PTC Announces Q2 Results, Initiates Q3 Guidance and Updates

PTC Announces Q2 Results, Initiates Q3 Guidance and Updates FY’13 Targets

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 acquired deferred revenue of Servigistics, Inc. and MKS, Inc., stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses, certain foreign currency transaction losses, and the related tax effects of the preceding items and discrete 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.

Other Important Information

As we have previously disclosed, we have been cooperating to provide information to the U.S. Securities and Exchange Commission and the Department of Justice concerning payments and expenses by certain of our business partners in China and/or by employees of our Chinese subsidiary that raise questions concerning compliance with laws, including the U.S. Foreign Corrupt Practices Act. The SEC has informed us that its investigation is substantially complete and the Department of Justice has not yet indicated the status of its investigation. Resolution of this matter could include fines and penalties; however we are unable to estimate an amount and we have not recorded a liability for this matter. If we are required to record a liability for this matter this could materially impact our results for the period in which the liability is recorded and, depending on timing, could involve an adjustment to our Q2FY13 results.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2013 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 the macroeconomic climate may not improve or may deteriorate, the possibility that customers may not purchase our solutions when or at the rates we expect and that our pipeline deals may not convert as 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 support growth rates that we expect, which could result in a different mix of revenue between license, service and support and could impact our EPS results, the possibility that the rate of growth of our CAD and Extended PLM solutions may not continue to increase, the risk that sales of our newly expanded SLM solutions, including Servigistics, may not generate the revenue we expect, the possibility that resource constraints and personnel reductions could adversely affect our revenue, and the possibility that remedial actions relating to our previously announced investigation in China will have a material impact on our operations in China and that fines and penalties may be assessed against us in connection with this matter. 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 PTC logo, and all other PTC product names and logos are trademarks or registered trademarks of PTC Inc. 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

PTC (Nasdaq: PMTC) enables manufacturers to achieve sustained product and service advantage. The company’s technology solutions help customers transform the way they create and service products across the entire product lifecycle – from conception and design to sourcing and service. Founded in 1985, PTC employs nearly 6,000 professionals serving more than 27,000 businesses in rapidly-evolving, globally distributed manufacturing industries worldwide. Get more information at www.ptc.com.

PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)


	Three Months Ended						Six Months Ended
	March 30,			March 31,			March 30,			March 31,
	2013			2012			2013			2012

Revenue:
License	$	79,690		$	74,779		$	158,875		$	163,867
Service		73,084			75,806			149,844			151,433
Support		161,175			150,540			324,981			304,101
Total revenue		313,949			301,125			633,700			619,401

Cost of revenue:
Cost of license revenue ⁽¹⁾		8,291			7,824			16,303			15,483
Cost of service revenue ⁽¹⁾		64,550			66,366			133,142			137,816
Cost of support revenue ⁽¹⁾		20,429			19,026			40,897			38,136
Total cost of revenue		93,270			93,216			190,342			191,435

Gross margin		220,679			207,909			443,358			427,966

Operating expenses:
Sales and marketing ⁽¹⁾		88,059			90,962			181,608			188,740
Research and development ⁽¹⁾		55,528			54,576			112,957			109,569
General and administrative ⁽¹⁾		33,398			29,534			69,215			59,106
Amortization of acquired intangible assets		6,640			5,132			13,263			10,341
Restructuring charges		15,810			20,802			31,212			20,802
Total operating expenses		199,435			201,006			408,255			388,558

Operating income		21,244			6,903			35,103			39,408
Other expense, net		(1,867	)		(2,967	)		(3,672	)		(5,610	)
Income before income taxes		19,377			3,936			31,431			33,798
(Benefit) provision for income taxes		2,340			367			(21,417	)		8,106
Net income	$	17,037		$	3,569		$	52,848		$	25,692

Earnings per share:
Basic	$	0.14		$	0.03		$	0.44		$	0.22
Weighted average shares outstanding		119,518			119,003			119,722			118,356

Diluted	$	0.14		$	0.03		$	0.44		$	0.21
Weighted average shares outstanding		121,071			121,401			121,438			120,985



(1) The amounts in the tables above include stock-based compensation as follows:

