Strong Q3 performance; Raising FY'22 constant currency ARR and Cash Flow guidance
BOSTON, July 27, 2022 /PRNewswire/ -- PTC (NASDAQ: PTC) today reported financial results for its third fiscal quarter ended June 30, 2022.
"In our third fiscal quarter, we again delivered strong results. We reported ARR growth of 9% and 15% on an organic constant currency basis. In addition, our recently acquired Codebeamer business had an outstanding quarter and added an additional point of ARR growth, taking constant currency ARR growth to 16%. In Q3, our cash from operations was $117 million, up 33% year over year, and our adjusted free cash flow was $132 million, up 23% year over year. The strength in Q3 was broad-based across all segments and geographic regions, driven by demand for digital transformation and SaaS," said James Heppelmann, President and CEO, PTC.
"Our differentiated product portfolio and leading SaaS capabilities position PTC to drive superior value for customers. Given the high resiliency of our business due to our subscription model coupled with our strong market position, as well as the strong execution of our teams, we are raising our key guidance measures for fiscal 2022 for the third time this year," concluded Heppelmann.
Third Quarter 2022 Highlights [1]
Key operating and financial highlights are set forth below. For additional details, please refer to the Q3'22 earnings presentation and financial data tables that have been posted to the Investor Relations section of our website at investor.ptc.com. Revenue and, as a result, operating margin, operating profit, and earnings per share are impacted by revenue recognition under ASC 606.
[1] The definitions of our operating and non-GAAP financial measures and reconciliations of non-GAAP financial measures to comparable GAAP measures are included below and in the reconciliation tables at the end of this press release.
Fiscal 2022 and Q4'22 Guidance
"PTC delivered solid third quarter results. Based on our Q3 performance and our forecast for the remainder of the year, including the impact of Codebeamer and DxP, we are raising our ARR and free cash flow and adjusted free cash flow guidance for fiscal 2022. Due to foreign exchange headwinds, we are reducing our revenue guidance," said Kristian Talvitie, EVP and CFO, PTC.
"Despite the foreign exchange headwinds and the impact of exiting our business in Russia in Q2'22, our resilient business model, consistent execution, and operational discipline position us to deliver on our updated targets for the year," concluded Talvitie.
In millions except percentages
FY'22 Previous Guidance
FY'22
Guidance
FY'22 YoY Growth
Q4'22Guidance
ARR at Constant Currency(1)
$1,640 - $1,665
$1,660 - $1,690
13% - 15%
Cash from Operations(2)
~$430
~17%
~$35
Free Cash Flow(2),(3)
~$405
~$410
~19%
~$25
Adjusted Free Cash Flow(2),(3)
~$455
~$465
~$30
Revenue
$1,905 - $1,975
$1,900 - $1,950
5% - 8%
(1)
On a constant currency basis, using our FY'22 Plan foreign exchange rates (rates as of September 30, 2021) for all periods
(2)
FY'22 cash from operations and free cash flow guidance include restructuring payments of approximately $45 million (current estimate is $40 million to $45 million) and acquisition and transaction-related payments of approximately $10 million, both of which are excluded from FY'22 adjusted free cash flow guidance; Q4'22 cash from operations and free cash flow guidance include expected restructuring payments of approximately $5 million which are excluded from Q4'22 adjusted free cash flow guidance
(3)
Free cash flow and adjusted free cash flow guidance are net of expected capex of approximately $20 million in FY'22 and $10 million in Q4'22
Our FY'22 guidance now reflects the expected operating results of the Codebeamer business and the effect of the DxP transaction, as well as the impact of business combination accounting, incremental interest expense, and all acquisition and transaction-related charges.
Our FY'22 and Q4'22 financial guidance includes the assumptions below:
PTC's Fiscal Third Quarter Results Conference Call
The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, July 27, 2022. To participate in the live conference call, dial (888) 330-2508 or (240) 789-2735 and provide the passcode 7328695, or log in to the webcast, available on PTC's Investor Relations website. A replay will also be available.
