Foreign Currency Impacts on our Business
We
have a global business, with Europe and Asia historically representing
approximately 60% of our revenue, and fluctuation in foreign currency
exchange rates can significantly impact our results. We do not forecast
currency movements; rather we provide detailed constant currency
commentary. We employ a hedging strategy to limit our exposure to
currency risk.
Constant Currency Change Metric
Year-over-year
changes in revenue and bookings on a constant currency basis compare
reported results excluding the effect of any hedging converted into U.S.
dollars based on the corresponding prior year’s foreign currency
exchange rates to reported results for the comparable prior year period.
Important Information About Non-GAAP References
PTC
provides non-GAAP supplemental information to its financial results. 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 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 our financial results and such items often recur.
Management uses, and investors should consider, non-GAAP measures in
conjunction with our GAAP results.
Non-GAAP revenue, non-GAAP operating expense, non-GAAP operating margin, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net income and non-GAAP EPS exclude the effect of the following items: fair value of acquired deferred revenue, fair value adjustment to deferred services cost, stock-based compensation, amortization of acquired intangible assets, acquisition-related and other transactional charges included in general and administrative costs, restructuring and headquarters relocation charges, and income tax adjustments. Additional information about the items we exclude from our non-GAAP financial measures and the reasons we exclude them can be found in “Non-GAAP Financial Measures” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
A reconciliation of non-GAAP measures to GAAP results is provided within this press release.
PTC also provides information on “free cash flow” and “adjusted free cash flow” 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; adjusted free cash flow is free cash flow excluding restructuring payments and certain identified non-ordinary course payments. Free cash flow and adjusted free cash flow are not measures of cash available for discretionary expenditures.
Forward-Looking Statements
Statements
in this press release that are not historic facts, including statements
about our future financial and growth expectations and targets, are
forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those projected.
These risks include: the macroeconomic and/or global manufacturing
climates may deteriorate due to, among other factors, the geopolitical
environment, including the focus on technology transactions with
non-U.S. entities and potential expanded prohibitions, and ongoing trade
tensions and tariffs; customers may not purchase our solutions or
convert existing support contracts to subscription when or at the rates
we expect; our businesses, including our Internet of Things (IoT)
business, and Augmented Reality business, may not expand and/or generate
the revenue we expect; foreign currency exchange rates may vary from our
expectations and thereby affect our reported revenue and expense; the
mix of revenue between license & subscription solutions, support and
professional services could be different than we expect, which could
impact our EPS results; our transition to subscription-only licensing
could adversely affect sales and revenue; sales of our solutions as
subscriptions may not have the longer-term effect on revenue and
earnings that we expect; bookings associated with minimum ACV
commitments under our Strategic Alliance Agreement with Rockwell
Automation may not result in subscription contracts sold through to
end-user customers; our strategic initiatives and investments may not
generate the revenue we expect; we may be unable to expand our partner
ecosystem as we expect and our partners may not generate the revenue we
expect; we may be unable to generate sufficient operating cash flow to
return 40% of free cash flow to shareholders and other uses of cash or
our credit facility limits or other matters could preclude share
repurchases. 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. 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 Reports on Form 10-Q.