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PTC Announces Fiscal 2008 Q3 Results

NEEDHAM, Mass.—(BUSINESS WIRE)—July 22, 2008— PTC (Nasdaq: PMTC - News), The Product Development Company®, today reported results for its fiscal third quarter ended June 28, 2008.

Highlights

Q3 Results

C. Richard Harrison, president and chief executive officer, commented, We achieved 21% year-over-year non-GAAP revenue growth in the third quarter reflecting contribution from the CoCreate Software business acquired on November 30, 2007, organic revenue growth and favorable currency impact. Importantly, we achieved double digit license revenue growth in every region except the Pacific Rim. GAAP year-over-year revenue growth for the third fiscal quarter was 21%. Our third quarter non-GAAP revenue excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $1 million.

The following tables provide further detail on PTCs GAAP revenue performance by line of business, region and distribution channel. Further financial and operating metrics are available on PTCs web site at www.ptc.com/for/investors.htm.

($ in millions)    

Q2
FY07

   

Q3
FY07

   

Q4
FY07

   

Q1
FY08

   

Q2
FY08

   

Q3
FY08

 

Y-Y
Change

             
License $ 71.3 $ 62.1 $ 96.1 $ 67.2 $ 72.9 $ 77.6 25 %
Services 58.0 59.7 64.6 60.2 63.8 63.8 7 %
Maintenance     98.8     103.1     106.0     113.8     121.1     130.3   26 %
Total Revenue $ 228.1 $ 224.9 $ 266.7 $ 241.2 $ 257.8 $ 271.7 21 %
 
Europe $ 82.9 $ 86.2 $ 101.6 $ 101.6 $ 106.2 $ 111.8 30 %
North America 89.4 86.9 102.2 84.5 88.2 90.0 4 %
Pacific Rim 30.7 32.6 34.3 30.0 33.5 34.2 5 %
Japan     25.1     19.2     28.6     25.1     29.9     35.7   86 %
Total Revenue $ 228.1 $ 224.9 $ 266.7 $ 241.2 $ 257.8 $ 271.7 21 %
 

Direct (a)

$ 179.2 $ 177.3 $ 215.3 $ 182.5 $

190.3(a)

$ 201.3 14 %

Channel (a)

    48.9     47.6     51.4     58.7    

67.5(a)

    70.4   48 %
Total Revenue $ 228.1 $ 224.9 $ 266.7 $ 241.2 $ 257.8 $ 271.7 21 %

(a) Note: Q2 FY08 revenue by channel was revised, with $5.9 million of revenue (primarily maintenance) moving from the Direct category to the Channel category. The revised numbers are reflected in the table above.

Harrison added, In the third quarter, PTC received orders from leading organizations, including Airbus, Bang & Olufsen, Gamesa, Raytheon, Sumitomo Wiring System, LTD., Toyota Motor Corporation, and Volvo Group. There were 13 customers from which we recognized more than $1 million of license and services revenue in Q3. This compares to 16 customers last quarter and 17 in the same period last year. We recognized $35.6 million of license and services revenue from such customers in Q3, compared with $37.6 million last quarter and $34.7 million in Q3 of last year.

Neil Moses, chief financial officer, commented, We delivered 21.3% non-GAAP operating margin in the third quarter, an 860 basis point improvement from the same period last year. Our year-to-date non-GAAP operating margin of 20.2% is up 610 basis points over the same period in fiscal 2007. GAAP operating margins for Q3 of 2008 and the first nine months of fiscal 2008 were 11.7% and 10.1%, respectively. The Companys non-GAAP tax rate in the third quarter of 2008 was 32% and its GAAP tax rate was 42%.

Moses continued, During the quarter we recorded a $3.8 million restructuring charge related to our ongoing globalization initiative as we transition certain back-office functions to lower cost regions. We also recorded a one-time non-cash loss recorded to other income (expense) of $6.2 million during the quarter as we liquidated certain legal entities related to previous acquisitions. Both of these items are excluded from our non-GAAP results.

Moses added, Cash flow from operations was $53 million for the third quarter and $181 million year to date. We used $54 million in Q3 to repay amounts borrowed under our revolving credit facility to finance the CoCreate acquisition, leaving an outstanding loan balance of $110 million as of the end of the third quarter. Additionally, we used $5 million of cash during the quarter to repurchase our common shares under our current $50 million authorization. We have $45 million remaining under that authorization. Cash and cash equivalents were $242 million at the end of the third quarter of fiscal 2008.

Q4 Outlook

Looking forward to Q4, we are currently expecting non-GAAP revenue to be between $290 million and $300 million, said Harrison. Non-GAAP earnings per diluted share are expected to be between $0.38 and $0.42. PTC expects GAAP Q4 revenue between $289 million and $299 million, and GAAP earnings per diluted share between $0.21 and $0.25. The Q4 guidance assumes a non-GAAP tax rate of 35% and GAAP tax rate of 37.5%.

