PTC also provides information on “free cash flow” and “free cash flow return” to enable investors to assess our ability to generate cash without incurring additional external financings and to evaluate our performance against our announced long-term goal of returning approximately 40% of our free cash flow to shareholders via stock repurchases. Free-cash flow is net cash provided by (used in) operating activities less capital expenditures and free-cash flow return is the value of shares repurchased divided by free cash flow.
Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our third quarter and full fiscal 2015 targets 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 and/or global manufacturing climates may not improve or may deteriorate, the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility that our businesses, including our Internet of Things (IoT) and SLM businesses, may not expand and/or generate the revenue we expect, the possibility that market size and growth estimates may be incorrect and that we may be unable to grow our business at or in excess of market growth rates, the possibility that our pipeline of opportunities may not convert or generate the revenue we expect, the possibility that new products released and planned products, including IoT enabled core products, may not generate the revenue we expect or be released as we expect, the possibility that 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 and subscription solutions (L&SS), support or professional services revenue that we expect, which could result in a different mix of revenue between license & subscription solutions, support and professional services and could impact our EPS results, the possibility that our customers may purchase more of our solutions as subscriptions than we expect, which would adversely affect near-term revenue, operating margins, and EPS, the possibility that sales of our solutions as subscriptions may not have the longer-term effect on revenue that we expect, the possibility that we may be unable to leverage our products and customer relationships to increase sales, the possibility that sales personnel productivity may not increase as we expect, the possibility that we may be unable to expand our services partner ecosystem or improve services margins as we expect, the possibility that we may be unable to attain or maintain a technology leadership position or that any such leadership position may not generate the revenue we expect, the possibility that our workforce realignment may not improve operating margins as we expect and may adversely affect our operations, the possibility that our portfolio management measures may not drive the operating margin expansion we expect, the possibility that we may be unable to generate sufficient operating cash flow to return 40% of free cash flow to shareholders or that other uses of cash could preclude share repurchases, the possibility that we may incur additional acquisition-related and pension plan termination-related expenses and losses than we expect, and the possibility that fines and penalties may be assessed against PTC in connection with our previously announced investigation in China. 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 most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
PTC and the PTC logo are trademarks or registered trademarks of PTC Inc. or its subsidiaries in the United States and in other countries.
About PTC
PTC (Nasdaq: PTC) enables manufacturers to achieve sustained product and service advantage. PTC’s technology solutions help customers transform the way they create, operate and service products for a smart, connected, world. Founded in 1985, PTC employs approximately 6,000 professionals serving more than 28,000 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 | Six Months Ended | |||||||||||||||||||||
April 4, | March 29, | April 4, | March 29, | |||||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||
License and subscription solutions (L&SS) | $ | 85,952 | $ | 88,545 | $ | 164,923 | $ | 171,411 | ||||||||||||||
Support | 168,727 | 166,249 | 350,356 | 336,391 | ||||||||||||||||||
Total software revenue | 254,679 | 254,794 | 515,279 | 507,802 | ||||||||||||||||||
Professional services | 59,440 | 73,906 | 124,282 | 145,823 | ||||||||||||||||||
Total revenue | 314,119 | 328,700 | 639,561 | 653,625 | ||||||||||||||||||
