Parametric Technology Management Discusses Q3 2012 Results - Earnings Call Transcript

Parametric Technology (PMTC)

Q3 2012 Earnings Call

July 26, 2012 8:30 am ET

Executives

Tim Fox

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

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

Analysts

Yun S. Kim - ThinkEquity LLC, Research Division

David E. Hynes - Canaccord Genuity, Research Division

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

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

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

Raimo Lenschow - Barclays Capital, Research Division

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

Perry Huang - Goldman Sachs Group Inc., Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Ben Z. Rose - Battle Road Research Ltd.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to PTC's Third Quarter Fiscal Year 2012 Results Conference Call. After brief comments by management, we will go directly to a 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

Hi, thank you. Good morning, everyone. Thanks for joining us on our Q3 final results and outlook call. Before we get started, I would 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 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 and uncertainties is contained in PTC's Form 8-K filed yesterday and in our 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. A reconciliation between the non-GAAP measures and the comparable GAAP measures is located on our Prepared Remarks document on the Investor Relations page of our website at www.ptc.com.

With us as always this morning is Jim Heppelmann, Jeff Glidden and Barry Cohen. With that, I'll turn the call over to Jim.

James E. Heppelmann

Thank you, Tim, and thank you to all of us for joining us on the call here this morning. With revenue up 10% and earnings up 24% at constant currency, we're pleased to see Q3 come in as a solid quarter. We did not close the mega deal we spoke of 90 days ago, but we were able to backfill with other deals, including deals that grew in size as the quarter progressed. So in the end, we were able to come in toward the high-end of the revenue range, especially in the license category even though everything didn't go our way. I would characterize our performance in Japan and Asia-Pac as being very good. Our performance in Europe is solid and our performance in North America is unimpressive, but in line with our most recent guidance.

Looking across our 5 business segments, the CAD, PLM, ALM, and supply chain management businesses performed within a reasonable range of the expectation that we had for each. Our service lifecycle management or SLM business, stood out again this quarter with a growth rate that was much stronger than the other segments and substantially stronger than the company's overall growth rate. We're excited about the prospects in each segment and continue to believe that the growth opportunity created by this portfolio of 5 businesses is compelling and will support our long-term goals.

In the third quarter, we continue to make great progress on margin expansion and the $0.37 of EPS came in well above the guidance range and allowed us to raise our EPS guidance for the full year. We believe that this quarter's EPS performance once again demonstrates the seriousness of our commitment to margin expansion and earnings growth even we're confronted with a more difficult revenue environment. We are now live with salesforce.com and we're operating with much better data and as we look at Q4, we see a strong pipeline particularly in North America. At the same time, we see increased pressure from foreign exchange rates and see no reason to expect improvements in the top macro environment we're all in right now. Thus, we're holding our Q4 and FY '12 revenue forecast flat with the exception of making currency adjustments.

Looking ahead to FY '13, we are now actively engaged in the planning process for the new year and at this point, we do not yet have a final plan or guidance that we can share with you. But I can tell you now already that the bedrock of our plan will be strong earnings growth that targets $1.70 to $1.80 EPS range. To provide some context to the planning process, I'll remind you that our timeless FY '15 model assumes 11% to 13% annual revenue growth and 2 percentage points per year margin expansion. However, assuming that today's FX rates hold true with FY '13, due to currency alone, our FY '13 revenue plan would lose $40 million or about 3 percentage points of revenue growth. So considering that big FX hit, plus taking into account the likelihood of a continued difficult macroeconomic environment, our planning process is leaning towards an FY '13 recipe that involves more moderate revenue growth, coupled with aggressive margin expansion. But in any case, our objective would be to drive towards 20% earnings growth with that recipe.

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