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Parametric Technology (PMTC)

Q1 2012 Earnings Call

January 26, 2012 8:30 am ET


Jeffrey D. Glidden - Chief Financial Officer and Executive Vice President

Tim Fox -

James E. Heppelmann - Chief Executive Officer, President, Director and Member of National FIRST Executive Advisory Board


Yun S. Kim - ThinkEquity LLC, Research Division

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Jay Vleeschhouwer

Steven R. Koenig - Longbow Research LLC

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Ben Z. Rose - Battle Road Research Ltd.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

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Ross MacMillan - Jefferies & Company, Inc., Research Division



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Good morning, ladies and gentlemen and welcome to PTC's First Quarter Fiscal Year 2012 Results Conference Call. After brief comments by management, we will go directly into the question-and-answer session. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce Tim Fox, PTC's Vice President of Investor Relations. Please go ahead.

Tim Fox

Thanks, Evan, good morning, everyone thanks for joining us in our Q1 results and outlook call.

Before we get started, I'd like to remind everybody that this call and Q&A session may include forward-looking statements regarding PTC's products or anticipated future operations or financial performance. Any such statements will be based on current assumptions of PTC's management and are subject to risks and uncertainties that could cause actual events and results to differ materially. Information concerning these risks and uncertainties is contained in PTC's most recent Form 10-K and Forms 10-Q on file with the SEC. All financial measures in this presentation are non-GAAP financial measures. Reconciliation between the non-GAAP measures and the comparable GAAP measure is located in our prepared remarks document on the Investor Relations page of our website at

With us this morning, we have Jim Heppelmann, Jeff Glidden and Barry Cohan. And with that, I'd like to turn the call over to Jim.

James E. Heppelmann

Thanks, Tim. So thank you, and welcome to all of you who are spending your time with us here this morning. As you saw on our press release last night, PTC is off to a good start in fiscal 2012 with solid Q1 results. Just a quick note that throughout my comments here this morning, I'm going to be referring to non-GAAP numbers.

In Q1, revenue of $320 million was at the high end of our guidance and up about 20% year-over-year with about 12% of that growth being organic. The revenue mix was aligned with our expectations with Enterprise revenue increasing 21% organically, and 38% overall, while Desktop revenue was up 5%, all of which, of course, was organic.

EPS was $0.35 a share, which was up 59% year-over-year and well above our guidance. That's largely because operating margins were better than 18%, a full 5 points higher than a year ago. So Q1 looks to me like a solid quarter largely devoid of surprises other than perhaps the positive element of higher margins driving higher EPS.

I'd like then to move on to the bigger news in the press release, which is the changes we're making to our profitability outlook, both short and long term. You will note that we significantly raised our profit guidance both for FY 2012 and for our longer term model. To provide some context, you will recall that after I became president in 2009, we outlined to our shareholders a goal to deliver a 20% EPS growth rate for 5 years through 2014. Our strategy was to do this by growing revenue about 12% annually and combining that with the operating margin, expansion of about 1 percentage point per year, resulting ultimately in an operating margin target of 20% by 2014.

In terms of actual performance, we've been able to exceed the EPS growth goals in 2010 when we had 25% EPS growth, and again in 2011 when we had 26% EPS growth. If you look at how we've accomplished that, you'll see that we've been achieving the 12% revenue growth goal on average, but we've been adding more like 2 percentage points of margin expansion per year.

This year, in FY '12, we are again expecting to meet or exceed our revenue growth goal of 12%, and we feel confident that we will expand margins by another 2 percentage points to take our margins to around 20% for the year. And with Q1 coming in at 18.4%, this seems likely to be achievable. Note that if we do achieve our 20% margin target here in 2012, that puts us already at the finish line of the original FY '14 margin expansion plan, which essentially causes our FY '14 goals to be no longer meaningful. So with a couple of years under my belt, and with Jeff having been with us for more than a year, we have a lot of time to analyze the business. We feel comfortable we can maintain that same level of revenue growth going forward and also think there are some changes we can make that would allow us to commit to the 2 percentage points per year margin expansion until such time as we drive our margins into the upper 20s where they arguably should be.

So with that in mind and with our 2014 goal becoming obsolete, we are retiring the FY '14 goal and have provided a new set of targets for the 2015 timeframe, which is to drive an 11% to 13% revenue growth rate while increasing our margins to the 25% to 27% range. If you play this out at the midpoints, it would suggest revenue of around $1.85 billion and EPS of about $3 a share in the 2015 timeframe.

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