Important Disclosures
Important Information About Our Non-GAAP Financial Measures
PTC provides supplemental non-GAAP financial measures to its financial results. We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operating performance because they provide a view of our operating results without items that are not, in our view, indicative of our operating results. These non-GAAP financial measures should not be construed as an alternative to GAAP results as the items excluded from the non-GAAP financial measures often have a material impact on our operating results, certain of those items are recurring, and others often recur. Management uses, and investors should consider, our non-GAAP financial measures only in conjunction with our GAAP results.
Non-GAAP operating expense, non-GAAP operating margin, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net income and non-GAAP EPS exclude the effect of the following items: stock-based compensation; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; certain non-operating charges and credits; and income tax adjustments. Additional information about the items we exclude from our non-GAAP financial measures and the reasons we exclude them can be found in "Non-GAAP Financial Measures" on page 24 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. In FY'21, we incurred tax expense related to a South Korean tax matter which is excluded from our non-GAAP financial measures as it is related to prior periods and not included in management's view of results for comparative purposes. We also recorded a tax benefit in FY'21 related to the release of our U.S. valuation allowance as a result of the Arena acquisition and our conclusion that it is now more likely than not that we will realize the majority of our deferred tax assets in the U.S. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, this benefit has been excluded from our non-GAAP financial measures.
Free Cash Flow and Adjusted Free Cash Flow: PTC provides information on free cash flow and adjusted free cash flow to enable investors to assess our ability to generate cash without incurring additional external financings and to evaluate our performance against our announced long-term goals and intent to return approximately 50% of our free cash flow to shareholders via stock repurchases. Free cash flow is cash provided by (used in) operations net of capital expenditures. Adjusted free cash flow is free cash flow net of restructuring payments, acquisition and transaction-related payments, and non-ordinary course tax-related payments or receipts. Free cash flow and adjusted free cash flow are not measures of cash available for discretionary expenditures.
Constant Currency (CC): We present CC information to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency rate fluctuations. To present CC information, FY'22 and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the foreign exchange rate as of September 30, 2021, rather than the actual exchange rates in effect during that period.
Operating Measures
ARR: We provide an ARR (Annual Run Rate) operating measure to help investors understand and assess the performance of our business as a SaaS and on-premise subscription company. ARR represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR includes orders placed under our Strategic Alliance Agreement with Rockwell Automation, including orders placed to satisfy contractual minimum commitments.
We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers.
Organic Constant Currency ARR: We provide an organic constant currency ARR measure to help investors understand and assess the performance of our business without the effect of ARR (other than insignificant amounts) from acquisitions in the comparative period and foreign exchange rate fluctuations.
Because our ARR measures represent the annualized value of customer contracts as of a point in time, they do not represent revenue for any particular period or remaining revenue that will be recognized in future periods.
Churn: We provide churn measures to enable investors to understand and assess our customer contract retention. Churn represents the difference between the ARR amount for all subscription software, cloud, SaaS, and support contracts ended within a reporting period and the annualized renewal transactions started within a reporting period, as of the end of the reporting period.
Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our future financial and growth expectations and targets, and potential stock repurchases, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the macroeconomic and/or global manufacturing climates may not improve when or as we expect, or may deteriorate, due to, among other factors, the COVID-19 pandemic, the effects of the Russia/Ukraine conflict, and inflation, which could cause customers to delay or reduce purchases of new software, reduce the number of subscriptions they carry, or delay payments to us, all of which would adversely affect ARR and our financial results, including cash flow; our businesses, including our SaaS businesses, may not expand and/or generate the revenue or ARR we expect if customers are slower to adopt our technologies than we expect or if they adopt competing technologies; our transactions with Intland Software and ITC Infotech may not have the expected effects on our business or results of operations; our strategic initiatives and investments, including our restructuring and our accelerated investments in our transition to SaaS, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to repay amounts under our credit facility or to return 50% of free cash flow to shareholders, and other uses of cash or our credit facility limits or other matters could preclude such repayment and/or repurchases; and foreign exchange rates may differ materially from those we expect. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses, and profits. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
About PTC (NASDAQ: PTC)
PTC enables global manufacturers to realize double-digit impact with software solutions that enable them to accelerate product and service innovation, improve operational efficiency, and increase workforce productivity. In combination with an extensive partner network, PTC provides customers flexibility in how its technology can be deployed to drive digital transformation – on premises, in the cloud, or via its pure SaaS platform. At PTC, we don't just imagine a better world, we enable it.
