PTC Announces Second Quarter Fiscal Year 2019 Results

About PTC (NASDAQ: PTC)
PTC unleashes industrial innovation with award-winning, market-proven solutions that enable companies to differentiate their products and services, improve operational excellence, and increase workforce productivity. With PTC, and its partner ecosystem, manufacturers can capitalize on the promise of today’s new technology to drive digital transformation.

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PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
       
Three Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
 
Revenue:
Subscription license $ 51,540
Subscription support & cloud services   83,228  
Total Subscription 134,768 $ 162,070 $ 112,931
Perpetual support   104,417     103,564     126,683  
Total recurring revenue 239,185 265,634 239,614
Perpetual license   10,336     11,267     22,839  
Total software revenue 249,521 276,901 262,453
Professional services   40,930     38,598     45,430  
Total revenue (1)   290,451     315,499     307,883  
 
Cost of revenue:
Cost of software revenue (2) (3) 45,749 45,222 46,189
Cost of professional services revenue (2) (3)   34,155     32,745     37,519  
Total cost of revenue   79,904     77,967     83,708  
 
Gross margin   210,547     237,532     224,175  
 
Operating expenses:
Sales and marketing (2) (3) 103,722 109,421 98,390
Research and development (2) (3) 61,402 61,402 62,197
General and administrative (2) (3) 35,371 35,371 33,369
Amortization of acquired intangible assets 5,930 5,930 7,895
Restructuring and other charges, net   26,980     26,980     114  
Total operating expenses   233,405     239,104     201,965  
 
Operating income (loss) (22,858 ) (1,572 ) 22,210
Other expense, net (3)   (10,562 )   (10,318 )   (10,664 )
Income (loss) before income taxes (33,420 ) (11,890 ) 11,546
Provision for income taxes   10,093     140     3,624  
Net income (loss) $ (43,513 ) $ (12,030 ) $ 7,922  
 
Earnings (loss) per share:
Basic $ (0.37 ) $ (0.10 ) $ 0.07
Weighted average shares outstanding 118,461 118,461 116,241
 
Diluted $ (0.37 ) $ (0.10 ) $ 0.07
Weighted average shares outstanding 118,461 118,461 117,905

 

(1)   See supplemental financial data for revenue by license, support, and professional services.
(2) See supplemental financial data for additional information about stock-based compensation.
(3) In the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) 2017-07 - Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost . In accordance with this guidance, we reclassified $0.2 million of non-service related net periodic pension income to other expense, net from cost of revenue and operating expenses for the three months ended March 31, 2018.
 
 
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
       
Six Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
 
Revenue:
Subscription license $ 115,057
Subscription support & cloud services   160,652  
Total Subscription 275,709 $ 310,483 $ 212,939
Perpetual support   214,914     212,789     257,880  
Total recurring revenue 490,623 523,272 470,819
Perpetual license   52,141     53,017     56,824  
Total software revenue 542,764 576,289 527,643
Professional services   82,376     77,967     86,884  
Total revenue (1)   625,140     654,256     614,527  
 
Cost of revenue:
Cost of software revenue (2) (3) 89,509 88,199 92,805
Cost of professional services revenue (2) (3)   67,747     64,964     73,938  
Total cost of revenue   157,256     153,163     166,743  
 
Gross margin   467,884     501,093     447,784  
 
Operating expenses:
Sales and marketing (2) (3) 207,940 216,725 197,765
Research and development (2) (3) 122,184 122,184 126,169
General and administrative (2) (3) 73,235 73,235 68,389
Amortization of acquired intangible assets 11,866 11,866 15,716
Restructuring and other charges, net   45,473     45,473     219  
Total operating expenses   460,698     469,483     408,258  
 
Operating income 7,186 31,610 39,526
Other expense, net (3)   (20,184 )   (20,046 )   (21,509 )
Income (loss) before income taxes (12,998 ) 11,564 18,017
Provision (benefit) for income taxes (4)   9,530     4,346     (3,782 )
Net income (loss) $ (22,528 ) $ 7,218   $ 21,799  
 
Earnings (loss) per share:
Basic $ (0.19 ) $ 0.06 $ 0.19
Weighted average shares outstanding 118,392 118,392 115,986
 
Diluted $ (0.19 ) $ 0.06 $ 0.19
Weighted average shares outstanding 118,392 119,490 117,780

 

