PTC (PTC)

Product design software company PTC (NASDAQ:PTC) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 42.7% year on year to $893.8 million. On the other hand, next quarter’s revenue guidance of $630 million was less impressive, coming in 1.4% below analysts’ estimates. Its non-GAAP profit of $3.47 per share was 52.7% above analysts’ consensus estimates.

Company Overview

Originally known as Parametric Technology Corporation until its 2013 rebranding, PTC (NASDAQ:PTC) provides software that helps manufacturers design, develop, and service physical products through digital solutions for CAD, PLM, ALM, and SLM.

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.

PTC's main competitors in the CAD and PLM space include Autodesk (NASDAQ:ADSK), Dassault Systèmes (OTCMKTS:DASTY), and Siemens AG (OTCMKTS:SIEGY). For its ALM products, it competes with IBM (NYSE:IBM), Jama Software, and Siemens, while its SLM solutions face competition from enterprise software providers like Oracle (NYSE:ORCL) and SAP (NYSE:SAP).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, PTC grew its sales at a 13.4% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. PTC’s annualized revenue growth of 14.3% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, PTC reported magnificent year-on-year revenue growth of 42.7%, and its $893.8 million of revenue beat Wall Street’s estimates by 18.7%. Company management is currently guiding for a 11.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (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.

PTC’s ARR came in at $2.48 billion in Q3, and over the last four quarters, its growth was underwhelming as it averaged 10.1% year-on-year increases. This alternate topline metric grew slower than total sales, which likely means that the recurring portions of the business are growing slower than less predictable, choppier ones such as implementation fees. If this continues, the quality of its revenue base could decline.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

PTC is extremely efficient at acquiring new customers, and its CAC payback period checked in at 15.2 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like PTC, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

PTC’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 83.8% gross margin over the last year. That means PTC only paid its providers $16.24 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. PTC has seen gross margins improve by 4.8 percentage points over the last 2 year, which is very good in the software space.

This quarter, PTC’s gross profit margin was 86.9%, up 4.9 percentage points year on year. PTC’s full-year margin has also been trending up over the past 12 months, increasing by 3.1 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

PTC has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 35.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, PTC’s operating margin rose by 10.3 percentage points over the last two years, as its sales growth gave it operating leverage.

This quarter, PTC generated an operating margin profit margin of 48.5%, up 17.5 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

PTC has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 31.3% over the last year.

PTC’s free cash flow clocked in at $100.5 million in Q3, equivalent to a 11.2% margin. The company’s cash profitability regressed as it was 3.7 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict PTC’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 31.3% for the last 12 months will increase to 34.3%, giving it more flexibility for investments, share buybacks, and dividends.

PTC reported $184.4 million of cash and $1.37 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.33 billion of EBITDA over the last 12 months, we view PTC’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $0 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly PTC blew past analysts’ revenue expectations this quarter. We were also glad its full-year EPS guidance trumped Wall Street’s estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and its revenue guidance for next quarter fell slightly short of Wall Street’s estimates. Overall, this print was mixed. The market seemed to be hoping for more, and the stock traded down 3.6% to $183 immediately following the results.

Updated: November 25, 2025 at 9:42 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in PTC.

There are a lot of things to like about PTC. Although its revenue growth was uninspiring over the last five years and analysts expect growth to slow over the next 12 months, its impressive operating margins show it has a highly efficient business model. And while its ARR has disappointed and shows the company is having difficulty retaining customers and their spending, its efficient sales strategy allows it to target and onboard new users at scale.

PTC’s price-to-sales ratio based on the next 12 months is 7.4x. Looking at the software landscape right now, PTC trades at a pretty interesting price. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $217.17 on the company (compared to the current share price of $175.46), implying they see 23.8% upside in buying PTC in the short term.