PTC.com @PTC Blogs
PTC Investor Relations Contact
Matt ShimaoSVP, Investor Relationsmshimao@ptc.cominvestor@ptc.com
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended
Nine Months Ended
June 30,
2022
2021
Revenue:
Recurring revenue
$
415,197
387,175
1,273,032
1,186,978
Perpetual license
8,203
7,259
26,211
22,644
Professional services
39,074
41,234
126,179
116,882
Total revenue (1)
462,474
435,668
1,425,422
1,326,504
Cost of revenue (2)
101,995
95,077
290,450
271,355
Gross margin
360,479
340,591
1,134,972
1,055,149
Operating expenses:
Sales and marketing (2)
124,325
134,412
366,209
388,315
Research and development (2)
88,170
78,134
250,639
221,514
General and administrative (2)
54,618
47,084
154,027
157,417
Amortization of acquired intangible assets
8,931
7,511
25,865
21,708
Restructuring and other charges, net
4,458
(132)
36,887
584
Total operating expenses
280,502
267,009
833,627
789,538
Operating income
79,977
73,582
301,345
265,611
Other income (expense), net
20,801
(15,113)
(41,625)
(43,378)
Income before income taxes
100,778
58,469
259,720
222,233
Provision for income taxes
30,302
7,266
53,476
38,253
Net income
70,476
51,203
206,244
183,980
Earnings per share:
Basic
0.60
0.44
1.76
1.58
Weighted average shares outstanding
117,073
116,934
117,114
116,702
Diluted
0.43
1.75
1.56
117,968
118,611
118,097
118,181
(1) See supplemental financial data for revenue by license, support, and professional services.
(2) See supplemental financial data for additional information about stock-based compensation.
SUPPLEMENTAL FINANCIAL DATA FOR REVENUE AND STOCK-BASED COMPENSATION
Revenue by license, support and services is as follows:
License revenue (1)
175,163
163,583
562,646
538,769
Support and cloud services revenue
248,237
230,851
736,597
670,853
Professional services revenue
Total revenue
(1) License revenue includes the portion of subscription revenue allocated to license.
The amounts in the income statement include stock-based compensation as follows:
Cost of revenue
8,429
5,094
18,665
14,034
Sales and marketing
14,029
14,229
38,556
42,533
Research and development
11,002
8,514
30,682
24,878
General and administrative
15,960
15,231
45,380
52,451
Total stock-based compensation
49,420
43,068
133,283
133,896
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
GAAP gross margin
Stock-based compensation
Amortization of acquired intangible assets included in cost of revenue
6,596
8,260
19,010
21,644
Non-GAAP gross margin
375,504
353,945
1,172,647
1,090,827
GAAP operating income
15,527
15,771
44,875
43,352
Acquisition-related and other transactional charges
6,355
618
11,308
14,844
Non-GAAP operating income (1)
155,737
132,907
527,698
458,287
GAAP net income
Non-operating charges (credits), net (2)
(32,801)
-
2,046
Income tax adjustments (3)
1,052
(12,513)
(43,617)
(37,065)
Non-GAAP net income
114,487
98,015
391,026
339,591
GAAP diluted earnings per share
0.42
0.36
1.13
Amortization of acquired intangibles
0.13
0.38
0.37
0.05
0.01
0.10
0.04
0.31
Non-operating charges (credits), net
(0.28)
0.02
Income tax adjustments
(0.11)
(0.37)
(0.31)
Non-GAAP diluted earnings per share
0.97
0.83
3.31
2.87
(1) Operating margin impact of non-GAAP adjustments:
GAAP operating margin
17.3
%
16.9
21.1
20.0
10.7
9.9
9.4
10.1
3.4
3.6
3.1
3.3
1.4
0.1
0.8
1.1
1.0
0.0
2.6
Non-GAAP operating margin
33.7
30.5
37.0
34.5
(2) Credits for the three months ended June 30, 2022 include a $29.8 million gain on the sale of a portion of our PLM services business, and a $3.0 million gain on sale of an investment. Net charges for the nine months ended June 30, 2022 include a $34.8 million expense recognized due to the reduction in value of an equity investment in a publicly-traded company, offset by a $29.8 million gain on the sale of a portion of our PLM services business, and a $3.0 million gain on sale of an investment.
