Solid ARR and Cash Flow Results; Raising ARR Midpoint and Cash Flow Guidance for FY'23
BOSTON, April 26, 2023 /PRNewswire/ -- PTC (NASDAQ: PTC) today reported financial results for its second fiscal quarter ended March 31, 2023.
"In our second fiscal quarter, we again delivered strong ARR and cash flow results that exceeded our guidance ranges. We reported ARR growth of 23%, organic ARR growth of 11%, and organic constant currency ARR growth of 13%. Our ServiceMax® and Codebeamer™ businesses added 13 points of ARR growth, taking constant currency ARR growth to 26%. In Q2, our cash from operations was $211 million, up 48% year over year, and our free cash flow was $207 million, up 48% year over year," said James Heppelmann, CEO, PTC.
"Our diverse product portfolio, now increasingly differentiated with the addition of ServiceMax, and our industry-leading SaaS capabilities align well to the manufacturing industry's push for digital transformation. Our subscription model and strong market position, coupled with solid execution, position PTC to deliver financial performance at peer-leading levels. We look forward to building on our momentum with customers and partners at our LiveWorx® conference in May in Boston, and invite investors to join us," concluded Heppelmann.
Second Quarter 2023 Highlights
Key operating and financial highlights are set forth below. For additional details, please refer to the Q2'23 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
Q2'23
Q2'22
YoY Change
Q2'23Guidance
ARR as reported
$1,882
$1,532
23 %
ARR at constant currency
$1,814
$1,440
26 %
$1,790 - $1,810
Organic ARR as reported
$1,696
11 %
Organic ARR at constant currency
$1,631
13 %
Cash from operations
$211
$142
48 %
~$205
Free cash flow
$207
$140
~$200
Revenue1
$542
$505
7 %
Operating margin1
32 %
-890 bps
Non-GAAP operating margin1
38 %
42 %
-410 bps
Earnings per share1
$0.532
$0.763
-30 %
Non-GAAP earnings per share1
$1.164
$1.394
-17%4
Total cash and cash equivalents
$320
$307
5 %
Gross debt
$2,5455
$1,275
100 %
1
In Q2'23, revenue was up 13% 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 Q2'23, EPS included a $0.10 negative impact due to acquisition and transaction-related charges for the ServiceMax acquisition.
3
In Q2'22, EPS included a $0.38 negative impact due to a decline in value of a publicly traded equity investment.
4
In Q2'23, non-GAAP EPS was down 17% year over year, primarily due to higher interest expense and lower non-GAAP operating income, partially offset by lower provision for income taxes.
5
Q2'23 gross debt includes a deferred acquisition payment related to ServiceMax of $620 million, which will be paid in October 2023.
Reconciliation of Q2'23 Cash from Operations to Free Cash Flow
In millions
Q2'23 Guidance
Cash from Operations
Capital expenditures
($4)
(~$5)
Free Cash Flow
Fiscal 2023 and Q3'23 Guidance
"Our financial results in the first half of our fiscal year were solid, driven by the resilience of our business model, consistent execution, operational discipline, and the actions we have taken to align our investments with our growth opportunities. We believe we have set our financial guidance appropriately, balancing our momentum and outlook with macroeconomic uncertainties. Based on our performance in the first half of FY'23 and outlook for the second half of FY'23, we are narrowing our guidance range for constant currency ARR and raising our full year guidance for cash flow, while increasing investment in long-term growth opportunities," said Kristian Talvitie, CFO, PTC.
FY'23 Previous Guidance
FY'23Guidance
FY'23 YoY GrowthGuidance
Q3'23Guidance
ARR at Constant Currency
$1,910 - $1,960
$1,925 - $1,950
22% - 24%
$1,845 - $1,855
~$595
~$600
~38%
~$160
~$575
~$580
~39%
~$155
Revenue
$2,070 - $2,150
$2,080 - $2,140
8% - 11%
Reconciliation of Cash from Operations Guidance to Free Cash Flow Guidance
(~$20)
Our FY'23 and Q3'23 financial guidance includes the assumptions below:
PTC's Fiscal Second Quarter Results Conference Call
The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, April 26, 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: ARR (Annual Run Rate) 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 calculate ARR as follows:
We believe ARR is a valuable operating measure to assess the health of a subscription business because it is aligned with the amount that we invoice the customer on an annual basis. We invoice customers annually for the current year of the contract. A customer with a one-year contract will typically be invoiced for the total value of the contract at the beginning of the contractual term, while a customer with a multi-year contract will be invoiced for each annual period at the beginning of each year of the contract.
