PTC Announces First Fiscal Quarter 2024 Results
- 24% YoY increase in ARR
- 18% revenue growth
- 4% increase in operating cash flow
- Fiscal 2024 guidance remains unchanged
- 11% - 14% YoY growth in ARR
- 8% - 13% revenue growth
- Long-term goal to return approximately 50% of free cash flow to shareholders via share repurchases
- None.
Insights
An increase in Annual Recurring Revenue (ARR) by 24% year-over-year indicates a strong, growing demand for PTC's products and a successful shift towards a subscription-based model, which is a positive signal for investors looking for sustainable revenue streams. The reported ARR outperformed the guidance, suggesting effective business strategies and possibly a conservative forecasting approach by management. The 18% revenue growth also surpasses the upper end of the provided guidance, reflecting robust sales performance.
However, a decline of 13% in Earnings Per Share (EPS) juxtaposed with an 11% increase in non-GAAP EPS points towards significant non-cash expenses such as stock-based compensation and amortization of acquired intangible assets. Investors might be concerned about the 32% decrease in cash and cash equivalents and a 67% increase in gross debt, which could indicate liquidity constraints and a more aggressive leverage strategy. The commitment to rapidly de-lever and the debt to EBITDA ratio returning under 3.0x may alleviate some concerns about financial stability.
The digital transformation sector continues to expand and PTC's focus on investing in technologies that meet evolving customer needs suggests a strategic alignment with market trends. The 6% year-over-year increase in free cash flow indicates operational efficiency and the potential for reinvestment and shareholder returns. However, the macroeconomic environment remains challenging and PTC's unchanged full-year guidance reflects cautious optimism and pragmatic forecasting in the face of potential market volatility.
PTC's operational discipline and alignment of investments with market opportunities could position the company favorably against competitors. The emphasis on subscription license business models and the low churn rates suggest a stable customer base, which is crucial for long-term growth in the tech sector.
The favorable impact of foreign exchange rate fluctuations on PTC's reported ARR highlights the importance of currency risks in international business operations. Investors should note that while currency can positively influence results in the short term, it can also reverse and become a headwind. PTC's expectation of the majority of collections in the first half of the fiscal year aligns with typical cash flow seasonality in the tech industry, but it also means that the company's liquidity position could vary significantly throughout the year.
The planned debt paydown in FY'24 and the long-term goal to return approximately 50% of free cash flow to shareholders indicate a balanced approach to capital allocation. However, the increase in GAAP and non-GAAP operating expenses, primarily due to investments for future growth, suggests that PTC is in a growth phase, which might involve higher costs and impact margins in the short term.
Solid ARR and Cash Flow
"In our first fiscal quarter, we again delivered solid ARR and cash flow results. I am confident that PTC is well positioned to continue delivering durable and consistent ARR and cash flow growth under the leadership of Neil Barua," said James Heppelmann, CEO, PTC.
Neil Barua, CEO-elect, added, "We have a differentiated strategy that leverages our unique product portfolio to help our customers along their digital transformation journeys. I am looking forward to working with the team to continue enhancing PTC's already strong market position and execution by continuing to invest significantly in technologies that meet the evolving needs of our customers."
First Quarter 2024 Highlights
Key operating and financial highlights are set forth below. The definitions of our operating and non-GAAP financial measures and reconciliations of non-GAAP financial measures to comparable GAAP measures are included below and in the reconciliation tables at the end of this press release.
$ in millions | Q1'24 | Q1'23 | YoY Change | Q1'24 | |
ARR as reported | 24 % | ||||
Constant currency ARR | 23 % | ||||
Organic ARR as reported | 13 % | ||||
Constant currency organic ARR | 13 % | ||||
Operating cash flow | 4 % | ||||
Free cash flow | 6 % | ||||
Revenue2 | 18 % | ||||
Operating margin2 | 23 % | ~(90 bps) | |||
Non-GAAP operating margin2 | 36 % | 36 % | ~60 bps | ||
Earnings per share2 | (13 %) | ||||
Non-GAAP earnings per share2 | 11 % | ||||
Total cash and cash equivalents | (32 %) | ||||
Gross debt | 67 % |
1 In Q1'24, operating cash flow and free cash flow included a |
2 In Q1'24, revenue growth was |
3 In Q1'24, compared to the year-ago period, operating margin and EPS were impacted by an increase in expenses related to stock-based compensation and amortization of acquired intangible assets; see non-GAAP financial measures and reconciliations table on page 9 for details. |
Fiscal 2024 and Q2'24 Guidance
"Our ARR and free cash flow results in Q1'24 were solid, driven by the resilience of our subscription license business model, consistent execution, operational discipline, and the actions we have taken over time to align our investments with market opportunities. We continue to rapidly de-lever, with our debt to EBITDA ratio back under 3.0x at the end of Q1. Despite the ongoing challenging macro backdrop, our full year guidance for ARR and FCF remains unchanged, and we believe we have set our Q2 guidance prudently," said Kristian Talvitie, CFO.
