Another “if only” quarter for PTC

In the first quarter of fiscal 2016 PTC is posting a net loss due to restructuring costs. The silver lining is the rise in subscriptions.

Kepware, based in Portland, Maine, is PTC's most recent acquisition for Internet of Things technology. (Source: Kepware/PTC) — **Kepware, based in Portland, Maine, is PTC’s most recent acquisition for Internet of Things technology. (Source: Kepware/PTC)**

By Randall S. Newton

When a software company is in transition from selling perpetual licenses to selling subscriptions, there is a period when revenue lags; license sales decline and subscription sign-ups increase (they hope). PTC is in the middle of this cycle now, as is Autodesk. For PTC (Nasdaq: PTC), the first quarter of 2016 (ended January 2, 2016) was a case of a lag hit by those notorious “extenuating factors.” It all added up to a net loss of $25.5 million on revenue of $291 million (down 10.5% from 1Q15).

What happened? First, there was a $37 million restructuring charge applied to the quarter’s revenue, negatively impacting results. PTC announced a “workforce realignment” (layoffs) of around 8% of staff in October 2015. Total cost of the restructuring is estimated at $40 million to $50 million. PTC is getting most of the cost out of the way this quarter. Second, the strong US Dollar (“currency headwinds”) made a dent in revenue to the tune of $21 million. Take out those two elements and PTC would have turned a profit.

Digging deeper into revenue:

Subscription revenue: $22.1 million, up 55%
Support revenue: $171.7 million, down 5%

License revenue: $47.7 million, down 26%
Professional services revenue: $49.3 million, down 24%

**Fiscal 2015 did nothing to turn the Total Revenue trend line up.**

For years we have tracked PTC’s software revenue by the types of product sold: CAD, PLM and other. Starting this quarter PTC changes their reporting to broader categories. “Solutions Group” is the combination of almost all PTC products pre-Internet of Things. “Technology Platform Group” is almost exclusively the new IoT division.

Revenue by software categories in 1Q16:

Solutions Group: $228.6 million, down 9% from a year ago.
Technology Platform Group: $13.1 million, up 45% from a year ago.

**Debt is soaring as PTC continues on a buying spree to become a leader in Internet of Things.**

Revenue by regions:

Americas: $108.1 million, essentially flat from a year ago
Europe: $86 million, down 15% (down 4% when measured in constant currencies)
Japan: $22 million, up 7% year-over-year (up 17% in constant currencies)
Pacific Rim: $25.6 million, down 15% from a year ago (down 11% in constant currencies.

In the Americas, PLM sales posted a “significant decline.” The decline in Europe was driven by the weak Euro, most strongly affecting sales of CAD and Service Lifecycle Management (SLM) products. PTC says China remains a “challenging” sales environment. A large CAD transaction in Japan helped sales there, and PTC says Japan is showing stronger than expected interest in IoT.

L. Stephen Wolfe, P.E., a contributing analyst for Jon Peddie Research, provided research and his usual legendary insights for this article.