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PTC Announces Strong Q4 Results, Initiates FY’12 Targets and Q1 Guidance

NEEDHAM, Mass. — (BUSINESS WIRE) — October 26, 2011 — PTC (Nasdaq: PMTC), The Product Development Company®, today reported results for its fourth fiscal quarter and year ended September 30, 2011.

Highlights

The Q4 non-GAAP revenue results exclude a $1.9 million effect of purchase accounting on the fair value of the acquired deferred maintenance balance of MKS Inc. The Q4 non-GAAP EPS results exclude $12.9 million of stock-based compensation expense, $10.2 million of acquisition-related intangible asset amortization, $1.1 million of acquisition-related expense and $7.7 million of income tax adjustments. The Q4 non-GAAP EPS results include a tax rate of 24% and 120 million diluted shares outstanding. The Q4 GAAP EPS results include a tax rate of 21% and 120 million diluted shares outstanding.

Results Commentary

James Heppelmann, president and chief executive officer, commented, “PTC had a very strong finish to FY’11, with record Q4 non-GAAP revenue and non-GAAP EPS both exceeding the high-end of our guidance range. Our license revenue of $111.0 million was up 25% on a year-over-year basis, driven by solid organic growth of 15% and better-than-expected performance from Integrity (MKS). In addition to continued momentum in our Desktop (MCAD) business, which experienced 17% year-over-year revenue growth, our Enterprise (PLM) business delivered very strong results with non-GAAP revenue up 39% year over year and 21% on an organic basis. We also continue to see robust adoption of our PLM solutions, as is reflected in our 20% and 30% year-over-year increases in organic maintenance and services revenue, respectively. Overall, we delivered 27% total non-GAAP revenue growth compared to the year ago period.” On a constant currency basis, total non-GAAP revenue growth was 20% and license revenue growth was 18% when compared to Q4’10.

“Our momentum in the PLM market continued with the addition of 3 new strategically important ‘domino’ accounts during Q4,” Heppelmann continued. “Since 2009, we have won 30 domino accounts, meeting the target we had set at the beginning of the year. Dominoes represent the largest of many competitive displacement opportunities, and we believe they demonstrate that PTC is gaining share and becoming recognized as the industry leader for both our technology and product development process expertise.”

Heppelmann added, “We had 30 large deals (recognized license + services revenue of more than $1 million) in Q4’11, capping off a strong year in which we had 103 large deals, up from 70 in FY’10. We believe this is an indicator of the strength of our pipeline for business opportunities with new and existing customers. During the quarter we recognized revenue from leading organizations such as Asustek Computer, Caterpillar, Doosan Infracore America, SMS Siemag, Webasto and ZF Friedrichshafen.”

Jeff Glidden, chief financial officer, commented, “From a profitability standpoint we had a very strong quarter; we delivered $0.47 non-GAAP EPS, this despite a $0.02 headwind due to a higher-than-expected tax rate, other expense items and currency effects. Non-GAAP EPS was up 47% from $0.32 non-GAAP EPS in Q4’10. We ended Q4 with $168 million of cash down from $261 million at the end of Q3, reflecting in part $50 million used to repay our revolving credit facility, $15 million for stock repurchases, and $15 million for the acquisition of 4CS.”

Outlook Commentary

“Based on the market momentum we are seeing, the strength of our pipeline, our increasing sales capacity, major product releases in our core markets, as well as the significant interest we are seeing in our other products, such as Abortext and Integrity, we continue to be excited about our long-term growth opportunity,” said Heppelmann. “While we acknowledge that there continues to be uncertainty about the strength of the global economy, we remain committed to achieving our goal of 20% non-GAAP EPS CAGR through 2014.”

Glidden commented, “For Q1, we are providing guidance of $305 to $320 million in revenue, which includes approximately $20 million in revenue from the MKS and 4CS businesses, including $2 million in non-GAAP revenue. We are expecting non-GAAP EPS of $0.28 to $0.32, which at the mid-point is an increase of 36% from $0.22 non-GAAP EPS in Q1’11, reflecting our commitment to driving operating leverage in our model. From a revenue perspective, we are expecting approximately $80 to $95 million in license revenue in Q1, with combined services and non-GAAP maintenance revenue of approximately $225 million, resulting in approximately 14% to 20% year-over-year growth in total non-GAAP revenue.” For Q1, the GAAP revenue target is $303 to $318 million and the GAAP EPS target is $0.14 to $0.18.

