Raising Cash Flow Guidance and Narrowing Constant Currency ARR Guidance Range for FY'23
BOSTON, Feb. 1, 2023 /PRNewswire/ -- PTC (NASDAQ: PTC) today reported financial results for its first fiscal quarter ended December 31, 2022.
"In our first fiscal quarter, we again delivered strong ARR and cash flow results that exceeded our guidance ranges. We reported ARR growth of 11%, organic ARR growth of 10%, and organic constant currency ARR growth of 14%. The Codebeamer™ business, which we acquired in Q3'22, added an additional point of ARR growth, taking constant currency ARR growth to 15%. In Q1, our cash from operations was $181 million, up 31% year over year, and our free cash flow was $172 million, up 28% year over year," said James Heppelmann, President and CEO, PTC.
"Our product portfolio, now increasingly differentiated with the acquisition of ServiceMax, and our industry-leading SaaS capabilities align well to the manufacturing industry's push for digital transformation. Despite uncertain macroeconomic conditions, the resiliency of our business due to our subscription model and our strong market position, coupled with solid execution and prudent financial management, position PTC for continued solid financial performance in fiscal 2023," concluded Heppelmann.
First Quarter 2023 Highlights
Key operating and financial highlights are set forth below. For additional details, please refer to the Q1'23 earnings presentation and financial data tables that have been posted to the Investor Relations section of our website at investor.ptc.com. 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.
$ In millions
Q1'23
Q1'22
YoY Change
Q1'23 Guidance
ARR as reported
$1,663
$1,496
11 %
ARR at constant currency
$1,603
$1,389
15 %
$1,580 - $1,600
Organic ARR as reported
$1,645
10 %
Organic ARR at constant currency
$1,586
14 %
Cash from operations
$181
$138
31 %
~$170
Free cash flow
$172
$134
28 %
~$165
Revenue1
$466
$458
2 %
Operating margin1
23 %
900 bps
Non-GAAP operating margin1
36 %
35 %
100 bps
Earnings per share1
$0.63
$0.392
63 %
Non-GAAP earnings per share1
$0.99
$0.95
4 %
Total cash and cash equivalents
$388
$296
Gross debt
$1,359
$1,450
-6 %
1
In Q1'23, revenue was up 9% year over year, on a constant currency basis. Revenue and, as a result, operating margin, operating profit, and earnings per share are impacted by revenue recognition under ASC 606.
2
In Q1'22, earnings per share included a $0.29 impact related to restructuring, partially offset by a $0.08 benefit related to a gain on an investment.
Reconciliation of Q1'23 Cash from Operations to Free Cash Flow
In millions
Cash from Operations
Capital expenditures
($9)
(~$5)
Free Cash Flow
Fiscal 2023 and Q2'23 Guidance
"Q1 was a solid start to the year, driven by the resilience of our business model, our consistent execution, operational discipline and the actions we have taken to align our investments with our growth opportunities. While we saw incremental signs of a softening economy in Q1, we believe we have set our financial guidance appropriately, balancing our momentum and forecast with macroeconomic uncertainties. Based on our performance in Q1'23 and forecast for FY'23, we are raising our cash flow guidance and narrowing the ARR guidance range we presented at our investor day in November 2022, which includes the ServiceMax acquisition," said Kristian Talvitie, EVP and CFO, PTC.
In millions except percentages (all figures include ServiceMax)
FY'23 Previous Guidance1
FY'23 YoY GrowthGuidance
FY'23 Guidance
Q2'23 Guidance
ARR at Constant Currency
$1,905 - $1,965
22% - 25%
$1,910 - $1,960
$1,790 - $1,810
~$585
~37%
~$595
~$205
~$565
~38%
~$575
~$200
Revenue
$2,050 - $2,130
7% - 11%
$2,070 - $2,150
1 Previous guidance, including ServiceMax, from November 17, 2022 Investor Day presentation, slide 50
Reconciliation of Cash from Operations Guidance to Free Cash Flow Guidance
In millions (all figures include ServiceMax)
FY'23 Previous Guidance
FY'23Guidance
(~$20)
Our FY'23 and Q2'23 financial guidance includes the assumptions below:
PTC's Fiscal First Quarter Results Conference Call
The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, February 1, 2023. 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 Information About Our Operating and Non-GAAP Financial Measures
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 and transaction-related 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" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
Free Cash Flow: PTC provides information on 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. Free cash flow is not a measure 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'23 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, 2022, rather than the actual exchange rates in effect during that period. All discussion of FY'23 and comparative prior period ARR results (including FY'22 baseline amounts) are reflected using the foreign exchange rates as of September 30, 2022.
