PTC Inc.
CEO : Mr. James E. Heppelmann
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q3 | 17.3% YoY | 37.4% | -13.3% | 2023-07-26 |
Jim Heppelmann says,
Q3 Results
- PTC delivered solid results in Q3, exceeding guidance on both ARR and free cash flow metrics.
- Q3 ARR was $1.868 billion, above the high end of guidance range, representing a 25% YoY growth.
- Organic ARR growth accelerated slightly to 14%, with ServiceMax contributing inorganic growth.
- Broad-based ARR strength was seen across all product groups and geographies, with good churn results.
- Free cash flow in Q3 was $164 million, up 46% YoY, driven by strong ARR growth and higher operating efficiency.
ARR Growth and Performance
- ARR growth by geography: Americas – 29%, Europe – 24%, APAC – 16%.
- FX was neutral to YoY growth globally, with Asia benefiting from growth and Europe facing headwinds.
- Strong cross-sell pipeline building with ServiceMax, indicating promising future growth.
- CAD product group delivered 11% ARR growth, outperforming the market.
- PLM product group achieved 36% ARR growth, significantly outperforming the market.
Growth Strategy and Sustainability
- PTC has consistently layered new growth strategies to create additional tailwinds for faster growth.
- Shift from perpetual and maintenance model to subscription model has fueled long-term gain and growth rate.
- Commercial improvements, improved churn, discounting, and price optimization have further driven growth.
- Acquisitions of Onshape, Arena, Codebeamer, and ServiceMax have contributed to growth.
- Confident in sustained double-digit ARR growth, supported by various growth drivers.
Margin Expansion
- Mix shift from professional services to software has driven margin expansion.
- Go-to-market improvements and cross-sell strategies have increased salesforce productivity.
- R&D offshoring program and portfolio rebalancing have optimized spending levels.
- PTC’s revenue quality has improved significantly, resulting in higher margins and free cash flow.
Kristian Talvitie says,
ARR Growth and Performance
- Q3 2023 constant currency ARR was $1.89 billion, up 25% YoY and above guidance range.
- Organic constant currency ARR (excluding ServiceMax) was $1.7 billion, up 14% YoY.
- ARR growth was broad-based across all geographies and product groups, despite weak global manufacturing PMIs.
Cash Flow and Debt
- Q3 cash from operations was $169 million, exceeding guidance.
- Free cash flow was $164 million, driven by strong execution, collections, and cost discipline.
- Debt-to-EBITDA ratio was 3 times at the end of Q3, expected to remain below 3 times throughout fiscal 2024.
- Second payment for ServiceMax transaction due in October 2023, funding to be provided by cash on hand and revolving credit facility.
Revenue and EPS Guidance
- Fiscal 2023 constant currency ARR growth guidance raised to 23%-24%.
- Fiscal 2023 revenue guidance range is $2.09 billion to $2.12 billion, impacted by ASC 606 and FX fluctuations.
- Fiscal 2023 GAAP EPS guidance is $2.14 to $2.45, non-GAAP EPS guidance is $4.07 to $4.38.
Guidance Progression and Future Outlook
- ARR guidance range increased every quarter, expected to set up a similar range for fiscal 2024.
- Free cash flow guidance raised every quarter, currently targeting 41% growth for fiscal 2023.
- Future investments in the business to be aligned with macro environment and business momentum.
Q & A sessions,
Impact on SMB and China
- Pockets of weakness in SMB and Arena business
- Continued challenges in China
Strengths in Certain Industries
- Aerospace and Defense and medical device industries are performing well
- PLM position is strong and taking share
- ALM market, particularly in automotive, is hot and Codebeamer is a strong product
- SLM offering is unmatched, especially when combined with ServiceMax, Arbortext, Servigistics, ThingWorx, IoT, and Vuforia ARR
Outlook for Growth
- Expecting slower growth for the year, with a decrease of potentially 1-2% compared to previous year
- Confident in the growth-oriented, sustainable, and resilient nature of the business
- Anticipate a surge of strength in certain sectors when the economic environment improves
ARR and Bookings
- No evidence of increased churn in bad macro environments
- Low churn rate for software in production
- Expect some pressure on bookings, but resilient business model can still deliver impressive ARR and free cash flow results
Upcoming Investor Relations Activities
- Multiple events planned for communication with investors
- Positive outlook for CEO succession
Focus on ARR and Free Cash Flow
- Revenue is volatile and not a reliable indicator of business performance
- Investment community still refers to revenue and EPS, so company aims to provide more color and context
Cross-Selling Opportunities with ServiceMax and SLM
- Significant cross-sell value and momentum in the digital thread strategy with PLM and SLM
- Successfully closed a material deal with an existing PTC customer in Europe
- Integration of SLM portfolio with existing customer base shows differentiated value
No bad stock 