The Q1 guidance assumes a non-GAAP tax rate of 24%, a GAAP tax rate of 20% and 121 million diluted shares outstanding. The Q1 non-GAAP guidance excludes approximately $2 million for the effect of purchase accounting on acquired MKS deferred maintenance revenue, $13 million of stock-based compensation expense, $9 million of acquisition-related intangible asset amortization expense, any acquisition-related expenses, and their related income tax effects.

Glidden concluded, “Looking to the full year FY’12, we are targeting non-GAAP revenue growth of 14% to 15%. We expect MKS and 4CS to contribute approximately $90 to $100 million in revenue for the full year, including $3 million in non-GAAP revenue. We expect MKS and 4CS to be slightly accretive to FY’12 non-GAAP EPS. We are expecting license revenue growth of approximately 20%, services revenue growth of 14% and non-GAAP maintenance revenue growth of 11%. Our FY’12 non-GAAP EPS target of $1.48 to $1.52 reflects incremental sales expense as we continue to ramp sales capacity. We will continue to balance investments to support future growth with our commitment to 20% non-GAAP EPS growth.” For FY’12, the GAAP EPS target is $0.94 to $0.98.

The FY’12 targets assume a non-GAAP tax rate of 24%, a GAAP tax rate of 20% and 121 million diluted shares outstanding. The FY’12 non-GAAP guidance excludes approximately $3 million for the effect of purchase accounting on acquired MKS deferred maintenance revenue, $51 million of stock-based compensation expense, $37 million of acquisition-related intangible asset amortization, any acquisition-related expenses, and their related income tax effects.

Q4 Earnings Conference Call and Webcast

Prepared remarks for the conference call have been posted to the investor relations section of our website. The prepared remarks will not be read live; the call will be primarily Q&A.

What:     PTC Fiscal Q4 Conference Call and Webcast
 
When: Thursday, October 27th, 2011 at 8:30 am (ET)
 
Dial-in:

1-800-857-5592 or 1-773-799-3757

Call Leader: James Heppelmann

Passcode: PTC

 
Webcast:

www.ptc.com/for/investors.htm

 
Replay:

The audio replay of this event will be archived for public replay until 4:00 pm (CT) on November 1, 2011 at 1-866-566-0573. To access the replay via webcast, please visit www.ptc.com/for/investors.htm.

Important Information About Non-GAAP References

PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue, operating expenses, margin and EPS exclude the effect of purchase accounting on the fair value of the acquired deferred maintenance balance of MKS Inc., stock-based compensation expense, amortization of acquired intangible assets, acquisition-related expenses, certain foreign currency transaction losses, 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 2012 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 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 remedial actions relating to our previously announced investigation in China will have a material impact on our operations in China. 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 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 Year Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
 
Revenue:
License $ 111,002 $ 89,063 $ 342,121 $ 296,021
Service   228,423     179,003     824,828     714,028  
Total revenue   339,425     268,066     1,166,949     1,010,049  
 
Costs and expenses:
Cost of license revenue (1) 8,663 7,047 28,792 31,047
Cost of service revenue (1) 89,864 70,100 327,976 276,648
Sales and marketing (1) 98,261 84,676 353,051 317,532
Research and development (1) 55,730 50,320 211,406 201,567
General and administrative (1) 30,213 23,242 110,291 92,875
Amortization of acquired intangible assets   5,446     3,736     18,319     15,605  
Total costs and expenses   288,177     239,121     1,049,835     935,274  
 
Operating income 51,248 28,945 117,114 74,775
Gain on litigation resolution - 9,039 - 9,039
Other expense, net   (3,587 )   (229 )   (12,566 )   (1,678 )
Income before income taxes 47,661 37,755 104,548 82,136
Provision for income taxes   10,040     50,970     19,124     57,768  
Net income (loss) $ 37,621   $ (13,215 ) $ 85,424   $ 24,368  
 
Earnings (loss) per share:

Basic

$ 0.32 $ (0.11 ) $ 0.73 $ 0.21
Weighted average shares outstanding 117,095 115,134 117,579 115,639
 
