PTC Announces Q2 Results and Initiates Q3 Guidance

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, acquisition-related expenses, 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 new product releases may be delayed or may not generate the revenue we expect, the possibility that resource constraints could adversely affect our revenue, the possibility that our strategic investments may not generate the growth or revenues we expect, and the possibility that our proposed acquisition of MKS Inc. may not be consummated or that such acquisition may not generate the revenues we expect. 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 Six Months Ended
April 2, April 3, April 2, April 3,
2011 2010

2011

2010
 
Revenue:
License $ 74,215 $ 64,644 $ 149,688 $ 139,460
Service   194,974     175,912     386,053     359,525  
Total revenue   269,189     240,556     535,741     498,985  
 
Costs and expenses:
Cost of license revenue (1) 6,558 8,232 12,512 16,379
Cost of service revenue (1) 75,213 68,934 155,320 139,458
Sales and marketing (1) 81,163 75,137 165,684 153,735
Research and development (1) 53,051 49,960 104,573 100,650
General and administrative (1) 24,712 22,807 48,196 46,878
Amortization of acquired intangible assets   4,266     3,975     8,120     8,033  
Total costs and expenses   244,963     229,045     494,405     465,133  
 
Operating income 24,226 11,511 41,336 33,852
Other expense, net   (822 )   (605 )   (2,708 )   (1,129 )
Income before income taxes 23,404 10,906 38,628 32,723
Provision for income taxes   4,387     1,904     6,351     5,858  
Net income $ 19,017   $ 9,002   $ 32,277   $ 26,865  
 
Earnings per share:
Basic $ 0.16 $ 0.08 $ 0.27 $ 0.23
Weighted average shares outstanding 118,194 115,951 117,501 116,104
 
Diluted $ 0.16 $ 0.08 $ 0.27 $ 0.22
Weighted average shares outstanding 121,502 119,856 121,317 120,487
 
 
 
(1 ) The amounts in the tables above include stock-based compensation as follows:
 
 
Three Months Ended Six Months Ended
April 2, April 3, April 2, April 3,

2011

  2010 2011 2010
Cost of license revenue $ 3 $ 2 $ 6 $ 19
Cost of service revenue 1,583 2,241 3,720 4,821
Sales and marketing 2,350 3,520 4,779 6,594
Research and development 1,749 2,383 4,142 5,042
General and administrative   4,186     4,146     8,251     9,671  
Total stock-based compensation $ 9,871   $ 12,292   $ 20,898   $ 26,147  
       
PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
   
 
Three Months Ended Six Months Ended
April 2, April 3, April 2, April 3,
2011 2010 2011 2010
 
GAAP operating income $ 24,226 $ 11,511 $ 41,336 $ 33,852
Stock-based compensation 9,871 12,292 20,898 26,147
Amortization of acquired intangible assets
included in cost of license revenue 3,339 4,928 6,702 9,826
Amortization of acquired intangible assets 4,266 3,975 8,120 8,033
Acquisition-related charges included in
general and administrative expenses   608     -     608     -  
Non-GAAP operating income (2) $ 42,310   $ 32,706   $ 77,664   $ 77,858  
 
GAAP net income $ 19,017 $ 9,002 $ 32,277 $ 26,865
Stock-based compensation 9,871 12,292 20,898 26,147
Amortization of acquired intangible assets
included in cost of license revenue 3,339 4,928 6,702 9,826
Amortization of acquired intangible assets 4,266 3,975 8,120 8,033
Acquisition-related charges included in
general and administrative expenses 608 - 608 -
Non-operating foreign currency transaction loss (3) - - 722 -
Income tax adjustments (4)   (5,848 )   (6,696 )   (11,658 )   (14,073 )
Non-GAAP net income $ 31,253   $ 23,501   $ 57,669   $ 56,798  
 
GAAP diluted earnings per share $ 0.16 $ 0.08 $ 0.27 $ 0.22
Stock-based compensation 0.08 0.10 0.17 0.22

Income tax adjustments

(0.05 ) (0.06 ) (0.10 ) (0.12 )
All other items identified above   0.07     0.08     0.14     0.15  
Non-GAAP diluted earnings per share $ 0.26   $ 0.20   $ 0.48   $ 0.47  
 
 
 
(2 ) Operating margin impact of non-GAAP adjustments:
 
Three Months Ended Six Months Ended
April 2, April 3, April 2, April 3,
2011 2010 2011 2010
GAAP operating margin 9.0 % 4.8 % 7.7 % 6.8 %
Stock-based compensation 3.7 % 5.1 % 3.9 % 5.2 %
Amortization of acquired intangibles 2.8 % 3.7 % 2.8 % 3.6 %
Acquisition-related charges   0.2 %   0.0 %   0.1 %   0.0 %
Non-GAAP operating margin   15.7 %   13.6 %   14.5 %   15.6 %
 
 
 
(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 three and six months ended April 2, 2011 and April 3, 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)
 
 
April 2, September 30,
2011 2010
 
ASSETS
 
Cash and cash equivalents $ 259,504 $ 240,253
Accounts receivable, net 178,558 169,281
Property and equipment, net 55,780 58,064
Goodwill and acquired intangibles, net 541,753 546,440
Other assets 311,506 293,026
   
Total assets $ 1,347,101 $ 1,307,064
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 300,269 $ 245,840
Other liabilities 243,804 313,920
Stockholders' equity 803,028 747,304
   
Total liabilities and stockholders' equity $ 1,347,101 $ 1,307,064
       
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
Three Months Ended Six Months Ended
April 2, April 3, April 2, April 3,
2011 2010 2011 2010
 
Cash flows from operating activities:
Net income $ 19,017 $ 9,002 $ 32,277 $ 26,865
Stock-based compensation 9,871 12,292 20,898 26,147
Depreciation and amortization 14,651 15,976 28,720 31,899
Accounts receivable 16,857 4,550 15,899 8,761
Accounts payable and accruals (5) 3,916 2,343 (25,317 ) (12,733 )
Deferred revenue 34,594 32,440 27,169 16,453
Income taxes (7,129 ) (3,693 ) (9,198 ) (6,498 )
Litigation settlement - - (52,129 ) -
Other   (13,501 )   (4,962 )   (8,081 )   (186 )
Net cash provided by operating activities 78,276 67,948 30,238 90,708
 
Capital expenditures (6,148 ) (9,225 ) (11,560 ) (17,102 )
Acquisitions of businesses, net of cash acquired - (1,505 ) - (2,087 )
Payments on debt - (19,720 ) - (19,720 )
Repurchases of common stock - (40,000 ) - (45,072 )
Other investing and financing activities (6) (778 ) (1,460 ) (5,452 ) (12,901 )
Foreign exchange impact on cash   5,239     (4,490 )   6,025     (6,256 )
 
Net change in cash and cash equivalents 76,589 (8,452 ) 19,251 (12,430 )
Cash and cash equivalents, beginning of period   182,915     231,144     240,253     235,122  
Cash and cash equivalents, end of period $ 259,504   $ 222,692   $ 259,504   $ 222,692  
 
 
(5 ) Includes accounts payable, accrued expenses, and accrued compensation and benefits
(6 )

The three months ended April 2, 2011 and April 3, 2010 include $4.8 million and $4.6 million, respectively, for payments of withholding taxes in connection with the vesting of restricted stock units and restricted stock. The six months ended April 2, 2011 and April 3, 2010 include $22.0 million and $20.2 million, respectively, for payments of withholding taxes in connection with vesting of restricted stock units and restricted stock.


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