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PTC reported financial results for its third fiscal quarter ended June 30, 2023.

"In our third fiscal quarter, we again delivered strong ARR and cash flow results that exceeded our guidance ranges. On both a reported and constant currency basis, our ARR growth was 25% – with organic growth of 14% and our ServiceMax^® business contributing an additional 11 points of growth. In Q3, our cash from operations was $169 million, up 45% year over year, and our free cash flow was $164 million, up 46% year over year," said James Heppelmann, CEO, PTC.

"Our strong 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 strong market position and solid execution, coupled with a subscription model, position PTC to deliver ARR and cash flow growth at peer-leading levels," concluded Heppelmann.

Third Quarter 2023 Highlights

Key operating and financial highlights are set forth below. For additional details, please refer to the Q3'23 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.

 1 In Q3'23, revenue growth was 21% 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 Q3'23, both EPS and non-GAAP EPS benefitted from higher revenue, partially offset by higher cost of revenue, operating expenses, and interest expense. Q3'22 EPS included a $0.28 positive impact due to non-operational credits and a $0.13 positive impact due to a tax adjustment, both of which were primarily related to the sale of a portion of our PLM services business.

3 Q3'23 gross debt includes a deferred acquisition payment related to ServiceMax of $620 million, which will be paid in October 2023.

Fiscal 2023 and Q4'23 Guidance

"Despite a less than ideal macroeconomic backdrop, our financial results in the first nine months 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. Based on our performance in the first nine months of FY'23 and outlook for FY'23, we are raising our full year guidance midpoint for ARR and our guidance for cash flow, while investing in long-term growth opportunities," said Kristian Talvitie, CFO, PTC.

Reconciliation of Cash from Operations Guidance to Free Cash Flow Guidance

Reconciliation of EPS Guidance to Non-GAAP EPS Guidance

 1 Our FY'23 EPS and non-GAAP EPS guidance are both inclusive of an expected $120 million in interest expense ($95 million, net of tax) or $1.01 per share ($0.80 per share, net of tax). This compares to interest expense in FY'22 of $51 million ($40 million, net of tax) or $0.43 per share ($0.34 per share, net of tax) with the expected increase in FY'23 primarily due to an increase in debt.

2 Our Q4'23 EPS and non-GAAP EPS guidance are both inclusive of an expected $34 million in interest expense ($27 million, net of tax) or $0.29 per share ($0.23 per share, net of tax). This compares to interest expense in Q4'22 of $14 million ($11 million, net of tax) or $0.12 per share ($0.10 per share, net of tax) with the expected increase in Q4'23 primarily due to an increase in debt.

Our FY'23 and Q4'23 financial guidance include the assumptions below:

• We provide ARR guidance on a constant currency basis, using our FY'23 Plan foreign exchange rates (rates as of September 30, 2022) for all periods. Foreign exchange fluctuations during the first nine months of FY'23 had a favorable impact on our Q3'23 reported ARR, compared to our Q3'23 constant currency ARR. Using foreign exchange rates as of the end of Q3'23 and assuming the midpoint of our constant currency guidance ranges, FY'23 reported ARR guidance would be higher by approximately $64 million, compared to FY'23 constant currency ARR guidance.
• For cash flow, due to invoicing seasonality, and consistent with the past 2 years, we expect Q4'23 to be our lowest cash flow generation quarter.
• Compared to FY'22, at the midpoint of FY'23 ARR guidance, FY'23 GAAP operating expenses are expected to increase approximately 7% to 8%, and FY'23 non-GAAP operating expenses are expected to increase approximately 10% to 11%, primarily due to the acquisition of ServiceMax, foreign exchange rate fluctuations, and incremental investments in 2H'23.
• FY'23 GAAP P&L results are expected to include the items below, totaling approximately $300 million, as well as their related tax effects:
• approximately $200 million of stock-based compensation expense,
• approximately $76 million of intangible asset amortization expense,
• approximately $19 million of acquisition and transaction-related expense, and
• approximately $5 million of other non-operating expenses, primarily financing charges associated with a debt commitment agreement related to the ServiceMax acquisition.
• Our FY'23 GAAP tax rate is expected to be approximately 20%, and our non-GAAP tax rate is expected to be approximately 21%.
• FY'23 capital expenditures are expected to be approximately $20 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.
• Given the current interest rate environment, we expect to prioritize paying down our debt in FY'23 and FY'24.
• We expect gross debt of approximately $2.3 billion at the end of FY'23.

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 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.

PTC Announces CEO Succession Plan

Concurrent with the release of its fiscal 2023 third quarter results, PTC also announced its CEO succession plan. Neil Barua, President of PTC's Service Lifecycle Management business, will succeed James Heppelmann as Chief Executive Officer of PTC at the time of the Company's annual shareholder meeting in February 2024. Mr. Heppelmann and Mr. Barua will address the succession plan during today's webcast and conference call. 

To view the original press release, please click here.

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