.

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