PTC Reports Q3 Fiscal Year 2005 Results

NEEDHAM, Mass.—(BUSINESS WIRE)—July 20, 2005— PTC (Nasdaq: PMTC), the Product Development Company(TM), today reported revenue of $180.3 million for the third fiscal quarter ended July 2, 2005, up 7% from $168.4 million for the same period last year. The growth was driven primarily by strength in North America and Europe, and PTC's consulting and training services offerings around the world.

Net income for the third quarter was $26.7 million, or $0.10 per diluted share, compared with net income of $16.1 million, or $0.06 per diluted share, in the year-ago period. The third quarter net income includes an income tax benefit of $4.4 million due to the favorable resolution of a foreign jurisdiction tax audit. Excluding this benefit, PTC's third quarter net income was $22.3 million, or $0.08 per diluted share. The year-ago period net income included restructuring charges of $3.5 million. Cash and cash equivalents grew to $403.0 million at the end of the third quarter from $384.2 million at the end of the second quarter of 2005.

"We are executing our business strategy well, which is reflected in continued revenue and earnings growth," said C. Richard Harrison, president and chief executive officer. "Our customers are adopting our product development solutions faster and more easily than ever before, with a clearer return on investment. Our revenue by product line has grown year-to-date at the high end of our expectations, and we are poised to deliver strong full-year results that reflect both organic growth and acquisitive growth from our recent strategic acquisitions."

Total revenue for design solutions in the third quarter was $126.0 million, up 4% from the third quarter of 2004. Design solutions license revenue of $33.5 million declined 7% year over year, due to a decline in the amount of revenue from large design solutions deals when compared with the year-ago period. Base business for Pro/ENGINEER(R) Wildfire(TM) continues to gain traction in the market with higher year-over-year sales of entry-level and mid-range packages, improvements in maintenance sales and coverage rates, and higher sales of services offerings that help improve user proficiency and engineering productivity. For the first nine months of 2005, PTC has delivered 4% year-over-year design solutions revenue growth.

Total revenue for collaboration and control solutions in the third quarter was $54.3 million, up 16% from the third quarter of 2004. Collaboration and control solutions license revenue of $15.8 million declined 4% year over year, although Windchill(R) Link solutions license revenue grew 26% year over year. The Windchill Link solutions are a key part of our growth strategy and we have driven significant revenue growth for these solutions since their introduction. Additionally, maintenance, consulting and training revenue continues to grow significantly as PTC helps customers adopt its technology and improve their product development processes. For the first nine months of 2005, PTC has delivered 15% year-over-year collaboration and control solutions growth.

In the third quarter, PTC received orders from leading organizations, including American Standard, Boeing Company, DCN, Dover Corporation, Harman/Becker Automotive Systems, LG Electronics, Lockheed Martin Corporation, Schneider Electric Industries, Seiko Epson Co., Tetra Pak, and Toyota Motor Corporation. Additionally, PTC's reseller channel delivered $35.9 million in total revenue during the quarter, a 4% year-over-year increase.

Acquisitions

During and after the end of the quarter, PTC announced and closed three acquisitions, which we believe will help accelerate PTC's long-term growth. These acquisitions, which had no material effect on the third quarter, were:

-- Arbortext Inc., a leader in dynamic enterprise publishing, gives PTC the unique ability to enable customers to create, manage and dynamically publish critical information concurrently with the development of related products or services, improving time-to-market, quality, cost and customer satisfaction. The acquisition also broadens PTC's footprint into new markets such as pharmaceuticals, financial services, publishing and government.

-- Polyplan Technologies Inc., a technology leader in manufacturing planning, will help PTC enable concurrent development of products and related manufacturing processes. PTC is focusing its extended manufacturing strategy on providing an easy-to-use and affordable solution for use by mainstream manufacturing engineers who have traditionally shunned the complex, disconnected, specialist manufacturing process management (MPM) tools available today.

-- Aptavis Technologies Corporation, an exclusive provider of Windchill-based solutions for the retail, footwear and apparel industry, has already helped PTC gain significant traction in this rapidly growing market. PTC's solution for this market has been adopted by leading brands such as Fila, Lands' End, Limited Brands, Liz Claiborne Inc., Lost Arrow, Nike Apparel, Redcats, Reebok, and Sara Lee.

"Our customers have responded well to our recent acquisitions," continued Harrison. "We are complementing our core product development system with solutions that elevate the importance of engineering content and significantly increase its usefulness in downstream activities such as manufacturing, technical documentation and after-market services. PTC is making the PLM vision a reality for customers around the world in many different vertical markets. As a result, we continue to differentiate ourselves from the competition, and increase confidence in our ability to deliver long-term customer and shareholder value."

Fourth Quarter and Fiscal 2005 Financial Outlook

In part due to PTC's adoption of stock option expensing as of July 3, 2005, we will begin to report a non-GAAP income statement in addition to a GAAP income statement starting with the fourth quarter ending September 30, 2005. Accordingly, earnings and expense guidance will be provided on both a GAAP and a non-GAAP basis.

PTC's revenue forecast for the fourth quarter of fiscal 2005, which includes the impact of the Arbortext acquisition, is between $190 million and $195 million. Total non-GAAP fourth quarter operating costs are expected to be between $165 million and $170 million. The Company expects non-GAAP fourth quarter earnings per share to be between $0.06 and $0.08. These non-GAAP operating cost and earnings expectations exclude the following fourth quarter estimated expenses:

-- Approximately $19 million of expense related to equity-based compensation, which includes a quarterly expense for past stock option grants, as well as a full-year expense for PTC's annual equity grants for 2005, which were delayed to coincide with PTC's adoption of stock option expensing (after we record this expense in the fourth quarter, PTC expects its average quarterly expense related to equity-based compensation to be approximately $8 million to $9 million during fiscal 2006);

-- Approximately $2 million of acquisition-related amortization expense, primarily associated with the acquisition of Arbortext;

-- A write-off of in process R&D of approximately $2 million, which is associated with the acquisition of Arbortext.

On a GAAP basis, including the above cost and expense estimates, fourth quarter total costs and expenses are expected to be between $188 million and $193 million and earnings (loss) per share are expected to be between ($0.02) and $0.00.

For the fiscal year ending September 30, 2005, PTC expects revenue to be between $715 million and $720 million. Total non-GAAP operating costs are expected to be between $615 million and $620 million for the fiscal year. The Company expects non-GAAP earnings per share to be between $0.30 and $0.32 for the fiscal year. These non-GAAP operating cost and earnings expectations exclude the additional fourth quarter estimated expenses relating to equity-based compensation, acquisition-related amortization expense and a write-off of in-process R&D as described above.

On a GAAP basis, including the above cost and expense estimates, fiscal year 2005 total costs and expenses are expected to be between $638 million and $643 million and earnings per share are expected to be between $0.22 and $0.24.

References by the Company to non-GAAP operating costs and non-GAAP earnings per share refer to costs and expenses or earnings per share excluding equity-based compensation cost, amortization of acquisition-related intangible assets, in-process R&D write-offs associated with acquisitions, and restructuring charges. GAAP requires that these costs and charges be included in costs and expenses and accordingly used to determine operating income (loss) and earnings per share. The Company's management uses non-GAAP operating costs, and associated non-GAAP net income (which is the basis for non-GAAP earnings per share) to make operational and investment decisions, and the Company believes that they are among several useful measures for an enhanced understanding of our operating results for a number of reasons.

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