Cost of revenue: | ||||||||||||||||||||||
Cost of L&SS revenue (1) | 13,190 | 10,889 | 26,519 | 21,208 | ||||||||||||||||||
Cost of support revenue (1) | 21,328 | 21,564 | 42,724 | 41,480 | ||||||||||||||||||
Total cost of software revenue | 34,518 | 32,453 | 69,243 | 62,688 | ||||||||||||||||||
Cost of professional services revenue (1) | 51,536 | 61,344 | 109,753 | 124,065 | ||||||||||||||||||
Total cost of revenue | 86,054 | 93,797 | 178,996 | 186,753 | ||||||||||||||||||
Gross margin | 228,065 | 234,903 | 460,565 | 466,872 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||
Sales and marketing (1) | 82,024 | 85,934 | 169,631 | 170,172 | ||||||||||||||||||
Research and development (1) | 60,158 | 55,631 | 121,255 | 108,704 | ||||||||||||||||||
General and administrative (1) | 34,235 | 34,140 | 71,242 | 65,071 | ||||||||||||||||||
Amortization of acquired intangible assets | 9,173 | 7,985 | 18,586 | 15,774 | ||||||||||||||||||
Restructuring charges | 38,487 | - | 38,232 | 1,067 | ||||||||||||||||||
Total operating expenses | 224,077 | 183,690 | 418,946 | 360,788 | ||||||||||||||||||
Operating income | 3,988 | 51,213 | 41,619 | 106,084 | ||||||||||||||||||
Other expense, net | (3,601 | ) | (2,692 | ) | (6,825 | ) | (4,446 | ) | ||||||||||||||
Income before income taxes | 387 | 48,521 | 34,794 | 101,638 | ||||||||||||||||||
Provision (benefit) for income taxes | (5,005 | ) | 4,765 | (882 | ) | 18,225 | ||||||||||||||||
Net income | $ | 5,392 | $ | 43,756 | $ | 35,676 | $ | 83,413 | ||||||||||||||
Earnings per share: | ||||||||||||||||||||||
Basic | $ | 0.05 | $ | 0.37 | $ | 0.31 | $ | 0.70 | ||||||||||||||
Weighted average shares outstanding | 114,944 | 118,978 | 115,147 | 118,973 | ||||||||||||||||||
Diluted | $ | 0.05 | $ | 0.36 | $ | 0.31 | $ | 0.69 | ||||||||||||||
Weighted average shares outstanding | 115,922 | 120,698 | 116,479 | 120,916 | ||||||||||||||||||
(1) | The amounts in the tables above include stock-based compensation as follows: | |||||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||||||
April 4, | March 29, | April 4, | March 29, | |||||||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||||||||
Cost of L&SS revenue | $ | 118 | $ | 82 | $ | 260 | $ | 147 | ||||||||||||||
Cost of support revenue | 989 | 889 | 1,765 | 1,813 | ||||||||||||||||||
Cost of service revenue | 1,504 | 1,349 | 3,193 | 2,886 | ||||||||||||||||||
Sales and marketing | 3,081 | 3,019 | 5,953 | 5,518 | ||||||||||||||||||
Research and development | 3,001 | 2,147 | 6,087 | 4,836 | ||||||||||||||||||
General and administrative | 4,129 | 5,080 | 6,806 | 10,130 | ||||||||||||||||||
Total stock-based compensation | $ | 12,822 | $ | 12,566 | $ | 24,064 | $ | 25,330 | ||||||||||||||
PTC Inc. | |||||||||||||||||||||||
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) | |||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
April 4, | March 29, | April 4, | March 29, | ||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
GAAP revenue | $ | 314,119 | $ | 328,700 | $ | 639,561 | $ | 653,625 | |||||||||||||||
Fair value adjustment of acquired deferred L&SS revenue | 590 | - | 1,272 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred support revenue | 265 | - | 730 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred service revenue | 278 | - | 535 | - | |||||||||||||||||||
Non-GAAP revenue | $ | 315,252 | $ | 328,700 | $ | 642,098 | $ | 653,625 | |||||||||||||||
GAAP gross margin | $ | 228,065 | $ | 234,903 | $ | 460,565 | $ | 466,872 | |||||||||||||||
Fair value adjustment of acquired deferred L&SS revenue | 590 | - | 1,272 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred support revenue | 265 | - | 730 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred service revenue | 278 | - | 535 | - | |||||||||||||||||||
Fair value adjustment to deferred services cost | (151 | ) | - | (257 | ) | - | |||||||||||||||||
Stock-based compensation | 2,611 | 2,320 | 5,218 | 4,846 | |||||||||||||||||||
Amortization of acquired intangible assets | |||||||||||||||||||||||
included in cost of L&SS revenue | 4,714 | 4,407 | 9,481 | 8,904 | |||||||||||||||||||
Non-GAAP gross margin | $ | 236,372 | $ | 241,630 | $ | 477,544 | $ | 480,622 | |||||||||||||||
GAAP operating income | $ | 3,988 | $ | 51,213 | $ | 41,619 | $ | 106,084 | |||||||||||||||
