PTC Announces Q4 and FY’13 Results; Provides Q1 and FY’14

PTC Announces Q4 and FY’13 Results; Provides Q1 and FY’14 Outlook

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 and gains, certain foreign currency transaction losses, certain litigation gains, 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.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2014 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 or adopt 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 we may be unable to improve services margins as we expect, the possibility that we may be unable to improve sales productivity as we expect, the possibility that our CAD and SLM businesses may not continue to expand, 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						Twelve Months Ended
			September 30,			September 30,			September 30,			September 30,
			2013			2012			2013			2012

Revenue:
	License		$	105,432		$	100,698		$	344,209		$	348,394
	Service			72,269			69,138			294,653			295,342
	Support			167,144			155,459			654,679			611,943
Total revenue				344,845			325,295			1,293,541			1,255,679

Cost of revenue:
	Cost of license revenue ⁽¹⁾			8,270			7,478			33,004			30,595
	Cost of service revenue ⁽¹⁾			62,871			61,978			258,954			265,483
	Cost of support revenue ⁽¹⁾			20,388			18,383			81,081			76,050
Total cost of revenue				91,529			87,839			373,039			372,128

Gross margin				253,316			237,456			920,502			883,551

Operating expenses:
	Sales and marketing ⁽¹⁾			90,734			94,350			360,640			377,796
	Research and development ⁽¹⁾			55,127			52,131			221,918			214,960
	General and administrative ⁽¹⁾			33,910			28,511			131,937			117,468
	Amortization of acquired intangible assets			6,691			4,859			26,486			20,303
	Restructuring charges			17,848			-			52,197			24,928
Total operating expenses				204,310			179,851			793,178			755,455

Operating income				49,006			57,605			127,324			128,096
	Other income (expense), net			(599	)		(1,446	)		(1,090	)		(7,360	)
Income before income taxes				48,407			56,159			126,234			120,736
	(Benefit) provision for income taxes			(8,059	)		140,144			(17,535	)		156,134
Net income (loss)			$	56,466		$	(83,985	)	$	143,769		$	(35,398	)

Earnings (loss) per share:
	Basic		$	0.47		$	(0.71	)	$	1.20		$	(0.30	)
		Weighted average shares outstanding		119,020			119,048			119,473			118,705

	Diluted		$	0.47		$	(0.71	)	$	1.19		$	(0.30	)
		Weighted average shares outstanding		121,267			119,048			121,240			118,705



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

			Three Months Ended						Twelve Months Ended
			September 30,			September 30,			September 30,			September 30,
			2013			2012			2013			2012
	Cost of license revenue		$	4		$	6		$	21		$	22
	Cost of service revenue			1,730			1,447			6,134			5,682
	Cost of support revenue			941			735			3,324			3,234
	Sales and marketing			3,340			3,441			11,326			13,809
	Research and development			2,115			2,086			8,590			8,761
	General and administrative			5,777			4,185			19,392			19,797
		Total stock-based compensation	$	13,907		$	11,900		$	48,787		$	51,305

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

			Three Months Ended						Twelve Months Ended
			September 30,			September 30,			September 30,			September 30,
			2013			2012			2013			2012

GAAP revenue			$	344,845		$	325,295		$	1,293,541		$	1,255,679
	Fair value of acquired company's
		deferred maintenance revenue		287			-			3,035			2,485
Non-GAAP revenue			$	345,132		$	325,295		$	1,296,576		$	1,258,164

GAAP gross margin			$	253,316		$	237,456		$	920,502		$	883,551
	Fair value of acquired company's
		deferred maintenance revenue		287			-			3,035			2,485
	Stock-based compensation			2,675			2,188			9,479			8,938
	Amortization of acquired intangible assets
		included in cost of revenue		4,721			3,852			18,586			15,819
Non-GAAP gross margin			$	260,999		$	243,496		$	951,602		$	910,793

GAAP operating income			$	49,006		$	57,605		$	127,324		$	128,096
	Fair value of acquired company's
		deferred maintenance revenue		287			-			3,035			2,485
	Stock-based compensation			13,907			11,900			48,787			51,305
	Amortization of acquired intangible assets
		included in cost of revenue		4,721			3,852			18,586			15,819
	Amortization of acquired intangible assets			6,691			4,859			26,486			20,303
	Acquisition-related charges included in
		general and administrative expenses		2,246			1,321			9,855			3,833
	Restructuring charges			17,848			-			52,197			24,928
Non-GAAP operating income ⁽²⁾			$	94,706		$	79,537		$	286,270		$	246,769

