PTC INC. (PTC) Q2 2024 Earnings Summary

Executive Summary

PTC delivered solid Q2 FY24 results with ARR growth and cash flow ahead of guidance; revenue of $603.1M and non-GAAP EPS of $1.46 both exceeded company guidance ranges, reflecting strong execution and subscription model resilience .
Management narrowed FY24 constant currency ARR guidance to $2.20–$2.24B (11–13% growth) and maintained FY24 FCF at ~$725M; FY24 revenue range trimmed to $2.27–$2.34B and EPS updated to $2.52–$3.22, including FX impact .
Mid-term target reset: ARR growth guided to low double-digits (from prior mid-teens), while cash flow targets reiterated, underpinned by operating discipline and resource reallocation toward PLM, ALM, SLM, CAD and SaaS priorities .
Stock reaction catalysts: clear beat vs company guidance, confident FCF reiteration/deleveraging (2.3x net leverage), and a credible capital allocation framework despite a sluggish selling environment; potential overhang from lower mid-term ARR growth target and ASC 606 variability on revenue/EPS .

What Went Well and What Went Wrong

What Went Well

Outperformance vs internal guidance: Q2 revenue $603.1M beat $560–$590M; non-GAAP EPS $1.46 beat $1.10–$1.30; OCF $251M and FCF $247M exceeded ~~$245M/~~$240M guidance, highlighting execution and model stability .
Strong profitability expansion YoY: GAAP operating margin 29.8% (+~720 bps YoY) and non-GAAP operating margin 42.1% (+~390 bps YoY), aided by mix and operating discipline .
Strategic focus and product momentum: management rebalanced R&D away from standalone IoT/AR toward core (PLM/Windchill, ALM/Codebeamer, SLM/ServiceMax) and emphasized digital thread integrations, citing customer wins and cross-sell opportunities .

What Went Wrong

Macro/selling environment remains sluggish, particularly for large digital transformation deals, prolonging sales cycles and impacting in-quarter ARR recognition patterns under ASC 606 .
Guidance narrowed with lower high end, reflecting contract renegotiations that reduced near-term deferred ARR recognition and FX pressure on revenue/EPS .
Elevated interest expense and deleveraging priority continue to delay share repurchases; management cited ~7% revolver rate as rationale for prioritizing debt paydown over buybacks in FY24 .

Financial Results

Income Statement Summary (GAAP and Non-GAAP)

Metric	Q2 2023	Q1 2024	Q2 2024
Revenue ($M)	$542.2	$550.2	$603.1
GAAP Diluted EPS	$0.53	$0.55	$0.95
Non-GAAP Diluted EPS	$1.16	$1.11	$1.46
GAAP Operating Margin	22.6%	21.6%	29.8%
Non-GAAP Operating Margin	38.2%	36.2%	42.1%

Revenue Mix

Revenue Mix ($M)	Q2 2023	Q1 2024	Q2 2024
License (incl. subscription license allocation)	$197.0	$184.0	$234.3
Support & Cloud Services	$304.1	$330.5	$336.4
Professional Services	$41.1	$35.7	$32.3
Total Revenue	$542.2	$550.2	$603.1

KPIs and Balance Sheet

KPI / Balance Sheet	Q2 2023	Q2 2024
ARR as reported ($B)	$1.882	$2.088
Constant Currency ARR ($B)	$1.850	$2.075
Operating Cash Flow ($M)	$211	$251
Free Cash Flow ($M)	$207	$247
Cash & Equivalents ($M)	$320	$249
Gross Debt ($M)	$2,545 (incl. FY23 deferred acquisition)	$2,011
Debt/EBITDA (company-stated)	—	2.3x

Results vs Company Guidance (Q2 FY24)

Metric	Company Guidance (Q2 FY24)	Actual Q2 FY24	Result
Revenue ($M)	$560–$590	$603.1	Beat
GAAP EPS	$0.57–$0.80	$0.95	Beat
Non-GAAP EPS	$1.10–$1.30	$1.46	Beat
Operating Cash Flow ($M)	~ $245	$251	Beat
Free Cash Flow ($M)	~ $240	$247	Beat
Constant Currency ARR ($B)	$2.050–$2.065	$2.075	Beat

Note: Wall Street consensus from S&P Global was unavailable for this request (API limit), so we benchmarked against company guidance.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Constant Currency ARR ($B)	FY24	$2.190–$2.250	$2.200–$2.240	Narrowed; low end +$10M, high end -$10M
Revenue ($B)	FY24	$2.270–$2.360	$2.270–$2.340	High end -$20M (FX, composition)
GAAP EPS	FY24	$2.42–$3.32	$2.52–$3.22	Range shifted (mix and FX)
Non-GAAP EPS	FY24	$4.50–$5.20	$4.60–$5.10	Narrowed/shifted
Operating Cash Flow ($M)	FY24	~ $745	~ $745	Maintained
Free Cash Flow ($M)	FY24	~ $725	~ $725	Maintained
Constant Currency ARR ($B)	Q3’24	—	$2.115–$2.130	New
Revenue ($M)	Q3’24	—	$525–$540	New
GAAP EPS	Q3’24	—	$0.41–$0.54	New
Non-GAAP EPS	Q3’24	—	$0.90–$1.00	New
OCF / FCF ($M)	Q3’24	—	~ $225 / ~ $220	New

Drivers called out: renegotiated select customer contracts reducing second-half deferred ARR by ~$10M, and FX pressure on revenue/EPS; cash flow unchanged given collection predictability .

