PTC closes fiscal year with lower revenues, net income

Total revenue was within previous guidance; the transition to subscription revenue and new revenue streams will take time. CAD and PLM are losing steam.

PTC (PTC: NASDAQ) has reported fourth quarter and full year results for fiscal 2015 that were flat to lower than the year-ago comparison in almost all categories. PTC says the lower results, which it forecasted in advance, are partially due to its shift to subscription revenue and moving much of its services business to channel partners and outside support specialists.

Shortly after the close of Fiscal Year 2015 in September PTC announced its intentions to buy the Qualcomm Vuforia business unit. Vuforia offers a development platform for augmented reality applications. (Source: Qualcomm)

Fourth quarter summary

All percentage comparisons are year-over year and in constant currencies unless stated otherwise. Generaly speaking, the constant currencies comparisons are much better than if we reported raw revenue.

PTC revenue in the fourth quarter of fiscal 2015 (ended September 30, 2015) was $312.5 million, down 6% from a year ago.

Professional services revenue was $47.9, down 19%; total software revenue was $264.6 million, down 4%.

Breaking down software revenue:

License and subscription revenue was $99.1 million, down 7%
Support revenue was $165.4 million, essentially flat.

Net income was $8.9 million, down 77%, not adjusted for currency fluctuations.

**The trend line for total revenue is still, but barely, trending upward.**

Revenue by regions:

North America: $127.9 million, down 17%
Japan: $27.4 million, down 2%
Pacific Rim: $37.4, down 9%
Europe: $119,699, down 16%.

There were six fewer days in 4Q15 compared to 4Q14, which PTC cites as a negative impact on the comparisons. The company also cites an increase in subscription bookings, which causes revenue to be spread out over several quarters, for the drop. PTC also cites “challenging macroeconomic environments” in all regions.

Revenue by solution area:

CAD software: $123.3 million, down 10%
ePLM software: $99.2 million, down 6%
IoT software: $11 million, up 181%
SLM software: $31.2 million, up 15%.

CAD license and subscription bookings were down 22%; there were fewer large deals in 4Q15 compared to a year ago. ePLM bookings were up 4% even though revenue was down. Internet of Things (IoT) continues to be a small but dynamic market; new bookings were up 208% and 108 “new logos” (new customers) were added during the quarter.

Fiscal year summary

Total revenue for Fiscal Year 2015 (ended September 30, 2015) was $1.25 billion, essentially flat in constant currencies but down 7% in raw revenue from a year ago. Net income (not adjusted for currency fluctuation) was $62 million, down 61%. Total software revenue was $1.02 billion, up 3%. Professional services revenue was $225.7 million, down 19%.

Breaking down software revenue:

License and subscription revenue: $347.9 million, down 3%
Support revenue: $681.5 million, up 7%.

**Even though total revenue is off sequentially, it still represents a fourth-quarter record.**

Revenue by regions:

North America: $434.7 million, essentially flat
Japan: $99 million, up 9%
Pacific Rim: $118.8 million up 2%
Europe: $377.0 million, up 4%.

PTC says spending in all regions was up for IoT and SLM but down for CAD and ePLM, with the exception of “modest growth” in new license bookings in Pacific Rim.

Revenue by solution area:

CAD software: $492.7 million, down 4%
ePLM software: $373.4 million, flat
IoT software: $49.2 million, up 934%
SLM software: $114.2 million, up 6%.

PTC says its discrete manufacturing customers (which is almost all its customers) reined in spending in FY2015 due to “a weaker macroeconomic environment.” New business in cloud services and an uptick in Application Lifecycle Management (ALM) sales prevented the ePLM segment from losing ground.

Changes in the executive suite

During the conference call with Wall Street analysts to discuss results, PTC CEO James Heppelmann said the company will reorganize into two business groups: Solutions, for CAD, ePLM, and SLM; and Technology Platforms, for IoT. PTC veteran Rob Gremley will lead the Technology Platforms group; PTC is currently looking for a new executive with Cloud and SaaS experience to lead the Solutions group.

PTC will also adjust how it reports the details of its quarterly results in FY2016, due to its transition to subscription revenue. “Simply stated, the more success we have in driving subscription adoption, the weaker our reported income statements will be in the short term.” PTC will also modify how it breaks out revenue results, reporting only for the two business groups and by geographic regions. We may not be able to provide results by product groups such as CAD and ePLM in future quarters as a result of these reporting changes by PTC.

What do we think?

A quick comparison with Dassault Systemes, which reported earlier this month, makes us question the “weaker macroeconomic conditions” PTC cites as a primary cause for weak revenue. CAD and PLM are slipping away as engines of revenue growth for PTC. Moving to subscription revenue will, over time, smooth out the bumps of strong and weak quarters, but it won’t stop the continued decline of PTC as a purveyor of traditional CAD and PLM software.

During the first two quarters of FY 2016 PTC will reduce headcount by approximately 8%, for a “realignment of resources toward higher growth opportunities.” In other words, PTC’s traditional businesses will lose and IoT will gain.

PTC’s enthusiastic embrace of the Internet of Things couldn’t have come at a better time. Nobody will acquire PTC for its CAD/PLM division, but a day might soon come when its IoT division will attract suitors.

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