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Why PTC Stock Plunged Today

By Evan Niu, CFA - Jul 25, 2019 at 12:57PM

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The industrial software specialist ran into challenges as it shifts to subscriptions.

What happened

Shares of PTC (PTC -0.52%) have plunged today, down by 19% as of 12:20 p.m. EDT, after the company reported fiscal third-quarter earnings results. The industrial software maker is experiencing some speed bumps as it transitions to a subscription model.

So what

Revenue in the fiscal third quarter following new revenue recognition accounting standards came in at $295 million, which translated into a net loss of $15 million, or $0.13 per share as reported under generally accepted accounting principles (GAAP). Non-GAAP net income was $27 million, or $0.23 per share. License and subscription bookings were $109 million.

Red chart going down

Image source: Getty Images.

"The transition to a subscription business model plus operational changes we have made this year, which are important elements to our long-term success, have created some short-term headwinds in the business, but the balance of the business is performing well," CEO James Heppelmann said in a statement. "We remain excited about the growth opportunities in the market and our unparalleled competitive position, backed by important strategic alliances and partner relationships. PTC is well-positioned to continue creating substantial value for our customers and shareholders."

Now what

Heppelman elaborated on the near-term challenges on the conference call. Software bookings in certain markets like China and Russia have "declined materially following the end of perpetual license sales," and there has been a drop in large volume purchase agreement conversions.

In terms of guidance, PTC expects fiscal fourth-quarter license and subscription bookings of $135 million to $145 million, with total revenue of $328 million to $343 million. Adjusted earnings per share should be $0.42 to $0.52. Mizuho Securities reduced its price target on PTC from $120 to $200 while maintaining a buy rating following the report, remaining confident that PTC is the "best-positioned vendor in the small, but fast-growing industrial IoT software market."

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