Earnings Call Themes & Trends

Topic	Q4’23/Q1’24 (Prior Mentions)	Q2’24 (Current)	Trend
Macro/Selling Environment	Sluggish environment; longer approvals and close rates persisting .	Still sluggish; biggest impact on large deals/close rates; no improvement yet .	Flat/Challenged
Mid-term ARR Target	Targeted mid-teens growth (Q4’23 framework) .	Reset to low double-digits; cash flow targets reiterated .	More conservative ARR; CF intact
Product Focus (R&D)	Emphasis on PLM/ALM/SLM/CAD; SaaS a decade-long journey .	Rebalance away from new standalone IoT/AR toward PLM/ALM/SLM; deepen integrations; SaaS “Plus” continues .	Focus sharpened
Digital Thread/Integrations	Value of Windchill-ALM-CAD integration; cross-sell vision .	Continued examples; tighter Windchill-Codebeamer-ServiceMax- Creo integrations .	Strengthening
ALM (Codebeamer)	Strong momentum; ALM portfolio ~to pass $100M ARR in FY24 .	Highlighted as growth driver; customer expansions; regulated verticals .	Positive
SLM (ServiceMax)	Cross-sell ramping; alignment with PTC sellers .	Wins in regulated/high-value assets; aftermarket revenue focus .	Building
Capital Allocation	Pause buybacks; deleveraging to ~$1.7B gross debt target .	2.3x leverage; prioritize debt reduction; revisit buybacks in FY25 .	Deleveraging steady
ASC 606 Variability	Revenue/EPS less predictive; focus on ARR/FCF .	Reiterated; guidance framed accordingly .	Ongoing
AI	Practical copilots under development; early beta for service; not displacing budgets .	AI not constraining IT budgets; foundation first (PLM/ALM/SLM/CAD) .	Constructive/Pragmatic

Management Commentary

“We are updating our mid-term ARR targets to low double-digit ARR growth… we are reiterating our mid-term cash flow targets…” – CEO Neil Barua .
“We are… rebalancing resources primarily in R&D, away from creating new stand-alone IoT and AR applications to instead support PLM, ALM and SLM growth.” – CEO Neil Barua .
“At the end of Q2, our constant currency ARR was $2.075 billion, up 12% year-over-year and above our guidance range… operating cash flow of $251 million and free cash flow of $247 million, both up 19%.” – CFO Kristian Talvitie .
“We continue to rapidly de-lever… debt to EBITDA ratio was 2.3x at the end of Q2’24.” – CFO Kristian Talvitie .
“AI is not taking away from IT prioritization… most customers realize that a digital foundation is necessary before you do anything practical on AI at scale.” – CEO Neil Barua .

Q&A Highlights

Mid-term ARR reset: Management framed “low double-digits” as consistent with recent 5-year average and a cleaner way to reflect macro uncertainty; cash flow confidence unchanged .
Capital allocation: No near-term buybacks given ~$2B+ debt and ~7% revolver rate; reassess in FY25; tuck-in M&A only if highly strategic .
Close rates and pipeline: Large deals remain the pressure point; pipeline healthy but close rates unchanged; deferred ARR split roughly evenly between Q3/Q4 .
AI investment: Early copilots and service GenAI beta; not seen as crowding out budgets; foundational systems (PLM/ALM/CAD/SLM) prioritized first .
Channel/go-to-market: Revitalizing channel enablement and alignment to growth priorities; flattening org (eliminating COO/CRO roles) to drive effectiveness .

Estimates Context

Wall Street consensus (S&P Global) for Q2 FY24 revenue and EPS was unavailable due to provider request limits at the time of this analysis; as a result, comparisons to consensus cannot be presented for this quarter. We benchmarked results vs company guidance instead .
Company framing emphasizes ARR and FCF as primary performance metrics due to ASC 606 variability in revenue/EPS recognition .

Key Takeaways for Investors

Durable model: ARR and FCF beat internal guidance, margins expanded sharply YoY, and deleveraging is ahead of plan—supporting cash flow targets despite macro headwinds .
Strategic focus: Resource rebalancing toward core (PLM/ALM/SLM/CAD) and digital thread integrations should sustain mid-teens-like operating leverage even as mid-term ARR targets reset to low double-digits .
Execution risk: Sluggish selling environment and large-deal close rates keep variability in quarterly ARR timing; revenue/EPS remain volatile under ASC 606—anchor on ARR/FCF .
Upside vectors: Codebeamer momentum (regulated/complex software products) and ServiceMax cross-sell into PTC’s installed base, plus continued CAD/Creo strength and early SaaS “Plus” migrations .
Capital allocation: Expect continued debt reduction in FY24; share repurchases likely resume in FY25 subject to leverage/market conditions .
FX and contract dynamics: Guidance adjustments reflect FX and selective contract renegotiations affecting deferred ARR recognition; cash flow unchanged given collections predictability .
Near-term setup: Q3 guidance implies continued low double-digit CC ARR growth and ~$220M FCF; watch large-deal conversions, Codebeamer/ServiceMax pipeline, and any improvement in close rates .

Additional Relevant Press Releases (Q2 timeframe)

Trax and PTC partnership to integrate Trax with Servigistics, aiming to optimize aviation service supply chains—a supporting proof point for SLM strategy and AI/ML-enabled service parts optimization .