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-premises 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. 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 distorting effects of ARR 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 a churn measure 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 ARR of renewal contracts 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, the expected effect of the ServiceMax acquisition on our business and future results, 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 deteriorate sooner or to a greater extent than we expect due to, among other factors, the effects of the COVID-19 pandemic, including supply chain disruptions, increasing interest rates and inflation, volatile foreign exchange rates and the relative strength of the U.S. dollar, and the effects of the Russia/Ukraine conflict, including the effect on energy supplies to Europe, any of which could cause customers to delay or reduce purchases of new software, reduce the number of subscriptions they carry, or delay payments to us, which would adversely affect ARR and/or our financial results, including cash flow; our businesses, including our ServiceMax and SaaS businesses, may not expand and/or generate the revenue, cash flow, or ARR we expect if customers are slower to adopt those technologies than we expect or if they adopt competing technologies; our strategic initiatives and investments, including our accelerated investments in our transition to SaaS and the acquisition of ServiceMax, may not deliver the results when or as we expect; we may be unable to integrate the ServiceMax technology when or as we expect; we may be unable to generate sufficient operating cash flow to return 50% of free cash flow to shareholders, and other uses of cash or our credit facility limits could preclude such 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
December 31,
2022
2021
Revenue:
Recurring revenue
$
417,110
405,125
Perpetual license
13,244
8,468
Professional services
35,556
44,128
Total revenue (1)
465,910
457,721
Cost of revenue (2)
95,790
95,118
Gross margin
370,120
362,603
Operating expenses:
Sales and marketing (2)
118,383
125,476
Research and development (2)
88,177
80,534
General and administrative (2)
50,971
51,940
Amortization of acquired intangible assets
8,026
8,484
Restructuring and other charges (credits), net
(338)
33,991
Total operating expenses
265,219
300,425
Operating income
104,901
62,178
Other expense, net
(18,477)
(6,802)
Income before income taxes
86,424
55,376
Provision for income taxes
11,389
9,287
Net income
75,035
46,089
Earnings per share:
Basic
0.64
0.39
Weighted average shares outstanding
117,819
117,347
Diluted
0.63
118,788
118,598
(1) See supplemental financial data for revenue by license, support and cloud services, 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 cloud services, and professional services is as follows:
License revenue (1)
172,698
169,108
Support and cloud services revenue
257,656
244,485
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
4,075
5,972
Sales and marketing
12,196
13,081
Research and development
11,458
10,176
General and administrative
13,775
16,713
Total stock-based compensation
41,504
45,942
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
GAAP gross margin
Stock-based compensation
Amortization of acquired intangible assets included in cost of revenue
6,142
6,493
Non-GAAP gross margin
380,337
375,068
GAAP operating income
14,168
14,977
Acquisition and transaction-related charges
5,806
1,050
Non-GAAP operating income (1)
166,041
158,138
GAAP net income
Non-operating charges (credits), net (2)
525
(9,766)
Income tax adjustments (3)
(18,733)
(19,225)
Non-GAAP net income
117,967
113,058
GAAP diluted earnings per share
0.35
Amortization of acquired intangibles
0.12
0.13
0.05
0.01
(0.00)
0.29
Non-operating charges (credits)
0.00
(0.08)
Income tax adjustments
(0.16)
Non-GAAP diluted earnings per share
0.99
0.95
(1) Operating margin impact of non-GAAP adjustments:
GAAP operating margin
22.5
%
13.6
8.9
10.0
3.0
3.3
1.2
0.2
(0.1)
7.4
Non-GAAP operating margin
35.6
34.5
(2) In Q1'23, we recognized a $0.5M financing charge for a debt commitment agreement associated with our anticipated acquisition of ServiceMax. In Q1'22, we recorded a $9.8 million gain on an investment in a publicly-traded company.
(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.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30,
ASSETS
Cash and cash equivalents
387,588
272,182
Accounts receivable, net
562,036
636,556
Property and equipment, net
95,142
98,101
Goodwill and acquired intangible assets, net
2,762,426
2,736,372
Lease assets, net
148,637
137,780
Other assets
839,940
806,277
Total assets
4,795,769
4,687,268
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred revenue
516,033
520,333
Debt, net of deferred issuance costs
1,351,171
1,350,628
Lease obligations
199,918
189,575
Other liabilities
328,098
330,698
Stockholders' equity
2,400,549
2,296,034
Total liabilities and stockholders' equity
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Depreciation and amortization
21,328
22,088
Amortization of right-of-use lease assets
8,054
8,860
Accounts receivable
105,512
57,316
Accounts payable and accruals
(9,850)
15,812
(19,635)
(13,696)
Income taxes
(16,836)
(8,328)
Other
(24,191)
(36,347)
Net cash provided by operating activities
180,921
137,736
(9,180)
(3,362)
Purchase of intangible assets
-
(450)
Repurchases of common stock
(119,739)
Payments of withholding taxes in connection with vesting of stock-based awards
(52,423)
(49,165)
Settlement of net investment hedges
(10,795)
6,473
Divestitures of businesses and assets, net
(154)
Credit facility origination costs
(1,350)
Other financing & investing activities
(217)
(239)
Foreign exchange impact on cash
8,616
(1,661)
Net change in cash, cash equivalents, and restricted cash
115,418
(30,407)
Cash, cash equivalents, and restricted cash, beginning of period
272,888
327,046
Cash, cash equivalents, and restricted cash, end of period
388,306
296,639
Cash provided by operating activities (1)
Free cash flow (1)
171,741
134,374
(1) In Q1'23, we made $4.3 million of acquisition and transaction-related payments and $0.6 million of restructuring payments. In Q1'22, we made no acquisition and transaction-related payments and $10.5 million of restructuring payments. These payments are included within cash provided by operating activities and free cash flow.
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SOURCE PTC Inc.