GAAP net income (loss)			$	56,466		$	(83,985	)	$	143,769		$	(35,398	)
	Fair value of acquired company's
		deferred maintenance revenue		287			-			3,035			2,485
	Stock-based compensation			13,907			11,900			48,787			51,305
	Amortization of acquired intangible assets
		included in cost of revenue		4,721			3,852			18,586			15,819
	Amortization of acquired intangible assets			6,691			4,859			26,486			20,303
	Acquisition-related charges included in
		general and administrative expenses		2,246			1,321			9,855			3,833
	Restructuring charges			17,848			-			52,197			24,928
	Non-operating one-time (gains) losses ⁽³⁾			(594	)		-			(5,717	)		761
	Income tax adjustments ⁽⁴⁾			(29,990	)		122,255			(77,834	)		98,827
Non-GAAP net income			$	71,582		$	60,202		$	219,164		$	182,863

GAAP diluted earnings (loss) per share			$	0.47		$	(0.71	)	$	1.19		$	(0.30	)
	Fair value of deferred maintenance revenue			-			-			0.03			0.02
	Stock-based compensation			0.11			0.10			0.40			0.42
	Amortization of acquired intangibles			0.09			0.07			0.37			0.30
	Acquisition-related charges			0.02			0.01			0.08			0.03
	Restructuring charges			0.15			-			0.43			0.21
	Non-operating one-time (gains) losses ⁽³⁾			-			-			(0.05	)		0.01
	Income tax adjustments ⁽⁴⁾			(0.25	)		1.01			(0.64	)		0.82
Non-GAAP diluted earnings per share			$	0.59		$	0.50		$	1.81		$	1.51

GAAP diluted weighted average shares outstanding				121,267			119,048			121,240			118,705
	Dilutive effect of stock based compensation plans			-			2,227			-			2,293
Non-GAAP diluted weighted average shares outstanding				121,267			121,275			121,240			120,998

	(2)	Operating margin impact of non-GAAP adjustments:
			Three Months Ended						Twelve Months Ended
			September 30,			September 30,			September 30,			September 30,
			2013			2012			2013			2012
	GAAP operating margin			14.2	%		17.7	%		9.8	%		10.2	%
		Fair value of deferred maintenance revenue		0.1	%		0.0	%		0.2	%		0.2	%
		Stock-based compensation		4.0	%		3.7	%		3.8	%		4.1	%
		Amortization of acquired intangibles		3.3	%		2.7	%		3.5	%		2.9	%
		Acquisition-related charges		0.7	%		0.4	%		0.8	%		0.3	%
		Restructuring charges		5.2	%		0.0	%		4.0	%		2.0	%
	Non-GAAP operating margin			27.4	%		24.5	%		22.1	%		19.6	%

	(3)	The fourth quarter of 2013 includes a gain on investment of $0.6 million, and the third quarter of 2013 includes a legal settlement gain of $5.1 million, which are both excluded from non-GAAP net income. In the first quarter of 2012 we recorded $0.8 million of foreign currency transaction losses related to legal entity mergers completed during the quarter, which is excluded from non-GAAP net income.

