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PTC Reports Strong Q4 IoT Growth, Plans $470M Onshape Acquisition

'Onshape is a very unique asset. Because of the high cost of entry, you simply won't find another [computer-aided design] SaaS startup out there,' PTC CEO Jim Heppelmann says of the vendor's plan to acquire Onshape.

PTC said double-digit growth from its IoT and augmented reality businesses helped the industrial software vendor exceed its guidance for fourth-quarter bookings by $5 million while promising investors a new area of growth.

Jim Heppelmann, CEO of the Boston-based company, said during PTC's Q4 earnings on Thursday that the vendor is adding yet another "exciting and dependable long-term growth engine" with its planned $470 million acquisition of cloud-based product development startup Onshape — a deal announced today.

[Related: PTC Buys AR Services Firm, Hires McKinsey Exec For New Solutions Group]

Onshape, which is located across the Charles River from PTC in Cambridge, provides a platform that combines computer-aided design with data management and collaboration tools in a Software-as-a-Service business model, underscoring the company's continued push for subscription-based revenue.

"Onshape is a very unique asset," Heppelmann said. "Because of the high cost of entry, you simply won't find another [computer-aided design] SaaS startup out there."

With the company's plan to acquire Onshape, set to close in November, Heppelmann said PTC is still committed to "long-term development" of its Creo and Windchill products for computer-aided design and product lifecycle management, respectively.

PTC's stock price was up more than 4 percent in after-hours trading Wednesday after reporting 4 percent year-over-year revenue growth to $335.2 million in Q4, beating Wall Street's expectations. The company also surpassed analyst estimates by 19 cents with a net earnings of 64 cents per share.

PTC's annual recurring revenue, which the company is using as a key metric moving forward, grew 12 percent to $1.1 billion for fiscal year 2019 from the previous year.

Heppelmann said he expects ARR growth to reach the mid-teens in fiscal year 2020. The company expects revenue next year to reach between $1.4 billion and $1.5 billion, which is in line with what Wall Street Analytics are expecting. Expected earnings per share of $1.95 to $2.60 for 2020 is also in line.

The company's IoT software revenue in Q4 was $41 million, a 28 percent increase from the same period last year. What helped drive that growth was a megadeal PTC secured through its strategic partnership with Rockwell Automation, which drove a 75 percent sequential increase in new deals overall.

"We're more confident than ever of this key strategic alliance," Heppelmann said.

While PTC has been scoring megadeals through its partnership with Rockwell Automation, it only represents a single-digit percent of the company's IoT and AR revenue since the strategic partnership began more than a year ago, Heppelmann said. However, he added, Rockwell Automation's share of PTC's IoT and AR revenue could eventually reach 25 percent "down the road."

"it's a small part, growing at a high rate that should be increasingly material going forward," he said.

Heppelmann said roughly half of the PTC's IoT and AR deals come from existing computer-aided design and product lifecycle management customers.

"On the other hand, we're winning in other accounts because we're uncontested," he said.

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