(1)   See supplemental financial data for revenue by license, support, and professional services.
(2) See supplemental financial data for additional information about stock-based compensation.
(3) In the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) 2017-07 - Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost . In accordance with this guidance, we reclassified $0.3 million of non-service related net periodic pension income to other expense, net from cost of revenue and operating expenses for the six months ended March 31, 2018.
(4) Our 2018 year-to-date tax rate includes a benefit of $7 million relating to the enactment of the Tax Cuts and Jobs Act.
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
       
Revenue by license, support and services is as follows:
Three Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
License revenue (1) $ 61,876 $ 156,131 $ 120,505
Support and cloud services revenue 187,645 120,770 141,948
Professional services revenue   40,930   38,598   45,430
Total revenue $ 290,451 $ 315,499 $ 307,883
 
Six Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
License revenue (1) $ 167,198 $ 330,036 $ 240,023
Support and cloud services revenue 375,566 246,253 287,620
Professional services revenue   82,376   77,967   86,884
Total revenue $ 625,140 $ 654,256 $ 614,527
 
(1) Under ASC 605, all subscription revenue is classified as license revenue.
 
The amounts in the income statement include stock-based compensation as follows:
 
Three Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
Cost of software revenue $ 1,206 $ 1,206 $ 1,098
Cost of professional services revenue 1,906 1,906 1,669
Sales and marketing 9,522 9,522 5,038
Research and development 5,190 5,190 3,383
General and administrative   9,143   9,143   5,838
Total stock-based compensation $ 26,967 $ 26,967 $ 17,026
 
Six Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
Cost of software revenue $ 2,503 $ 2,503 $ 2,319
Cost of professional services revenue 3,720 3,720 3,375
Sales and marketing 19,244 19,244 9,917
Research and development 10,090 10,090 6,343
General and administrative   20,817   20,817   13,403
Total stock-based compensation $ 56,374 $ 56,374 $ 35,357
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
       
Three Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
 
GAAP revenue $ 290,451 $ 315,499 $ 307,883
Fair value adjustment of acquired deferred subscription revenue - - 75
Fair value adjustment of acquired deferred services revenue   198     198     233  
Non-GAAP revenue $ 290,649   $ 315,697   $ 308,191  
 
GAAP gross margin $ 210,547 $ 237,532 $ 224,175
Fair value adjustment of acquired deferred revenue 198 198 308
Fair value adjustment to deferred services cost (77 ) (77 ) (96 )
Stock-based compensation 3,112 3,112 2,767
Amortization of acquired intangible assets included in cost of revenue   6,842     6,842     6,556  
Non-GAAP gross margin $ 220,622   $ 247,607   $ 233,710  
 
GAAP operating income (loss) $ (22,858 ) $ (1,572 ) $ 22,210
Fair value adjustment of acquired deferred revenue 198 198 308
Fair value adjustment to deferred services cost (77 ) (77 ) (96 )
Stock-based compensation 26,967 26,967 17,026
Amortization of acquired intangible assets included in cost of revenue 6,842 6,842 6,556
Amortization of acquired intangible assets 5,930 5,930 7,895
Acquisition-related and other transactional charges included in general and administrative costs 372 372 133
Restructuring and other charges, net   26,980     26,980     114  
Non-GAAP operating income (1) $ 44,354   $ 65,640   $ 54,146  
 
GAAP net income (loss) $ (43,513 ) $ (12,030 ) $ 7,922
Fair value adjustment of acquired deferred revenue 198 198 308
Fair value adjustment to deferred services cost (77 ) (77 ) (96 )
Stock-based compensation 26,967 26,967 17,026
Amortization of acquired intangible assets included in cost of revenue 6,842 6,842 6,556
Amortization of acquired intangible assets 5,930 5,930 7,895
Acquisition-related and other transactional charges included in general and administrative costs 372 372 133
Restructuring and other charges, net 26,980 26,980 114
Income tax adjustments (2)   2,138     (10,399 )   (80 )
Non-GAAP net income $ 25,837   $ 44,783   $ 39,778  
 
GAAP diluted earnings (loss) per share $ (0.37 ) $ (0.10 ) $ 0.07
Fair value adjustment of acquired deferred revenue - - -
Stock-based compensation 0.23 0.23 0.14
Amortization of acquired intangibles 0.11 0.11 0.12
Acquisition-related and other transactional charges - - -
Restructuring and other charges, net 0.23 0.23 -
Income tax adjustments   0.02     (0.09 )   -  
Non-GAAP diluted earnings per share $ 0.22   $ 0.38   $ 0.34  
 