	(4)	Reflects the tax effects of non-GAAP adjustments for the three and twelve months ended September 30, 2013 and September 30, 2012, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, as well as any discrete tax items. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets. As the U.S. is profitable on a non-GAAP basis, the 2013 non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance and, as a result, an income tax benefit of $0.2 million and $20.3 million is included for the three and twelve months ended September 30, 2013, respectively. In the three and twelve months ended September 30, 2013, the non-GAAP tax provision excludes the non-cash benefit related to the reversal of a portion of the valuation allowance in the U.S. of $7.9 million relating to the release of a valuation allowance as a result of the pension gain (decrease in unrecognized actuarial loss) recorded in accumulated other comprehensive income, a $4.1 million benefit related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established in accounting for acquisitions completed in the fourth quarter and a $2.6 million benefit relating to a tax audit in a foreign jurisdiction of an acquired company. The twelve months ended September 30, 2013 non-GAAP tax provision also excludes a non-cash tax benefit of $32.6 million related to the release of deferred tax liabilities established for the Servigistics acquisition recorded in the first quarter and tax benefits of $3.2 million relating to the final resolution of a long standing tax litigation and completion of an international jurisdiction tax audit recorded in the second quarter. The three and twelve months ended September 30, 2012 non-GAAP tax provision excludes a non-cash charge, net, of $124.5 million to establish a valuation allowance against our U.S. net deferred tax assets and $5.4 million, net primarily related to foreign tax credits which would be fully realized on a non-GAAP basis recorded in the fourth quarter of 2012; $3.3 million primarily related to acquired legal entity integration activities recorded in the third quarter of 2012; and $1.4 million related to the impact from a reduction in the statutory tax rate in Japan on deferred tax assets from a litigation settlement recorded in the first quarter of 2012.

PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


	September 30,		September 30,
	2013		2012

ASSETS

Cash and cash equivalents	$	241,913	$	489,543
Accounts receivable, net		229,106		217,370
Property and equipment, net		64,652		63,466
Goodwill and acquired intangible assets, net		1,042,216		796,232
Other assets		238,386		225,023

Total assets	$	1,816,273	$	1,791,634

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue	$	336,913	$	327,529
Borrowings under credit facility		258,125		370,000
Other liabilities		294,755		296,846
Stockholders' equity		926,480		797,259

Total liabilities and stockholders' equity	$	1,816,273	$	1,791,634

PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


		Three Months Ended						Twelve Months Ended
		September 30,			September 30,			September 30,			September 30,
		2013			2012			2013			2012

Cash flows from operating activities:
	Net income (loss)	$	56,466		$	(83,985	)	$	143,769		$	(35,398	)
	Stock-based compensation		13,907			11,900			48,787			51,305
	Depreciation and amortization		19,119			16,319			76,551			66,471
	Accounts receivable		(18,566	)		(9,473	)		17,308			32,309
	Accounts payable and accruals ⁽⁵⁾		14,732			(1,281	)		6,208			(7,573	)
	Deferred revenue		(36,224	)		(37,866	)		6,727			14,362
	Income taxes		(14,576	)		128,872			(54,925	)		100,761
	Excess tax benefits from stock-based awards		(163	)		(871	)		(334	)		(1,324	)
	Other		8,966			(2,684	)		(19,408	)		(2,938	)
Net cash provided by operating activities ⁽⁶⁾			43,661			20,931			224,683			217,975

Capital expenditures			(10,200	)		(8,907	)		(29,328	)		(31,413	)
Acquisitions of businesses, net of cash acquired ⁽⁷⁾			(25,026	)		950			(245,843	)		(220	)
Proceeds (payments) on debt, net			(10,000	)		230,000			(111,875	)		170,000
Proceeds from issuance of common stock			1,472			5,895			4,884			21,210
Payments of withholding taxes in connection with
	vesting of stock-based awards		(22	)		(74	)		(14,996	)		(20,967	)
Repurchases of common stock			(19,959	)		-			(74,871	)		(34,953	)
Excess tax benefits from stock-based awards			163			871			334			1,324
Other financing and investing activities			721			(1,951	)		721			(1,951	)
Foreign exchange impact on cash			4,072			3,781			(1,339	)		660

Net change in cash and cash equivalents			(15,118	)		251,496			(247,630	)		321,665
Cash and cash equivalents, beginning of period			257,031			238,047			489,543			167,878
Cash and cash equivalents, end of period		$	241,913		$	489,543		$	241,913		$	489,543


(5)	Includes accounts payable, accrued expenses, and accrued compensation and benefits

(6)	The three and twelve months ended September 30, 2013 and September 30, 2012 include restructuring payments of $6 million and $37 million and $5 million and $21 million, respectively.

(7)	We completed two acqusition in the fourth quarter for $25 million, net of cash acquired. We acquired Servigistics on October 2, 2012, for approximately $221 million (net of cash acquired) which was funded with $230 million in borrowings under our revolving credit facility. We borrowed the funds in the fourth quarter of 2012 in contemplation of the acquisition closing.

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