PTC paints a mixed picture for FQ1

It wasn’t the best possible Q1 but it could have been a lot worse. PTC reported that total revenue was basically flat with last year at $325 million, as it encourages customers to switch to subscriptions and copes with a discouraging manufacturing economy. On a non-GAAP basis, revenue was $327 million, up 1% year/year (y/y) and up 4% y/y on a constant currency basis. Investors might be pleased: while not stellar, revenue still came in ahead of the Street’s consensus of $319 million and earnings per share, adjusted for one-time gains and costs, were $0.50 versus consensus of $0.49. There’ll be lots more detail after tomorrow’s earnings call but a couple of things jumped out:

• Subscriptions represented 19% of License & Subscription Solutions bookings, well above the company’s earlier 15% forecast. That’s a double-edged sword: subs are good for long-term visibility and provide a nice cushion but the lack of bigger initial payments drove revenue down by $3 million in FQ1. That’s not unique to PTC; every company moving customers to subs is going through the same thing.
• Software revenues from the CAD and Extended PLM lines were both down 13% from last year’s FQ1. What a difference a year makes: last year, PTC said that customers were gobbling up Creo, causing a 15% y/y revenue growth in license revenue. Now roughly 80% of customers are already on Creo, leading to FQ1’s “modest decline in revenue from new Creo seats, modules, and upgrades and a more significant decline in business from sales of other CAD software products.” The implication here, of course, is of few net new customers — need to learn more. In EPLM, “solid PLM performance was offset by a decline in our ALM bookings”. So much unsaid there, too …
• SLM non-GAAP software revenue was down 23% y/y, as “longer sales cycles led to lower than expected close rates”.
• What, precisely, PTC plans to do about these declines should make for an interesting call tomorrow.
• There was  one bright spot, though it’s small in the greater scheme of things:  IoT non-GAAP software revenue was $9 million in FQ1, up $4 million sequentially.
• Acquisitions made the difference in FQ1. On a non-GAAP basis, Atego (as of June 30, 2014) and Axeda (as of August 11, 2014) contributed $14 million. So on an organic, non-GAAP basis, total revenue fell by about 3%.

CEO Jim Heppelmann said in prepared remarks that FQ1 “non-GAAP revenue exceeded the high end of our guidance range, driven by higher than expected support and professional services revenue … [W]e saw good [license and subscription] revenue and bookings results in Japan, the Pac Rim, and Europe offset by a difficult compare in the Americas due to strong performance in FY’14.” PTC updated its guidance for FY15, targeting constant currency non-GAAP revenue growth of 4% to 6% as slowing sales of its traditional products into a “less robust” global manufacturing sector are partially offset by the company’s IoT initiatives. That means total revenue of $1,320 million to $1,350 million for the year and revenue of $305 million to $320 million for FQ2. Lots more tomorrow after the call.