PTC Announces Q1 Results and Initiates Q2 Guidance, Maintains FY Targets

Important Information About Non-GAAP References

PTC provides non-GAAP supplemental information to its financial results. Non-GAAP operating expenses, margin and EPS exclude stock-based compensation expense, amortization of acquired intangible assets, foreign currency transaction losses related to a litigation resolution, and the related tax effects of the preceding items and any one-time tax items. We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals, communicated internally and externally, for managing our business and evaluating our performance. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to the results of peer companies. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. However, non-GAAP information should not be construed as an alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTC’s financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2011 and other future financial and growth expectations and anticipated tax rates are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility the foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that we may not achieve the license, services or maintenance growth rates that we expect, which could result in a different mix of revenue between license, service and maintenance and could impact our EPS results, the possibility that strategic customer wins may not generate the revenue we expect, the possibility that the launches of Windchill 10 and Creo may not generate the revenue we expect, and the possibility that the launches of Windchill 10 and/or Creo may be delayed. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses (including restructuring charges) and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

PTC, The Product Development Company, and all other PTC product names and logos are trademarks or registered trademarks of Parametric Technology Corporation or its subsidiaries in the United States and in other countries. All other companies referenced herein are trademarks or registered trademarks of their respective holders.

About PTC ( www.ptc.com)

PTC (Nasdaq: PMTC) provides discrete manufacturers with software and services to meet the globalization, time-to-market and operational efficiency objectives of product development. Using the company’s PLM and CAD and related solutions, organizations in the Industrial, High-Tech, Aerospace/Defense, Automotive, Retail/Consumer and Life Sciences industries are able to support key business objectives such as reducing costs and shortening lead times while creating innovative products that meet customer needs and comply with industry regulations.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
         
 
Three Months Ended
January 1, January 2,
2011 2010
 
Revenue:
License $ 75,473 $ 74,816
Service   191,079     183,613  
Total revenue   266,552     258,429  
 
Costs and expenses:
Cost of license revenue (1) 5,954 8,147
Cost of service revenue (1) 80,107 70,524
Sales and marketing (1) 84,521 78,598
Research and development (1) 51,522 50,690
General and administrative (1) 23,484 24,071
Amortization of acquired intangible assets   3,854     4,058  
Total costs and expenses   249,442     236,088  
 
Operating income 17,110 22,341
Other expense, net   (1,886 )   (524 )
Income before income taxes 15,224 21,817
Provision for income taxes   1,964     3,954  
Net income $ 13,260   $ 17,863  
 
Earnings per share:
Basic $ 0.11 $ 0.15
Weighted average shares outstanding 116,827 116,253
 
Diluted $ 0.11 $ 0.15
Weighted average shares outstanding 121,150 121,113
 
 
 
(1) The amounts in the tables above include stock-based compensation as follows:
 
 
Three Months Ended
January 1, January 2,
2011 2010
Cost of license revenue $ 3 $ 17
Cost of service revenue 2,137 2,580
Sales and marketing 2,429 3,074
Research and development 2,393 2,659
General and administrative   4,065     5,525  
Total stock-based compensation $ 11,027   $ 13,855  
 
 
PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
               
 
Three Months Ended
January 1, January 2,
2011 2010
 
GAAP operating income $ 17,110 $ 22,341
Stock-based compensation 11,027 13,855

Amortization of acquired intangible assets
included in cost of license revenue

3,363 4,898
Amortization of acquired intangible assets   3,854     4,058  
Non-GAAP operating income (2) $ 35,354   $ 45,152  
 
GAAP net income $ 13,260 $ 17,863
Stock-based compensation 11,027 13,855

Amortization of acquired intangible assets
included in cost of license revenue

3,363 4,898
Amortization of acquired intangible assets 3,854 4,058
Non-operating foreign currency transaction loss (3) 722 -
Income tax adjustments (4)   (5,810 )   (7,377 )
Non-GAAP net income $ 26,416   $ 33,297  
 
GAAP diluted earnings per share $ 0.11 $ 0.15
Stock-based compensation 0.09 0.11

Income tax adjustments

(0.05 ) (0.06 )
All other items identified above   0.07     0.07  
Non-GAAP diluted earnings per share $ 0.22   $ 0.27  
 
 
(2)Operating margin impact of non-GAAP adjustments:
 
Three Months Ended    
January 1, January 2,
  2011     2010  
GAAP operating margin 6.4 % 8.6 %
Stock-based compensation 4.2 % 5.4 %
Amortization of acquired intangibles   2.7 %   3.5 %
Non-GAAP operating margin   13.3 %   17.5 %
 
 
 
(3)Reflects foreign currency transaction losses related to a previously announced litigation settlement in Japan.
 
(4)Reflects the tax effects of non-GAAP adjustments for the first quarter of 2011 and 2010, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above.
 
 
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
         
 
January 1, September 30,
2011 2010
 
ASSETS
 
Cash and cash equivalents $ 182,915 $ 240,253
Accounts receivable, net 174,581 169,281
Property and equipment, net 56,517 58,064
Goodwill and acquired intangibles, net 534,565 546,440
Other assets 318,933 293,026
   
Total assets $ 1,267,511 $ 1,307,064
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 266,150 $ 245,840
Other liabilities 237,321 313,920
Stockholders' equity 764,040 747,304
   
Total liabilities and stockholders' equity $ 1,267,511 $ 1,307,064
 
 
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
         
 
 
Three Months Ended
January 1, January 2,
2011 2010
 
Cash flows from operating activities:
Net income $ 13,260 $ 17,863
Stock-based compensation 11,027 13,855
Depreciation and amortization 14,069 15,923
Accounts receivable (958 ) 4,211
Accounts payable and accruals (5) (29,233 ) (15,076 )
Deferred revenue (7,425 ) (15,987 )
Income taxes (2,069 ) (2,805 )
Litigation settlement (52,129 ) -
Excess tax benefits from stock-based awards (262 ) (149 )
Other   5,682     4,925  
Net cash (used) provided by operating activities (48,038 ) 22,760
 
Capital expenditures (5,412 ) (7,877 )
Acquisitions of businesses, net of cash acquired - (582 )
Payments on debt - -
Repurchases of common stock - (5,072 )
Excess tax benefits from stock-based awards 262 149
Other investing and financing activities (6) (4,936 ) (11,590 )
Foreign exchange impact on cash   786     (1,766 )
 
Net change in cash and cash equivalents (57,338 ) (3,978 )
Cash and cash equivalents, beginning of period   240,253     235,122  
Cash and cash equivalents, end of period $ 182,915   $ 231,144  
 
 
(5) Includes accounts payable, accrued expenses, and accrued compensation and benefits
(6) The first quarter of 2011 and 2010 include $17.2 million and $15.6 million, respectively, for payments of withholding taxes in connection with the vesting of restricted stock units and restricted stock.

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