Quickie: PTC’s FQ3 suffers from weakness in Japan

Jul 21, 2017 | Hot Topics

It’s tough to be PTC. Revenue ahead of expectations, license and subscription bookings not so much, “sales execution issues” in Japan … weak guidance for the company’s fiscal Q4 … stock gets hammered.

A few of the details — much more here:

  • Total GAAP revenue was $291 million, up 1% as reported and up 2% in constant currencies
  • Perpetual license revenue was $32 million, down 28%
  • Subscription revenue was $75 million, more than double the year-ago total
  • As has been the case lately, PTC has a hard time forecasting whether its customers want subs or pertpetuals. The company had forecasted subscriptions as 68% of bookings; it came in at 64%
  • Support (aka maintenance) revenue was $140 million, down 23% as buyers on subs don’t buy separate maintenance contracts
  • In total, software revenue was $248 million, up 4%, with 87% coming from recurring revenue streams
  • Professional services revenue was $44 million, down 13%
  • This is the problem: License and subscription bookings were $90 million in CQ2, down 14% year/year from the prior year and, so, subscription bookings were 64% of total bookings, a bit below expectations
  • PTC no longer gives helpful product line data. It now separates its offerings into Solutions and IoT. Solutions Software
    revenue was $222 million, up 2%, as “CAD and PLM delivered low-single digit software revenue growth in the quarter. SLM declined year-over-year due to an increase in subscription mix … Recurring SLM revenue grew approximately 15% YoY and 2% sequentially.”
  • IoT Software revenue was $25 million, up 21% on the “continued adoption and expansion of the ThingWorx platform.’
  • PTC says it booked one large (>$1 million) perpetual IoT deal in the quarter
  • If we look at PTC’s yardsticks to judge performance, it’s not doing badly. Annualized Recurring Revenue (ARR) was up 11% year/year with license and subscription ARR beating the $300 million line
  • By geo, revenue from the Americas was $108 million, up 3%; revenue from Europe was $91 million, up 10%; and revenue from Asia was $49 million, down 3%. In Asia, “Japan missed its operating plan for the quarter by $11M, and YoY bookings declined $12M. YTD, Japan bookings declined $20M.”

Given the situation in Japan and, in general, in FQ3, the company gave the following guidance for its fiscal fourth quarter: revenue between $303 million and $308 million, slightly below the $309 million consensus — and, therefore, FY17 guidance for revenue between $1.16 billion and $1.17 billion.

PTC says that software revenue has grown year over year for the past two quarters, which it takes to mean that it has “exited the subscription
trough”. In other words, its subs transition is behind it, and revenue growth now is reality moving forward (execution and other true business issues aside).

A couple of quick thoughts from the earnings call: PTC’s CAD reseller channel is doing well, “delivering 20% constant currency year-over-year bookings growth”, with (I think) 20% growth in the Americas and 25% in Europe. The channel accounts for about 25% of PTC’s total revenue, so this could have a significant overall impact.

PTC says that PLM booking were up 5% quarter-to-quarter but down year/year in FQ3 but, for the year-to-date core PLM bookings grew “in the mid single-digit range”– in part because of the success of the cross-over ThingWorx Navigate solution that enables Windchill deployments.

So here’s the thing: PTC’s Japan team messed up. Had it managed to close the $11 million in bookings, PTC’s results would have matched expectation. PTC isn’t the only company to have had execution issues in Japan recently; I think ANSYS and others mentioned it as well. So let’s not take this Japan thing as anything other than a fixable management issue and not get distracted by it. The reseller channel is in there pitching CAD and PLM, IoT is ticking along — I think PTC is going to be just fine.

I still owe you an update on LiveWorx, PTC’s user conference. Much of the content there was, as per usual IoT-related, but PTC also put forth solid roadmaps for Creo and WindChill. Lots of good stuff there; I think you’ll be pleased. Until I can get to it, reach out the the Creo and Windchill user communities (or, dare I say it, PTC directly) for more info.