PTC CEO: Post-COVID-19 'New Normal' Will Boost IoT, AR Markets

'We expect that the new normal that follows this crisis will create stronger tailwind to the already high growth IoT and AR markets and will make PLM more relevant than ever,' Jim Heppelmann says of the industrial software provider's long-term growth prospects.


PTC CEO Jim Heppelmann said the company's move into IoT and augmented reality, coupled with its shift to a subscription model, will allow the industrial software vendor to emerge stronger once the coronavirus pandemic ends and a "new normal" begins.

The Boston-based company announced second-quarter earnings on Wednesday, reporting $360 million in revenue, a 24 percent year-over-year increase and more than $19 million above Wall Street's expectations. Net earnings were 59 cents per share, exceeding the average analyst estimate by 15 cents.

[Related: PTC Says AR Can Fill A Gap When Experts Are Stuck At Home]

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Heppelmann attributed the solid quarter to the company's shift to a subscription business model and its move to the IoT and AR markets over the last several years as well as a recent restructuring.

"Because of these changes, PTC is positioned to hold up well during the downturn and we are very well positioned to drive even stronger growth in shareholder value creation once this crisis passes," he said.

The company wasn't completely immune to the pandemic's impact, however, as new annual contract value bookings decreased in the mid-teens, Heppelmann said. Subscription renewals, on the other hand, were "essentially unaffected," he added, though the company expects the pandemic will put some pressure in that area, which prompted PTC to lower its annual recurring revenue guidance from a range of $1.27 to $1.29 billion to a range of $1.22 to $1.25 million, representing 9-12 year-over-year growth.

PTC's stock price was down as much as 5.9 percent Thursday morning, but the decline narrowed to 0.34 percent by mid-afternoon, bringing shares to $69.72.

The company said its annual recurring revenue in the second quarter, which represents the total value of its subscription, support and other kinds of contracts over a 12-month period, was $1.18 billion, a 10 percent increase over its ARR in the same period last year.

For PTC's growth businesses, which consist of IoT, AR and its cloud-based CAD program, Onshape, the company's ARR was $153 million, a 29 percent year-over-year increase. For revenue captured in the second quarter, the growth businesses recorded $43 million, a 22 percent year-over-year increase.

Heppelmann said because IoT and AR are both focused on enabling remote work by digitizing physical information for a distributed workforce, the two product areas are likely to see a big boost in business once customers make adjustments to their operations after the pandemic ends. He said the company's product lifecycle management products will also benefit.

"We expect that the new normal that follows this crisis will create stronger tailwind to the already high growth IoT and AR markets and will make PLM more relevant than ever," he said.

AR, in particular, has seen a major uptick in interest. Heppelmann said the company's Vuforia Chalk solution, which another executive previously described as "FaceTime on steroids," has seen a 10-fold increase in traffic since before the pandemic began.

To help organizations address new social distancing guidelines and travel restrictions, PTC has extended the free trial of Vuforia Chalk, which Heppelmann said has resulted in thousands of companies which needed a remote assistance application being introduced to AR for the first time. This means the company could see major sales opportunities when the free trial comes to an end, he added.

"These companies using Chalk represent a big upsell pipeline to pursue in Q4 and beyond," he said.

As for IoT, Heppelmann said the company has a "strong" pipeline of customers, but the company is at risk of having close dates for new deals being pushed off for a quarter or longer. He explained that's because with many people working from home, software implementations could be delayed.

"We're being conservative around close rates in the forecast and being double conservative in the guidance, because we're worried about software that has to be implemented in bigger ticket purchases might get delayed. I doubt it's going to get canceled," he said. "But it's just what we saw at the end of the quarter was, if you needed to buy software, you had to implement. But everybody is being sent home and you don't know how to implement it."

With live deployments in the field, PTC has seen "large spikes in IoT usages" from medical device manufacturers that are using the company's IoT solutions for smart connected diagnostics and treatment applications as part of their COVID-19 response, according to Heppelmann.

Maddy Hawkins, director of IoT sales at Aquitas Solutions, a Roswell, Ga.-based PTC partner that provides connected maintenance solutions, told CRN in late March that the pandemic had slowed down meetings for new IoT deals with customers. However, the continued need for social distancing and travel restrictions means companies are looking at IoT and automation for long-term investments.

"Being able to leverage asset data and being able to automate a lot of that process to identify when something's wrong, send the work order alert to the right people at the right time, and to prevent downtime before it happens — all those things are in support of a more remote limited workforce," she said.