“We had 33 large deals (recognized license + services revenue of more than $1 million) in Q4’14, down from 45 in Q4’13, including two mega deals (a transaction resulting in recognized license revenue of over $5 million in the quarter) in Q4’14, one in the Americas and one in Europe, compared to no mega deals in Q4’13. Our mix of large deal revenue in Q4’14 was skewed more heavily toward license. During the quarter we recognized revenue from leading organizations such as Applied Materials, Chico’s FAS, Inc., China North Engine Research Institute, Dell Computer, Doosan, Embraer, Hanesbrands, Iseki & Co., Liebherr, Lockheed Martin, Man Truck & Bus, Raytheon, SMS Siemag, and Solar Turbines,” remarked Heppelmann.

Jeff Glidden, chief financial officer, commented, “From a profitability standpoint, we delivered $0.67 non-GAAP EPS, above our guidance range, driven by a good mix of revenue and a lower tax rate, offset by lower gross profit due to excess capacity in our professional services business and investments we are making in select strategic customer engagements, as well as higher operating expenses due to our acquisitions of Atego and Axeda, and by investments in our Internet of Things business. As previously announced, we took a $27 million restructuring charge in Q4 in support of integrating the recently acquired Atego and Axeda businesses and the continued evolution of our business model. We expect the annualized effect of the expense reductions to be approximately $30 million, which is already contemplated in our guidance. In Q4, we achieved a 26.2% non-GAAP operating margin and generated $51 million in operating cash flow. For the full year operating cash flow increased 36% to $305 million.”

Updated Long-Range Targets and FY’15 Outlook Commentary

Heppelmann remarked, “Looking out to FY’18 we believe we can achieve approximately 15% per year non-GAAP EPS growth, driven by a healthy mix of revenue growth, further non-GAAP operating margin expansion to 28% to 30% by FY’17 and into FY’18, reduced share count through our capital allocation strategy, and improved tax outlook.”

“Looking at FY’15, we see several headwinds facing our business, including indications of a slowdown in manufacturing activity in Europe, Japan, and China, which may result in fewer large deals and mega deals in FY’15 relative to FY’14. These challenges notwithstanding, we are encouraged by an expanding pipeline of opportunities, particularly in our SLM & IoT businesses, which are less tied to macroeconomic trends in the manufacturing space,” said Heppelmann.

“Additionally,” Heppelmann continued, “there are two significant variables to consider as we think about our financial performance in FY’15. First, the depreciation of the Euro and Yen relative to the U.S. dollar have a significant impact on our financial results. On a constant currency basis, we are targeting revenue growth of 4% to 6% and non-GAAP EPS growth of more than 15%. Second, due to evolving customer preferences as well as acquisitions we have made in the IoT space, we are offering subscription pricing as an option for most PTC products starting in FY’15. In order to better align our reporting with how we think about our business, we will be changing our line of business revenue disclosure to: (1) perpetual license & subscription solutions; (2) support; and (3) professional services. As part of this new line of business breakdown, cloud services (formerly known as managed services) revenue, which was previously included in our Professional Services line of business, will now be included within our perpetual license & subscription solutions line of business.”

Detailed guidance using current currency assumptions and our new line of business breakdown is outlined in the table below. Glidden added, “Importantly, we assume 85% of our Perpetual License & Subscription Solutions business in Q1’15 and FY’15 will be perpetual license sales, down from approximately 92% in FY’14. The remainder of our Perpetual License & Subscription Solutions revenue is a combination of run-rate revenue from previous bookings plus new and renewal subscription solutions bookings (subscription software and cloud services), of which a portion will be recognized as revenue during the quarter and year, and the balance of which will be recorded as billed in deferred revenue and be recognized ratably over the remaining term of the subscription (as run-rate revenue).”

“If a greater percentage of our customers elect our subscription offering than our base case assumption, it will have an adverse impact on revenue, operating margin, cash flow and EPS growth relative to our guidance. Should this happen, we believe it will be net present value positive to PTC over the long-term and we will provide relevant information to help investors understand how our business model is evolving,” concluded Glidden.

Q1 and FY’15 Guidance Table – Growth Rates Reflect Recast Historical Results