(3) Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. In Q3, adjustments include tax expense of $15.5 million related to the sale of our PLM service business, of which $8.1 million pertains to the basis difference on goodwill. In 2021 we had recorded a full valuation allowance against our U.S. net deferred tax assets. As we were profitable on a non-GAAP basis, the 2021 tax provision was calculated assuming there was no valuation allowance. Additionally, our non-GAAP results for the nine months ended June 30, 2021 excluded tax expenses of $34.8 million related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
ASSETS
Cash and cash equivalents
322,326
326,532
Accounts receivable, net
473,298
541,072
Property and equipment, net
90,815
100,237
Goodwill and acquired intangible assets, net
2,781,314
2,570,854
Lease assets, net
143,388
152,337
Other assets
794,397
816,528
Total assets
4,605,538
4,507,560
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred revenue
495,473
497,677
Debt, net of deferred issuance costs
1,425,084
1,439,471
Lease obligations
194,836
208,799
Other liabilities
332,975
323,145
Stockholders' equity
2,157,170
2,038,468
Total liabilities and stockholders' equity
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Depreciation and amortization
21,987
22,501
65,456
62,670
Amortization of right-of-use lease assets
8,612
9,075
26,149
28,031
Loss (gain) on investment
(2,993)
31,854
Gain on divestiture of business
(29,808)
Operating lease liability
(7,184)
(3,124)
(10,544)
(13,106)
Accounts receivable
12,918
5,744
25,228
(4,110)
Accounts payable and accruals
23,165
16,851
(16,768)
15,955
(28,975)
(21,477)
18,038
30,733
Income taxes
12,403
(8,580)
6,124
(13,524)
Other
(13,255)
(27,227)
(58,429)
(101,037)
Net cash provided by operating activities
116,766
88,034
396,827
323,488
Capital expenditures
(4,470)
(3,420)
(9,979)
(11,662)
Acquisition of businesses, net of cash acquired (1)
(274,974)
(581)
(717,779)
Purchase of intangible assets
(999)
(5,453)
(550)
Borrowings (payments) on debt, net
159,000
(30,000)
(16,000)
472,000
Repurchases of common stock
(125,000)
Net proceeds associated with issuance of common stock
10,857
10,484
Payments of withholding taxes in connection with vesting of stock-based awards
(12,261)
(14,973)
(62,856)
(42,215)
Net proceeds from marketable securities (2)
Net proceeds from sale of investments (3)
4,213
46,906
Divestiture of business, net (4)
32,518
Other financing & investing activities
6,736
(488)
17,804
(3,570)
Foreign exchange impact on cash
(10,915)
1,103
(14,654)
1,646
Net change in cash, cash equivalents, and restricted cash
15,614
39,675
(4,004)
90,311
Cash, cash equivalents, and restricted cash, beginning of period
307,428
326,596
327,046
275,960
Cash, cash equivalents, and restricted cash, end of period
323,042
366,271
(1) In the three months ended June 30, 2022, we acquired Intland for approximately $275.0 million, net of cash acquired. In the three months ended March 31, 2021, we acquired Arena for approximately $715 million, net of cash acquired.
(2) In the three months ended December 31, 2020, we sold all of our available-for-sale securities.
(3) In the three months ended March 31, 2022, we sold an equity investment in a publicly-traded company for $42.7 million.
(4) In the three months ended June 30, 2022, we sold a portion of our PLM services business.
Cash provided by operating activities
Free cash flow
112,296
84,614
386,848
311,826
Restructuring and other related payments
10,161
1,987
38,512
13,716
Acquisition & transaction-related payments
9,684
3,767
10,116
14,842
Non-ordinary course tax payment (1)
16,936
17,907
Adjusted free cash flow
132,141
107,304
435,476
358,291
(1) In the three and nine months ended June 30, 2021, we made payments related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes.
View original content to download multimedia:https://www.prnewswire.com/news-releases/ptc-announces-third-fiscal-quarter-2022-results-301594669.html
SOURCE PTC Inc.