PTC also provides information on “free cash flow” and “free cash flow return” to enable investors to assess our ability to generate cash without incurring additional external financings and to evaluate our performance against our announced long-term goal of returning approximately 40% of our free cash flow to shareholders via stock repurchases. Free-cash flow is net cash provided by (used in) operating activities less capital expenditures and free-cash flow return is the value of shares repurchased divided by free cash flow.
Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our fourth quarter and full fiscal 2015 targets 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 and/or global manufacturing climates may not improve or may deteriorate, the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility that our businesses, including our Internet of Things (IoT) business, may not expand and/or generate the revenue we expect, the possibility that new products released and planned products, including IoT enabled core products, may not generate the revenue we expect or be released as we expect, the possibility that foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that the mix of revenue between license & subscription solutions, support and professional services could be different than we expect, which could impact our EPS results, the possibility that our customers may purchase more of our solutions as subscriptions than we expect, which would adversely affect near-term revenue, operating margins, and EPS, the possibility that sales of our solutions as subscriptions may not have the longer-term effect on revenue that we expect, the possibility that our workforce realignment may adversely affect our operations, the possibility that we may be unable to generate sufficient operating cash flow to return 40% of free cash flow to shareholders or that other uses of cash could preclude share repurchases, and the possibility that we may incur additional acquisition-related and pension plan termination-related expenses and losses than we expect.
Further, our results could be materially adversely affected by the resolution of our previously announced investigation in China. In the third quarter, we recorded a liability of $13.6 million associated with pending discussions with the Securities and Exchange Commission and the Department of Justice to resolve this matter. This is the minimum amount of liability we expect to incur if we are able to reach a settlement in this matter, and does not include any amounts associated with potential fines that might be imposed by either or both of the SEC and DOJ, which amounts would increase our liability and could be significant. There can be no assurance that we will reach a settlement with these agencies or that the cost of such settlements, if reached, would not materially exceed the existing accrual.
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 most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
PTC and the PTC logo are trademarks or registered trademarks of PTC Inc. or its subsidiaries in the United States and in other countries.
About PTC
PTC (NASDAQ: PTC) is a global provider of technology platforms and enterprise applications for smart and connected products, operations, and systems. PTC’s enterprise applications serve manufacturers and other businesses that create, operate and service products. Led by its award winning ThingWorx® application enablement platform, PTC’s platform technologies help companies deliver new value emerging from the Internet of Things. An early pioneer in Computer Aided Design (CAD) software, PTC today employs more than 6,000 professionals serving more than 28,000 businesses worldwide.
|
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) |
|||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
|
July 4,
2015 |
June 28,
2014 |
July 4,
2015 |
June 28,
2014 |
||||||||||||||
| Revenue: | |||||||||||||||||
| License and subscription solutions (L&SS) | $ | 83,926 | $ | 97,703 | $ | 248,850 | $ | 269,114 | |||||||||
| Support | 165,687 | 172,021 | 516,042 | 508,412 | |||||||||||||
| Total software revenue | 249,613 | 269,724 | 764,892 | 777,526 | |||||||||||||
| Professional services | 53,500 | 66,910 | 177,782 | 212,733 | |||||||||||||
