PTC Announces Q1 FY’15 Results; Provides Q2 and Updated FY’15 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, 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 first quarter of 2015 by the exchange rates in effect for the comparable period in the prior year.

Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our fiscal 2015 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 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 our businesses, including the Internet of Things (IoT) and SLM businesses, may not expand and/or generate the revenue 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 and professional services growth rates that we expect, which could result in a different mix of revenue between L&SS, support and professional services and could impact our EPS results, the possibility that customers may purchase more of our solutions as subscriptions, 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 improve services margins as we expect, the possibility that we may not generate sufficient operating cash flow to repurchase our shares as we plan or that other uses of cash may preclude such 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 us 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.

PTC, the PTC logo, ThingWorx, Axeda, 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

January 3,
2015

December 28,
2013
 
Revenue:

 

License and subscription solutions (L&SS) $ 78,971 $ 82,866
Support 181,629 170,142
Professional services   64,842     71,917  
Total revenue   325,442     324,925  
 
Cost of revenue:
Cost of L&SS revenue (1) 13,329 10,319
Cost of support revenue (1) 21,396 19,916
Cost of professional services revenue (1)   58,217     62,721  
Total cost of revenue   92,942     92,956  
 
Gross margin   232,500     231,969  
 
Operating expenses:
Sales and marketing (1) 87,607 84,238
Research and development (1) 61,097 53,073
General and administrative (1) 37,007 30,931
Amortization of acquired intangible assets 9,413 7,789
Restructuring charges   (255 )   1,067  
Total operating expenses   194,869     177,098  
 
Operating income 37,631 54,871
Other income (expense), net   (3,224 )   (1,753 )
Income before income taxes 34,407 53,118
Provision (benefit) for income taxes   4,123     13,461  
Net income $ 30,284   $ 39,657  
 
Earnings per share:
Basic $ 0.26 $ 0.33
Weighted average shares outstanding 115,341 118,933
 
Diluted $ 0.26 $ 0.33
Weighted average shares outstanding 117,027 121,100
 
 
 

(1) The amounts in the tables above include stock-based compensation as follows:

 
Three Months Ended
January 3,
2015
December 28,
2013
Cost of L&SS revenue $ 142 $ 65
Cost of support revenue 776 924
Cost of service revenue 1,689 1,537
Sales and marketing 2,872 2,499
Research and development 3,086 2,689
General and administrative   2,677     5,050  
Total stock-based compensation $ 11,242   $ 12,764  
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
             
Three Months Ended
January 3,
2015
December 28,
2013
 
GAAP revenue $ 325,442 $ 324,925
Fair value adjustment of acquired deferred L&SS revenue 682 -
Fair value adjustment of acquired deferred support revenue 465 -
Fair value adjustment of acquired deferred service revenue   257     -  
Non-GAAP revenue $ 326,846   $ 324,925  
 
GAAP gross margin $ 232,500 $ 231,969
Fair value adjustment of acquired deferred L&SS revenue 682 -
Fair value adjustment of acquired deferred support revenue 465 -
Fair value adjustment of acquired deferred service revenue 257 -
Fair value adjustment to deferred services cost (106 ) -
Stock-based compensation 2,607 2,526
Amortization of acquired intangible assets
included in cost of L&SS revenue   4,767     4,497  
Non-GAAP gross margin $ 241,172   $ 238,992  
 
GAAP operating income $ 37,631 $ 54,871
Fair value adjustment of acquired deferred L&SS revenue 682 -
Fair value adjustment of acquired deferred support revenue 465 -
Fair value adjustment of acquired deferred service revenue 257 -
Fair value adjustment to deferred services cost (106 ) -
Stock-based compensation 11,242 12,764
Amortization of acquired intangible assets
included in cost of license revenue 4,767 4,497
Amortization of acquired intangible assets 9,413 7,789
Charges included in general and administrative expenses (3) 5,717 1,305
Restructuring charges   (255 )   1,067  
Non-GAAP operating income (2) $ 69,813   $ 82,293  
 
GAAP net income $ 30,284 $ 39,657
Fair value adjustment of acquired deferred L&SS revenue 682 -
Fair value adjustment of acquired deferred support revenue 465 -
Fair value adjustment of acquired deferred service revenue 257 -
Fair value adjustment to deferred services cost (106 ) -
Stock-based compensation 11,242 12,764
Amortization of acquired intangible assets
included in cost of license revenue 4,767 4,497
Amortization of acquired intangible assets 9,413 7,789
Charges included in general and administrative expenses (3) 5,717 1,305
Restructuring charges (255 ) 1,067

Income tax adjustments (4)

  (3,486 )   (6,858 )
Non-GAAP net income $ 58,980   $ 60,221  
 

PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) - Continued
(in thousands, except per share data)

             
Three Months Ended
January 3,
2015
December 28,
2013
 
GAAP diluted earnings per share $ 0.26 $ 0.33
Fair value adjustment of acquired deferred revenue 0.01 -
Fair value adjustment to deferred costs - -
Stock-based compensation 0.10 0.11
Amortization of acquired intangibles 0.12 0.10
Charges included in general and administrative expenses (3) 0.05 0.01
Restructuring charges - 0.01
Income tax adjustments (4)   (0.03 )   (0.06 )
Non-GAAP diluted earnings per share $ 0.50   $ 0.50  
 
(2)Operating margin impact of non-GAAP adjustments:
Three Months Ended
January 3,
2015
December 28,
2013
GAAP operating margin 11.6 % 16.9 %
Fair value adjustment of acquired deferred revenue 0.4 % 0.0 %
Fair value adjustment to deferred costs 0.0 % 0.0 %
Stock-based compensation 3.5 % 3.9 %
Amortization of acquired intangibles 4.4 % 3.8 %
Charges included in general and administrative expenses (3) 1.8 % 0.4 %
Restructuring charges   -0.1 %   0.3 %
Non-GAAP operating margin   21.4 %   25.3 %
 

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