PTC Says Business Model Meant To Withstand Events Like Coronavirus

'Even though we are seeing some signs of softness in smaller pockets of our business, we have not observed a material disruption to our business due to macro conditions,' PTC CFO Kristian Talvitie says in an investor call in which he outlined the strengths of the company's annual recurring revenue business model.


PTC said it expects no material impact on second-quarter revenue from the novel coronavirus outbreak and that its annual recurring revenue model is meant to withstand large macroeconomic events.

"Even though we are seeing some signs of softness in smaller pockets of our business, most notably in the airline and retail space quarter to date, we have not observed a material disruption to our business due to macro conditions," PTC CFO Kristian Talvitie said in an investor call Tuesday evening, referring to the COVID-19 coronavirus.

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

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PTC's stock price fell more than 2 percent to roughly $59.74 per share Wednesday morning.

Talvitie said the Boston-based industrial software company has not updated its revenue forecast as a result because it's "too early” to tell if buying behaviors will change. Instead, Talvitie reiterated four potential scenarios for the company's annual recurring revenue, or ARR, in fiscal year 2024 that were outlined at an investor meeting last fall.

The "optimist" scenario sees PTC's ARR reaching roughly $2.4 billion in 2024 with a 17 percent compounding annual growth rate while the worst-case scenario, called "2009 Redux," would see a roughly $2 billion ARR and 12 percent growth rate, according to a PTC presentation.

The latter scenario would essentially mean a repeat of what the company experienced during the last economic downturn, when the company saw a "30-plus percent drop in new business" while the churn rate of existing customers didn't change, Talvitie said.

"I think it goes back to the sticky nature of the software [and] the value that customers get from it," he said.

Talvitie said that based on the 2020 guidance PTC provided in the first quarter for an ARR of roughly $1.2 billion, which would mark a 14-16 increase over the previous year, the company is currently operating in the second-best "market" scenario, which projects roughly $2.3 billion in ARR by 2024.

But even if PTC sees weaker demand due to the coronavirus and other macro events — which includes U.S. limits on doing business with companies in countries like China — the company's ARR would still fall within the range of its four projected scenarios for revenue growth, the CFO said.

"Given the backdrop of the current global macro environment, which is still very fluid, we thought it would be helpful to apply the downside scenario assumptions to fiscal [2020] to illustrate the expected durability of our subscription business model, even if we encounter a weaker demand environment," Talvitie said.

While PTC doesn't expect any material impact from COVID-19 for now, Talvitie said some sales meetings have been postponed and that the company is working on ways to close more deals and implement products remotely — a capability that PTC has used more for international business.

"Contracting can be done remotely, but practically speaking, we still do see on-site interactions as a piece of the equation," he said. "Although given the current environment, we're all trying to get crafty and figure out how we do that otherwise."

Otherwise, PTC has not yet seen a major disruption to its business, Talvitie said, though he added the company will take proper actions if needed.

"Obviously, we are watching intently what is happening. The safety of our employees, of our customers and health is of paramount importance to us," he said.

"We're following [the U.S. Centers for Disease Control and Prevention] and [World Health Organization] guidelines, given the given the current environment, and monitoring the situation," Talvitie added. "As of yet, we haven't really seen any material disruption that would warrant taking any action as it relates to doing anything else other than what we had anticipated doing, which is going out and building a great business and servicing our customers with great products."