ARR increases by the annualized value of active contracts that commence in a reporting period and decreases by the annualized value of contracts that expire in the reporting period.
As ARR is not annualized recurring revenue, it is not calculated based on recognized or unearned revenue and is not affected by variability in the timing of revenue under ASC 606, particularly for on-premises license subscriptions where a substantial portion of the total value of the contract is recognized at a point in time upon the later of when the software is made available, or the subscription term commences.
ARR should be viewed independently of recognized and unearned revenue and is not intended to be combined with, or to replace, either of those items. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results.
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.
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, guidance, 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 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, tightening of credit standards and availability, the effects of the Russia/Ukraine conflict, including the effect on energy supplies to Europe, and growing tensions with China, 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
Six Months Ended
March 31,
2023
2022
Revenue:
Recurring revenue
$
492,143
452,710
909,253
857,835
Perpetual license
8,921
9,540
22,165
18,008
Professional services
41,117
42,977
76,673
87,105
Total revenue(1)
542,181
505,227
1,008,091
962,948
Cost of revenue (2)
113,506
93,337
209,296
188,455
Gross margin
428,675
411,890
798,795
774,493
Operating expenses:
Sales and marketing (2)
129,207
116,408
247,590
241,884
Research and development (2)
100,349
81,935
188,526
162,469
General and administrative (2)
65,923
47,469
116,894
99,409
Amortization of acquired intangible assets
10,656
8,450
18,682
16,934
Restructuring and other charges (credits), net
(1,562)
(337)
32,429
Total operating expenses
306,136
252,700
571,355
553,125
Operating income
122,539
159,190
227,440
221,368
Other expense, net
(41,470)
(55,624)
(59,947)
(62,426)
Income before income taxes
81,069
103,566
167,493
158,942
Provision for income taxes
17,565
13,887
28,954
23,174
Net income
63,504
89,679
138,539
135,768
Earnings per share:
Basic
0.54
0.77
1.17
1.16
Weighted average shares outstanding
118,260
117,008
118,037
117,135
Diluted
0.53
0.76
1.15
119,041
117,811
118,912
118,162
(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 services is as follows:
License revenue (1)
196,993
218,375
369,691
387,483
Support and cloud services revenue
304,071
243,875
561,727
488,360
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
5,746
4,264
9,821
10,236
Sales and marketing
12,845
11,446
25,041
24,527
Research and development
15,580
9,504
27,038
19,680
General and administrative
18,075
12,707
31,850
29,420
Total stock-based compensation
52,246
37,921
93,750
83,863
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
GAAP operating income
Stock-based compensation
20,490
14,371
34,658
29,348
Acquisition and transaction-related charges
11,883
3,903
17,689
4,953
Non-GAAP operating income (1)
207,159
213,823
373,200
371,961
GAAP net income
Non-operating charges (2)
4,622
44,613
5,147
34,847
Income tax adjustments (3)
(14,943)
(25,444)
(33,676)
(44,669)
Non-GAAP net income
137,803
163,481
255,770
276,539
GAAP diluted earnings per share
0.44
0.32
0.79
0.71
Amortization of acquired intangibles
0.17
0.12
0.29
0.25
0.10
0.03
0.15
0.04
0.00
(0.01)
(0.00)
0.27
0.38
(0.13)
(0.22)
(0.28)
(0.38)
Non-GAAP diluted earnings per share
1.39
2.15
2.34
(1) Operating margin impact of non-GAAP adjustments:
GAAP operating margin
22.6
%
31.5
23.0
9.6
7.5
9.3
8.7
3.8
2.8
3.4
3.0
2.2
0.8
1.8
0.5
0.0
(0.3)
Non-GAAP operating margin
38.2
42.3
37.0
38.6
(2) In the three and six months ended March 31, 2023, we recognized $3.7 million and $4.2 million of financing charges for a debt commitment agreement associated with our acquisition of ServiceMax, respectively. In the three and six months endedMarch 31, 2022, we recognized non-operating expenses of $44.6 million and $34.9 million due to the reduction in value of an equity investment in a publicly-traded company, respectively.