Fair value adjustment of acquired deferred L&SS revenue | 590 | - | 1,272 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred support revenue | 265 | - | 730 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred service revenue | 278 | - | 535 | - | |||||||||||||||||||
Fair value adjustment to deferred services cost | (151 | ) | - | (257 | ) | - | |||||||||||||||||
Stock-based compensation | 12,822 | 12,566 | 24,064 | 25,330 | |||||||||||||||||||
Amortization of acquired intangible assets | |||||||||||||||||||||||
included in cost of L&SS revenue | 4,714 | 4,407 | 9,481 | 8,904 | |||||||||||||||||||
Amortization of acquired intangible assets | 9,173 | 7,985 | 18,586 | 15,774 | |||||||||||||||||||
Acquisition-related charges included in | |||||||||||||||||||||||
general and administrative expenses | 3,605 | 3,935 | 9,322 | 5,240 | |||||||||||||||||||
Restructuring charges | 38,487 | - | 38,232 | 1,067 | |||||||||||||||||||
Non-GAAP operating income (2) | $ | 73,771 | $ | 80,106 | $ | 143,584 | $ | 162,399 | |||||||||||||||
GAAP net income | $ | 5,392 | $ | 43,756 | $ | 35,676 | $ | 83,413 | |||||||||||||||
Fair value adjustment of acquired deferred L&SS revenue | 590 | - | 1,272 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred support revenue | 265 | - | 730 | - | |||||||||||||||||||
Fair value adjustment of acquired deferred service revenue | 278 | - | 535 | - | |||||||||||||||||||
Fair value adjustment to deferred services cost | (151 | ) | - | (257 | ) | - | |||||||||||||||||
Stock-based compensation | 12,822 | 12,566 | 24,064 | 25,330 | |||||||||||||||||||
Amortization of acquired intangible assets | |||||||||||||||||||||||
included in cost of L&SS revenue | 4,714 | 4,407 | 9,481 | 8,904 | |||||||||||||||||||
Amortization of acquired intangible assets | 9,173 | 7,985 | 18,586 | 15,774 | |||||||||||||||||||
Acquisition-related charges included in | |||||||||||||||||||||||
general and administrative expenses (3) | 3,605 | 3,935 | 9,322 | 5,240 | |||||||||||||||||||
Restructuring charges | 38,487 | - | 38,232 | 1,067 | |||||||||||||||||||
Income tax adjustments (4) | (13,757 | ) | (14,954 | ) | (17,243 | ) | (21,813 | ) | |||||||||||||||
Non-GAAP net income | $ | 61,418 | $ | 57,695 | $ | 120,398 | $ | 117,915 | |||||||||||||||
GAAP diluted earnings per share | $ | 0.05 | $ | 0.36 | $ | 0.31 | $ | 0.69 | |||||||||||||||
Fair value of acquired deferred revenue | 0.01 | - | 0.02 | - | |||||||||||||||||||
Fair value adjustment to deferred services cost | - | - | - | - | |||||||||||||||||||
Stock-based compensation | 0.11 | 0.10 | 0.21 | 0.21 | |||||||||||||||||||
Amortization of acquired intangibles | 0.12 | 0.10 | 0.24 | 0.20 | |||||||||||||||||||
Acquisition-related charges | 0.03 | 0.03 | 0.08 | 0.04 | |||||||||||||||||||
Restructuring charges | 0.33 | - | 0.33 | 0.01 | |||||||||||||||||||
Income tax adjustments | (0.12 | ) | (0.12 | ) | (0.15 | ) | (0.18 | ) | |||||||||||||||
Non-GAAP diluted earnings per share | $ | 0.53 | $ | 0.48 | $ | 1.03 | $ | 0.98 | |||||||||||||||
(2) | Operating margin impact of non-GAAP adjustments: | ||||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
April 4, | March 29, | April 4, | March 29, | ||||||||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||||||||
GAAP operating margin | 1.3 | % | 15.6 | % | 6.5 | % | 16.2 | % | |||||||||||||||
Fair value of acquired deferred revenue | 0.4 | % | 0.0 | % | 0.4 | % | 0.0 | % | |||||||||||||||
Fair value adjustment to deferred services cost | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||||||||
Stock-based compensation | 4.1 | % | 3.8 | % | 3.8 | % | 3.9 | % | |||||||||||||||
Amortization of acquired intangibles | 4.4 | % | 3.8 | % | 4.4 | % | 3.8 | % | |||||||||||||||
Acquisition-related charges | 1.1 | % | 1.2 | % | 1.5 | % | 0.8 | % | |||||||||||||||
Restructuring charges | 12.3 | % | 0.0 | % | 6.0 | % | 0.2 | % | |||||||||||||||
Non-GAAP operating margin | 23.4 | % | 24.4 | % | 22.4 | % | 24.8 | % | |||||||||||||||
(3) | Represents acquisition-related charges, as well as, expense related to a terminating U.S. pension plan of $1.7 million and $3.4 million in the three and six months ended April 4, 2015, respectively. | ||||||||||||||||||||||
