Despite tech downturn, this ‘digital transformation’ company is reporting growth

Inflation is high, tech stocks are down, but for at least one digital transformation-focused company, things are looking alright.

From semiconductor manufacturers to PC makers to FAANG, tech companies have missed earnings and slashed expectations as an economic cocktail of high inflation, rising interest rates, and supply-chain disruptions bear down on their businesses. Some financial analysts, like Bank of America, expect the sector’s pain to continue for the next few years.

But PTC, a Massachusetts-based SaaS company specializing in developing computer-aided design (CAD), product lifecycle management (PLM), IoT, and AR technologies, was a seemingly rare bright spot, reporting growth across its business in its most recent earnings report.

In its November earnings call, PTC said it beat its annual recurring revenue guidance for its fiscal Q4 2022. ARR climbed 7% year over year, up from nearly $1.5 billion in Q4 2021 to almost $1.6 billion this year. Revenue was $508 million in Q4 of 2022, up 6% from the $481 million reported in Q4 of 2021.

Kristian Talvitie, chief financial officer at PTC, attributed the company’s performance in part to its customer base of industrial product companies, which he said are generally consistent in their R&D spending.

“From a top-line perspective, we serve industrial product companies. And R&D at those companies tends to be quite resilient, so we have a supportive top-line backdrop. We’ve also transitioned successfully to a subscription business model, and our products are very sticky with our customers,” Talvitie told investors.

The firm’s customer base includes manufacturers in the medical device, industrial products, and aerospace industries, which use what it calls “digital transformation software.” Its software is designed to work across the entire product lifecycle, from R&D through deployment.

PTC acquired SaaS field service management provider ServiceMax in November for approximately $1.46 billion in cash, which PTC said in a press release was “expected to strengthen service capabilities of PTC’s closed-loop PLM portfolio.”

The company also axed the entirety of its Russian business in 2022, which resulted in a $4 million reduction in the company’s ARR, but even so, Jim Heppelmann, president and CEO of PTC, said churn was lowest in Europe compared to the rest of the world for both Q4 2022 and the full year.