$ in millions | FY'24 Previous | FY'24 | FY'24 YoY Growth | Q2'24 | |
Constant currency ARR | |||||
Operating cash flow | ~ | ||||
Free cash flow | ~ | ||||
Revenue | |||||
Earnings per share | |||||
Non-GAAP earnings per share |
Reconciliation of Operating Cash Flow Guidance to Free Cash Flow Guidance
In millions | FY'24 | Q2'24 | ||
Operating Cash Flow | ||||
Capital expenditures | ( | ( | ||
Free Cash Flow |
Reconciliation of EPS Guidance to Non-GAAP EPS Guidance
FY'24 | Q2'24 | ||
Earnings per share | |||
Stock-based compensation expense | |||
Intangible asset amortization expense | |||
Acquisition and transaction-related expense | |||
Income tax adjustments related to the reconciling items | ( | ~( | |
Non-GAAP Earnings per share |
FY'24 financial guidance includes the following assumptions:
- We provide ARR guidance on a constant currency basis, using our FY'24 Plan foreign exchange rates (rates as of September 30, 2023) for all periods. Foreign exchange rate fluctuations during Q1'24 had a
$41 million - Q2'24 reported ARR would be higher by approximately
$42 million - FY'24 reported ARR would be higher by approximately
$46 million
- Q2'24 reported ARR would be higher by approximately
- We expect churn to remain low.
- For cash flow, due to invoicing and payments seasonality, and consistent with the past 3 years, we expect the majority of our collections to occur in the first half of our fiscal year and for fiscal Q4 to be our lowest cash flow generation quarter.
- Compared to FY'23, at the midpoint of FY'24 ARR guidance, FY'24 GAAP operating expenses are expected to increase approximately
5% to6% , and FY'24 non-GAAP operating expenses are expected to increase approximately8% to9% , primarily due to investments to drive future growth, the acquisition of ServiceMax, and foreign exchange rate fluctuations. - FY'24 GAAP P&L results are expected to include the items below, totaling approximately
$284 million $314 million - approximately
$200 million $230 million - approximately
$82 million - approximately
$2 million
- approximately
- Our FY'24 GAAP and non-GAAP tax rates are expected to be approximately
20% . - Cash tax payments are expected to be approximately
$80 million - Capital expenditures are expected to be approximately
$20 million - Cash interest payments are expected to be approximately
$135 million - Our long-term goal, assuming our Debt/EBITDA ratio is below 3x, is to return approximately
50% of our free cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic opportunities.- We expect to prioritize paying down our debt in FY'24.
- We expect gross debt of approximately
$1.7 billion - We expect our fully diluted share count to increase by approximately 1 million in FY'24.
PTC's Fiscal First Quarter Conference Call
The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, January 31, 2024. To participate in the live conference call, dial (888) 330-2508 or (240) 789-2735 and provide the passcode 7328695, or log in to the webcast, available on PTC's Investor Relations website. A replay will also be available.
Important Information About Our Operating and Non-GAAP Financial Measures
Non-GAAP Financial Measures
We provide supplemental non-GAAP financial measures to our financial results. We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operating performance because they provide a view of our operating results without items that are not, in our view, indicative of our operating results. These non-GAAP financial measures should not be construed as an alternative to GAAP results as the items excluded from the non-GAAP financial measures often have a material impact on our operating results, certain of those items are recurring, and others often recur. Management uses, and investors should consider, our non-GAAP financial measures only in conjunction with our GAAP results.
