Company is losing ground in CAD and PLM

All eyes were on PTC last quarter in the last round of quarterly filings. It was
last quarter Jim Heppelmann announced to the analysts that he was stepping down and handing over the reins to the next generation. Neil Barua was to be the new CEO.
Heppelmann had been on a 3-month whirlwind tour introducing customers to
Barua. Was it because a steady hand not on the tiller that revenue dropped
7% from them previous quarter to $506 million. Heppelmann returned to lead his
last quarterly meeting and pronounced the quarter a success since revenue had increased 17%
over the same quarter a year ago.
Companies cling to year-over-year quarterly comparisons, insisting that annual cycles are more important than seasonal swings. That is certainly valid with annual revenue-producing updates. Year-over-year
comparisons are also valid for retail and consumer goods. (Think of most gifts bought before Christmas and most TVs before the Super Bowl.) Does it work for software, though? Most software, including PTC’s, is sold throughout the year.
Profits increased from $46 million to $66 million from the previous quarter, even though revenue dropped.
Looking over the last four quarters of flat or declining revenue, we can’t help but wonder if PTC is losing ground to its competition. PTC is currently in last place in annual revenue for the Big 4 CAD companies, following Siemens, Dassault Systèmes and Autodesk — a long-term reversal from its 1990s heydays when it was in the lead.
Annual Revenue (Millions) |
|
Siemens Software |
$14,702 |
Dassault Systèmes |
$6,629 |
Autodesk |
$5,152 |
PTC Inc. |
$4,584 |
Bentley Systems |
$1,053 |

Heppelmann and Barua have been travelling the world to assure PTC’s customers they have nothing to fear with the transition. In a note to all on the PTC site entitled “Building a Company for the Ages,” Barua acknowledges the planes, trains and automobiles and electronics, appliances and heavy machinery that have been the company’s mainstay. Barua mentions the need for more embedded software, gaining technical credibility, but moves on to the softer side with talk of “product traceability required by regulation,” perhaps something ServiceMax can manage.
Understanding the industries in which customers live is essential for engineering software CEOs. Barua’s roots are in finance and equity firms. His last company, ServiceMax, makers of software for product service, is so far downstream of product design that it takes a visionary to see it. Heppelmann was a visionary, able to see markets over the horizon. There was mathematics software (MathCAD), technical documentation software (Arbortext), AR and, most recently, service markets to be explored. Heppelmann was given leeway to stretch credulity by expanding into foreign territory — as long as the company grew in revenue. Heppelmann could explain away any doubt of those more conservative and nervous. He was, after all, a PLM and CAD guy.
What can we expect from Barua? Will he know what markets to expand into, and will he be more successful in doing so? Will he complement PTC’s CAD and PLM core with future acquisitions or expand from a new core?
Given the size of the ServiceMax acquisition ($1.46 billion) and PTC’s annual revenue ($4.6 billion), one could argue that the core has already shifted from the CAD/PLM to a new service core. As ServiceMax’s former CEO, Barua should have no problem with that.
Perhaps PTC is okay with losing ground in CAD and PLM while it gains ground in service software. But if ground gained is measured by revenue and profit, will this be a challenge? The ServiceMax acquisition cost PTC $1.46 billion, more than nine times the $160 million of annual recurring revenue (ARR) that it adds to PTC’s top line. The company had to borrow heavily to haul in the biggest acquisition in its history, and now it must pay interest on those loans. PTC paid $30 million in imputed interest in the last quarter.