PTC’s Q1 shows people like subs — more than PTC thought
A one-word recap of PTC’s fiscal first quarter earnings release: subscriptions. People really like them! That’s messing with the rest of the finances (that whole ratable-over-the-life versus big-payment-upfront thing) and PTC’s comments still focus almost exclusively on IoT but, in all, it wasn’t a bad quarter. My main takeaway is that PTC is doing a remarkable job of forecasting its increasingly-complex business –of course, made easier by the growing portion of ratable revenue– while still not seeing real growth in its legacy businesses. New product bundles, repricing, salesforce training, moving services to partner companies and different revenue models create a really confusing picture, but I’m worried that CEO Jim Heppelmann’s plan to “reinvigorate core solutions” (CAD, PLM, ALM and SLM) isn’t moving quickly enough. Changing the basis on which customers do business is important, but R&D still needs to create a product that people want to buy and marketing needs to articulate its benefits in terms customers can understand. Those last bits, for the legacy products, seems to be missing from PTC’s story right now. But, again, PTC reported results that are remarkably close to its forecasts in many categories, acknowledging that business is tough in many areas. Some Q1 details:
- Total revenue was $291 million, at the low end of guidance of $290 million to $295 million, because of the subscription mix, migrating services to partners and adverse foreign currencies of $21 million. That’s down 11% as reported and comparing things that, in many cases, aren’t comparable.
- In Q1 2016, subscriptions were 28% of total bookings, well ahead of the earlier assumption of 18% and WAY up from 19% a year ago. So that we can see what this means in revenue terms, PTC says that “every 1% change in subscription mix will impact annual revenue by $3 million, and annual non-GAAP EPS by $0.02.” That a significant hit to the top line, which ripples down to net income. [EPS is earnings per share, or total net income divided by the number of outstanding shares. –Ed.]
- CEO Jim Heppelmann said that he saw good subscription adoption by CAD, PLM and SLM customers. He didn’t say this, but he sounded a bit surprised at the interest shown by CAD buyers — one can infer that buyers are learning about subscriptions from PTC’s competitors
- License and subscription bookings were $69 million, versus guidance of $62 million to $70 million
- On to more traditional metrics: Subscription revenue for Q1 was $22 million, up 56% year/year as reported and ahead of the $20 million forecast
- Support revenue was $172 million, down 5% but ahead of guidance
- Perpetual license revenue was $48 million, down 26% but exactly as guided
- Total software revenue, therefore, was $242 million, right at the bottom of guidance
- Professional services revenue was $49 million, down 24%, as part of the planned transition of services to partners
- Revenue from the Software Solutions Group (aka legacy) was $228 million, down 9% as reported and down 3% cc. No numbers, but the “decline [was] driven primarily by PLM. SLM delivered a strong quarter and ALM was up modestly, offset by a small decline in CAD.”
- Revenue from Technology Platform Group (aka IoT) was $13 million, up 45%. But still such a tiny part of the whole …
- Software revenue from the Americas was flat at $108 million even as bookings declined 15% — that’s going to make it a tough year for PLM sales here. Software revenue from Europe was $86 million, down 15% (down 4% cc) with a slight decline in SLM and CAD bookings. Software revenue from Japan was $22 million, up 7% (up 17% cc) – they love Creo, since it (well, CAD) was cited as the one large deal in an otherwise large-deal-free report. Finally, software revenue from the Pacific Rim was $26 million, down 15% (down 11% cc)
- You may recall that PTC was going to shift or eliminate 8% of its workforce and close some offices early in fiscal 2016. In FQ1 PTC took a $37 million restructuring charge on its way to a total of $40 million to $50 million — we’re close but not quite done with the realignment.
PTC gives a lot of metrics and forecasts. Rather than try to explain it all, go here for prepared remarks, tables and comments from the company. In summary, PTC expects Q2 to be a lot like Q1, with subscriptions at around 26% of bookings and no real change to the economic environment. It expects total subscription revenue of $24 million, support revenue of $162 million, and perpetual revenue of $55 million to $60 million for a software revenue total of $241 million to $246 million –including $5 million or so for the just-concluded Kepware acquisition– and total total revenue of $290 million to $295 million. Again, not exactly comparing apples to apples, that would be a decrease of about 7% as reported. BTW, Mr. Heppelmann teased the ThingEvent next week where PTC will showcase how it’s putting together augmented reality, CAD, IoT, SLM and probably other stuff, too. I’ll be there, live, but you can also join in online on January 28 by registering here. Mr. Heppelmann said it’ll be 90 minutes of excitement. If it’s more of the IoT-ed bicycle at LiveWorx last summer, he’s right!