PTC Announces Q1 Results; Provides Q2 and Updated FY’14 Outlook

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 Servigistics, Inc., stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses and gains, and the related tax effects of the preceding items and discrete 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. PTC also provides results on a constant currency basis to provide a year-over-year view of our results excluding the effect of currency translation. Our constant currency disclosures are calculated by multiplying the actual results for the first quarter of 2014 by the exchange rates in effect for the comparable period in 2013.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2014 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 or adopt our solutions when or at the rates we expect and that our pipeline deals may not convert as we expect, the possibility 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 support growth rates that we expect, which could result in a different mix of revenue between license, service and support and could impact our EPS results, the possibility that we may be unable to improve services margins as we expect, the possibility that we may be unable to improve sales productivity as we expect, the possibility that our CAD and SLM businesses and the ThingWorx business may not expand and/or generate the revenue we expect, the possibility that resource constraints and personnel reductions could adversely affect our revenue, 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 PTC Inc. 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

PTC (Nasdaq: PTC) enables manufacturers to achieve sustained product and service advantage. The company’s technology solutions help customers transform the way they create and service products across the entire product lifecycle – from conception and design to sourcing and service. Founded in 1985, PTC employs nearly 6,000 professionals serving more than 27,000 businesses in rapidly-evolving, globally distributed manufacturing industries worldwide. Get more information at www.ptc.com.

       
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
     
 
Three Months Ended
December 28, December 29,
2013 2012
 
Revenue:
License $ 79,192 $ 79,185
Service 75,591 76,760
Support   170,142     163,806  
Total revenue   324,925     319,751  
 
Cost of revenue:
Cost of license revenue (1) 7,545 8,012
Cost of service revenue (1) 65,495 68,592
Cost of support revenue (1)   19,916     20,468  
Total cost of revenue   92,956     97,072  
 
Gross margin   231,969     222,679  
 
Operating expenses:
Sales and marketing (1) 84,238 93,549
Research and development (1) 53,073 57,429
General and administrative (1) 30,931 35,817
Amortization of acquired intangible assets 7,789 6,623
Restructuring charges   1,067     15,402  
Total operating expenses   177,098     208,820  
 
Operating income 54,871 13,859
Other expense, net   (1,753 )   (1,805 )
Income before income taxes 53,118 12,054
Provision (benefit) for income taxes   13,461     (23,757 )
Net income $ 39,657   $ 35,811  
 
Earnings per share:
Basic $ 0.33 $ 0.30
Weighted average shares outstanding 118,933 119,927
 
Diluted $ 0.33 $ 0.29
Weighted average shares outstanding 121,100 121,805
 
 
 
(1) The amounts in the tables above include stock-based compensation as follows:
 
Three Months Ended
December 28, December 29,
2013 2012
Cost of license revenue $ 4 $ 5
Cost of service revenue 1,598 1,612
Cost of support revenue 924 826
Sales and marketing 2,499 2,458
Research and development 2,689 2,512
General and administrative   5,050     4,480  
Total stock-based compensation $ 12,764   $ 11,893  
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
             
Three Months Ended
December 28, December 29,
2013 2012
 
GAAP revenue $ 324,925 $ 319,751
Fair value of acquired company's deferred support revenue   -     1,554  
Non-GAAP revenue $ 324,925   $ 321,305  
 
GAAP gross margin $ 231,969 $ 222,679
Fair value of acquired company's deferred support revenue - 1,554
Stock-based compensation 2,526 2,443
Amortization of acquired intangible assets included in cost of license revenue 4,405 4,639
Amortization of acquired intangible assets included in cost of service revenue   92     -  
Non-GAAP gross margin $ 238,992   $ 231,315  
 
GAAP operating income $ 54,871 $ 13,859
Fair value of acquired company's deferred support revenue - 1,554
Stock-based compensation 12,764 11,893
Amortization of acquired intangible assets included in cost of license revenue 4,405 4,639
Amortization of acquired intangible assets included in cost of service revenue 92 -
Amortization of acquired intangible assets 7,789 6,623
Acquisition-related charges included in general and administrative expenses 1,305 4,599
Restructuring charges   1,067     15,402  
Non-GAAP operating income (2) $ 82,293   $ 58,569  
 
