A month has gone by since the last earnings report for PTC Inc. (PTC Quick QuotePTC - Free Report) . Shares have added about 4.5% 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 its most recent earnings report in order to get a better handle on the important drivers.

PTC Surpasses Q3 Earnings Estimates, Tweaks 2020 Guidance

PTC Inc. 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.

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.
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.

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.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -28.06% due to these changes.

VGM Scores

Currently, PTC Inc. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 B. 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.