PTC Inc. (PTC) Up 1.9% Since Last Earnings Report: Can This Continue?

About a month has passed since PTC Inc.’s last earnings report. (PTC). Shares rose about 1.9% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or will PTC Inc. Is there a recession coming? 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 key drivers.

PTC’s second-quarter earnings beat estimates

PTC reported second-quarter fiscal 2024 non-GAAP earnings per share (EPS) of $1.46, up 26% year-over-year. Additionally, the number surpassed the Zacks Consensus Estimate by 18.7%.

Revenues were $603 million, up 11% year-over-year (up 11% on a constant currency or cc basis). The top line surpassed the Zacks Consensus Estimate by 4.8%.
The year-over-year revenue improvement was driven by continued demand for computer-aided design (CAD) and product lifecycle management (PLM).

Top line in detail

Recurring revenue of $564 million increased 14.6% year-over-year. Perpetual licenses decreased 24.3% to $6.7 million.

Revenue by license, support and services

Licensing revenues (38.9% of total revenues) amounted to $234.3 million, an increase of 18.9% compared to the same quarter last year.

Cloud support and services revenues (55.8%) of $336.4 million increased 10.6% year-over-year.

Professional services revenue (5.3%) was $32.3 million, down 21.4% year-over-year.

Revenue by product group

PLM and CAD companies continue to experience strong growth. In the fiscal second quarter, PLM revenues were $373 million, up 8% year-over-year. CAD revenues were $230 million, up 16% year-over-year.

ARR performance

Annual recurring revenue (ARR) was $2.088 billion, up 11% year over year (up 12% cc). The growth was driven by strong performance across all divisions and geographies.

In the fiscal second quarter, PLM and CAD ARR reached $1,275 million and $814 million, representing year-over-year growth of 12% and 9%, respectively.

Operational details

Non-GAAP gross margin increased 230 basis points (bps) year-over-year to 84.2%.

Total operating expenses increased by $7 million year-over-year to $313 million.
Non-GAAP operating income increased 22.7% year over year to $254 million.

Non-GAAP operating margin increased 390 basis points year-over-year to 42%.

Balance sheet and cash flow

As of March 31, 2024, cash, cash equivalents and marketable securities were $249 million compared to $265 million as of December 31, 2023.

Total debt, net of deferred issuance costs, was $2.005 billion at March 31, 2024, compared to $2.260 billion at December 31, 2023.

Cash provided by operating activities was $251 million, compared to $211 million in the prior quarter.

Free cash flow was $247 million, compared to $207 million reported in the year-ago quarter.

Budget guidance for 2024

For FY2024, ARR is expected to be in the range of $2,200-2,240 billion, representing 11-13% year-over-year growth at the cc level.

FY2024 revenues are projected to be between $2.270 billion and $2.340 billion, representing 8% to 12% year-over-year growth.

Cash from operations is projected to be $745 million in fiscal year 2024, representing a 22% year-over-year increase. Free cash flow is projected to be $725 million, up 23% year-over-year.

For the fiscal third quarter, PTC expects ARR to be between $2.115 billion and $2.130 billion. Cash from operations is expected to be $225 million and free cash flow is expected to be $220 million.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -23.96%.

VGM results

At this point, PTC Inc. has a solid Growth Score of B, although it lags slightly behind its Momentum Score of C. However, the stock is rated F on the value side, putting it in the bottom 20% Quintile for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. It is worth noting that PTC Inc. it has a Zacks Rank of #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

PTC Inc. is part of the Zacks Computer – Software industry. Over the past month, shares of the same industry Cadence Design Systems (CDNS) have gained 4.3%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Cadence reported revenue of $1.01 billion, representing a year-over-year change of -1.2%. EPS of $1.17 in the same period compared to $1.29 a year ago.

Cadence is expected to report earnings per share of $1.25 for the current quarter, representing a year-over-year change of +2.5%. Over the past 30 days, the Zacks Consensus Estimate has moved +0.4%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Cadence. The stock also has a VGM Rating of D.

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