PTC Reports Q1 Fiscal Year 2006 Results

NEEDHAM, Mass.—(BUSINESS WIRE)—Jan. 25, 2006— PTC (Nasdaq: PMTC), the Product Development Company(TM), today reported revenue of $192.5 million for the first fiscal quarter ended December 31, 2005, up 14% from $169.2 million for the same period last year. The increase was driven by a combination of continued organic growth and the addition of revenue from Arbortext, which PTC acquired in July 2005. PTC license revenue grew 25% during the quarter, reflecting stronger-than-expected software sales in both large customer accounts and the small and medium business market.

"We are off to a great start to 2006," said C. Richard Harrison, president and chief executive officer. "Our results reflect strong performance across product lines, with particularly outstanding performance in Windchill and our channel. These results clearly demonstrate traction in two of our most important strategic initiatives and largest growth opportunities. Our Windchill 8.0 launch last June has already resulted in increased sales of Windchill PDMLink and Pro/INTRALINK. And the small and medium business market is accelerating its adoption of our Pro/ENGINEER solutions."

GAAP net income for the first quarter was $7.5 million, or $0.03 per diluted share, compared with GAAP net income of $19.2 million, or $0.07 per diluted share, in the year-ago period. PTC adopted FAS 123(R) in the fourth quarter of fiscal year 2005, and therefore the GAAP results from the year-ago period do not include the cost of stock-based compensation in accordance with FAS 123(R). Non-GAAP net income, which excludes stock-based compensation cost, amortization of acquisition-related intangible assets, in-process research and development write-offs associated with acquisitions, restructuring charges, if any, and the related tax effect of these items, as well the effect of one-time tax items, if any, was $18.8 million for the first quarter, or $0.07 per diluted share, compared to $19.5 million in the year-ago period, or $0.07 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the financial tables below.

Cash and cash equivalents were $167.2 million at the end of the first quarter, down from $204.4 million at the end of the fourth quarter, primarily due to seasonal compensation payments, as well as two small acquisitions completed during the quarter.

Revenue Metrics

Total Desktop Solutions revenue for the first quarter was $126.4 million, up 3% from the same period last year. Desktop Solutions license revenue grew 11% from the year-ago period to $36.1 million. The Desktop Solutions license revenue growth reflected increased sales of entry-level packages of Pro/ENGINEER as well as a significant transaction with a customer in Europe.

Total Enterprise Solutions revenue grew 43% in the first quarter to $66.1 million. Enterprise Solutions license revenue was $22.4 million, up 55% from the year-ago period. This exceptional performance reflects significantly accelerated revenue growth from our Windchill PDMLink and Pro/INTRALINK products, as well as additional revenue from products acquired from Arbortext.

In the first quarter, PTC received orders from leading organizations, including Airbus, Atlas Copco, Boeing Company, Daihatsu Motor Co. Ltd., LG Electronics Inc., Nike Incorporated, Owens-Illinois, Schneider Electric Industries, Siemens AG, Stryker Corporation, and Wuchang Shipyard. PTC's reseller channel delivered $39.3 million in total revenue during the quarter, up 18% from the year-ago period.

"We have begun to see strong benefits from the execution of our strategy and the investments we made in our business in 2005," continued Harrison. "We expect 2006 to be an exciting year for PTC as we focus on opportunities in our existing customer base, build momentum with Arbortext solutions, and work with our partner IBM to build a pipeline of business in China and targeted accounts around the world."

Second Quarter and Fiscal Year 2006 Financial Outlook

PTC's revenue forecast for the second quarter of fiscal 2006 is between $195 million and $200 million. On a GAAP basis, second quarter total costs and expenses are expected to be approximately $182 million to $187 million, and earnings per share are expected to be between $0.03 and $0.05. Total non-GAAP second quarter operating costs are expected to be approximately $170 million to $175 million. The Company expects non-GAAP second quarter earnings per share to be between $0.07 and $0.09. These non-GAAP operating cost and earnings expectations exclude the following second quarter estimated expenses:

-- Approximately $10 million of expense related to stock-based compensation

-- Approximately $2 million of acquisition-related amortization expense

For the fiscal year ending September 30, 2006, PTC reiterates its previous guidance of revenue between $805 and $815 million. On a GAAP basis, fiscal year 2006 earnings per share are expected to be between $0.18 and $0.20. The Company expects non-GAAP earnings per share to be between $0.35 and $0.37 for the fiscal year. These non-GAAP earnings expectations exclude the following full-year estimated expenses:

-- Approximately $40 million of expense related to stock-based compensation

-- Approximately $9 million of acquisition-related amortization expense

PTC announced today that its Board of Directors has authorized a two-for-five reverse stock split effective February 28, 2006. On a post-split basis, our earnings per share outlook is adjusted as follows:

-- Second quarter 2006 GAAP earnings per share of $0.06 to $0.14

-- Second quarter 2006 non-GAAP earnings per share of $0.16 to $0.24

-- Fiscal year 2006 GAAP earnings per share of $0.44 to $0.51

-- Fiscal year 2006 non-GAAP earnings per share of $0.86 to $0.94

Important Information about Non-GAAP References

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 stock-based compensation cost, amortization of acquisition-related intangible assets, in-process research and development write-offs associated with acquisitions, restructuring charges, and the related tax effect of these items, as well the effect of one-time tax items, if any. 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.

First, excluding the stock-based compensation cost from GAAP operating income enables management and investors to perform a meaningful comparison of the Company's operating results to prior periods. In these prior periods, the Company's GAAP financial results were not required to include expense associated with stock-based compensation, and now these expenses will be distributed among the functional expense line items in the GAAP presentation. Second, although the Company undertakes analyses to ensure that its stock-based compensation grants are in line with peer companies and do not unduly dilute shareholders, the Company allocates these grants and measures them at the corporate level. Management excludes their financial statement effect when planning or measuring the periodic financial performance of the Company's functional organizations since the grants are episodic in nature and unrelated to our core operating metrics. Likewise, we believe that excluding items such as in-process R&D write-offs and amortization of intangible assets associated with acquisitions, or restructuring charges that are not directly attributable to our ongoing operations and that do not generally fluctuate in correlation with periodic performance, provides investors with information that helps to compare period-over-period operating performance by highlighting the effect of the acquisitions or restructuring activities on our results of operations. In addition, the Company's management excludes the financial statement effect of these items in creating operating budgets for the Company's functional business units and in evaluating and compensating employees due to the fact that it is difficult to forecast these expenses. Lastly, we believe that providing non-GAAP earnings per share affords investors a view of earnings that may be more easily compared to peer companies and enables investors to consider the Company's earnings on both a GAAP and non-GAAP basis in periods when the Company is engaged in acquisition activities or undertaking non-recurring activities.

The Company believes these non-GAAP measures will aid investors' overall understanding of the Company's results by providing a higher degree of transparency for certain expenses, and providing a level of disclosure that will help investors understand how the Company plans and measures its own business. However, non-GAAP net income (loss) should be construed neither as an alternative to GAAP net income (loss) or earnings (loss) per share as an indicator of our operating performance nor as a substitute for cash flow from operations as a measure of liquidity because the items excluded from the non-GAAP measures often have a material impact on the Company's results of operations. Therefore, management uses, and investors should use, non-GAAP measures in conjunction with our reported GAAP results.

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