PTC Announces Strong Q4 Results, Initiates FY’12 Targets and Q1 Guidance

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 the acquired deferred maintenance balance of MKS Inc., stock-based compensation expense, amortization of acquired intangible assets, 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 2012 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 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 strategic customer wins may not generate the revenue we expect, the possibility that new product releases may not generate the revenue we expect, the possibility that resource constraints could adversely affect our revenue, the possibility that our strategic investments may not generate the growth or revenues 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. 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 Product Development Company, 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,
2011 2010 2011 2010
 
Revenue:
License $ 111,002 $ 89,063 $ 342,121 $ 296,021
Service   228,423     179,003     824,828     714,028  
Total revenue   339,425     268,066     1,166,949     1,010,049  
 
Costs and expenses:
Cost of license revenue (1) 8,663 7,047 28,792 31,047
Cost of service revenue (1) 89,864 70,100 327,976 276,648
Sales and marketing (1) 98,261 84,676 353,051 317,532
Research and development (1) 55,730 50,320 211,406 201,567
General and administrative (1) 30,213 23,242 110,291 92,875
Amortization of acquired intangible assets   5,446     3,736     18,319     15,605  
Total costs and expenses   288,177     239,121     1,049,835     935,274  
 
Operating income 51,248 28,945 117,114 74,775
Gain on litigation resolution - 9,039 - 9,039
Other expense, net   (3,587 )   (229 )   (12,566 )   (1,678 )
Income before income taxes 47,661 37,755 104,548 82,136
Provision for income taxes   10,040     50,970     19,124     57,768  
Net income (loss) $ 37,621   $ (13,215 ) $ 85,424   $ 24,368  
 
Earnings (loss) per share:

Basic

$ 0.32 $ (0.11 ) $ 0.73 $ 0.21
Weighted average shares outstanding 117,095 115,134 117,579 115,639
 
Diluted $ 0.31 $ (0.11 ) $ 0.71 $ 0.20
Weighted average shares outstanding 120,091 115,134 120,974 119,925
 
 
 
(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,
2011 2010 2011 2010
Cost of license revenue $ 5 $ 3 $ 15 $ 24
Cost of service revenue 2,155 2,115 7,732 9,122
Sales and marketing 3,587 3,367 11,428 13,432
Research and development 2,395 2,186 8,547 9,480
General and administrative   4,802     3,583     17,680     16,853  
Total stock-based compensation $ 12,944   $ 11,254   $ 45,402   $ 48,911  
 
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,
2011 2010 2011 2010
 
GAAP revenue $ 339,425 $ 268,066 $ 1,166,949 $ 1,010,049

Fair value of acquired MKS deferred maintenance
    revenue

1,913 - 2,606 -
Non-GAAP revenue $ 341,338   $ 268,066   $ 1,169,555   $ 1,010,049  
 
GAAP operating income $ 51,248 $ 28,945 $ 117,114 $ 74,775

Fair value of acquired MKS deferred maintenance
    revenue

1,913 - 2,606 -
Stock-based compensation 12,944 11,254 45,402 48,911

Amortization of acquired intangible assets
    included in cost of license revenue

4,796 3,882 15,393 18,367
Amortization of acquired intangible assets 5,446 3,736 18,319 15,605

Acquisition-related charges included in
    general and administrative expenses

1,112 - 7,761 -
Non-GAAP operating income (2) $ 77,459   $ 47,817   $ 206,595   $ 157,658  
 
GAAP net income (loss) $ 37,621 $ (13,215 ) $ 85,424 $ 24,368

Fair value of acquired MKS deferred maintenance
    revenue

1,913 - 2,606 -
Stock-based compensation 12,944 11,254 45,402 48,911

Amortization of acquired intangible assets
    included in cost of license revenue

4,796 3,882 15,393 18,367
Amortization of acquired intangible assets 5,446 3,736 18,319 15,605

Acquisition-related charges included in
    general and administrative expenses

1,112 - 7,761 -
Non-operating foreign currency transaction loss (3) - - 5,107 -
Gain on litigation resolution (4) - (9,039 ) - (9,039 )
Income tax adjustments (5)   (7,662 )   41,548     (27,846 )   21,341  
Non-GAAP net income $ 56,170   $ 38,166   $ 152,166   $ 119,553  
 
GAAP diluted earnings (loss) per share $ 0.31 $ (0.11 ) $ 0.71 $ 0.20
Stock-based compensation 0.11 0.09 0.38 0.41
Income tax adjustments (0.06 ) 0.35 (0.23 ) 0.18
Gain on litigation resolution - (0.08 ) - (0.08 )
Acquisition-related charge 0.01 - 0.06 -
All other items identified above   0.10     0.07     0.34     0.29  
Non-GAAP diluted earnings per share $ 0.47   $ 0.32   $ 1.26   $ 1.00  
 
