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PTC Surpasses Q3 Earnings Estimates, Tweaks 2020 Guidance

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PTC Inc. (PTC - Free Report) reported third-quarter fiscal 2020 non-GAAP earnings of 62 cents per share, up 169.6% on a year-over-year basis. Also, the bottom line beat the Zacks Consensus Estimate by 37.8%.

Revenues came in at $352 million, up 19% year over year, driven by strength across Core and Growth product groups offset by mid-single digit growth in Focused Solutions Group (FSG). The top line surpassed the Zacks Consensus Estimate by 6%.

Top Line in Detail

Recurring revenues of $310.6 million improved 27.2% year over year. Perpetual license of $6.77 million declined 26.5% from the year-ago quarter’s figure due to end of perpetual license sales on Jan 1, 2019.

PTC Inc. Price, Consensus and EPS Surprise

PTC Inc. Price, Consensus and EPS Surprise

PTC Inc. price-consensus-eps-surprise-chart | PTC Inc. Quote

Revenues by License, Support and Services

License revenues (33.6% of total revenues) were $118.2 million, up 87.9% from the year-ago quarter’s figure.

Support and cloud services revenues (56.6%) of $199.1 million improved 4.5% year over year.

Professional services revenues (9.8%) of $34.3 million declined 18.4% year over year.

Revenues by Product Group

Revenues from Core Product Group — which includes computer-aided design (CAD) & Product Lifecycle Management (PLM) offerings — came in at $230 million, up 33% year over year (up 34% at constant currency or cc).

Revenues from Growth Product Group (which includes IoT, AR & Onshape) totaled $40 million, up 9% year over year (10% at cc).

Revenues from Focused Solutions Group (FSG) amounted to $47 million, up 8% year over year (9% at cc).

ARR Performance

Annualized recurring revenues (ARR) were $1.205 billion, up 9% year over year, driven by strong renewals performance and higher-than-expected new ACV bookings.

ARR from Core Product Group (CAD & PLM) came in at $869 million, up 9% year over year (up 10% at cc). Growth was driven by strength in PLM.

ARR from Growth Product Group (IoT, AR & Onshape) came in at $160 million, up 23% year over year (24% at cc). Year-over-year growth can be attributed to improvement in AR as well as strength across Europe and Japan. However, performance was dampened by decline in transaction at the end of quarter due to the COVID-19 outbreak.

ARR from FSG came in at $177 million, down 1% year over year (0% at cc). The low growth rate reflects America region’s weak performance.

Operating Details

Non-GAAP gross margin expanded 510 basis points (bps) on a year-over-year basis to 80.3%.

Non-GAAP operating expenses were $179 million. GAAP operating expenses increased 3% year over year to $209 million. This can be attributed to the company’s restructuring efforts to control expenses.

Operating income on a non-GAAP basis increased 173.7% year over year to $103.4 million.

Consequently, operating margin on a non-GAAP basis was 29.4% compared with 12.8% reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jun 27, cash, cash equivalents and marketable securities were $435 million compared with the prior-quarter’s figure of $84 million.

Total debt, net of deferred issuance costs, was $1.12 billion, up from the prior-quarter figure of $1.63 billion.

Cash provided by operating activities came in at $105 million compared with the prior-quarter figure of $87.8 million.

Free cash flow was $99 million compared with $82.3 million reported in the previous quarter.

Guidance

Due to weakening macroeconomic conditions induced by the coronavirus pandemic, the company revised its guidance for fiscal 2020.

Fiscal 2020 revenues are now projected between $1.40 billion and $1.43 billion compared with the earlier guidance of $1.415-$1.43 billion. The Zacks Consensus Estimate for revenues is currently pegged at $1.42, which indicates growth of 8.4% from the year-ago quarter’s figure.

Further, non-GAAP earnings are now expected between $2.20 and $2.35 per share compared with the prior range of $2.28-$2.35 per share. The consensus mark for earnings is pegged at $2.29.

ARR is now expected to be $1.220-$1.255 billion, which indicates rise of 11-12% year over year. The prior guidance for ARR was in the range of $1.235-$1.255 billion.

Adjusted free cash flow is projected to be $200 million compared with the prior figure of $210 million.

Further, non-GAAP operating margin is expected to be 27-28%.

Zacks Rank & Stocks to Consider

Currently, PTC carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Dropbox (DBX - Free Report) , Everbridge (EVBG - Free Report) and Analog Devices (ADI - Free Report) . While both Dropbox and Everbridge sport a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both Dropbox and Everbridge are scheduled to report earnings on Aug 6. Analog Devices is set to release quarterly results on Aug 19

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