Parametric Technology Corporation (PMTC)

JP Morgan TMT Conference Transcript

May 17, 2012 9:50 AM ET


Jim Heppelmann – Chief Executive Officer

Tim Fox – Investor Relations


Sterling Auty – JP Morgan


Sterling Auty – JP Morgan

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Thanks, everyone for joining us. My name is Sterling Auty. I'm the software technology analyst with JP Morgan. Happy to have with us Jim Heppelmann who is Chief Executive Officer of Parametric Technology. I'm going to turn the mic over Tim Fox briefly to do safe harbor, then over to Jim just to do couple of brief overview comments. And we're going to jump right into fireside chat Q&A. With that, Tim.

Tim Fox

So today's presentation is and Q&A session contains forward-looking statements regarding future products, or anticipated future operations or financial performance any such statements will be based on current assumptions of PTC's management and are subject or risks and uncertainties that could cause actual events and results to differ materially. Information concerning these risks and uncertainties is contained in PTC's Form 8-K, filed on April 25th and the most recent Form 10-K and 10-Q.

Sterling Auty – JP Morgan

Let me see that, we're having a little microphone trouble bottom one.

Tim Fox

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Just the top there.

Sterling Auty – JP Morgan

Just that today's presentation's 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 the 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 or uncertainties is contained in PTC's Form 8-K filed on April 25th 2012, most recent Form 10-K and Form 10-Q on file with the SEC with that, Jim.

Jim Heppelmann

Good, thank you. Thanks, Sterling. Good to have the opportunity to participate in the fireside chat here today. There's lot to talk about. I just want to provide a kind of quick backdrop to what leads us to the topic or issues of the day today.

PTC had a pretty good year last year, we came off year of 16% growth and 26% earnings growth and we're headed into a pretty strong year this year as well. In February of this year, we actually had an analyst day and upgraded or lifted our long-term outlook.

We had had a plan out there for 2014 or let's say a goal for 2014 and we raised the goal and basically set our new goal because we're actually ahead of plan on the 2014 goal and planning to meet some of those metrics already in 2012.

We set a new goal for 2015, which was to have between now and then 11% to 13% revenue growth CAGR to increase our operating margins from the 20% or so that they are this year, or that they will be this year to 25% to 27% and that would drive our earnings per share up, considerably from where they are today.

So that would say – let me say in 2012 our current guidance is about $1.280 billion to $1.282 billion, our margin guidance is about 20% and our EPS guidance is a little under $1.50 but that says in 2015 we would be more like at the middle of that range $1.8 billion 26% operating margins and $3 a share.

So it's an interesting plan and that certainly got a lot of shareholder interest. Then we proceeded unfortunately to post rather a weak quarter in the March ending quarter. We missed particularly on the license revenue.

There were several large transactions that we had forecasted to close that did not close the largest of which kind of made the difference between performance in the middle of our guidance range and missing the guidance range. That was a large European transaction that was interrupted by the company we were transacting with being acquired by somebody else late in the process and the transaction just being blocked on principal related the acquisition.

So that was a disappointing quarter, but inside that license revenue disappointment we actually made pretty good progress against the other elements particularly the margin expansion. So we posted a decent earnings quarter, better than people expected based on the license [mix] and the profit contained in the license.

So, it was by some measures a good quarter showing our commitment to and the progress we're making on margin expansion and then of course a disappointment on the license revenue line and we took down our guidance for the back half of the year commensurate with that.

Sterling Auty – JP Morgan

Hi, good, all right. So let's jump in peel back a layer or two on a couple of those issues. Let's start with actually North America. I think you gave people a sense that you felt that it was more your own execution than something else happening in the macro world. Since you reported, ANSYS put up a quarter that showed decelerating growth as well. Now that you're kind of looking back, how do you feel about that? Do you still think that there's enough opportunities out there that it was more execution rather than macro that was impacting North America?

Jim Heppelmann

Yeah. I mean in North America what I said in the earnings call and this was a pre-analyst call, right, I didn't at that point have the benefit of understanding how others did? What we said is that there were – let's see five transactions we expected to close in North America, not huge transactions like the one in Europe. But five that I would have expected to close that didn't.

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