Diluted $ 0.31 $ (0.11 ) $ 0.71 $ 0.20
Weighted average shares outstanding 120,091 115,134 120,974 119,925
 
 
 
(1)The amounts in the tables above include stock-based compensation as follows:
 
 
Three Months Ended Year Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
Cost of license revenue $ 5 $ 3 $ 15 $ 24
Cost of service revenue 2,155 2,115 7,732 9,122
Sales and marketing 3,587 3,367 11,428 13,432
Research and development 2,395 2,186 8,547 9,480
General and administrative   4,802     3,583     17,680     16,853  
Total stock-based compensation $ 12,944   $ 11,254   $ 45,402   $ 48,911  
 
PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
                 
 
Three Months Ended Year Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
 
GAAP revenue $ 339,425 $ 268,066 $ 1,166,949 $ 1,010,049

Fair value of acquired MKS deferred maintenance
    revenue

1,913 - 2,606 -
Non-GAAP revenue $ 341,338   $ 268,066   $ 1,169,555   $ 1,010,049  
 
GAAP operating income $ 51,248 $ 28,945 $ 117,114 $ 74,775

Fair value of acquired MKS deferred maintenance
    revenue

1,913 - 2,606 -
Stock-based compensation 12,944 11,254 45,402 48,911

Amortization of acquired intangible assets
    included in cost of license revenue

4,796 3,882 15,393 18,367
Amortization of acquired intangible assets 5,446 3,736 18,319 15,605

Acquisition-related charges included in
    general and administrative expenses

1,112 - 7,761 -
Non-GAAP operating income (2) $ 77,459   $ 47,817   $ 206,595   $ 157,658  
 
GAAP net income (loss) $ 37,621 $ (13,215 ) $ 85,424 $ 24,368

Fair value of acquired MKS deferred maintenance
    revenue

1,913 - 2,606 -
Stock-based compensation 12,944 11,254 45,402 48,911

Amortization of acquired intangible assets
    included in cost of license revenue

4,796 3,882 15,393 18,367
Amortization of acquired intangible assets 5,446 3,736 18,319 15,605

Acquisition-related charges included in
    general and administrative expenses

1,112 - 7,761 -
Non-operating foreign currency transaction loss (3) - - 5,107 -
Gain on litigation resolution (4) - (9,039 ) - (9,039 )
Income tax adjustments (5)   (7,662 )   41,548     (27,846 )   21,341  
Non-GAAP net income $ 56,170   $ 38,166   $ 152,166   $ 119,553  
 
GAAP diluted earnings (loss) per share $ 0.31 $ (0.11 ) $ 0.71 $ 0.20
Stock-based compensation 0.11 0.09 0.38 0.41
Income tax adjustments (0.06 ) 0.35 (0.23 ) 0.18
Gain on litigation resolution - (0.08 ) - (0.08 )
Acquisition-related charge 0.01 - 0.06 -
All other items identified above   0.10     0.07     0.34     0.29  
Non-GAAP diluted earnings per share $ 0.47   $ 0.32   $ 1.26   $ 1.00  
 
GAAP diluted weighted average shares outstanding 120,091 115,134 120,974 119,925
Dilutive effect of stock based compensation plans   -     4,562     -     -  
Non-GAAP diluted weighted average shares outstanding   120,091     119,696     120,974     119,925  
 
 
 
(2)Operating margin impact of non-GAAP adjustments:
 
Three Months Ended Year Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
GAAP operating margin 15.1 % 10.8 % 10.0 % 7.4 %
Fair value of deferred maintenance revenue 0.6 % 4.2 % 0.2 % 4.8 %
Stock-based compensation 3.8 % 2.8 % 3.9 % 3.4 %
Amortization of acquired intangibles 3.0 % 0.0 % 2.9 % 0.0 %
Acquisition-related charges   0.3 %   0.0 %   0.7 %   0.0 %
Non-GAAP operating margin   22.7 %   17.8 %   17.7 %   15.6 %
(3)   In the third quarter of 2011, in connection with our planned acquisition of MKS, we entered into forward contracts to purchase CDN$292 million (equivalent to approximately $305 million when the contracts were entered into). We entered into these forward contracts to reduce our foreign currency exposure related to changes in the Canadian to US Dollar exchange rate from the time we entered into the agreement in early April to acquire MKS (the purchase price is in Canadian Dollars) and the closing date which occurred on May 31, 2011. We realized foreign currency losses of $4.4 million in the third quarter of 2011 recorded as other expense related to the acquisition of MKS. In the first quarter of 2011 we recorded $0.7 million of foreign currency losses related to a previously announced litigation settlement in Japan.
 
