Stock Story -
Engineering and design software provider PTC (NASDAQ:PTC) fell short of analysts' expectations in Q2 CY2024, with revenue down 4.4% year on year to $518.6 million. On the other hand, next quarter's revenue guidance of $623 million came in slightly above analysts' estimates. It made a GAAP profit of $0.57 per share, improving from its profit of $0.51 per share in the same quarter last year.
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PTC (PTC) Q2 CY2024 Highlights:
- Revenue: $518.6 million vs analyst estimates of $533.8 million (2.8% miss)
- Adjusted Operating Income: $164.4 million vs analyst estimates of $179 million (8.2% miss)
- EPS: $0.57 vs analyst estimates of $0.50 (13.4% beat)
- Revenue Guidance for Q3 CY2024 is $623 million at the midpoint, above analyst estimates of $617.4 million
- Gross Margin (GAAP): 78.4%, in line with the same quarter last year
- Free Cash Flow of $212.2 million, down 14.1% from the previous quarter
- Annual Recurring Revenue: $2.13 billion at quarter end, up 10.2% year on year
- Billings: $486.1 million at quarter end, down 7.4% year on year
- Market Capitalization: $21.13 billion
Used to design the Airbus A380 and Boeing (NYSE:BA) 787 Dreamliner commercial airplanes, PTC’s (NASDAQ:PTC) software-as-service platform helps engineers and designers create and test products before manufacturing.
Design SoftwareThe 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 GrowthAs you can see below, PTC's revenue growth has been weak over the last three years, growing from $435.7 million in Q3 2021 to $518.6 million this quarter.
This quarter, PTC's revenue was down 4.4% year on year, which might disappointment some shareholders.
Next quarter's guidance suggests that PTC is expecting revenue to grow 14% year on year to $623 million, improving on the 7.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 13% over the next 12 months before the earnings results announcement.
Gross Margin & Pricing PowerSoftware is eating the world. It's one of our favorite business models because once you develop the product, it usually doesn't cost much to provide it as an ongoing service.
These costs include servers, licenses, and certain personnel, and leverage on them can decide the winners in competitive markets because they determine how much can be invested into new products, sales, and talent.
PTC's robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher operating profits at scale. As you can see below, it averaged an impressive 79.8% gross margin over the last year. Said differently, roughly $79.81 was left to spend on selling, marketing, and R&D for every $100 in revenue.
This quarter, PTC's gross profit margin was 78.4%, which is in line with the same quarter last year. On a wider time horizon, the company's full-year margin has been consistent over the past eight quarters, suggesting its input costs have been stable and it isn't under pressure to lower prices.
Key Takeaways from PTC's Q2 ResultsIt was encouraging to see PTC slightly beat analysts' revenue guidance expectations. On the other hand, its revenue unfortunately missed analysts' expectations and its billings missed Wall Street's estimates. Overall, this was a mediocre quarter for PTC. The stock remained flat at $177.85 immediately after reporting.