Non-GAAP operating expense, non-GAAP operating margin, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net income and non-GAAP EPS exclude the effect of the following items: stock-based compensation; amortization of acquired intangible assets; acquisition and transaction-related charges included in general and administrative expenses; restructuring and other charges and credits, net; certain non-operating charges and credits; and income tax adjustments. Additional information about the items we exclude from our non-GAAP financial measures and the reasons we exclude them can be found in "Non-GAAP Financial Measures" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Free Cash Flow: We provide information on free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings and to evaluate our performance against our announced long-term goals and intent to return approximately
Constant Currency (CC): We present CC information to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency exchange rate fluctuations. To present CC information, FY'24 and comparative prior period results for entities reporting in currencies other than
Operating Measures
ARR: ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. We calculate ARR as follows:
- We consider a contract to be active when the product or service contractual term commences (the "start date") until the right to use the product or service ends (the "expiration date"). Even if the contract with the customer is executed before the start date, the contract will not count toward ARR until the customer right to receive the benefit of the products or services has commenced.
- For contracts that include annual values that increase over time as there are additional deliverables in subsequent periods, which we refer to as ramp contracts, we include in ARR only the annualized value of components of the contract that are considered active as of the date of the ARR calculation. We do not include the future committed increases in the contract value as of the date of the ARR calculation.
- As ARR includes only contracts that are active at the end of the reporting period, ARR does not reflect assumptions or estimates regarding future customer renewals or non-renewals.
- Active contracts are annualized by dividing the total active contract value by the contract duration in days (expiration date minus start date), then multiplying that by 365 days (or 366 days for leap years).
We believe ARR is a valuable operating measure to assess the health of a subscription business because it is aligned with the amount that we invoice the customer on an annual basis. We invoice customers annually for the current year of the contract. A customer with a one-year contract will typically be invoiced for the total value of the contract at the beginning of the contractual term, while a customer with a multi-year contract will be invoiced for each annual period at the beginning of each year of the contract.
ARR increases by the annualized value of active contracts that commence in a reporting period and decreases by the annualized value of contracts that expire in the reporting period.
As ARR is not annualized recurring revenue, it is not calculated based on recognized or unearned revenue and is not affected by variability in the timing of revenue under ASC 606, particularly for on-premises license subscriptions where a substantial portion of the total value of the contract is recognized at a point in time upon the later of when the software is made available, or the subscription term commences.
ARR should be viewed independently of recognized and unearned revenue and is not intended to be combined with, or to replace, either of those items. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results.
Organic ARR: We provide an organic ARR measure to help investors understand and assess the performance of our business without the distorting effects of ARR from acquisitions in the comparative period. We do not adjust for acquisitions that have an immaterial impact on our ARR results when providing organic ARR results.
Organic Constant Currency ARR: We provide an organic constant currency ARR measure to help investors understand and assess the performance of our business without the distorting effects of ARR from acquisitions in the comparative period and foreign exchange rate fluctuations. We do not adjust for acquisitions that have an immaterial impact on our ARR results when providing organic constant currency ARR results.
Deferred ARR: Deferred ARR is ARR attributable to our portfolio of subscription software, cloud, SaaS and support contracts that are not active as of the end of the reporting period but are contractually committed to commence in a future period.
