PTC’s Fiscal First Quarter Results Conference Call, Prepared Remarks
and Data Tables
Prepared remarks and financial data tables have
been posted to the Investor Relations section of our website at ptc.com.
The Company will host a management presentation to discuss results at
5:00 pm ET on Wednesday, January 23, 2019. To access the live webcast,
please visit PTC’s Investor Relations website at investor.ptc.com at
least 15 minutes before the scheduled start time to download any
necessary audio or plug-in software. To participate in the live
conference call, dial 773-799-3757 or 800-857-5592 and provide the
passcode PTC. The call will be recorded and a replay will be available
for 10 days following the call by dialling 866-386-1317 and entering the
passcode 9107. The archived webcast will also be available on
PTC’s
Investor Relations website.
Bookings Metrics
We offer both
perpetual and subscription licensing options to our customers, as well
as monthly software rentals for certain products. Given the difference
in revenue recognition between the sale of a perpetual software license
and a subscription, we use bookings for internal planning, forecasting
and reporting of new license and cloud services transactions.
In order to normalize between perpetual and subscription licenses, we define subscription bookings as the subscription annualized contract value (subscription ACV) of new subscription contracts multiplied by a conversion factor of 2. We arrived at the conversion factor of 2 by considering a number of variables including pricing, support, length of term, and renewal rates. We define subscription ACV as the total value of a new subscription contract (which may include annual values that increase over time) divided by the term of the contract (in days) multiplied by 365. If the term of the subscription contract is less than a year, and is not associated with an existing contract, the booking is equal to the total contract value. Beginning in Q3’18, minimum ACV commitments under our Strategic Alliance Agreement with Rockwell Automation are included in subscription ACV if the period-to-date minimum ACV commitment exceeds actual ACV sold under the Agreement.
License and subscription bookings equal subscription bookings (as described above) plus perpetual license bookings. Because subscription bookings is a metric we use to approximate the value of subscription sales if sold as perpetual licenses, it does not represent the actual revenue that will be recognized with respect to subscription sales or that would be recognized if the sales were perpetual licenses, nor does the annualized value of monthly software rental bookings represent the value of any such booking.
Total Deferred Revenue
Total
Deferred Revenue consists of Billed Deferred Revenue and Unbilled
Deferred Revenue. Unbilled deferred revenue is the aggregate of booked
orders for license, support and subscription (including multi-year
subscription contracts with start dates after October 1, 2018 that are
subject to a limited annual cancellation right) for which the associated
revenue has not been recognized and the customer has not been invoiced.
We do not record Unbilled Deferred Revenue on our Consolidated Balance
Sheet; we record such amounts as deferred revenue when we invoice the
customer. Billed Deferred Revenue primarily relates to software
agreements invoiced to customers for which the revenue has not yet been
recognized. Billed deferred revenue can fluctuate quarterly based upon
the contractual billing dates in our recurring revenue contracts, the
timing of our fiscal reporting periods and foreign exchange rates.
Software Revenue
Any reference
to “total recurring software revenue” or “recurring software revenue”
means the sum of subscription revenue and support revenue. Any reference
to “total software revenue” or “software revenue” means the sum of
subscription revenue, support revenue and perpetual license revenue.
“Subscription revenue” includes cloud services revenue.
Navigate Allocation
Revenue and
bookings for Navigate™, a ThingWorx-based IoT solution for PLM, are
allocated 50% to Solutions and 50% to IoT.
Annualized Recurring Revenue (ARR)
To
help investors understand and assess the success of our subscription
transition, we provide an Annualized Recurring Revenue operating
measure. Annualized Recurring Revenue (ARR) for a given quarter is
calculated by dividing the portion of non-GAAP software revenue
attributable to subscription and support for the quarter by the number
of days in the quarter and multiplying by 365. (A related metric is
Subscription ARR, which is calculated by dividing the portion of
non-GAAP revenue attributable to subscriptions for the quarter by the
number of days in the quarter and multiplying by 365.) ARR should be
viewed independently of revenue and deferred revenue as it is an
operating measure and is not intended to be combined with or to replace
either of those items. ARR is not a forecast of future revenue, which
can be impacted by contract expiration and renewal rates and does not
include revenue reported as perpetual license or professional services
revenue in our consolidated statement of income. Subscription and
support revenue and ARR disclosed in a quarter can be impacted by
multiple factors, including but not limited to (1) the timing of the
start of a contract or a renewal, including the impact of on-time
renewals, support win-backs, and support conversions, which may vary by
quarter, (2) the ramping of committed monthly payments under a
subscription agreement over time, (3) multiple other contractual factors
with the customer including other elements sold with the subscription or
support contract, and (4) the impact of currency fluctuations. These
factors can cause disclosed ARR to vary.