| Total revenue | 303,113 | 336,634 | 942,674 | 990,259 | |||||||||||||
| Cost of revenue: | |||||||||||||||||
| Cost of L&SS revenue (1) | 12,830 | 11,246 | 39,349 | 32,454 | |||||||||||||
| Cost of support revenue (1) | 20,452 | 21,118 | 63,176 | 62,598 | |||||||||||||
| Total cost of software revenue | 33,282 | 32,364 | 102,525 | 95,052 | |||||||||||||
| Cost of professional services revenue (1) | 46,094 | 58,712 | 155,847 | 182,777 | |||||||||||||
| Total cost of revenue | 79,376 | 91,076 | 258,372 | 277,829 | |||||||||||||
| Gross margin | 223,737 | 245,558 | 684,302 | 712,430 | |||||||||||||
| Operating expenses: | |||||||||||||||||
| Sales and marketing (1) | 86,454 | 91,440 | 256,085 | 261,612 | |||||||||||||
| Research and development (1) | 54,078 | 57,405 | 175,333 | 166,109 | |||||||||||||
| General and administrative (1) | 48,100 | 33,817 | 119,342 | 98,888 | |||||||||||||
| Amortization of acquired intangible assets | 9,105 | 7,998 | 27,691 | 23,772 | |||||||||||||
| Restructuring charges | 4,393 | 514 | 42,625 | 1,581 | |||||||||||||
| Total operating expenses | 202,130 | 191,174 | 621,076 | 551,962 | |||||||||||||
| Operating income | 21,607 | 54,384 | 63,226 | 160,468 | |||||||||||||
| Other expense, net | (3,668 | ) | (2,278 | ) | (10,492 | ) | (6,724 | ) | |||||||||
| Income before income taxes | 17,939 | 52,106 | 52,734 | 153,744 | |||||||||||||
| Provision (benefit) for income taxes | 504 | 14,080 | (377 | ) | 32,305 | ||||||||||||
| Net income | $ | 17,435 | $ | 38,026 | $ | 53,111 | $ | 121,439 | |||||||||
| Earnings per share: | |||||||||||||||||
| Basic | $ | 0.15 | $ | 0.32 | $ | 0.46 | $ | 1.02 | |||||||||
| Weighted average shares outstanding | 114,764 | 118,328 | 115,021 | 118,753 | |||||||||||||
| Diluted | $ | 0.15 | $ | 0.32 | $ | 0.46 | $ | 1.01 | |||||||||
| Weighted average shares outstanding | 116,025 | 119,901 | 116,330 | 120,573 | |||||||||||||
|
(1) The amounts in the tables above include stock-based compensation as follows: |
|||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
|
July 4,
2015 |
June 28,
2014 |
July 4,
2015 |
June 28,
2014 |
||||||||||||||
| Cost of L&SS revenue | $ | 121 | $ | 63 | $ | 381 | $ | 210 | |||||||||
| Cost of support revenue | 1,012 | 898 | 2,777 | 2,711 | |||||||||||||
| Cost of service revenue | 1,317 | 1,549 | 4,510 | 4,435 | |||||||||||||
| Sales and marketing | 3,430 | 3,065 | 9,383 | 8,583 | |||||||||||||
| Research and development | 2,928 | 2,231 | 9,015 | 7,067 | |||||||||||||
| General and administrative | 5,263 | 4,726 | 12,069 | 14,856 | |||||||||||||
| Total stock-based compensation | $ | 14,071 | $ | 12,532 | $ | 38,135 | $ | 37,862 | |||||||||
|
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) (in thousands, except per share data) |
|||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
|
July 4,
2015 |
June 28,
2014 |
July 4,
2015 |
June 28,
2014 |
||||||||||||||
| GAAP revenue | $ | 303,113 | $ | 336,634 | $ | 942,674 | $ | 990,259 | |||||||||
| Fair value adjustment of acquired deferred L&SS revenue | 352 | - | 1,624 | - | |||||||||||||
| Fair value adjustment of acquired deferred support revenue | 125 | - | 855 | - | |||||||||||||
| Fair value adjustment of acquired deferred service revenue | 309 | - | 844 | - | |||||||||||||
| Non-GAAP revenue | $ | 303,899 | $ | 336,634 | $ | 945,997 | $ | 990,259 | |||||||||
| GAAP gross margin | $ | 223,737 | $ | 245,558 | $ | 684,302 | $ | 712,430 | |||||||||
| Fair value adjustment of acquired deferred L&SS revenue | 352 | - | 1,624 | - | |||||||||||||
| Fair value adjustment of acquired deferred support revenue | 125 | - | 855 | - | |||||||||||||
| Fair value adjustment of acquired deferred service revenue | 309 | - | 844 | - | |||||||||||||
| Fair value adjustment to deferred services cost | (135 | ) | - | (392 | ) | - | |||||||||||
| Stock-based compensation | 2,450 | 2,510 | 7,668 | 7,356 | |||||||||||||
| Amortization of acquired intangible assets
included in cost of L&SS revenue |
4,957 | 4,415 | 14,438 | 13,319 | |||||||||||||
| Non-GAAP gross margin | $ | 231,795 | $ | 252,483 | $ | 709,339 | $ | 733,105 | |||||||||
| GAAP operating income | $ | 21,607 | $ | 54,384 | $ | 63,226 | $ | 160,468 | |||||||||
| Fair value adjustment of acquired deferred L&SS revenue | 352 | - | 1,624 | - | |||||||||||||
