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Why Is PTC Inc. (PTC) Down 2% Since Last Earnings Report?

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A month has gone by since the last earnings report for PTC Inc. (PTC - Free Report) . Shares have lost about 2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PTC Inc. due for a breakout? 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 catalysts.

PTC’s Q2 Earnings Beat Estimates

PTC reported second-quarter fiscal 2022 non-GAAP earnings of $1.39 per share, up 28.7% on a year-over-year basis and beat the Zacks Consensus Estimate by 26.4%.

Revenues came in at $505 million, up 9% year over year (up 13% at constant currency or cc). The top line beat the Zacks Consensus Estimate by 5.4%.

The company witnessed robust demand for products (digital transformation and SaaS) across all segments and all regions. The company is also working toward accelerating the SaaS transition by increasing the capacity of its Atlas platform and improving the SaaS capabilities of its core products, among others, noted management.

Driven by strong second-quarter performance, PTC raised guidance for fiscal 2022. Revenues for the fiscal are now projected in the range of $1.905-$1.975 billion (up 5-9% year over year) compared with the earlier guidance of $1.87-$1.975 billion,

ARR is now expected to be $1.640-$1.665 billion, which indicates a rise of 12-13% year over year at cc. Earlier, ARR was expected to be $1.625-$1.66 billion.

Top Line in Detail

Recurring revenues of $452.7 million rose 9.1% year over year. Perpetual license soared 37.8% to $9.5 million.

Revenues by License, Support and Services

License revenues (43.2% of total revenues) were $218.3 million, up 10.3% from the year-ago quarter’s figure.

Support and cloud services revenues (48.3%) of $243.8 million increased 9% year over year.

Professional services revenues (8.5%) were $42.9 million, up 7.4% year over year.

Revenues by Product Group

The company has two new business units, Digital Thread and Velocity. Digital Thread includes products like Creo computer-aided design or 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 7% year over year. Revenues from the Velocity segment totaled $20 million, up 100%.

Revenues from Digital Thread - Core came in at $355 million, up 10% from the prior-year quarter’s levels.

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

Revenues from Digital Thread - FSG (Focused Solutions Group) came in at $59 million, flat from the prior-year quarter’s levels.

ARR Performance

Annualized recurring revenues (ARR) were $1.532 billion, up 11% year over year (up 13% at cc). The uptick was driven by the strong performance of Core and Growth divisions.

ARR from Digital Thread - Core came in at $1.055 billion, up 10% year over year (up 13% at cc). Growth was driven by strength in PLM and CAD solutions.

ARR from Digital Thread - Growth came in at $204 million, up 13% year over year (up 15% at cc). The upside can be attributed to strength in IoT offerings and higher Digital Performance
Management (DPM) deals.

ARR from Digital Thread - FSG totaled $191 million, up 6% year over year (up 8% at cc) driven by higher customer demand.

Velocity segment ARR came in at $83 million, up 27% (up 27% at cc) year over year

Operating Details

Non-GAAP gross margin expanded 40 basis points (bps) on a year-over-year basis to 83.5%.

Total operating expenses declined 6.6% year over year to $252.7 million.

Operating income on a non-GAAP basis improved 24.3% year over year to $213.8 million.

Operating margin on a non-GAAP basis expanded 510 bps on a year-over-year basis to 42.3% driven by strong top-line growth and expense management.

Balance Sheet & Cash Flow

As of Mar 31, 2022, cash, cash equivalents and marketable securities were $307 million compared with $296.1 million as of Dec 31, 2021.

Total debt, net of deferred issuance costs, was $1.26 billion as of Mar 31, 2022, compared with $1.4 billion as of Dec 31, 2021.

Cash provided by operating activities came in at $142.3 million compared with the prior quarter’s figure of $138 million.

Free cash flow was $140.2 million compared with $134 million reported in the previous quarter.

In the quarter under review, the company repurchased shares worth $5 million, indicating the settlement of repurchases initiated in the previous quarter.

Fiscal 2022 Guidance

Non-GAAP operating expenses are anticipated to increase in the range of 2-3%. The company expects costs to increase owing to hiring and higher investments in the SaaS business.

For fiscal 2022, cash from operations is projected to be $430 million, indicating an increase of 17% on a year-over-year basis. Free cash flow is forecast to be $405 million, suggesting 18% growth. Adjusted free cash flow is expected to be $455 million, up 16% year over year.

For the fiscal third quarter, PTC expects ARR to be between $1.580 and $1.595 billion. Cash from operations is projected to be $110 million and free cash flow is forecast to be $105 million.

 

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, PTC Inc. has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise PTC Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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