PTC Reports First Quarter Fiscal Year 2008 Results

NEEDHAM, Mass.—(BUSINESS WIRE)—January 23, 2008— PTC (Nasdaq: PMTC), the Product Development Company(R), today reported GAAP revenue of $241.2 million for the first quarter ended December 29, 2007, up 9% from the same period last year. Non-GAAP revenue for the first quarter was $242.5 million. Non-GAAP revenue excludes the effect of purchase accounting on the fair value of the acquired deferred maintenance revenue balance of CoCreate Software GmbH, which PTC acquired during the first quarter.

"We performed well in the first quarter," said C. Richard Harrison, president and chief executive officer. "Our focus on delivering significant operating margin improvement in 2008 has begun to pay off. We delivered an 18.2% non-GAAP operating margin in the first quarter, a 330 basis point improvement from the same period last year. Our continued efforts to evolve our distribution and services models, our globalization strategy, and the immediate non-GAAP operating margin accretion provided by CoCreate contributed to this improvement. In addition, we continue to deliver revenue growth that is higher than market growth rates."

GAAP operating income for the first quarter of 2008 was $14.9 million, or 6.2% of total GAAP revenue, compared with $21.0 million, or 9.5% of total GAAP revenue in the year-ago period. GAAP net income for the first quarter of 2008 was $9.9 million, or $0.08 per diluted share, compared with GAAP net income of $15.2 million, or $0.13 per diluted share, in the year-ago period. Non-GAAP operating income, which excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate, stock-based compensation cost, restructuring charges, amortization of acquisition-related intangible assets, and in-process research and development write-offs associated with acquisitions, was $44.1 million for the first quarter of 2008, or 18.2% of total non-GAAP revenue, compared with $33.0 million, or 14.9% of total GAAP revenue, 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, was $31.1 million for the first quarter of 2008, or $0.26 per diluted share, compared to $26.8 million in the year-ago period, or $0.23 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.

PTC's GAAP and non-GAAP results for the first quarter of fiscal 2008 include expenses of $3.2 million associated with its restatement of the third quarter of 2007 and prior financial results announced and completed during the quarter. As previously reported, PTC reversed its valuation allowance against deferred tax assets in the U.S. and a foreign jurisdiction in the third quarter of 2007. Therefore, the GAAP and non-GAAP effective income tax rates of 40% and 32%, respectively, in the first quarter of 2008 are higher than the GAAP and non-GAAP effective income tax rates of 30% and 21%, respectively, in the first quarter of 2007. We have provided more information about the impact of this change in the attached financial tables.

Cash and cash equivalents were $215 million at the end of the first quarter of 2008, ahead of expectations. PTC used $50 million of cash during the quarter to help finance the acquisition of CoCreate and also repaid $15 million of the $220 million borrowed under its revolving credit facility to finance the rest of that transaction. Cash flow from operations was $16.7 million for the first quarter, ahead of expectations primarily due to strong cash collections during the quarter.

First Quarter 2008 Revenue Metrics

PTC delivered the following results for the first quarter of fiscal 2008 compared to the same period in 2007 (based on GAAP revenue):

-- Total revenue growth of 9%, which reflects both organic revenue growth and revenue from acquired businesses. Maintenance revenue grew 13%, training and consulting service revenue grew 10% and license revenue grew 1%. License revenue reflects increased sales of new seats and/or increased revenue from new seats of our major product offerings (Pro/ENGINEER, Windchill, Arbortext, and Mathcad), offset by a decline in revenue from Pro/ENGINEER upgrades and modules;

-- Total revenue from our reseller channel of $59.5 million, up 26%, reflecting continued success in the SMB market around the world for our organic products, as well as the addition of CoCreate channel revenue;

-- Revenue growth of 23% in Europe, 7% in the Pacific Rim, and 3% in Japan, partially offset by a 2% decline in North America.

In the first quarter, PTC received orders from or on behalf of leading organizations including Airbus S.A.S.; Carrier Corporation; Gates Corporation; ITT Industries; Lockheed Martin Corporation; Shanhaiguan New Shipbuilding Industry Company Ltd.; Sulzer Pumps Ltd.; Toyota Motor Corporation; the United States Navy; and Volvo Group.

"We remain confident in our ability to achieve our Fiscal 2008 targets of $1,060 million in non-GAAP revenue and non-GAAP operating margins of at least 22%," continued Harrison. "We are mindful of current investor concerns about the economy. However, our forecast continues to support our confidence in our ability to execute our plan. We believe we are the best-positioned PLM vendor to support customers with business initiatives that enable cost reduction, such as global product development and IT consolidation. These customer initiatives have been driving investment in our solutions for at least two years, and we believe customers would only accelerate them in a more difficult economic environment."

Second Quarter and Fiscal Year 2008 Financial Outlook

PTC's GAAP revenue forecast for the second quarter of fiscal 2008 is between $248 million and $258 million, and GAAP earnings per diluted share are expected to be between $0.10 and $0.14. PTC expects non-GAAP second quarter revenue to be between $250 million and $260 million, and expects non-GAAP earnings per diluted share to be between $0.24 and $0.28. The non-GAAP revenue and earnings expectations exclude the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of about $2 million and the following second quarter estimated expenses and their tax effects:

-- Approximately $12 million of expense related to stock-based compensation

-- Approximately $8 million of acquisition-related amortization expense

-- Approximately $3 million of restructuring expenses related to our continued globalization program

For the fiscal year ending September 30, 2008, PTC expects GAAP revenue to be about $1,055 million and GAAP earnings per diluted share to be between $0.66 and $0.77. PTC expects non-GAAP revenue to be about $1,060 million and non-GAAP earnings per diluted share to be between $1.17 and $1.27 for the fiscal year. The non-GAAP revenue and earnings expectations exclude the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of about $5 million and the following full-year estimated expenses and their tax effects:

-- Approximately $45 million of expense related to stock-based compensation

-- Approximately $32 million of acquisition-related amortization expense

-- $1.9 million of in-process research and development expense related to acquisitions completed in the first quarter of 2008

-- Approximately $15 million of restructuring expenses related to the continued globalization program

PTC has changed its assumptions for our future GAAP and non-GAAP tax rates. Previously, our 2008 guidance reflected an assumption that our GAAP and non-GAAP effective income tax rates would be approximately 40%. The current guidance reflects an assumption that our GAAP and non-GAAP effective income tax rates will be 37.5%. Additionally, upon the close of the CoCreate acquisition, our estimate was that the acquired deferred maintenance revenue fair-value write-down related to that transaction would impact our GAAP revenue by about $10 million in Fiscal 2008. Upon completion of our preliminary purchase accounting for the transaction, our current expectation is that it will impact our GAAP revenue by about $5 million in Fiscal 2008. This is reflected in the guidance above.

Important Information about Non-GAAP References

To supplement our financial results presented on a GAAP basis, we use non-GAAP measures, which exclude certain business combination accounting entries and expenses related to acquisitions as well as other expenses including stock-based compensation and restructuring charges, that we believe are helpful in understanding our financial results and our projected future financial performance. PTC believes these non-GAAP measures aid investors' overall understanding of PTC's results by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how PTC plans and measures its own business. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies and enables investors to consider PTC's operating results on both a GAAP and non-GAAP basis in periods when PTC is engaged in acquisition activities or undertaking restructuring activities. However, non-GAAP revenue, non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share should be construed neither as an alternative to GAAP revenue, GAAP operating income, GAAP net income or GAAP earnings 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 PTC'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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