Engineering and design software provider PTC (NASDAQ:PTC) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 14.6% year on year to $626.5 million. On the other hand, next quarter’s revenue guidance of $555 million was less impressive, coming in 8.8% below analysts’ estimates. Its GAAP profit of $1.04 per share was 4.6% above analysts’ consensus estimates.
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PTC (PTC) Q3 CY2024 Highlights:
- Revenue: $626.5 million vs analyst estimates of $620.5 million (in line)
- EPS: $1.04 vs analyst estimates of $0.99 (4.6% beat)
- Adjusted Operating Income: $276.6 million vs analyst estimates of $246.2 million (12.3% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $2.56 billion at the midpoint, in line with analyst expectations and implying 11.2% growth (vs 9.9% in FY2024)
- Gross Margin (GAAP): 82%, up from 78.8% in the same quarter last year
- Operating Margin: 31%, up from 22.2% in the same quarter last year
- Free Cash Flow Margin: 14.9%, down from 40.9% in the previous quarter
- Annual Recurring Revenue: $2.26 billion at quarter end, up 14% year on year
- Billings: $699.6 million at quarter end, up 19.7% year on year
- Market Capitalization: $22.82 billion
"In fiscal year 2024, we again delivered solid ARR and cash flow, with year-over-year ARR growth in the low double-digits and cash flow growth above 20%. We have a differentiated strategy that leverages our unique portfolio to help product companies accelerate their time to market and manage increasing complexity. It's an exciting time because our products are at the epicenter of driving business transformation at our customers," said Neil Barua, President and CEO, PTC.
Company Overview
Used to design the Airbus A380 and Boeing 787 Dreamliner commercial airplanes, PTC’s (NASDAQ:PTC) software-as-service platform helps engineers and designers create and test products before manufacturing.
Design Software
The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.
Sales Growth
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Over the last three years, PTC grew its sales at a sluggish 8.3% compounded annual growth rate. This shows it failed to expand in any major way, a rough starting point for our analysis.
This quarter, PTC’s year-on-year revenue growth was 14.6%, and its $626.5 million of revenue was in line with Wall Street’s estimates. Management is currently guiding for flat sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 10.4% over the next 12 months, an acceleration versus the last three years. This projection is above the sector average and illustrates the market believes its newer products and services will catalyze higher growth rates.
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Annual Recurring Revenue
Investors interested in PTC should track its annual recurring revenue (ARR) in addition to reported revenue. While reported revenue for a SaaS company can include low-margin items like implementation fees, ARR is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Over the last year, PTC’s ARR growth has been solid, averaging 14.7% year-on-year increases and punching in at $2.26 billion in the latest quarter. This alternate topline metric has been growing faster than revenue, which likely means that the recurring portions of the business are growing faster than less predictable, choppier ones such as implementation fees. That could be a good sign for future revenue growth. 
Customer Acquisition Efficiency
Customer acquisition cost (CAC) payback represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for marketing and sales investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
PTC is efficient at acquiring new customers, and its CAC payback period checked in at 37.9 months this quarter. The company’s performance indicates relatively solid competitive positioning, giving it the freedom to invest its resources into new growth initiatives.
Key Takeaways from PTC’s Q3 Results
It was great to see PTC expecting revenue growth to accelerate next year. We were also glad its gross margin improved. On the other hand, its revenue guidance for next quarter missed analysts’ expectations. Overall, this quarter had some key positives. The stock remained flat at $198.04 immediately after reporting.
Is PTC an attractive investment opportunity right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