(4) | Income tax adjustments for the three and six months ended April 4, 2014 and March 29, 2014 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. Similarly, in the fourth quarter of 2014, valuation allowances were established against our foreign net deferred tax assets in two foreign jurisdictions. As the U.S. and the two foreign jurisdictions are profitable on a non-GAAP basis, the 2015 and 2014 non-GAAP tax provisions are being calculated assuming there is no valuation allowance in these jurisdictions. The following identified tax item has been excluded from the non-GAAP tax results: Q2'14 includes a non-cash tax benefit of $8.9 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for the acquisition of ThingWorx. | ||||||||||||||||||||||
PTC Inc. | ||||||||
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands) | ||||||||
April 4, | September 30, | |||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 267,815 | $ | 293,654 | ||||
Accounts receivable, net | 201,379 | 235,688 | ||||||
Property and equipment, net | 65,191 | 67,783 | ||||||
Goodwill and acquired intangible assets, net | 1,286,396 | 1,349,400 | ||||||
Other assets | 287,849 | 253,429 | ||||||
Total assets | $ | 2,108,630 | $ | 2,199,954 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Deferred revenue | $ | 420,827 | $ | 382,544 | ||||
Borrowings under credit facility | 530,625 | 611,875 | ||||||
Other liabilities | 302,958 | 351,646 | ||||||
Stockholders' equity | 854,220 | 853,889 | ||||||
Total liabilities and stockholders' equity | $ | 2,108,630 | $ | 2,199,954 | ||||
PTC Inc. | |||||||||||||||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||||
(in thousands) | |||||||||||||||||||||
Three Months Ended | Six Months Ended | ||||||||||||||||||||
April 4, | March 29, | April 4, | March 29, | ||||||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||||
Net income | $ | 5,392 | $ | 43,756 | $ | 35,676 | $ | 83,413 | |||||||||||||
Stock-based compensation | 12,822 | 12,566 | 24,064 | 25,330 | |||||||||||||||||
Depreciation and amortization | 20,968 | 19,173 | 42,205 | 38,273 | |||||||||||||||||
Accounts receivable | (3,089 | ) | (2,536 | ) | 22,711 | 16,737 | |||||||||||||||
Accounts payable and accruals | 33,720 | 5,231 | (17,198 | ) | (37,631 | ) | |||||||||||||||
Deferred revenue | 40,976 | 40,510 | 32,200 | 29,683 | |||||||||||||||||
Income taxes | (13,612 | ) | (1,514 | ) | (16,565 | ) | 5,879 | ||||||||||||||
Excess tax benefits from stock-based awards | - | (1,290 | ) | (163 | ) | (8,092 | ) | ||||||||||||||
Other | (5,185 | ) | (5,174 | ) | (17,306 | ) | (6,628 | ) | |||||||||||||
Net cash provided by operating activities (5) |
91,992 | 110,722 | 105,624 | 146,964 | |||||||||||||||||
Capital expenditures | (6,160 | ) | (4,568 | ) | (14,107 | ) | (10,342 | ) | |||||||||||||
Acquisitions of businesses, net of cash acquired (6) | - | (111,519 | ) | 180 | (111,519 | ) | |||||||||||||||
Proceeds (payments) on debt, net | (75,000 | ) | (50,000 | ) | (81,250 | ) | 60,000 | ||||||||||||||
Proceeds from issuance of common stock | 3 | 365 | 6 | 716 | |||||||||||||||||
Payments of withholding taxes in connection with | |||||||||||||||||||||
vesting of stock-based awards | (195 | ) | (2,274 | ) | (21,864 | ) | (21,637 | ) | |||||||||||||
Repurchases of common stock | - | (39,965 | ) | - | (39,965 | ) | |||||||||||||||
Excess tax benefits from stock-based awards | - | 1,290 | 163 | 8,092 | |||||||||||||||||
Credit facility origination costs | - | (4,120 | ) | - | (4,120 | ) | |||||||||||||||
Other financing & investing activities | - | - | (1,000 | ) | - | ||||||||||||||||
Foreign exchange impact on cash | (3,877 | ) | (838 | ) | (13,591 | ) | 368 | ||||||||||||||
Net change in cash and cash equivalents | 6,763 | (100,907 | ) | (25,839 | ) | 28,557 | |||||||||||||||
Cash and cash equivalents, beginning of period | 261,052 | 371,377 | 293,654 | 241,913 | |||||||||||||||||
Cash and cash equivalents, end of period | $ | 267,815 | $ | 270,470 | $ | 267,815 | $ | 270,470 | |||||||||||||
(5) | The three and six months ended April 4, 2015 includes $5 million and $15 million of voluntary contribution funding payments to a non-U.S. pension plan, respectively. The three and six months ended April 4, 2015 include $5 million and $23 million in restructuring payments, respectively. The three and six months ended March 29, 2014 include $5 million and $17 million in restructuring payments, respectively. | ||||||||||||||||||||
(6) | We acquired ThingWorx on December 30, 2013 for $112 million (net of cash acquired) which was funded with $110 million borrowed under our revolving credit facility. We borrowed the funds in Q1'14 in contemplation of the acquisition closing. | ||||||||||||||||||||