GAAP diluted weighted average shares outstanding 118,461 118,461 117,905
Dilutive effect of stock-based compensation plans   881     881     -  
Non-GAAP diluted weighted average shares outstanding   119,342     119,342     117,905  
 

(1)Operating margin impact of non-GAAP adjustments:

Three Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
GAAP operating margin -7.9 % -0.5 % 7.2 %
Fair value adjustment of acquired deferred revenue 0.1 % 0.1 % 0.1 %
Fair value adjustment to deferred services cost 0.0 % 0.0 % 0.0 %
Stock-based compensation 9.3 % 8.5 % 5.5 %
Amortization of acquired intangibles 4.4 % 4.0 % 4.7 %
Acquisition-related and other transactional charges 0.1 % 0.1 % 0.0 %
Restructuring and other charges, net   9.3 %   8.6 %   0.0 %
Non-GAAP operating margin   15.3 %   20.8 %   17.6 %

 

(2)   We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the 2019 and 2018 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. Income tax adjustments 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.
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
       
Six Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
 
GAAP revenue $ 625,140 $ 654,256 $ 614,527
Fair value adjustment of acquired deferred subscription revenue 66 66 191
Fair value adjustment of acquired deferred services revenue   405     405     480  
Non-GAAP revenue $ 625,611   $ 654,727   $ 615,198  
 
GAAP gross margin $ 467,884 $ 501,093 $ 447,784
Fair value adjustment of acquired deferred revenue 471 471 671
Fair value adjustment to deferred services cost (162 ) (162 ) (200 )
Stock-based compensation 6,223 6,223 5,694
Amortization of acquired intangible assets included in cost of revenue   13,559     13,559     13,231  
Non-GAAP gross margin $ 487,975   $ 521,184   $ 467,180  
 
GAAP operating income $ 7,186 $ 31,610 $ 39,526
Fair value adjustment of acquired deferred revenue 471 471 671
Fair value adjustment to deferred services cost (162 ) (162 ) (200 )
Stock-based compensation 56,374 56,374 35,357
Amortization of acquired intangible assets included in cost of revenue 13,559 13,559 13,231
Amortization of acquired intangible assets 11,866 11,866 15,716
Acquisition-related and other transactional charges included in general and administrative costs 791 791 140
Restructuring and other charges, net   45,473     45,473     219  
Non-GAAP operating income (1) $ 135,558   $ 159,982   $ 104,660  
 
GAAP net income (loss) $ (22,528 ) $ 7,218 $ 21,799
Fair value adjustment of acquired deferred revenue 471 471 671
Fair value adjustment to deferred services cost (162 ) (162 ) (200 )
Stock-based compensation 56,374 56,374 35,357
Amortization of acquired intangible assets included in cost of revenue 13,559 13,559 13,231
Amortization of acquired intangible assets 11,866 11,866 15,716
Acquisition-related and other transactional charges included in general and administrative costs 791 791 140
Restructuring and other charges, net 45,473 45,473 219
Income tax adjustments (2)   (12,718 )   (22,540 )   (11,080 )
Non-GAAP net income $ 93,126   $ 113,050   $ 75,853  
 
GAAP diluted earnings (loss) per share $ (0.19 ) $ 0.06 $ 0.19
Fair value adjustment of acquired deferred revenue - - 0.01
Stock-based compensation 0.47 0.47 0.30
Amortization of acquired intangibles 0.21 0.21 0.25
Acquisition-related and other transactional charges 0.01 0.01 -
Restructuring and other charges, net 0.38 0.38 -
Income tax adjustments   (0.11 )   (0.19 )   (0.09 )
Non-GAAP diluted earnings per share $ 0.78   $ 0.95   $ 0.64  
 
GAAP diluted weighted average shares outstanding 118,392 119,490 117,780
Dilutive effect of stock-based compensation plans   1,098     -     -  
Non-GAAP diluted weighted average shares outstanding   119,490     119,490     117,780  
 

(1) Operating margin impact of non-GAAP adjustments:

Six Months Ended
March 30, March 30, March 31,
2019 2019 2018
ASC 606 ASC 605 ASC 605
GAAP operating margin 1.1 % 4.8 % 6.4 %
Fair value adjustment of acquired deferred revenue 0.1 % 0.1 % 0.1 %
Fair value adjustment to deferred services cost 0.0 % 0.0 % 0.0 %
Stock-based compensation 9.0 % 8.6 % 5.8 %
Amortization of acquired intangibles 4.1 % 3.9 % 4.7 %
Acquisition-related and other transactional charges 0.1 % 0.1 % 0.0 %
Restructuring and other charges, net   7.3 %   7.0 %   0.1 %
Non-GAAP operating margin   21.7 %   24.4 %   17.0 %
 

 

(2)   We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the 2019 and 2018 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. Income tax adjustments 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. We have recorded the impact of the Tax Cuts and Jobs Act in our Q1'18 GAAP earnings, resulting in a non-cash benefit of approximately $7 million. We have excluded this benefit from our non-GAAP results.
 