(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
320,477
272,182
Accounts receivable, net
643,017
636,556
Property and equipment, net
92,003
98,101
Goodwill and acquired intangible assets, net
4,348,262
2,736,372
Lease assets, net
150,327
137,780
Other assets
745,534
806,277
Total assets
6,299,620
4,687,268
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred revenue
671,404
520,333
Debt, net of deferred issuance costs
1,917,703
1,350,628
Deferred acquisition payments (1)
620,040
-
Lease obligations
201,627
189,575
Other liabilities
370,312
330,698
Stockholders' equity
2,518,534
2,296,034
Total liabilities and stockholders' equity
(1) Deferred acquisition payments represent the fair value of the $650 million payment to be made in Q1'24 associated with the ServiceMax, Inc. acquisition.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Depreciation and amortization
27,709
21,380
49,037
43,468
Amortization of right-of-use lease assets
8,510
8,676
16,564
17,536
Accounts receivable
(19,034)
(45,006)
86,478
12,310
Accounts payable and accruals
2,492
(55,744)
(7,358)
(39,932)
55,727
60,708
36,092
47,012
Income taxes
4,667
2,049
(12,169)
(6,279)
Other
15,127
22,662
(9,064)
(13,685)
Net cash provided by operating activities
210,948
142,325
391,869
280,061
(3,770)
(2,148)
(12,950)
(5,510)
Acquisition of businesses, net of cash acquired (1)
(828,271)
Borrowings (payments) on debt, net(2)
566,000
(175,000)
Repurchases of common stock
(5,261)
(125,000)
Net proceeds associated with issuance of common stock
10,592
10,857
Payments of withholding taxes in connection with vesting of stock-based
(3,599)
(1,430)
(56,022)
(50,595)
awards
Net proceeds from sale (purchases) of investments (3)
(5,823)
42,693
Credit facility origination costs
(12,005)
(13,355)
Other financing & investing activities
(1,749)
831
(12,915)
6,615
Foreign exchange impact on cash
565
(2,078)
9,181
(3,739)
Net change in cash, cash equivalents, and restricted cash
(67,112)
10,789
48,306
(19,618)
Cash, cash equivalents, and restricted cash, beginning of period
388,306
296,639
272,888
327,046
Cash, cash equivalents, and restricted cash, end of period
321,194
307,428
(1) In Q2'23, we acquired ServiceMax Inc. for $1,448 million, net of cash acquired. We paid $828 million in Q2'23 with the remaining $650 million to be paid in Q1'24. Of the $650 million to be paid, $620 million will be a financing outflow and $30 million of imputed interest will be an operating cash outflow.
(2) In Q2'23, net borrowings were related to a credit facility established to fund the ServiceMax acquisition.
(3) In Q2'22, we sold an equity investment in a publicly-traded company.
Cash provided by operating activities(1)
Free cash flow(1)
207,178
140,177
378,919
274,551
(1) In the three and six months ended March 31, 2023, we made $2.3 million and $6.6 million of acquisition and transaction-related payments, respectively, and $0.8 million and $1.4 million of restructuring payments, respectively. In the three and six months ended March 31,2022, we made $0.4 million and $0.4 million acquisition and transaction-related payments, respectively, and $17.8 million and $28.4 million of restructuring payments, respectively. These payments are included within cash provided by operating activities and free cash flow.
View original content to download multimedia:https://www.prnewswire.com/news-releases/ptc-announces-second-fiscal-quarter-2023-results-301808743.html
SOURCE PTC Inc.