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A month has gone by since the last earnings report for PTC Inc. (PTC). Shares have added about 8.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is PTC Inc. due for a pullback? 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 important catalysts.
PTC Beats Earnings Estimates in Q2, Lowers 2020 Guidance
PTC Inc. reported second-quarter fiscal 2020 non-GAAP earnings of 59 cents per share, up 168.1% on a year-over-year basis.
Revenues came in at $359.6 million, up 23.8% year over year. Solid AR and IoT bookings as well as synergies from Onshape acquisition drove growth.
However, due to the COVID-19 outbreak, the company witnessed a decline in new bookings during the last few weeks of the quarter. The impact was most prominent among smaller channel customers in Europe and Asia.
Top Line in Detail
Recurring revenues of $315.9 million improved 32% year over year. Perpetual license of almost $8.2 million declined 20.5% from the year-ago quarter’s figure due to end of perpetual license sales on Jan 1, 2019.
Revenues by License, Support and Services
License revenues (35.5% of total revenues) were $127.6 million, up 106.2% from the year-ago quarter’s figure.
Support and cloud services revenues (54.6%) of $196.5 million improved 4.7% year over year.
Professional services revenues (9.9%) of $35.5 million, declined 13.2% year over year.
Revenues by Product Group
Revenues from Core Product Group — which includes computer-aided design (CAD) & Product Lifecycle Management (PLM) offerings — came in at $252.8 million, up 27% year over year (up 29% at constant currency or cc).
Revenues from Growth Product Group (which includes IoT, AR & Onshape) totaled $53.3 million, up 29% year over year (31% at cc).
Revenues from Focused Solutions Group (FSG) amounted to $53.5 million, up 6% year over year (7% at cc).
Annualized recurring revenues (ARR) were $1.179 billion, up 10% year over year, driven by strength across Europe and Asia as well as solid performance in the Core product group.
ARR from Core Product Group (CAD & PLM) came in at $848 million, up 9% year over year (up 10% at cc). Growth was driven by strength in PLM as well as robust performance across Japan and Europe.
ARR from Growth Product Group (IoT, AR & Onshape) came in at $153 million, up 29% year over year (30% at cc). Year-over-year growth can be attributed to improvement in AR and IoT bookings as well as strength across Europe and Japan. However, performance was dampened by decline in transaction at the end of quarter due to COVID-19 outbreak.
ARR from FSG came in at $178 million, up 1% year over year (2% at cc). The low growth rate reflects on the APAC region’s weak performance.
Non-GAAP gross margin contracted 370 basis points (bps) on a year-over-year basis to 79.7%.
Non-GAAP operating expenses came in at $183 million. GAAP operating expenses declined 3% year over year to $227 million. This can be attributed to the company’s restructuring efforts to control expenses.
Operating income on a non-GAAP basis increased 132.6% year over year to $103.2 million.
Consequently, operating margin on a non-GAAP basis came in at 28.7% compared with 15.3% reported in the year-ago quarter.
Balance Sheet & Cash Flow
As of Mar 28, cash, cash equivalents and marketable securities were $884 million compared with prior quarter’s figure of $294.5 million.
Total debt, net of deferred issuance costs, was $1.63 billion, up from prior quarter’s $1.12 billion.
Cash provided by operating activities came in at $87.8 million compared with prior-quarter figure of $7.5 million.
Free cash flow was $82.3 million compared with $2.8 million reported in the previous quarter.
Due to weakening macroeconomic conditions induced by the coronavirus pandemic, the company reduced its guidance for fiscal 2020.
Fiscal 2020 revenues are now projected between $1.40 billion and $1.43 billion compared with the earlier guidance of $1.445-$1.525 billion.
Further, non-GAAP earnings are now expected between $2.20 and $2.35 per share compared with the prior range of $2.15-$2.65 per share.
ARR is now expected to be $1.220-$1.255 billion, which calls for a rise of 9-12% year over year. The prior guidance for ARR was in the range of $1.270-$1.295 billion.
Adjusted free cash flow is projected to be $200 million compared with the prior range of $218-$238 million.
Further, non-GAAP operating margin is expected to be 27-28%. The previous guidance range for non-GAAP operating margin was 26-29%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 23.99% due to these changes.
Currently, PTC Inc. has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise PTC Inc. has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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