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
       
March 30, March 30, September 30,
2019 2019 2018
ASC 606 (1) ASC 605 ASC 605
 
ASSETS
 
Cash and cash equivalents $ 294,299 $ 294,299 $ 259,946
Marketable securities 56,415 56,415 55,951
Accounts receivable, net 352,217 110,510 129,297
Property and equipment, net 106,837 106,837 80,613
Goodwill and acquired intangible assets, net 1,421,913 1,421,913 1,382,659
Other assets 484,138 490,722 420,556
     
Total assets $ 2,715,819 $ 2,480,696 $ 2,329,022
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 391,807 $ 553,709 $ 499,442
Debt, net of deferred issuance costs 738,700 738,700 643,268
Other liabilities 337,604 275,359 311,723
Stockholders' equity 1,247,708 912,928 874,589
     
Total liabilities and stockholders' equity $ 2,715,819 $ 2,480,696 $ 2,329,022

 

(1)   Our consolidated balance sheet as of March 30, 2019 under ASC 606 is preliminary, pending final adjustments required as a result of our adoption of ASC 606 in the first quarter of 2019. We expect the adjustments to be finalized prior to the filing of our Form 10-Q for the second quarter of 2019.
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
Three Months Ended Six Months Ended
March 30, March 31, March 30, March 31,
2019 2018 2019 2018
 
Cash flows from operating activities:
Net income (loss) $ (43,513 ) $ 7,922 $ (22,528 ) $ 21,799
Stock-based compensation 26,967 17,026 56,374 35,357
Depreciation and amortization 19,505 21,681 39,558 42,727
Accounts receivable 30,476 10,424 54,501 32,027
Accounts payable and accruals 9,264 13,927 (27,868 ) (39,130 )
Deferred revenue 58,767 36,972 36,947 59,027
Income taxes 5,991 138 (15,677 ) (14,134 )
Other (1)   33,673     2,993     41,037     (1,075 )
Net cash provided by operating activities (3) 141,130 111,083 162,344 136,598
 
Capital expenditures (20,936 ) (4,762 ) (51,268 ) (11,139 )
Acquisition of businesses, net of cash acquired (2) 103 (3,000 ) (69,453 ) (3,000 )
Purchase of intangible asset - (500 ) - (3,000 )
Borrowings (payments) on debt, net (40,000 ) (100,000 ) 95,000 (70,000 )
Net proceeds associated with issuance of common stock 8,798 7,472 4,158 7,472
Repurchases of common stock (64,994 ) - (64,994 ) -

 

-

Payments of withholding taxes in connection with vesting of stock-based awards

(703 ) (454 ) (34,491 ) (33,942 )
Proceeds from (purchase of) investment (7,500 ) - (7,500 ) -
Contingent consideration - - (1,575 ) (3,176 )
Purchases of marketable securities, net (504 ) (5,046 ) (233 ) (5,554 )
Other financing & investing activities 1,709 - 114 -
Foreign exchange impact on cash   196     3,239     2,237     5,837  
 
Net change in cash, cash equivalents, and restricted cash (1) 17,299 8,032 34,339 20,096
Cash, cash equivalents, and restricted cash, beginning of period   278,133     293,273     261,093  

 

  281,209  
Cash, cash equivalents, and restricted cash, end of period $ 295,432   $ 301,305   $ 295,432   $ 301,305  
(1)   In the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) 2016-18 - Statement of Cash Flows (Topic 230) . In accordance with this guidance, we excluded the $0.1 million decrease and $0.3 million increase related to the change in restricted cash from the change in other current assets for the three months and six months ended March 31, 2018, respectively.
(2) On December 29, 2018, we acquired Frustum for $70 million, net of cash acquired.
(3) Our consolidated cash flows as of March 30, 2019 under ASC 606 is preliminary, pending final balance sheet adjustments required as a result of our adoption of ASC 606 in the first quarter of 2019, which will impact components of operating cash flow, but not total cash from operating activities. We expect the adjustments to be finalized prior to the filing of our Form 10-Q for the second quarter of 2019.
 

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