A month has gone by since the last earnings report for PTC Inc. (PTC Quick QuotePTC - Free Report) . Shares have added about 3.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PTC Inc. due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

PTC's Q4 Earnings and Revenues Beat Estimates

PTC reported fourth-quarter fiscal 2022 non-GAAP earnings of $1.27 per share, up 15.5% on a year-over-year basis. Also, the figure surpassed the Zacks Consensus Estimate by 11.4%.

Revenues came in at $508 million, up 6% year over year (up 12% at constant currency or cc). The top line beat the Zacks Consensus Estimate by 2%.

The year-over-year improvement in the top line was driven by steady demand for products (digital transformation and SaaS) across all segments. The company is also working toward accelerating the SaaS transition by launching Windchill plus and other SaaS offerings like Creo Plus in fiscal 2023. In the fourth quarter, the company also landed several Windshields deals. Continued momentum in Onshape and Arena will further assist the company in the SaaS transition.

Product Lifecycle Management (PLM) and computer-aided design (CAD) businesses continue to witness healthy growth. In fiscal 2022, PLM and CAD revenues were $1.137 billion and $796 million, respectively.

Synergies from the recent acquisition of Codebeamer were further tailwinds. Unfavorable forex movement and the impact of the Russia-Ukraine war were dampeners.

For fiscal 2022, the company reported non-GAAP earnings of $4.58 per share, up 15.4% on a year-over-year basis. Revenues came in at $1.933 million, up 7% year over year (up 11% at cc)

Top Line in Detail

Recurring revenues of $463.1 million rose 7.8% year over year. Perpetual licenses declined 24.3% to $7.9 million.

Revenues by License, Support and Services

License revenues (43.3% of total revenues) were $220 million, up 10.4% from the year-ago quarter’s figure.

Support and cloud services revenues (49.4%) of $251 million increased 4.4% year over year.

Professional services revenues (7.3%) were $37 million, down 9.8% year over year.

Revenues by Product Group

The company has two new business units, Digital Thread and Velocity. Digital Thread includes products like Creo CAD, Windchill PLM, Thingworx IoT and Vuforia AR. The Velocity unit comprises products like Onshape CAD and Arena PLM.

Revenues from Digital Thread came in at $485 million, up 4.3% year over year. Revenues from the Velocity segment totaled $22 million, up 37.5%.

Revenues from Digital Thread - Core came in at $340 million, up 3.7% from the prior-year quarter’s levels.

Revenues from Digital Thread - Growth came in at $71 million, down 5.3% on a year-over-year basis.

Revenues from Digital Thread - FSG (Focused Solutions Group) came in at $75 million, up 23% from the prior-year quarter’s levels.

ARR Performance

Annualized recurring revenues (ARR) were $1.572 billion, up 7% year over year (up 16% at cc). The uptick was driven by strong performance across all divisions and geographies.

ARR from Digital Thread - Core came in at $1.054 billion, up 4% year over year (up 14% at cc). Growth was driven by strength in Creo CAD and Windchill PLM
products.

ARR from Digital Thread - Growth came in at $216 million, up 12% year over year (up 19% at cc). The upside can be attributed to higher Digital Performance Management deals.

ARR from Digital Thread - FSG totaled $209 million, up 10% year over year (up 19% at cc).
Velocity segment ARR came in at $94 million, up 29% (up 29% at cc) year over year, owing to continued momentum in Onshape and Arena.

Operating Details

Non-GAAP gross margin increased 130 bps on a year-over-year basis at 83.3%.

Total operating expenses were unchanged year over year at $266 million.

Operating income on a non-GAAP basis improved 15.9% year over year to $204 million.

Operating margin on a non-GAAP basis expanded 370 bps on a year-over-year basis to 40.3%.

Balance Sheet & Cash Flow

As of Sep 30, 2022, cash, cash equivalents and marketable securities were $272 million compared with $322 million as of Jun 30, 2022.

Total debt, net of deferred issuance costs, was $1.35 billion as of Sep 30, 2022, compared with $1.43 billion as of Jun 30, 2022.

Cash provided by operating activities came in at $38 million compared with the prior-quarter figure of $117 million.

The free cash flow was $29 million compared with $112 million reported in the previous quarter.

Fiscal 2023 Guidance

For fiscal 2023, ARR is now expected to be $1.730-$1.790 billion, which indicates a rise of 10-14% year over year at cc.

Revenues for fiscal 2023 are projected in the range of $1.910-$1.990 billion, indicating a decline of 1% to a rise of 3% year over year.

For fiscal 2023, cash from operations is projected to be $580 million, indicating an increase of 33% on a year-over-year basis. The free cash flow is forecasted to be $560 million, suggesting 35% growth.

Adjusted free cash flow is expected to be $562 million, up 20% year over year.

For the fiscal first quarter, PTC expects ARR to be between $1.580 and $1.6 billion. Cash from operations is projected to be $170 million, and free cash flow is forecasted to be $165 million. Adjusted free cash flow is expected to be $166 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -23.07% due to these changes.

VGM Scores

Currently, PTC Inc. has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PTC Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

PTC Inc. is part of the Zacks Computer - Software industry. Over the past month, Cadence Design Systems (CDNS Quick QuoteCDNS - Free Report) , a stock from the same industry, has gained 23.7%. The company reported its results for the quarter ended September 2022 more than a month ago.

Cadence reported revenues of $902.55 million in the last reported quarter, representing a year-over-year change of +20.2%. EPS of $1.06 for the same period compares with $0.80 a year ago.

For the current quarter, Cadence is expected to post earnings of $0.91 per share, indicating a change of +11% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Cadence has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.