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PTC Inc. (PTC) Up 3.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for PTC Inc. (PTC). Shares have added about 3.9% 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’s Earnings and Revenues Breeze Past Estimates in Q1

PTC reported first-quarter fiscal 2020 non-GAAP earnings of 57 cents per share, up 1.8% on a year-over-year basis, beating the Zacks Consensus Estimate by 26.7%.

Revenues came in at $356.1 million, up 6.4% year over year, surpassing the Zacks Consensus Estimate of $346 million. Solid AR and IoT bookings and synergies from Onshape acquisition drove growth.

Top-Line in Detail

Recurring revenues of $305.4 million improved 21.4% year over year. Perpetual license of almost $9 million declined 78.5% from the year-ago quarter’s figure, owing to “end of perpetual license sales on Jan 1, 2019.”

Revenues by License, Support and Services

License revenues (34.7% of total revenues) were $123.4 million, up 17.2% over the year-ago quarter’s figure.

Support and cloud services revenues (53.6%) of $190.9 million, improved 1.6% year over year.

Professional services revenues (11.7%) of $41.7 million, increasing 0.7% 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 $830 million, up 9% (up 10% at cc).

Revenues from Growth Product Group (which includes IoT, AR & Onshape) came in at $48 million, up 36% year over year (37% on a cc basis).

Revenues from Focused Solutions Group (FSG) came in at $45 million, down 6% year over year (5% on a cc basis).

ARR Performance

Annualized recurring revenues (ARR) were $1.16 billion, up 11% year over year, driven by strength in Core and Growth product groups.

ARR from Core Product Group (CAD & PLM) came in at $830 million, up 9% (up 10% at cc). Growth was driven by strength in PLM ad robust performance across China and Europe.

ARR from Growth Product Group (IoT, AR & Onshape) came in at $151 million, up 35% year over year, (36% on a cc basis). Year-over-year growth can be attributed to improvement in AR and IoT bookings and strength across Europe and APAC. Synergies from Onshape acquisition aided performance.

ARR from Focused Solutions Group (FSG) came in at $178 million, up 1% year over year on a cc basis.

Operating Details

Non-GAAP gross margin contracted 160 basis points (bps) on a year-over-year basis to 78.2%.

Non-GAAP operating expenses came in at $185 million. GAAP operating expenses increased 4.8% year over year to $238.3 million. This can be attributed to higher research & development expenses, and general & administrative expenses, which increased 7.4% and 17.7%, respectively.  Moreover, Sales & marketing expenses surged 3.2% from the year-ago quarter.

Operating income on a non-GAAP basis increased 2.1% year over year to $93.1 million.

Operating margin on a non-GAAP basis contracted 110 bps to 26.1%.

Balance Sheet & Cash Flow

As of Dec 28, 2019, cash, cash equivalents and marketable securities were $294.5 million, compared with prior quarter’s figure of $327 million.

Total debt, net of deferred issuance costs, was $1.124 billion, up from prior quarter’s $669.1 million.

Cash provided by operating activities came in at $7.5 million, compared with prior-quarter figure of $55.2 million.

Guidance

Management anticipates the first-quarter momentum to continue, and thereby raised fiscal 2020 revenue guidance.

Fiscal 2020 revenues are now projected between $1.445 billion and $1.525 billion, compared with the earlier guided range of $1.41-$1.51 billion.

Further, non-GAAP earnings are now expected between $2.15 and $2.65 per share, compared with the prior range of $1.95-$2.60 per share.

ARR is expected to be $1.270-$1.295 billion, up 14-16% year over year.

Adjusted free cash flow is projected to be $260-$280 million. Non-GAAP operating margin is expected to be 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 12.31% due to these changes.

VGM Scores

Currently, PTC Inc. has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. It comes with little surprise PTC Inc. has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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