PTC(PTC) - 2024 Q3 - Quarterly Results

PTC Third Fiscal Quarter 2024 Financial Results PTC reported its third fiscal quarter 2024 financial results, highlighting strong Annual Run Rate and cash flow growth, updated full-year guidance, and detailed consolidated financial statements Third Quarter 2024 Highlights PTC reported solid Q3 FY2024 results with Annual Run Rate (ARR) growing 10% to $2.126 billion, strong cash flow growth, and a resilient business model despite a 4% GAAP revenue decline Q3 FY2024 Key Financial Metrics ($M) | Metric | Q3'24 ($M) | Q3'23 ($M) | YoY Change | Q3'24 Guidance ($M) | |-----------------------------|------------|------------|------------|---------------------| | ARR as reported | $2,126 | $1,929 | 10% | - | | Constant currency ARR | $2,125 | $1,904 | 12% | $2,115 - $2,130 | | Operating cash flow | $214 | $169 | 26% | ~$225 | | Free cash flow | $212 | $164 | 29% | ~$220 | | Revenue | $519 | $542 | (4%) | $525 - $540 | | GAAP EPS | $0.57 | $0.51 | 11% | $0.41 - $0.54 | | Non-GAAP EPS | $0.98 | $0.99 | (1%) | $0.90 - $1.00 | - CEO Neil Barua highlighted the company's solid ARR and cash flow performance, attributing it to a differentiated strategy and a unique product portfolio that helps customers accelerate time to market[1] - Gross debt was significantly reduced to $1.816 billion from $2.365 billion in Q3'23, a 23% decrease, partly due to the payment of a $620 million deferred acquisition payment for ServiceMax in October 2023[3] Fiscal 2024 and Q4'24 Guidance PTC updated its FY2024 guidance, narrowing constant currency ARR growth to 11-12% and maintaining $725 million free cash flow, reflecting a challenging selling environment FY'24 and Q4'24 Financial Guidance ($M, except EPS) | Metric | FY'24 Guidance ($M) | FY'24 YoY Growth | Q4'24 Guidance ($M) | |-----------------------------|---------------------|------------------|---------------------| | Constant currency ARR | $2,200 - $2,220 | 11% - 12% | $2,200 - $2,220 | | Operating cash flow | ~$740 | ~21% | ~$88 | | Free cash flow | ~$725 | ~23% | ~$83 | | Revenue | $2,270 - $2,320 | 8% - 11% | $598 - $648 | | GAAP EPS | $2.78 - $3.35 | 35% - 63% | $0.72 - $1.29 | | Non-GAAP EPS | $4.85 - $5.21 | 12% - 20% | $1.30 - $1.66 | - CFO Kristian Talvitie noted that despite a challenging selling environment, the company's performance was driven by its differentiated product portfolio and resilient subscription model[4] Guidance Assumptions FY2024 guidance assumes low churn, typical Q4 cash flow seasonality, an 8% increase in non-GAAP operating expenses, and a focus on debt reduction to $1.7 billion by year-end - The company expects churn to remain low and anticipates Q4 to be the lowest cash flow generation quarter, consistent with historical seasonality[8] - FY'24 non-GAAP operating expenses are expected to increase by approximately 8% year-over-year, driven by growth investments and the ServiceMax acquisition[8] - PTC will prioritize paying down debt in FY'24, with a target gross debt of approximately $1.7 billion by the end of the fiscal year. The long-term goal is to return ~50% of free cash flow to shareholders once the Debt/EBITDA ratio is below 3x[9] Consolidated Financial Statements The unaudited consolidated financial statements detail PTC's performance, showing Q3 revenue trends, a stronger balance sheet with lower debt, and robust cash flow generation Consolidated Statements of Income Q3 FY2024 total revenue decreased to $518.6 million, while nine-month total revenue grew to $1.67 billion, with net income increasing to $69.0 million for the quarter Income Statement Highlights (in thousands) | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | Nine Months Ended June 30, 2023 (in thousands) | |---------------------|-------------------------------------------------|-------------------------------------------------|------------------------------------------------|------------------------------------------------| | Recurring revenue | $481,559 | $498,410 | $1,551,600 | $1,407,662 | | Total revenue | $518,639 | $542,342 | $1,671,925 | $1,550,433 | | Operating income | $95,821 | $109,900 | $394,089 | $337,340 | | Net income | $68,978 | $61,398 | $249,810 | $199,937 | Revenue by Type (in thousands) | Revenue Type | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | |----------------------------------|-------------------------------------------------|-------------------------------------------------| | License revenue | $149,104 | $192,940 | | Support and cloud services revenue | $339,505 | $313,721 | | Professional services revenue | $30,030 | $35,681 | Consolidated Balance Sheets As of June 30, 2024, PTC's balance sheet shows total assets of $6.13 billion, with total debt at $1.81 billion and stockholders' equity increasing to $3.01 billion Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | |----------------------------------------|------------------------------|-----------------------------------| | Cash and cash equivalents | $247,749 | $288,103 | | Total assets | $6,128,145 | $6,288,842 | | Debt, net of deferred issuance costs | $1,811,154 | $1,695,785 | | Deferred acquisition payments | $0 | $620,040 | | Stockholders' equity | $3,014,679 | $2,677,290 | Consolidated Statements of Cash Flows PTC generated strong Q3 cash flow, with net cash from operating activities increasing to $213.8 million and free cash flow reaching $212.2 million, a 29% year-over-year increase Cash Flow Highlights (in thousands) | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Nine Months Ended June 30, 2024 (in thousands) | Nine Months Ended June 30, 2023 (in thousands) | |-----------------------------------------|-------------------------------------------------|-------------------------------------------------|------------------------------------------------|------------------------------------------------| | Net cash provided by operating activities | $213,799 | $169,223 | $651,870 | $561,092 | | Capital expenditures | ($1,639) | ($5,085) | ($9,841) | ($18,035) | | Free cash flow | $212,160 | $164,138 | $642,029 | $543,057 | - Financing activities for the nine-month period were significantly impacted by a $620 million deferred acquisition payment for ServiceMax and net debt payments of $631 million after borrowing $740 million earlier in the year[37] Non-GAAP Financial Measures and Reconciliations This section reconciles GAAP to non-GAAP measures, showing Q3 FY2024 non-GAAP operating income of $164.4 million and non-GAAP net income of $118.0 million or $0.98 per diluted share Reconciliation of GAAP to Non-GAAP Operating Income (in thousands) | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | |-----------------------------|-------------------------------------------------|-------------------------------------------------| | GAAP operating income | $95,821 | $109,900 | | Stock-based compensation | $48,038 | $53,818 | | Amortization of intangibles | $20,357 | $20,511 | | Non-GAAP operating income | $164,370 | $184,985 | Reconciliation of GAAP to Non-GAAP Diluted EPS (per share) | Metric | Three Months Ended June 30, 2024 (per share) | Three Months Ended June 30, 2023 (per share) | |-----------------------------|----------------------------------------------|----------------------------------------------| | GAAP diluted EPS | $0.57 | $0.51 | | Stock-based compensation | $0.40 | $0.45 | | Amortization of intangibles | $0.17 | $0.17 | | Income tax adjustments | ($0.16) | ($0.16) | | Non-GAAP diluted EPS | $0.98 | $0.99 | Definitions of Key Metrics PTC defines key operating and non-GAAP financial measures, including Annual Run Rate (ARR), Free Cash Flow, and Constant Currency, to provide clarity on business performance - ARR (Annual Run Rate) is defined as the annualized value of the company's portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. It is a key measure for assessing the health of the subscription business[13] - Free Cash Flow is defined as cash provided by operations net of capital expenditures. It is used to evaluate performance against long-term goals, including the intent to return capital to shareholders[11] - Constant Currency (CC) information is provided to show underlying business performance by converting current and prior period results into U.S. dollars using a fixed exchange rate from the beginning of the fiscal year (September 30, 2023)[11]