As a follow-up to the November 1st commentary on PTC’s “Creo” launch, and the issues pertaining to that, I will add some highlights from the recent analyst meeting in New York.
As preamble, at the heart of what PTC is trying to do is induce better growth in the product design applications business, while improving the profitability of the Windchill business through (continued) disproportionate license growth, from which would follow high-margin maintenance business over time. For the former, important details need to be filled in by the first release of the Creo portfolio next June (pricing and packaging especially) but there is an opportunity to expand PTC’s overall unit volume in the CAD market, or at least to leverage penetration opportunities in its installed base (the fourth largest active base in the industry).
Among the highlights from the meeting were:
“Focus on major annuity customer portfolio.” PTC brought this objective out starting at last year’s meeting, and this goal of expanding revenues per large customer remains appropriate and achievable. The so-called “domino” accounts (20 to date, with a goal of 30 by the end of FY11) and other large “strategic accounts” (of which there are 55) contribute to the base of annuity business: PTC had an interesting chart that showed 56 customers doing more than $2 million a year, 14 doing more than $5 million a year, and 9 doing more than $10 million a year (thus, 79 customers accounting for 44% of revenues, for a simple of average of almost $6 million each).
PTC also showed an unusually detailed chart identifying what it avers are more than 240 PLM displacement opportunities (“competitive targets”) within the Dassault (MatrixOne, Enovia), Siemens PLM (Teamcenter), Oracle (Agile), and SAP bases.
Expanded sales capacity, and expanded addressable market. For the former, PTC highlighted the 10% addition to its sales capacity, and for the former there is the notion of “extended PLM”, e.g., XML content management, product analytics. (What PTC does, if anything, in the emerging area of “simulation data management” remains to be seen, but a number of other vendors more actively in simulation applications have already branched out into “SDM”).
Windchill 10 – a critical new release - is due in March 2011, and ProductPoint 2.0 is due as well in 2QFY11. (At the annual PTC user conference in June, the expected release of ProductPoint 2.0 wes said to be November, 2010).
Compound Annual Growth Rate
PTC ran through various growth scenarios, depending on CAGR assumptions for the major segments. For instance, even with little or limited (single digit) growth in the product development business, PTC on the whole could still show double-digit growth so long as the Windchill business maintains its rapid pace; in addition, if a reasonably large sub-brand such as Arbortext begins to do better, that would help too, of course. The five-year CAGR of Windchill-only license revenues was 15% by my calculation, through the end of FY10, among the best growth rates, if not the best, in the group, with over 80% of Windchill licenses sold to date still under maintenance.
This CAGR calculation differs somewhat from the figures shown by PTC for PLM, which includes the other smaller acquired brands, not all of which have had consistently spectacular results. On that point, one section of the analyst meeting had to do with rejuvenating Arbortext, a roughly $55 million brand.
With the new Windchill releases in the pipeline, the availability of the SharePoint-based ProductPoint, and the apparent importance being placed on PLM now by customers as an important class of technology (a priority a decade in the making), PTC should be well-positioned to perform well in the group in terms of revenue growth over the next several years, coupled with hundreds of basis points improvement from the recent mid-teens operating margin.