| Fair value adjustment of acquired deferred support revenue | 125 | - | 855 | - | |||||||||||||
| Fair value adjustment of acquired deferred service revenue | 309 | - | 844 | - | |||||||||||||
| Fair value adjustment to deferred services cost | (135 | ) | - | (392 | ) | - | |||||||||||
| Stock-based compensation | 14,071 | 12,532 | 38,135 | 37,862 | |||||||||||||
| Amortization of acquired intangible assets
included in cost of L&SS revenue |
4,957 | 4,415 | 14,438 | 13,319 | |||||||||||||
| Amortization of acquired intangible assets | 9,105 | 7,998 | 27,691 | 23,772 | |||||||||||||
| Acquisition-related charges included in
general and administrative expenses |
2,778 | 1,528 | 8,703 | 6,768 | |||||||||||||
| US pension plan termination-related costs | 1,995 | - | 5,392 | - | |||||||||||||
| Pending legal settlement accrual | 13,622 | - | 13,622 | - | |||||||||||||
| Restructuring charges | 4,393 | 514 | 42,625 | 1,581 | |||||||||||||
| Non-GAAP operating income (2) | $ | 73,179 | $ | 81,371 | $ | 216,763 | $ | 243,770 | |||||||||
| GAAP net income | $ | 17,435 | $ | 38,026 | $ | 53,111 | $ | 121,439 | |||||||||
| Fair value adjustment of acquired deferred L&SS revenue | 352 | - | 1,624 | - | |||||||||||||
| Fair value adjustment of acquired deferred support revenue | 125 | - | 855 | - | |||||||||||||
| Fair value adjustment of acquired deferred service revenue | 309 | - | 844 | - | |||||||||||||
| Fair value adjustment to deferred services cost | (135 | ) | - | (392 | ) | - | |||||||||||
| Stock-based compensation | 14,071 | 12,532 | 38,135 | 37,862 | |||||||||||||
| Amortization of acquired intangible assets
included in cost of L&SS revenue |
4,957 | 4,415 | 14,438 | 13,319 | |||||||||||||
| Amortization of acquired intangible assets | 9,105 | 7,998 | 27,691 | 23,772 | |||||||||||||
| Acquisition-related charges included in
general and administrative expenses |
2,778 | 1,528 | 8,703 | 6,768 | |||||||||||||
| US pension plan termination-related costs | 1,995 | - | 5,392 | - | |||||||||||||
| Pending legal settlement accrual | 13,622 | - | 13,622 | - | |||||||||||||
| Restructuring charges | 4,393 | 514 | 42,625 | 1,581 | |||||||||||||
| Income tax adjustments (3) | (7,309 | ) | (1,275 | ) | (24,551 | ) | (23,088 | ) | |||||||||
| Non-GAAP net income | $ | 61,698 | $ | 63,738 | $ | 182,097 | $ | 181,653 | |||||||||
| GAAP diluted earnings per share | $ | 0.15 | $ | 0.32 | $ | 0.46 | $ | 1.01 | |||||||||
| Fair value of acquired deferred revenue | 0.01 | - | 0.03 | - | |||||||||||||
| Fair value adjustment to deferred services cost | - | - | - | - | |||||||||||||
| Stock-based compensation | 0.12 | 0.10 | 0.33 | 0.31 | |||||||||||||
| Amortization of acquired intangibles | 0.12 | 0.10 | 0.36 | 0.31 | |||||||||||||
| Acquisition-related charges | 0.02 | 0.01 | 0.07 | 0.06 | |||||||||||||
| US pension plan termination-related costs | 0.02 | - | 0.05 | - | |||||||||||||
| Pending legal settlement accrual | 0.12 | - | 0.12 | - | |||||||||||||
| Restructuring charges | 0.04 | - | 0.37 | 0.01 | |||||||||||||
| Income tax adjustments | (0.06 | ) | (0.01 | ) | (0.21 | ) | (0.19 | ) | |||||||||
| Non-GAAP diluted earnings per share | $ | 0.53 | $ | 0.53 | $ | 1.57 | $ | 1.51 | |||||||||
| (2)Operating margin impact of non-GAAP adjustments: | |||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||
|
July 4,
2015 |
June 28,
2014 |
July 4,
2015 |
June 28,
2014 |
||||||||||||||
| GAAP operating margin | 7.1 | % | 16.2 | % | 6.7 | % | 16.2 | % | |||||||||
| Fair value of acquired deferred revenue | 0.3 | % | 0.0 | % | 0.4 | % | 0.0 | % | |||||||||
| Fair value adjustment to deferred services cost | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | |||||||||
| Stock-based compensation | 4.6 | % | 3.7 | % | 4.0 | % | 3.8 | % | |||||||||
| Amortization of acquired intangibles | 4.6 | % | 3.7 | % | 4.5 | % | 3.7 | % | |||||||||
| Acquisition-related charges | 0.9 | % | 0.5 | % | 0.9 | % | 0.7 | % | |||||||||
| US pension plan termination-related costs | 0.7 | % | 0.0 | % | 0.6 | % | 0.0 | % | |||||||||
| Pending legal settlement accrual | 4.5 | % | 0.0 | % | 1.4 | % | 0.0 | % | |||||||||
| Restructuring charges | 1.4 | % | 0.2 | % | 4.5 | % | 0.2 | % | |||||||||
| Non-GAAP operating margin | 24.1 | % | 24.2 | % | 22.9 | % | 24.6 | % | |||||||||
