PTC Announces Solid Q4 EPS Results

Important Information About Non-GAAP References

PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue, operating expenses, margin and EPS exclude the effect of purchase accounting on the fair value of acquired deferred revenue of MKS Inc. and Servigistics, Inc., stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses, certain foreign currency transaction losses, and the related tax effects of the preceding items and any one-time tax items. We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals, communicated internally and externally, for managing our business and evaluating our performance. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to the results of peer companies. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. However, non-GAAP information should not be construed as an alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTC’s financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2013 and other future financial and growth expectations and anticipated tax rates are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that the macroeconomic climate may not improve or may deteriorate, the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility the foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that we may not achieve the license, services or maintenance growth rates that we expect, which could result in a different mix of revenue between license, service and maintenance and could impact our EPS results, the possibility that new products, including new releases of Creo and our newly expanded SLM solutions, may not generate the revenue we expect, the possibility that resource constraints and staff reductions could adversely affect our revenue, the possibility that our strategic investments may not generate the growth or revenues we expect, the possibility that the acquisition of Servigistics may not generate the revenue we expect, and the possibility that remedial actions relating to our previously announced investigation in China will have a material impact on our operations in China and that fines and penalties may be assessed against us in connection with this matter. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

PTC, the PTC logo, and all other PTC product names and logos are trademarks or registered trademarks of Parametric Technology Corporation or its subsidiaries in the United States and in other countries. All other companies referenced herein are trademarks or registered trademarks of their respective holders.

About PTC ( www.ptc.com)

PTC (Nasdaq: PMTC) provides discrete manufacturers with software and services to meet the globalization, time-to-market and operational efficiency objectives of product development. Using the company’s PLM and CAD and related solutions, organizations in the Industrial, High-Tech, Aerospace/Defense, Automotive, Retail/Consumer and Life Sciences industries are able to support key business objectives such as reducing costs and shortening lead times while creating innovative products that meet customer needs and comply with industry regulations.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)


	Three Months Ended						Year Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011

Revenue:
License	$	100,698		$	111,002		$	348,394		$	342,121
Service		224,597			228,423			907,285			824,828
Total revenue		325,295			339,425			1,255,679			1,166,949

Cost of revenue:
Cost of license revenue ⁽¹⁾		7,478			8,663			30,595			28,792
Cost of service revenue ⁽¹⁾		80,361			89,864			341,533			327,976
Total cost of revenue		87,839			98,527			372,128			356,768

Gross margin		237,456			240,898			883,551			810,181

Operating expenses:
Sales and marketing ⁽¹⁾		94,350			98,261			377,796			353,051
Research and development ⁽¹⁾		52,131			55,730			214,960			211,406
General and administrative ⁽¹⁾		28,511			30,213			117,468			110,291
Amortization of acquired intangible assets		4,859			5,446			20,303			18,319
Restructuring charges		-			-			24,928			-
Total operating expenses		179,851			189,650			755,455			693,067

Operating income		57,605			51,248			128,096			117,114
Other expense, net		(1,446	)		(3,587	)		(7,360	)		(12,566	)
Income before income taxes		56,159			47,661			120,736			104,548
Provision for income taxes		140,144			10,040			156,134			19,124
Net income (loss)	$	(83,985	)	$	37,621		$	(35,398	)	$	85,424

Earnings (loss) per share:
Basic	$	(0.71	)	$	0.32		$	(0.30	)	$	0.73
Weighted average shares outstanding		119,048			117,095			118,705			117,579

Diluted	$	(0.71	)	$	0.31		$	(0.30	)	$	0.71
Weighted average shares outstanding		119,048			120,091			118,705			120,974



(1)The amounts in the tables above include stock-based compensation as follows:


	Three Months Ended						Year Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011
Cost of license revenue	$	6		$	5		$	22		$	15
Cost of service revenue		2,182			2,155			8,916			7,732
Sales and marketing		3,441			3,587			13,809			11,428
Research and development		2,086			2,395			8,761			8,547
General and administrative		4,185			4,802			19,797			17,680
Total stock-based compensation	$	11,900		$	12,944		$	51,305		$	45,402

PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)

	Three Months Ended						Year Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011

