PTC Reports Q3 Fiscal Year 2007 Results

NEEDHAM, Mass.—(BUSINESS WIRE)—July 25, 2007— PTC (Nasdaq: PMTC), the Product Development Company(R), today reported revenue of $225.1 million for the third quarter ended June 30, 2007, up 4% from the same period last year. Total license revenue for the third quarter of 2007 was $62.1 million, a decline of 5% from the same period last year. Results for the third quarter of 2007 reflected year-over-year revenue growth in Europe and the Pacific Rim, offset by declines in North America and Japan. Additionally, PTC delivered continued growth in its Enterprise Solutions product category, but Desktop Solutions revenue declined year over year. In the third quarter of 2007, PTC achieved the highest level of quarterly maintenance revenue in the company's history.

"Our third quarter license revenue shortfall reflects two major factors: several large transactions that we expected but did not close and a reduction in add-on sales of Desktop Solutions in North America and Japan," said C. Richard Harrison, president and chief executive officer. "Though our third quarter results did not meet our expectations, we continue to have confidence in the strength of the PLM market and in PTC's competitive position. As evidenced by our record maintenance revenue in the third quarter and our revenue growth year to date, we have a large and loyal customer base that continues to benefit from the use of PTC's differentiated solutions."

GAAP operating income for the third quarter of 2007 was $19.8 million, compared with $13.5 million in the year-ago period. GAAP net income for the third quarter of 2007 was $87.2 million, or $0.74 per diluted share, and includes the impact of the reversal of our valuation allowance against U.S. deferred tax assets as described below, as well as a one-time tax benefit of $5.3 million due to the favorable resolution of a tax refund claim. This compares with GAAP net income of $16.9 million, or $0.15 per diluted share, in the year-ago period. Non-GAAP operating income, which excludes stock-based compensation cost, restructuring charges, acquisition-related in-process research and development expenses and amortization of acquisition-related intangible assets, was $28.9 million for the third quarter of 2007, compared with $34.4 million in the year-ago period. Non-GAAP net income, which excludes the items excluded from non-GAAP operating income and the related tax effect of those items, as well as one-time tax items, was $18.7 million for the third quarter of 2007, or $0.16 per diluted share, compared to $29.5 million in the year-ago period, or $0.26 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.

Reversal of Valuation Allowance Against U.S. Deferred Tax Assets

After concluding that its U.S. operations have achieved sustainable profitability, in the third quarter, PTC reversed its valuation allowance against deferred tax assets in the U.S. and in a foreign jurisdiction, which resulted in a $65.5 million GAAP tax benefit, as well as balance sheet adjustments to goodwill and stockholders' equity. Non-GAAP earnings results have been fully taxed at a rate of 40% for the third quarter of 2007, versus a tax rate of about 20% applied in prior periods. PTC would have reported GAAP earnings per share of $0.19 and non-GAAP earnings per share of $0.21 had we not reversed the valuation allowance in the third quarter of 2007. Since the valuation allowance release is a non-cash adjustment, there has been no change to PTC's cash tax rate due to the utilization of net operating loss carryforwards. We have provided more information about the impact of this change in the attached financial tables.

Cash and cash equivalents were $260 million at the end of the third fiscal quarter of 2007, up from $238 million at the end of the second fiscal quarter of 2007, in line with expectations. Cash flow from operations was $38.9 million and $115.1 million for the third quarter and first nine months of 2007 respectively.

Third Quarter 2007 Revenue Metrics

PTC delivered the following results for the third quarter of fiscal 2007 compared to the same period last year:

-- Total revenue growth of 4%, driven by maintenance revenue growth of 9% and training and consulting service revenue growth of 6%, partially offset by a license revenue decline of 5%;

-- Desktop Solutions total revenue decline of 3% to $139.0 million. License revenue declined 12% and training and consulting service revenue declined 22%. Maintenance revenue grew 7%. The license revenue decline is attributable to lower revenue from Pro/ENGINEER new seats, modules and upgrades;

-- Enterprise Solutions total revenue growth of 18% to $86.1 million, driven by training and consulting service revenue growth of 26%, maintenance revenue growth of 17%, and license revenue growth of 8%. Growth in license revenue was primarily attributable to sales of Windchill(R) PDMLink(R) and Windchill ProjectLink(R) as more customers adopt our content and process management solutions both within engineering and the enterprise;

-- Total reseller channel revenue growth of 3% to $47.6 million, reflecting significant growth in North America and Europe partially offset by a decline in Asia Pacific;

-- Revenue growth of 20% in Europe, partially offset by declines of 4% in North America and 3% in Asia Pacific. Asia-Pacific revenue reflects 9% growth in the Pacific Rim offset by an 18% decline in Japan.

In the third quarter, PTC received orders from leading organizations, including Airbus S.A.S.; Boeing Company; China Shipbuilding Industry Corporation; Flextronics International Ltd.; HARMAN/BECKER Automotive Systems GmbH; HOERBIGER Group AG; ITT Corporation; Lenovo Group Ltd.; Lockheed Martin Corporation; Motorola, Inc.; Samsung Electronics Co., Ltd.; Schneider Electric S.A.; and Toyota Motor Corporation.

First Nine Months 2007 Revenue Metrics

PTC delivered the following results for the first nine months of fiscal 2007 compared to the same period last year:

-- Total revenue growth of 11%, driven by license revenue growth of 12%, maintenance revenue growth of 11%, and training and consulting service revenue growth of 10%;

-- Desktop Solutions total revenue growth of 7%, driven by license revenue growth of 14% and maintenance revenue growth of 9%, partially offset by a training and consulting service revenue decline of 13%;

-- Enterprise Solutions total revenue growth of 18%, driven by training and consulting service revenue growth of 25%, maintenance revenue growth of 18%, and license revenue growth of 8%;

-- Total reseller channel revenue growth of 15%;

-- Revenue growth of 7% in North America, 18% in Europe, and 6% in Asia-Pacific. Asia-Pacific revenue growth reflects 14% growth in the Pacific Rim and a 3% decline in Japan.

"We continue to believe we have a significant growth opportunity ahead of us, along with the industry's best solutions to help our customers solve key product development challenges," continued Harrison. "However, we believe it is prudent to reduce our guidance for the fourth quarter. Additionally, we remain focused on delivering operating margin and earnings growth in FY 2007 and beyond. Therefore, we are taking actions to reduce our expenses in the fourth quarter. We believe these actions will enable us to fulfill our shareholder and customer commitments to deliver non-GAAP operating margins of 20% in fiscal 2008."

Fourth Quarter and Fiscal Year 2007 Financial Outlook

PTC's revenue forecast for the fourth quarter of fiscal 2007 is between $240 million and $250 million. On a GAAP basis, earnings per share are expected to be between $0.15 and $0.20. The Company expects non-GAAP fourth quarter earnings per share to be between $0.23 and $0.28. These non-GAAP earnings expectations reflect the change (increase) in tax rate as a result of the reversal of the valuation allowance. The non-GAAP earnings expectations also exclude the following fourth quarter estimated expenses and their tax effects:

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