PTC reported financial results for its second fiscal quarter ended March 31, 2022.
"In the second quarter we continued to see our key operating and financial metrics showing strong performance. We delivered organic constant currency ARR growth of 13% year over year to end Q2 at $1.56 billion. In Q2, our cash from operations was $142 million, up 17% year over year, and our adjusted free cash flow was $158 million, up 22% year over year. The strength in Q2 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 growing SaaS capabilities position PTC to drive superior value for customers. Our market position coupled with our subscription model, which took us years of hard work to put in place, is highly resilient and positions us to continue to deliver strong double-digit ARR growth. Based on our strong performance in the first half of the year and the momentum we have created, we are raising our fiscal 2022 guidance for ARR and free cash flow," concluded Heppelmann.
Second Quarter 2022 Highlights 1
Key operating and financial highlights are set forth below. For additional details, please refer to the Q2'22 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 and earnings per share are impacted by revenue recognition under ASC 606.
- ARR was $1,532 million at the end of Q2'22, up 11% compared to Q2'21. On a constant currency basis, ARR was $1,564 million, up 13% compared to Q2'21, and above guidance of $1,540 million to $1,550 million. ARR at the end of Q2'22 includes a $4 million reduction associated with discontinuing our business operations in Russia.
- Cash flow from operations was $142 million, free cash flow was $140 million, and adjusted free cash flow was $158 million in Q2'22, compared to Q2'21 cash flow from operations of $122 million, free cash flow of $116 million, and adjusted free cash flow of $130 million.
- Revenuewas $505 million in Q2'22 compared to $462 million in Q2'21, representing growth of 9%. On a constant currency basis, year-over-year revenue growth in Q2'22 was 13%.
- Operating margin was 32% in Q2'22, compared to 22% in Q2'21. Non-GAAP operating margin in Q2'22 was 42%, compared to 37% in Q2'21. GAAP and non-GAAP operating margin expanded year over year due to higher revenue and operational discipline.
- Earnings per sharewas $0.76 in Q2'22, compared to $0.92 in Q2'21. Non-GAAP earnings per share in Q2'22 was $1.39, compared to $1.08 in Q2'21. GAAP EPS in Q2'22 was negatively impacted by a non-cash charge within other expense due to a decline in value of a publicly traded equity investment, which was sold in Q2'22.
- Total cash and cash equivalents as of the end of Q2'22 was $307 million. Gross debt was $1.28 billion as of the end of Q2'22. During Q2'22, we repaid $175 million on our revolving credit facility and we had proceeds of $43 million from the sale of the aforementioned equity investment.
- Stock repurchases were $5 million in Q2'22, reflecting the settlement of repurchases that were initiated in Q1'22
1 W e include operating and non-GAAP financial measures in our operational highlights. The detailed definitions of these items 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 Q3'22 Guidance
"PTC delivered strong second quarter results that exceeded our expectations," said Kristian Talvitie, EVP and CFO, PTC. "Based on our Q2 performance and our forecast for the remainder of the year, we are raising our guidance for fiscal 2022 ARR, Free Cash Flow, and Revenue. Despite significant foreign exchange headwinds and the impact of exiting our business in Russia, our strong execution and operational discipline have helped us to deliver solid financial performance thus far in fiscal 2022, and we believe we are well positioned to deliver on our updated targets for the year."
|
In millions except percentages |
FY'22 Previous |
FY'22 Guidance |
FY'22 YoY Growth Guidance |
Q3'22 |
|
ARR at Constant Currency(1) |
$1,625 - $1,660 |
$1,640 - $1,665 |
12% - 13% |
$1,580 - $1,595 |
|
Cash from Operations(2) |
~$430 |
~$430 |
~17% |
~$110 |
|
Free Cash Flow(2),(3) |
~$400 |
~$405 |
~18% |
~$105 |
|
Adjusted Free Cash Flow(2),(3) |
~$450 |
~$455 |
~16% |
~$120 |
|
Revenue |
$1,870 - $1,975 |
$1,905 - $1,975 |
5% - 9% |
|
|
(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 expected restructuring payments of $45 million (current estimate is $40 million to $45 million) and transaction-related payments of approximately $5 million (already incurred in 1H'22), both of which are excluded from FY'22 adjusted free cash flow guidance; Q3'22 cash from operations and free cash flow guidance include expected restructuring payments of approximately $10 million and transaction-related payments of approximately $5 million (already incurred in 1H'22), both of which are excluded from Q3'22 adjusted free cash flow guidance |
|||
|
(3) |
Free cash flow and adjusted free cash flow guidance are net of expected capex of approximately $25 million (previously $30 million) in FY'22 and $5 million in Q3'22 |
|||
Our FY'22 and Q3'22 financial guidance includes the assumptions below:
- We provide ARR guidance on a constant currency basis, using our FY'22 Plan foreign exchange rates (rates as of September 30, 2021) for all periods. Based on foreign exchange rate fluctuations as of the end of Q2'22, we currently expect a $34 million headwind (previously $13 million), relative to our constant currency ARR guidance for FY'22, and a $32 million headwind, relative to our constant currency ARR guidance for Q3'22.
- We expect FY'22 organic churn to improve by approximately 100 basis points over FY'21.
- Due to invoicing seasonality, the majority of our collections occur in the first half of our fiscal year. Q4 is our lowest cash flow generation quarter.
- Costs are expected to ramp throughout FY'22 due to hiring and increased SaaS investments. At the mid-point of ARR guidance, we expect FY'22 GAAP operating expenses to increase approximately 3% to 4% (previously 4% to 5%) and non-GAAP operating expenses to increase approximately 2% to 3% over FY'21.
- FY'22 GAAP results are expected to include the items outlined below, totalling $293 million to $308 million (previously $275 million to $280 million), as well as their related tax effects:
- $160 million to $170 million of stock-based compensation expense (previously $178 million)
- $58 million of intangible asset amortization expense
- $35 million to $40 million of restructuring charges (previously $40 million to $45 million)
- $35 million of FY'22 net realized losses from the sale of an equity investment (new)
- Approximately $5 million of transaction-related charges (new)
- Our FY'22 guidance does not reflect operating results of the Intland acquisition and the ITCI transaction, the impact of business combination accounting, incremental interest expense, or transaction-related charges not incurred as of the end of Q2'22.
- Related to restructuring, for FY'22 we expect:
- P&L charges of $35 million to $40 million (previously $40 million to $45 million), of which $32 million was incurred in the first half of FY'22.
- Cash outflows for restructuring payments of $40 million to $45 million (previously $45 to $50 million), of which $28 million was paid in the first half of FY'22. We expect the majority of remaining payments to be made in Q3'22. Restructuring payments in FY'22 include $5 million related to prior period actions, primarily the relocation of our headquarters in FY'19.
- Our FY'22 GAAP tax rate is expected to be approximately 20% and our non-GAAP tax rate is expected to be approximately 19%.
- FY'22 capital expenditures are expected to be approximately $25 million (previously $30 million).
- For the remainder of FY'22, we plan to focus on de-levering. In FY'23 and on a go-forward basis, assuming our Debt/EBITDA ratio is below 3x, our goal is to return approximately 50% of our free cash flow to shareholders via share repurchases.
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 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.