GAAP revenue	$	325,295		$	339,425		$	1,255,679		$	1,166,949
Fair value of acquired MKS deferred maintenance revenue		-			1,913			2,485			2,606
Non-GAAP revenue	$	325,295		$	341,338		$	1,258,164		$	1,169,555

GAAP gross margin	$	237,456		$	240,898		$	883,551		$	810,181
Fair value of acquired MKS deferred maintenance revenue		-			1,913			2,485			2,606
Stock-based compensation		2,188			2,160			8,938			7,747
Amortization of acquired intangible assets included in cost of license revenue		3,852			4,796			15,819			15,393
Non-GAAP gross margin	$	243,496		$	249,767		$	910,793		$	835,927

GAAP operating income	$	57,605		$	51,248		$	128,096		$	117,114
Fair value of acquired MKS deferred maintenance revenue		-			1,913			2,485			2,606
Stock-based compensation		11,900			12,944			51,305			45,402
Amortization of acquired intangible assets included in cost of license revenue		3,852			4,796			15,819			15,393
Amortization of acquired intangible assets		4,859			5,446			20,303			18,319
Acquisition-related charges included in general and administrative expenses		1,321			1,112			3,833			7,761
Restructuring charges		-			-			24,928			-
Non-GAAP operating income ⁽²⁾	$	79,537		$	77,459		$	246,769		$	206,595

GAAP net income (loss)	$	(83,985	)	$	37,621		$	(35,398	)	$	85,424
Fair value of acquired MKS deferred maintenance revenue		-			1,913			2,485			2,606
Stock-based compensation		11,900			12,944			51,305			45,402
Amortization of acquired intangible assets included in cost of license revenue		3,852			4,796			15,819			15,393
Amortization of acquired intangible assets		4,859			5,446			20,303			18,319
Acquisition-related charges included in general and administrative expenses		1,321			1,112			3,833			7,761
Restructuring charges		-			-			24,928			-
Non-operating foreign currency transaction losses ⁽³⁾		-			-			761			5,107
Income tax adjustments ⁽⁴⁾		122,255			(7,662	)		98,827			(27,846	)
Non-GAAP net income	$	60,202		$	56,170		$	182,863		$	152,166

GAAP diluted earnings (loss) per share	$	(0.71	)	$	0.31		$	(0.30	)	$	0.71
Stock-based compensation		0.10			0.11			0.42			0.38
Amortization of acquired intangibles		0.07			0.09			0.30			0.28
Acquisition-related charge		0.01			0.01			0.03			0.06
Restructuring charges		-			-			0.21			-
Income tax adjustments		1.01			(0.06	)		0.82			(0.23	)
Non-operating foreign currency transaction losses		-			-			0.01			0.04
All other items identified above		-			0.01			0.02			0.02
Non-GAAP diluted earnings per share	$	0.50		$	0.47		$	1.51		$	1.26

GAAP diluted weighted average shares outstanding		119,048			120,091			118,705			120,974
Dilutive effect of stock based compensation plans		2,227			-			2,293			-
Non-GAAP diluted weighted average shares outstanding		121,275			120,091			120,998			120,974

(2)Operating margin impact of non-GAAP adjustments:
	Three Months Ended						Year Ended
	September 30,			September 30,			September 30,			September 30,
		2012			2011			2012			2011
GAAP operating margin		17.7	%		15.1	%		10.2	%		10.0	%
Fair value of deferred maintenance revenue		0.0	%		0.6	%		0.2	%		0.2	%
Stock-based compensation		3.7	%		3.8	%		4.1	%		3.9	%
Amortization of acquired intangibles		2.7	%		3.0	%		2.9	%		2.9	%
Acquisition-related charges		0.4	%		0.3	%		0.3	%		0.7	%
Restructuring charges		0.0	%		0.0	%		2.0	%		0.0	%
Non-GAAP operating margin		24.5	%		22.7	%		19.6	%		17.7	%

(3)		In the first quarter of 2012 we recorded $0.8 million of foreign currency transaction losses related to MKS legal entity mergers completed during the quarter. In the third quarter of 2011, in connection with our acquisition of MKS, we had entered into forward contracts to reduce our foreign currency exposure related to changes in the Canadian to U.S. Dollar exchange rate from the time we entered into the agreement in early April to acquire MKS (the purchase price was in Canadian Dollars) and the closing date which occurred on May 31, 2011. We realized foreign currency losses of $4.4 million recorded as other expense related to the acquisition. In the first quarter of 2011 we recorded $0.7 million of foreign currency losses related to a previously announced litigation settlement in Japan.