GAAP diluted weighted average shares outstanding 120,091 115,134 120,974 119,925
Dilutive effect of stock based compensation plans   -     4,562     -     -  
Non-GAAP diluted weighted average shares outstanding   120,091     119,696     120,974     119,925  
 
 
 
(2)Operating margin impact of non-GAAP adjustments:
 
Three Months Ended Year Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
GAAP operating margin 15.1 % 10.8 % 10.0 % 7.4 %
Fair value of deferred maintenance revenue 0.6 % 4.2 % 0.2 % 4.8 %
Stock-based compensation 3.8 % 2.8 % 3.9 % 3.4 %
Amortization of acquired intangibles 3.0 % 0.0 % 2.9 % 0.0 %
Acquisition-related charges   0.3 %   0.0 %   0.7 %   0.0 %
Non-GAAP operating margin   22.7 %   17.8 %   17.7 %   15.6 %
(3)   In the third quarter of 2011, in connection with our planned acquisition of MKS, we entered into forward contracts to purchase CDN$292 million (equivalent to approximately $305 million when the contracts were entered into). We entered into these forward contracts to reduce our foreign currency exposure related to changes in the Canadian to US Dollar exchange rate from the time we entered into the agreement in early April to acquire MKS (the purchase price is in Canadian Dollars) and the closing date which occurred on May 31, 2011. We realized foreign currency losses of $4.4 million in the third quarter of 2011 recorded as other expense related to the acquisition of MKS. 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 resolution of the litigation brought against us by GE Japan, which resulted in a GAAP benefit of $9.0 million to other income in the fourth quarter of 2010 to reduce our accruals related to this litigation to the resolution amount.
 
(5) Reflects the tax effects of non-GAAP adjustments for the fourth quarter and full year of 2011 and 2010, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, as well as, the effect of a business realignment initiative during the fourth quarter of 2010, primarily in Europe, to simplify our corporate structure for tax efficient cash repatriation. This realignment resulted in a one-time non-cash GAAP tax charge of $43.4 million.
 
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
       
 
September 30, September 30,
2011 2010
 
ASSETS
 
Cash and cash equivalents $ 167,878 $ 240,253
Accounts receivable, net 230,220 169,281
Property and equipment, net 62,569 58,064
Goodwill and acquired intangible assets, net 835,411 546,440
Other assets 333,604 293,026
   
Total assets $ 1,629,682 $ 1,307,064
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 294,324 $ 245,840
Borrowings under revolving credit facility 200,000 -
Other liabilities 312,668 313,920
Stockholders' equity 822,690 747,304
   
Total liabilities and stockholders' equity $ 1,629,682 $ 1,307,064
 
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,
2011 2010 2011 2010
 
Cash flows from operating activities:
Net income (loss) $ 37,621 $ (13,215 ) $ 85,424 $ 24,368
Stock-based compensation 12,944 11,254 45,402 48,911
Depreciation and amortization 17,847 14,644 62,394 62,182
Accounts receivable (50,393 ) (11,759 ) (32,334 ) (531 )
Accounts payable and accruals (6) 7,908 25,839 (3,846 ) 20,591
Deferred revenue (28,630 ) (31,124 ) 8,195 1,440
Income taxes 1,994 39,183 (15,861 ) 16,134
Litigation settlement - (5,038 ) (52,129 ) (5,038 )
Other   736     (14,216 )   (18,547 )   (11,413 )
Net cash provided by operating activities (7) 27 15,568 78,698 156,644
 
Capital expenditures (9,522 ) (5,045 ) (27,817 ) (26,729 )
Acquisitions of businesses, net of cash acquired (14,873 ) (634 ) (280,026 ) (2,721 )
Proceeds (payments) on debt (50,000 ) - 200,000 (50,832 )
Repurchases of common stock (14,973 ) (2,496 ) (54,920 ) (62,542 )
Other investing and financing activities (8) 2,824 4,139 5,340 (7,361 )
Foreign exchange impact on cash   (6,356 )   9,702     6,350     (1,328 )
 
Net change in cash and cash equivalents (92,873 ) 21,234 (72,375 ) 5,131
Cash and cash equivalents, beginning of period   260,751     219,019     240,253     235,122  
Cash and cash equivalents, end of period $ 167,878   $ 240,253   $ 167,878   $ 240,253  
(6)  

Includes accounts payable, accrued expenses, and accrued compensation and benefits.

 
(7) 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.
 
(8) The three months ended September 30, 2011 and 2010 include $0.5 million and $0.1 million, respectively, for payments of withholding taxes in connection with the vesting of restricted stock units and restricted stock. The years ended September 30, 2011 and 2010 include $22.5 million and $20.3 million, respectively, for payments of withholding taxes in connection with vesting of restricted stock units and restricted stock.

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