Because ARR is independent of recognized and unearned revenue, deferred ARR should not be viewed as a measurement of revenue which will be recognized in future periods.
Forward-Looking Statements
Statements in this document that are not historic facts, including statements about our future financial and growth expectations and potential stock repurchases, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the macroeconomic and/or global manufacturing climates may not improve when or as we expect or may deteriorate due to, among other factors, high interest rates or increases in interest rates and inflation, volatile foreign exchange rates and the relative strength of the
About PTC (NASDAQ: PTC)
PTC (NASDAQ: PTC) is a global software company that enables industrial and manufacturing companies to digitally transform how they engineer, manufacture, and service the physical products that the world relies on. Headquartered in
PTC Investor Relations Contact
Matt Shimao
SVP, Investor Relations
mshimao@ptc.com
investor@ptc.com
PTC Inc. | ||||||
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | ||||||
(in thousands, except per share data) | ||||||
Three Months Ended | ||||||
December 31, | December 31, | |||||
2023 | 2022 | |||||
Revenue: | ||||||
Recurring revenue | $ | 506,027 | $ | 417,110 | ||
Perpetual license | 8,440 | 13,244 | ||||
Professional services | 35,747 | 35,556 | ||||
Total revenue(1) | 550,214 | 465,910 | ||||
Cost of revenue (2) | 110,020 | 95,790 | ||||
Gross margin | 440,194 | 370,120 | ||||
Operating expenses: | ||||||
Sales and marketing (2) | 136,924 | 118,383 | ||||
Research and development (2) | 105,783 | 88,177 | ||||
General and administrative (2) | 69,206 | 50,971 | ||||
Amortization of acquired intangible assets | 10,363 | 8,026 | ||||
Restructuring and other credits, net | (795) | (338) | ||||
Total operating expenses | 321,481 | 265,219 | ||||
Operating income | 118,713 | 104,901 | ||||
Other expense, net | (33,114) | (18,477) | ||||
Income before income taxes | 85,599 | 86,424 | ||||
Provision for income taxes | 19,212 | 11,389 | ||||
Net income | $ | 66,387 | $ | 75,035 | ||
Earnings per share: | ||||||
Basic | $ | 0.56 | $ | 0.64 | ||
Weighted average shares outstanding | 119,124 | 117,819 | ||||
Diluted | $ | 0.55 | $ | 0.63 | ||
Weighted average shares outstanding | 120,250 | 118,788 | ||||
(1) See supplemental financial data for revenue by license, support and cloud services, and professional services. | ||||||
(2) See supplemental financial data for additional information about stock-based compensation. | ||||||
PTC Inc. | ||||||
SUPPLEMENTAL FINANCIAL DATA FOR REVENUE AND STOCK-BASED COMPENSATION | ||||||
(in thousands, except per share data) | ||||||
Revenue by license, support and services is as follows: | ||||||
Three Months Ended | ||||||
December 31, | December 31, | |||||
2023 | 2022 | |||||
License revenue (1) | $ | 183,998 | $ | 172,698 | ||
Support and cloud services revenue | 330,469 | 257,656 | ||||
Professional services revenue | 35,747 | 35,556 | ||||
Total revenue | $ | 550,214 | $ | 465,910 | ||
(1) License revenue includes the portion of subscription revenue allocated to license. | ||||||
The amounts in the income statement include stock-based compensation as follows: | ||||||
Three Months Ended | ||||||
December 31, | December 31, | |||||
2023 | 2022 | |||||
Cost of revenue | $ | 5,089 | $ | 4,075 | ||
Sales and marketing | 16,127 | 12,196 | ||||
Research and development | 14,238 | 11,458 | ||||
General and administrative | 23,559 | 13,775 | ||||
Total stock-based compensation | $ | 59,013 | $ | 41,504 | ||
PTC Inc. | |||||||
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) | |||||||
(in thousands, except per share data) | |||||||
Three Months Ended | |||||||
December 31, | December 31, | ||||||
2023 | 2022 | ||||||
GAAP gross margin | $ | 440,194 | $ | 370,120 | |||
Stock-based compensation | 5,089 | 4,075 | |||||
Amortization of acquired intangible assets included in cost of revenue | 9,566 | 6,142 | |||||
Non-GAAP gross margin | $ | 454,849 | $ | 380,337 | |||
GAAP operating income | $ | 118,713 | $ | 104,901 | |||
Stock-based compensation | 59,013 | 41,504 | |||||
Amortization of acquired intangible assets | 19,929 | 14,168 | |||||
Acquisition and transaction-related charges | 2,506 | 5,806 | |||||
Restructuring and other credits, net | (795) | (338) | |||||
Non-GAAP operating income (1) | $ | 199,366 | $ | 166,041 | |||
GAAP net income | $ | 66,387 | $ | 75,035 | |||
Stock-based compensation | 59,013 | 41,504 | |||||
Amortization of acquired intangible assets | 19,929 | 14,168 | |||||
Acquisition and transaction-related charges | 2,506 | 5,806 | |||||
Restructuring and other credits, net | (795) | (338) | |||||
Non-operating charges, net (2) | - | 525 | |||||