(4) Reflects resolution of the litigation brought against us by GE Japan, which resulted in a GAAP benefit of $9.0 million to other income in the fourth quarter of 2010 to reduce our accruals related to this litigation to the resolution amount.
 
(5) Reflects the tax effects of non-GAAP adjustments for the fourth quarter and full year of 2011 and 2010, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, as well as, the effect of a business realignment initiative during the fourth quarter of 2010, primarily in Europe, to simplify our corporate structure for tax efficient cash repatriation. This realignment resulted in a one-time non-cash GAAP tax charge of $43.4 million.
 
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
       
 
September 30, September 30,
2011 2010
 
ASSETS
 
Cash and cash equivalents $ 167,878 $ 240,253
Accounts receivable, net 230,220 169,281
Property and equipment, net 62,569 58,064
Goodwill and acquired intangible assets, net 835,411 546,440
Other assets 333,604 293,026
   
Total assets $ 1,629,682 $ 1,307,064
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 294,324 $ 245,840
Borrowings under revolving credit facility 200,000 -
Other liabilities 312,668 313,920
Stockholders' equity 822,690 747,304
   
Total liabilities and stockholders' equity $ 1,629,682 $ 1,307,064
 
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                     
 
 
Three Months Ended Year Ended
September 30, September 30, September 30, September 30,
2011 2010 2011 2010
 
Cash flows from operating activities:
Net income (loss) $ 37,621 $ (13,215 ) $ 85,424 $ 24,368
Stock-based compensation 12,944 11,254 45,402 48,911
Depreciation and amortization 17,847 14,644 62,394 62,182
Accounts receivable (50,393 ) (11,759 ) (32,334 ) (531 )
Accounts payable and accruals (6) 7,908 25,839 (3,846 ) 20,591
Deferred revenue (28,630 ) (31,124 ) 8,195 1,440
Income taxes 1,994 39,183 (15,861 ) 16,134
Litigation settlement - (5,038 ) (52,129 ) (5,038 )
Other   736     (14,216 )   (18,547 )   (11,413 )
Net cash provided by operating activities (7) 27 15,568 78,698 156,644
 
Capital expenditures (9,522 ) (5,045 ) (27,817 ) (26,729 )
Acquisitions of businesses, net of cash acquired (14,873 ) (634 ) (280,026 ) (2,721 )
Proceeds (payments) on debt (50,000 ) - 200,000 (50,832 )
Repurchases of common stock (14,973 ) (2,496 ) (54,920 ) (62,542 )
Other investing and financing activities (8) 2,824 4,139 5,340 (7,361 )
Foreign exchange impact on cash   (6,356 )   9,702     6,350     (1,328 )
 
Net change in cash and cash equivalents (92,873 ) 21,234 (72,375 ) 5,131
Cash and cash equivalents, beginning of period   260,751     219,019     240,253     235,122  
Cash and cash equivalents, end of period $ 167,878   $ 240,253   $ 167,878   $ 240,253  
(6)  

Includes accounts payable, accrued expenses, and accrued compensation and benefits.

 
(7) The cash flow from operations for the three months and year ended September 30, 2011 includes cash outflows of approximately $2 million and $12 million, respectively for PTC's MKS and 4CS acquisition-related costs paid after their respective acquisition dates.
 
(8) The three months ended September 30, 2011 and 2010 include $0.5 million and $0.1 million, respectively, for payments of withholding taxes in connection with the vesting of restricted stock units and restricted stock. The years ended September 30, 2011 and 2010 include $22.5 million and $20.3 million, respectively, for payments of withholding taxes in connection with vesting of restricted stock units and restricted stock.


Contact:

Investor Contact:
PTC Investor Relations
Tim Fox, 781-370-5961
Email Contact
or
Media Contact:
PTC Public Relations
Eric Snow, 781-370-6210
Email Contact