(4)		Reflects the tax effects of non-GAAP adjustments for the fourth quarter and full year of 2012 and 2011, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, as well as one-time non-cash GAAP charges, net, of $124.5 million related to the establishment of a valuation allowance against our net U.S. deferred tax assets and $5.4 million, net primarily related to foreign tax credits which would be fully realized on a non-GAAP basis recorded in the fourth quarter of 2012; $3.3 million primarily related to acquired legal entity integration activities recorded in the third quarter of 2012; and $1.4 million related to the impact from a reduction in the statutory tax rate in Japan on deferred tax assets from a litigation settlement recorded in the first quarter of 2012. The third quarter of 2011 reflects a one-time non-cash GAAP charge of $1.9 million related to a legal entity reorganization.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


	September 30,		September 30,
	2012		2011

ASSETS

Cash and cash equivalents	$	489,543	$	167,878
Accounts receivable, net		217,370		230,220
Property and equipment, net		63,466		62,569
Goodwill and acquired intangible assets, net		796,232		835,411
Other assets		209,765		333,604

Total assets	$	1,776,376	$	1,629,682

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue	$	327,529	$	294,324
Borrowings under revolving credit facility		370,000		200,000
Other liabilities		281,588		312,668
Stockholders' equity		797,259		822,690

Total liabilities and stockholders' equity	$	1,776,376	$	1,629,682

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)



	Three Months Ended						Year Ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011

Cash flows from operating activities:
Net income (loss)	$	(83,985	)	$	37,621		$	(35,398	)	$	85,424
Stock-based compensation		11,900			12,944			51,305			45,402
Depreciation and amortization		16,319			17,847			66,471			62,394
Accounts receivable		(9,473	)		(50,393	)		32,309			(32,334	)
Accounts payable and accruals ⁽⁵⁾		(1,390	)		7,908			(7,682	)		(3,846	)
Deferred revenue		(37,866	)		(28,630	)		14,362			8,195
Litigation settlement		-			-			-			(52,129	)
Income taxes		129,962			1,723			101,851			(16,132	)
Excess tax benefits from stock-based awards		(1,644	)		(3,091	)		(2,097	)		(5,398	)
Other		(3,665	)		4,098			(3,919	)		(12,878	)
Net cash provided by operating activities ⁽⁶⁾		20,158			27			217,202			78,698

Capital expenditures		(8,907	)		(9,522	)		(31,413	)		(27,817	)
Acquisitions of businesses, net of cash acquired ⁽⁷⁾		950			(14,873	)		(220	)		(280,026	)
Proceeds (payments) on debt, net ⁽⁸⁾		230,000			(50,000	)		170,000			200,000
Proceeds from issuance of common stock		5,895			2,495			21,210			24,756
Payments of withholding taxes in connection with vesting of stock-based awards		(74	)		(468	)		(20,967	)		(22,520	)
Repurchases of common stock		-			(14,974	)		(34,953	)		(54,921	)
Excess tax benefits from stock-based awards		1,644			3,091			2,097			5,398
Other investing and financing activities		(1,951	)		(2,293	)		(1,951	)		(2,293	)
Foreign exchange impact on cash		3,781			(6,356	)		660			6,350

Net change in cash and cash equivalents		251,496			(92,873	)		321,665			(72,375	)
Cash and cash equivalents, beginning of period		238,047			260,751			167,878			240,253
Cash and cash equivalents, end of period	$	489,543		$	167,878		$	489,543		$	167,878

(5)		Includes accounts payable, accrued expenses, and accrued compensation and benefits.

(6)		The cash flow from operations for the three months and year ended September 30, 2011 includes cash outflows of approximately $2 million and $12 million, respectively for PTC's MKS and 4CS acquisition-related costs paid after their respective acquisition dates.

(7)		We acquired MKS on May 31, 2011, for $265.2 million (net of cash acquired) which was partially funded with $250 million in borrowings under our revolving credit facility.

(8)		We borrowed $230 million under our credit facility in the fourth quarter of 2012, in anticipation of our acquisition of Servigistics on October 2, 2012.

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