Key Takeaways From PTC’s Q1 Earnings
PTC Inc. reported better-than-expected results for the first quarter of fiscal 2018 this week, with a 7% year-on-year (y-o-y) rise in its top line, while the company’s diluted GAAP earnings grew sharply from a loss of 8 cents in Q1’17 to a profit of 12 cents in this quarter. The strong start to the year can be attributed to a surge in subscription revenue, which grew by 84% y-o-y. The growth in subscription revenue allowed PTC to beat estimates by nearly $6 million. However, the earnings beat was partially offset by a mixed performance in terms of support, perpetual, and professional services revenue.
Apart from the strong Q1’18 performance, the company announced the transition to a subscription-only licensing model in the Americas and Western Europe. Under this transition, the company will switch its focus from perpetual licenses – which entail upfront payment – to subscription-based licenses that would realize periodic fees to license the software on an ongoing basis. Although this shift might hurt the company’s revenue in the short term, it should also boost recurring revenues and drive long-term value for the company.
Below, we have summarized the major takeaways from PTC’s Q1 earnings using our interactive dashboard
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Subscription Revenue Drives Recurring Software Revenue
Recurring software revenue accounts for nearly 75% of PTC’s revenue. This segment has been growing consistently and has reported double-digit growth for four consecutive quarters, indicative of the momentum PTC continues to gain from the business model transition. The division’s revenue grew 12% y-o-y to $231 million in Q1’18, fueled by the growth in subscription revenue.
Subscription revenue grew to $100 million in Q1’18, 84% higher than the prior year quarter. As a result of the transition, the contribution of subscription revenue to the company’s total revenue rose from 19% in Q1’17 to nearly 33% in Q1’18. Further, the company witnessed strong demand across its product portfolio.
Additionally, the company also reported a strategic alliance with BMW, which could hold significant potential. Under this alliance, BMW has selected PTC’s PLM solution to support its digitalization efforts. PTC’s PLM solutions provide data management solutions across a product’s lifecycle – from inception to post-production. With the PLM market expected to grow further, this partnership could be a steppingstone for PTC to boost its recurring revenue.
Professional Services Revenue Dampens Overall Revenue Growth
Professional services revenue declined by 10% y-o-y to $41 million in Q1’18, due to the company’s strategy to shift services engagements to partners and deliver products that require less in terms of professional services.
Furthermore, PTC’s support revenue declined by 13% in Q1’18, as customers continued to convert their perpetual licenses to subscription licenses. Consequently, its contribution to the overall revenue fell to around 43% in Q1’18 compared to 53% in Q1’17.
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