PTC 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.
- ARR as reported was $1,544 million at the end of Q3'22, up 9% compared to Q3'21, including $15 million related to the acquisition of Codebeamer. On a constant currency basis (including $16 million related to Codebeamer), ARR was $1,625 million, up 16%, compared to Q3'21. On an organic constant currency basis (excluding $16 million related to Codebeamer), ARR was $1,610 million, up 15% compared to Q3'21, and above guidance of $1,580 million to $1,595 million. Foreign exchange rate fluctuations had an $81 million negative impact on our Q3'22 reported ARR. ARR at the end of Q3'22 includes a $4 million reduction associated with discontinuing our business operations in Russia in Q2'22.
- Cash flow from operations was $117 million, free cash flow was $112 million, and adjusted free cash flow was $132 million in Q3'22, up compared to Q3'21 by 33%, 33%, and 23%, respectively. All three metrics were above guidance. In Q3'21, cash flow from operations was $88 million, free cash flow was $85 million, and adjusted free cash flow was $107 million.
- Revenuewas $462 million in Q3'22, up 6% compared to Q3'21. On a constant currency basis, revenue was $480 million, up 12% compared to Q3'21.
- Operating margin was 17% in both Q3'22 and Q3'21. Non-GAAP operating margin in Q3'22 was 34%, compared to 31% in Q3'21.
- Earnings per sharewas $0.60 in Q3'22, compared to $0.43 in Q3'21. Non-GAAP earnings per share in Q3'22 was $0.97, compared to $0.83 in Q3'21.
- Total cash and cash equivalents as of the end of Q3'22 was $322 million. Gross debt was $1.43 billion as of the end of Q3'22. The increase in gross debt during Q3'22 was primarily due to financing the Codebeamer acquisition with our revolving credit facility, partially offset by repaying $105 million on our revolving credit facility.
[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 |
FY'22 Guidance |
FY'22 YoY Growth Guidance |
Q4'22 |
|
ARR at Constant Currency(1) |
$1,640 - $1,665 |
$1,660 - $1,690 |
13% - 15% |
$1,660 - $1,690 |
|
Cash from Operations(2) |
~$430 |
~$430 |
~17% |
~$35 |
|
Free Cash Flow(2),(3) |
~$405 |
~$410 |
~19% |
~$25 |
|
Adjusted Free Cash Flow(2),(3) |
~$455 |
~$465 |
~19% |
~$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:
- 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. Unfavorable changes in foreign exchange rates have been a headwind to our reported ARR. At end of Q3'22 foreign exchange rates, FY'22 ARR would be lower by approximately $85 million, compared to our constant currency guidance (previously $34 million, based on foreign exchange rates as of the end of Q2'22).
- We expect FY'22 organic churn, excluding the impact of our exit from Russia, to improve by approximately 150 basis points (previously 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.
- Our operating costs are expected to increase in FY'22 due to hiring, increased SaaS investments, merit increases that took effect in Q3'22, and the acquisition of the Codebeamer business in Q3'22 (updated). At the mid-point of ARR guidance, we expect FY'22 GAAP operating expenses to increase approximately 4% to 5% (previously 3% to 4%) and non-GAAP operating expenses to increase approximately 2% to 3% over FY'21.
- FY'22 GAAP P&L results are expected to include the items outlined below, totaling $281 million to $291 million (previously $293 million to $308 million), as well as their related tax effects:
- $170 million to $180 million (previously $160 million to $170 million) of stock-based compensation expense
- $61 million (previously $58 million) of intangible asset amortization expense
- $37 million (previously $35 million to $40 million) of restructuring charges
- $11 million (previously approximately $5 million) of acquisition and transaction-related charges
- $32 million (previously $35 million) of FY'22 net realized losses from the sale of investments
- $30 million gain associated with the sale of a portion of our PLM service business (new)
- Related to restructuring, for FY'22 we expect:
- P&L charges of $37 million (previously $35 million to $40 million), which have been incurred in the first nine months of FY'22.
- Cash outflows for restructuring payments of $40 million to $45 million, of which $38 million was paid in the first nine months of FY'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 $20 million (previously $25 million).
- Our long-term goal, assuming our Debt/EBITDA ratio is below 3x, is to return approximately 50% of our free cash flow to shareholders via share repurchases, while also taking into consideration the interest rate environment and strategic opportunities (updated).
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.
