PTC Announces Q3 Results; Provides Q4 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, costs associated with terminating a U.S. pension plan, certain identified non-operating gains and losses, 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 third 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 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, 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 businesses, including the SLM business and the ThingWorx/Internet of Things/Smart, Connected Products business, may not expand and/or generate the revenue we expect, the possibility that we may not complete the acquisition of Axeda Corporation when or as we expect, the possibility that resource constraints and personnel reductions could adversely affect our revenue, 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, ThingWorx, Creo, Servigistics, 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. 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 Nine Months Ended
June 28, June, 29 June 28, June, 29
  2014     2013   2014     2013  
 
Revenue:
License $ 92,707 $ 79,902 $ 257,118 $ 238,777
Service 70,187 72,540 222,942 222,384
Support   173,740     162,554   510,199     487,535  
Total revenue   336,634     314,996   990,259     948,696  
 
Cost of revenue:
Cost of license revenue (1) 7,831 8,431 23,348 24,734
Cost of service revenue (1) 61,910 62,941 191,666 196,083
Cost of support revenue (1)   21,335     19,796   62,815     60,693  
Total cost of revenue   91,076     91,168   277,829     281,510  
 
Gross margin   245,558     223,828   712,430     667,186  
 
Operating expenses:
Sales and marketing (1) 91,440 88,298 261,612 269,906
Research and development (1) 57,405 53,834 166,109 166,791
General and administrative (1) 33,817 28,812 98,888 98,027
Amortization of acquired intangible assets 7,998 6,532 23,772 19,795
Restructuring charges   514     3,137   1,581     34,349  
Total operating expenses   191,174     180,613   551,962     588,868  
 
Operating income 54,384 43,215 160,468 78,318
Other income (expense), net   (2,278 )   3,181   (6,724 )   (491 )
Income before income taxes 52,106 46,396 153,744 77,827
Provision (benefit) for income taxes   14,080     11,941   32,305     (9,476 )
Net income $ 38,026   $ 34,455 $ 121,439   $ 87,303  
 
Earnings per share:
Basic $ 0.32 $ 0.29 $ 1.02 $ 0.73
Weighted average shares outstanding 118,328 119,440 118,753 119,628
 
Diluted $ 0.32 $ 0.29 $ 1.01 $ 0.72
Weighted average shares outstanding 119,901 120,828 120,573 121,234
 
 
 
(1) The amounts in the tables above include stock-based compensation as follows:
 
Three Months Ended Nine Months Ended
June 28, June, 29 June 28, June, 29
  2014     2013   2014     2013  
Cost of license revenue $ 4 $ 4 $ 13 $ 17
Cost of service revenue 1,608 1,372 4,632 4,404
Cost of support revenue 898 722 2,711 2,383
Sales and marketing 3,065 2,693 8,583 7,986
Research and development 2,231 2,139 7,067 6,475
General and administrative   4,726     4,247   14,856     13,615  
Total stock-based compensation $ 12,532   $ 11,177 $ 37,862   $ 34,880  
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
         
Three Months Ended Nine Months Ended
June 28, June, 29 June 28, June, 29
  2014     2013     2014     2013  
 
GAAP revenue $ 336,634 $ 314,996 $ 990,259 $ 948,696
Fair value of acquired company's
deferred support revenue   -     534     -     2,748  
Non-GAAP revenue $ 336,634   $ 315,530   $ 990,259   $ 951,444  
 
GAAP gross margin $ 245,558 $ 223,828 $ 712,430 $ 667,186
Fair value of acquired company's
deferred support revenue - 534 - 2,748
Stock-based compensation 2,510 2,098 7,356 6,804
Amortization of acquired intangible assets
included in cost of license revenue 4,323 4,598 13,044 13,865
Amortization of acquired intangible assets
included in cost of service revenue   92     -     275     -  
Non-GAAP gross margin $ 252,483   $ 231,058   $ 733,105   $ 690,603  
 
GAAP operating income $ 54,384 $ 43,215 $ 160,468 $ 78,318
Fair value of acquired company's
deferred support revenue - 534 - 2,748
Stock-based compensation 12,532 11,177 37,862 34,880
Amortization of acquired intangible assets
included in cost of license revenue 4,323 4,598 13,044 13,865
Amortization of acquired intangible assets
included in cost of service revenue 92 - 275 -
Amortization of acquired intangible assets 7,998 6,532 23,772 19,795
Charges included in general and administrative expenses (3) 1,528 900 6,768 7,609
Restructuring charges   514     3,137     1,581     34,349  
Non-GAAP operating income (2) $ 81,371   $ 70,093   $ 243,770   $ 191,564  
 
GAAP net income $ 38,026 $ 34,455 $ 121,439 $ 87,303
Fair value of acquired company's
deferred support revenue - 534 - 2,748
Stock-based compensation 12,532 11,177 37,862 34,880
Amortization of acquired intangible assets
included in cost of license revenue 4,323 4,598 13,044 13,865
Amortization of acquired intangible assets
included in cost of service revenue 92 - 275 -
Amortization of acquired intangible assets 7,998 6,532 23,772 19,795
Charges included in general and administrative expenses (3) 1,528 900 6,768 7,609
Restructuring charges 514 3,137 1,581 34,349
Non-operating one-time gain (4) - (5,123 ) - (5,123 )
Income tax adjustments (5)   (1,275 )   (2,303 )   (23,088 )   (47,844 )
Non-GAAP net income $ 63,738   $ 53,907   $ 181,653   $ 147,582  
 
GAAP diluted earnings per share $ 0.32 $ 0.29 $ 1.01 $ 0.72
Fair value of acquired deferred support revenue - - - 0.02
Stock-based compensation 0.10 0.09 0.31 0.29
Amortization of acquired intangibles 0.10 0.09 0.31 0.28
Charges included in general and administrative expenses (3) 0.01 0.01 0.06 0.06
Restructuring charges - 0.03 0.01 0.28
Non-operating one-time gain (4) - (0.04 ) - (0.04 )
Income tax adjustments (5)   (0.01 )   (0.02 )   (0.19 )   (0.39 )
Non-GAAP diluted earnings per share $ 0.53   $ 0.45   $ 1.51   $ 1.22  
 
(2) Operating margin impact of non-GAAP adjustments:
Three Months Ended Nine Months Ended
June 28, June, 29 June 28, June, 29
  2014     2013     2014     2013  
GAAP operating margin 16.2 % 13.7 % 16.2 % 8.3 %
Fair value of acquired deferred support revenue 0.0 % 0.2 % 0.0 % 0.3 %
Stock-based compensation 3.7 % 3.5 % 3.8 % 3.7 %
Amortization of acquired intangibles 3.7 % 3.5 % 3.7 % 3.5 %
Charges included in general and administrative expenses (3) 0.5 % 0.3 % 0.7 % 0.8 %
Restructuring charges   0.2 %   1.0 %   0.2 %   3.6 %
Non-GAAP operating margin   24.2 %   22.2 %   24.6 %   20.1 %
 

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