Harrison added, “In the third quarter, PTC received orders from leading organizations, including Airbus, Bang & Olufsen, Gamesa, Raytheon, Sumitomo Wiring System, LTD., Toyota Motor Corporation, and Volvo Group. There were 13 customers from which we recognized more than $1 million of license and services revenue in Q3. This compares to 16 customers last quarter and 17 in the same period last year. We recognized $35.6 million of license and services revenue from such customers in Q3, compared with $37.6 million last quarter and $34.7 million in Q3 of last year.”
Neil Moses, chief financial officer, commented, “We delivered 21.3% non-GAAP operating margin in the third quarter, an 860 basis point improvement from the same period last year. Our year-to-date non-GAAP operating margin of 20.2% is up 610 basis points over the same period in fiscal 2007.” GAAP operating margins for Q3 of 2008 and the first nine months of fiscal 2008 were 11.7% and 10.1%, respectively. The Company’s non-GAAP tax rate in the third quarter of 2008 was 32% and its GAAP tax rate was 42%.
Moses continued, “During the quarter we recorded a $3.8 million restructuring charge related to our ongoing globalization initiative as we transition certain back-office functions to lower cost regions. We also recorded a one-time non-cash loss recorded to other income (expense) of $6.2 million during the quarter as we liquidated certain legal entities related to previous acquisitions. Both of these items are excluded from our non-GAAP results.”
Moses added, “Cash flow from operations was $53 million for the third quarter and $181 million year to date. We used $54 million in Q3 to repay amounts borrowed under our revolving credit facility to finance the CoCreate acquisition, leaving an outstanding loan balance of $110 million as of the end of the third quarter. Additionally, we used $5 million of cash during the quarter to repurchase our common shares under our current $50 million authorization. We have $45 million remaining under that authorization. Cash and cash equivalents were $242 million at the end of the third quarter of fiscal 2008.”
“Looking forward to Q4, we are currently expecting non-GAAP revenue to be between $290 million and $300 million,” said Harrison. “Non-GAAP earnings per diluted share are expected to be between $0.38 and $0.42.” PTC expects GAAP Q4 revenue between $289 million and $299 million, and GAAP earnings per diluted share between $0.21 and $0.25. The Q4 guidance assumes a non-GAAP tax rate of 35% and GAAP tax rate of 37.5%.
The non-GAAP revenue guidance for Q4 excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $1 million. In addition, the Q4 non-GAAP earnings guidance excludes approximately $11 million of stock-based compensation expense, $10 million of acquisition-related amortization expenses, $5 million of restructuring expenses related to our continued globalization program and the related income tax effects.
For the fiscal year ending September 30, 2008, PTC currently expects non-GAAP revenue to be approximately $1,070 million with non-GAAP earnings per diluted share in the range of $1.28 to $1.32. PTC expects GAAP revenue to be approximately $1,065 million with GAAP earnings per diluted share in the range of $0.58 to $0.62 for the fiscal year. The full fiscal year guidance assumes a non-GAAP tax rate of 34% and GAAP tax rate of 39%.
The non-GAAP revenue guidance for the full fiscal year excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $5 million. In addition, the non-GAAP earnings guidance excludes approximately $44 million of stock-based compensation expense, $35 million of acquisition-related amortization expense, $20 million of restructuring expenses primarily related to our continued globalization program, $2 million of in-process research and development expense related to acquisitions completed in the first quarter of 2008, $6 million of a non-cash loss recorded to other income (expense) resulting from the liquidation of certain legal entities related to previous acquisitions, and the related income tax effects.
Harrison concluded, “While we continue to remain mindful of the potential impact of a slowing economy in 2008, we are confident in our ability to achieve our Q4 and fiscal 2008 revenue and earnings targets. We are expecting modest sequential increases in our maintenance and services lines of business. We are expecting a modest year-over-year increase of license revenue in Q4 as we continue to expand and increase the effectiveness of our reseller channel, which accounts for more the 30% of our license revenue, and as we see strength in our pipeline for new license opportunities worldwide.”
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