Income tax adjustments (3) | (14,038) | (18,733) | |||||
Non-GAAP net income | $ | 133,002 | $ | 117,967 | |||
GAAP diluted earnings per share | $ | 0.55 | $ | 0.63 | |||
Stock-based compensation | 0.49 | 0.35 | |||||
Amortization of acquired intangibles | 0.17 | 0.12 | |||||
Acquisition and transaction-related charges | 0.02 | 0.05 | |||||
Restructuring and other credits, net | (0.01) | (0.00) | |||||
Non-operating charges, net (2) | - | 0.00 | |||||
Income tax adjustments (3) | (0.12) | (0.16) | |||||
Non-GAAP diluted earnings per share | $ | 1.11 | $ | 0.99 | |||
(1) Operating margin impact of non-GAAP adjustments: | |||||||
Three Months Ended | |||||||
December 31, | December 31, | ||||||
2023 | 2022 | ||||||
GAAP operating margin | 21.6 | % | 22.5 | % | |||
Stock-based compensation | 10.7 | % | 8.9 | % | |||
Amortization of acquired intangibles | 3.6 | % | 3.0 | % | |||
Acquisition and transaction-related charges | 0.5 | % | 1.2 | % | |||
Restructuring and other credits, net | (0.1) | % | (0.1) | % | |||
Non-GAAP operating margin | 36.2 | % | 35.6 | % | |||
(2) In Q1'23, we recognized a | ||||||
(3) Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, in Q1'24, adjustments exclude a non-cash tax expense of | ||||||
PTC Inc. | ||||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
(in thousands) | ||||||
December 31, | September 30, | |||||
2023 | 2023 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ | 264,997 | $ | 288,103 | ||
Accounts receivable, net | 678,000 | 811,398 | ||||
Property and equipment, net | 85,389 | 88,391 | ||||
Goodwill and acquired intangible assets, net | 4,411,833 | 4,299,760 | ||||
Lease assets, net | 141,340 | 143,028 | ||||
Other assets | 689,598 | 658,162 | ||||
Total assets | $ | 6,271,157 | $ | 6,288,842 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Deferred revenue | $ | 665,484 | $ | 681,550 | ||
Debt, net of deferred issuance costs | 2,260,855 | 1,695,785 | ||||
Deferred acquisition payments (1) | - | 620,040 | ||||
Lease obligations | 190,025 | 193,192 | ||||
Other liabilities | 348,140 | 420,985 | ||||
Stockholders' equity | 2,806,653 | 2,677,290 | ||||
Total liabilities and stockholders' equity | $ | 6,271,157 | $ | 6,288,842 | ||
(1) FY'23 Deferred acquisition payments represented the fair value of the | ||||||
PTC Inc. | ||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(in thousands) | ||||||
Three Months Ended | ||||||
December 31, | December 31, | |||||
2023 | 2022 | |||||
Cash flows from operating activities: | ||||||
Net income | $ | 66,387 | $ | 75,035 | ||
Stock-based compensation | 59,013 | 41,504 | ||||
Depreciation and amortization | 27,222 | 21,328 | ||||
Amortization of right-of-use lease assets | 7,724 | 8,054 | ||||
Operating lease liability | (4,953) | 7,895 | ||||
Accounts receivable | 153,950 | 105,512 | ||||
Accounts payable and accruals | (64,687) | (9,850) | ||||
Deferred revenue | (29,094) | (19,635) | ||||
Income taxes | 13,467 | (16,836) | ||||
Other | (41,688) | (32,086) | ||||
Net cash provided by operating activities | 187,341 | 180,921 | ||||
Capital expenditures | (4,563) | (9,180) | ||||
Acquisition of businesses, net of cash acquired (1) | (93,457) | - | ||||
Borrowings on debt, net(2) | 558,404 | - | ||||
Deferred acquisition payment(3) | (620,040) | - | ||||
Payments of withholding taxes in connection with vesting of stock-based awards | (50,326) | (52,423) | ||||
Settlement of net investment hedges | (7,347) | (10,795) | ||||
Other financing & investing activities | - | (1,721) | ||||
Foreign exchange impact on cash | 6,689 | 8,616 | ||||
Net change in cash, cash equivalents, and restricted cash | (23,299) | 115,418 | ||||
Cash, cash equivalents, and restricted cash, beginning of period | 288,798 | 272,888 | ||||
Cash, cash equivalents, and restricted cash, end of period | $ | 265,499 | $ | 388,306 | ||
Supplemental cash flow information: | ||||||
Cash paid for interest(3) | $ | 44,757 | $ | 4,824 | ||
(1) In Q1'24, we acquired pure-systems for | ||||||
(2) In Q1'24, we borrowed | ||||||
(3) In Q1'24, we made a payment of | ||||||
PTC Inc. | ||||||
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) | ||||||
(in thousands) | ||||||
Three Months Ended | ||||||
December 31, | December 31, | |||||
2023 | 2022 | |||||
Cash provided by operating activities | $ | 187,341 | $ | 180,921 | ||
Capital expenditures | (4,563) | (9,180) | ||||
Free cash flow | $ | 182,778 | $ | 171,741 | ||
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SOURCE PTC Inc.
FAQ
What were PTC's ARR and cash flow results for Q1'24?
What was the revenue growth for PTC in Q1'24?
What is PTC's fiscal 2024 guidance for ARR and revenue growth?
What is PTC's long-term goal for returning free cash flow to shareholders?