GAAP net income $ 39,657 $ 35,811
Fair value of acquired company's deferred support revenue - 1,554
Stock-based compensation 12,764 11,893
Amortization of acquired intangible assets included in cost of license revenue 4,405 4,639
Amortization of acquired intangible assets included in cost of service revenue 92 -
Amortization of acquired intangible assets 7,789 6,623
Acquisition-related charges included in general and administrative expenses 1,305 4,599
Restructuring charges 1,067 15,402
Income tax adjustments (3)   (6,858 )   (36,400 )
Non-GAAP net income $ 60,221   $ 44,121  
 
GAAP diluted earnings per share $ 0.33 $ 0.29
Fair value of deferred support revenue - 0.01
Stock-based compensation 0.11 0.10
Amortization of acquired intangibles 0.10 0.09
Acquisition-related charges 0.01 0.04
Restructuring charges and other 0.01 0.13
Income tax adjustments   (0.06 )   (0.30 )
Non-GAAP diluted earnings per share $ 0.50   $ 0.36  
 
(2) Operating margin impact of non-GAAP adjustments:
Three Months Ended
December 28, December 29,
2013 2012
GAAP operating margin 16.9 % 4.3 %
Fair value of deferred support revenue 0.0 % 0.5 %
Stock-based compensation 3.9 % 3.7 %
Amortization of acquired intangibles 3.8 % 3.5 %
Acquisition-related charges 0.4 % 1.4 %
Restructuring charges   0.3 %   4.8 %
Non-GAAP operating margin   25.3 %   18.2 %
 
(3) Income tax adjustments for the first quarter of 2014 and 2013 reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, and also include any identified tax items. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets. As the U.S. is profitable on a non-GAAP basis, the 2014 and 2013 non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance. The first quarter of 2013 also includes a non-cash tax benefit of $32.6 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for the acquisition of Servigistics.
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
       
 
December 28, September 30,
2013 2013
 
ASSETS
 
Cash and cash equivalents $ 371,377 $ 241,913
Accounts receivable, net 212,570 229,106
Property and equipment, net 63,152 64,652
Goodwill and acquired intangible assets, net 1,029,422 1,042,216
Other assets 228,221 251,019
   
Total assets $ 1,904,742 $ 1,828,906
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 301,488 $ 336,913
Borrowings under credit facility 368,125 258,125
Other liabilities 266,481 307,388
Stockholders' equity 968,648 926,480
   
Total liabilities and stockholders' equity $ 1,904,742 $ 1,828,906
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
 
 
Three Months Ended
December 28, December 29,
2013 2012
 
Cash flows from operating activities:
Net income $ 39,657 $ 35,811
Stock-based compensation 12,764 11,893
Depreciation and amortization 19,100 19,477
Accounts receivable 19,273 16,142
Accounts payable and accruals (42,862 ) (27,958 )
Deferred revenue (10,827 ) (3,534 )
Income taxes 7,393 (33,779 )
Excess tax benefits from stock-based awards (6,802 ) (28 )
Other   (1,454 )   (4,388 )
Net cash provided by operating activities (4) 36,242 13,636
 
Capital expenditures (5,774 ) (7,393 )
Acquisitions of businesses, net of cash acquired (5) - (222,423 )
Proceeds (payments) on debt, net acquired (6) 110,000 (1,875 )
Proceeds from issuance of common stock 351 645
Payments of withholding taxes in connection with
vesting of stock-based awards (19,363 ) (9,348 )
Repurchases of common stock - (15,792 )
Excess tax benefits from stock-based awards 6,802 28
Foreign exchange impact on cash   1,206     1,371  
 
Net change in cash and cash equivalents 129,464 (241,151 )
Cash and cash equivalents, beginning of period   241,913     489,543  
Cash and cash equivalents, end of period $ 371,377   $ 248,392  
 
 
(4) The first quarter of 2014 includes $12 million in restructuring payments and $1 million of restructuring charges. The first quarter of 2013 includes $10 million in restructuring payments and $15 million of restructuring charges.
 
(5) We acquired Servigistics on October 2, 2012, for $222.4 million (net of cash acquired).
 
(6) We borrowed $110 million under our revolving credit facility in the first quarter of 2014 in anticipation of acquiring ThingWorx on December 30, 2013.
 

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