	Three Months Ended						Six Months Ended
	March 30,			March 31,			March 30,			March 31,
	2013			2012			2013			2012
Cost of license revenue	$	8		$	7		$	13		$	12
Cost of service revenue		1,420			1,358			3,032			2,921
Cost of support revenue		835			813			1,661			1,763
Sales and marketing		2,835			3,306			5,293			7,034
Research and development		1,824			2,240			4,336			4,789
General and administrative		4,888			4,968			9,368			9,555
Total stock-based compensation	$	11,810		$	12,692		$	23,703		$	26,074

PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)

	Three Months Ended						Six Months Ended
	March 30,			March 31,			March 30,			March 31,
	2013			2012			2013			2012

GAAP revenue	$	313,949		$	301,125		$	633,700		$	619,401
Fair value of acquired company's
deferred maintenance revenue		660			736			2,214			2,258
Non-GAAP revenue	$	314,609		$	301,861		$	635,914		$	621,659

GAAP gross margin	$	220,679		$	207,909		$	443,358		$	427,966
Fair value of acquired company's
deferred maintenance revenue		660			736			2,214			2,258
Stock-based compensation		2,263			2,178			4,706			4,696
Amortization of acquired intangible assets
included in cost of license revenue		4,628			3,931			9,267			8,034
Non-GAAP gross margin	$	228,230		$	214,754		$	459,545		$	442,954

GAAP operating income	$	21,244		$	6,903		$	35,103		$	39,408
Fair value of acquired company's
deferred maintenance revenue		660			736			2,214			2,258
Stock-based compensation		11,810			12,692			23,703			26,074
Amortization of acquired intangible assets
included in cost of license revenue		4,628			3,931			9,267			8,034
Amortization of acquired intangible assets		6,640			5,132			13,263			10,341
Acquisition-related charges included in
general and administrative expenses		2,110			444			6,709			2,512
Restructuring charges		15,810			20,802			31,212			20,802
Non-GAAP operating income ⁽²⁾	$	62,902		$	50,640		$	121,471		$	109,429

GAAP net income	$	17,037		$	3,569		$	52,848		$	25,692
Fair value of acquired company's
deferred maintenance revenue		660			736			2,214			2,258
Stock-based compensation		11,810			12,692			23,703			26,074
Amortization of acquired intangible assets
included in cost of license revenue		4,628			3,931			9,267			8,034
Amortization of acquired intangible assets		6,640			5,132			13,263			10,341
Acquisition-related charges included in
general and administrative expenses		2,110			444			6,709			2,512
Restructuring charges		15,810			20,802			31,212			20,802
Non-operating foreign currency transaction losses ⁽³⁾		-			-			-			761
Income tax adjustments ⁽⁴⁾		(9,141	)		(11,412	)		(45,541	)		(18,090	)
Non-GAAP net income	$	49,554		$	35,894		$	93,675		$	78,384

GAAP diluted earnings per share	$	0.14		$	0.03		$	0.44		$	0.21
Fair value of deferred maintenance revenue		0.01			0.01			0.02			0.02
Stock-based compensation		0.10			0.10			0.20			0.22
Amortization of acquired intangibles		0.09			0.07			0.19			0.15
Acquisition-related charges		0.02			-			0.06			0.02
Restructuring charges and other		0.13			0.17			0.26			0.18
Income tax adjustments		(0.08	)		(0.09	)		(0.38	)		(0.15	)
Non-GAAP diluted earnings per share	$	0.41		$	0.30		$	0.77		$	0.65

(2) Operating margin impact of non-GAAP adjustments:
	Three Months Ended						Six Months Ended
	March 30,			March 31,			March 30,			March 31,
	2013			2012			2013			2012
GAAP operating margin		6.8	%		2.3	%		5.5	%		6.4	%
Fair value of deferred maintenance revenue		0.2	%		0.2	%		0.3	%		0.4	%
Stock-based compensation		3.8	%		4.2	%		3.7	%		4.2	%
Amortization of acquired intangibles		3.6	%		3.0	%		3.6	%		3.0	%
Acquisition-related charges		0.7	%		0.1	%		1.1	%		0.4	%
Restructuring charges		5.0	%		6.9	%		4.9	%		3.4	%
Non-GAAP operating margin		20.0	%		16.8	%		19.1	%		17.6	%

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