The non-GAAP revenue guidance for Q4 excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $1 million. In addition, the Q4 non-GAAP earnings guidance excludes approximately $11 million of stock-based compensation expense, $10 million of acquisition-related amortization expenses, $5 million of restructuring expenses related to our continued globalization program and the related income tax effects.

FY08 Outlook

For the fiscal year ending September 30, 2008, PTC currently expects non-GAAP revenue to be approximately $1,070 million with non-GAAP earnings per diluted share in the range of $1.28 to $1.32. PTC expects GAAP revenue to be approximately $1,065 million with GAAP earnings per diluted share in the range of $0.58 to $0.62 for the fiscal year. The full fiscal year guidance assumes a non-GAAP tax rate of 34% and GAAP tax rate of 39%.

The non-GAAP revenue guidance for the full fiscal year excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $5 million. In addition, the non-GAAP earnings guidance excludes approximately $44 million of stock-based compensation expense, $35 million of acquisition-related amortization expense, $20 million of restructuring expenses primarily related to our continued globalization program, $2 million of in-process research and development expense related to acquisitions completed in the first quarter of 2008, $6 million of a non-cash loss recorded to other income (expense) resulting from the liquidation of certain legal entities related to previous acquisitions, and the related income tax effects.

Harrison concluded, While we continue to remain mindful of the potential impact of a slowing economy in 2008, we are confident in our ability to achieve our Q4 and fiscal 2008 revenue and earnings targets. We are expecting modest sequential increases in our maintenance and services lines of business. We are expecting a modest year-over-year increase of license revenue in Q4 as we continue to expand and increase the effectiveness of our reseller channel, which accounts for more the 30% of our license revenue, and as we see strength in our pipeline for new license opportunities worldwide.

Earnings Conference Call and Webcast

What:

PTC Fiscal Q3 Conference Call and Webcast
 

IMPORTANT: Supplemental financial and operating metric information and prepared remarks with respect to tomorrow's conference call have been posted to the investor relations section of our website at www.ptc.com. The prepared remarks will not be read live; the call will be primarily Q&A.

 

When:

Wednesday, July 23, 2008 at 8:30 a.m. Eastern Time
 

Dial-in:

1-888-566-8560 or 1-517-623-4768
Call Leader: Richard Harrison
Passcode: PTC
 

Webcast:

http://www.ptc.com/for/investors.htm

 

Replay:

The audio replay of this event will be archived for public replay until 4:00 pm on July 28, 2008 at 1-866-516-0671 or 1-203-369-2035. To access the replay via webcast, please visit http://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 excludes the effect of purchase accounting on the fair value of the acquired deferred maintenance revenue balance of CoCreate Software GmbH. Non-GAAP operating margin and EPS also exclude stock-based compensation expense, amortization of acquired intangible assets and acquired in-process research and development expenses, restructuring expenses, non-cash effects of liquidating subsidiaries and any one-time tax items, such as valuation allowance reversals. PTC provides this non-GAAP information to facilitate period-to-period comparisons of its operational performance by adjusting for episodic expenses. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies. PTC management also uses this and other non-GAAP financial information to evaluate, manage and plan our business because the information provides additional insight into ongoing financial performance. 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 alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTCs financial results. Therefore, management uses, and investors should use, non-GAAP measures in conjunction with our reported GAAP results. Please refer to the attached tables for a reconciliation between GAAP results and the non-GAAP supplemental information.

About PTC

PTC (Nasdaq: PMTC - News) provides leading product lifecycle management (PLM), content management and dynamic publishing solutions to more than 50,000 companies worldwide. PTC customers include the world's most innovative companies in manufacturing, publishing, services, government and life sciences industries. PTC is included in the S&P Midcap 400 and Russell 2000 indices. For more information on PTC, please visit http://www.ptc.com.

Statements in this news release that are not historical facts, including statements about our confidence that we will achieve our fiscal 2008 financial targets, our expected revenue growth rates and projected revenue and earnings, 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 our customers may not continue to spend at recent levels or may elect to defer or forego investment in our solutions in the current economic climate. In addition, our purchase price allocations associated with our first quarter acquisitions, including CoCreate, are preliminary and may change. Likewise, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including geographic mix of our revenue 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.

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.

PARAMETRIC TECHNOLOGY CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
         
Three Months Ended Nine Months Ended
June 28, June 30, June 28, June 30,
2008   2007 2008   2007
Revenue:
License $ 77,557 $ 62,098 $ 217,658 $ 200,022
Service   194,191       162,766     553,125       474,605  
Total revenue   271,748       224,864     770,783       674,627  
 
Costs and expenses:
Cost of license revenue(1) 8,760 4,084 20,106 11,855
Cost of service revenue(1) 76,802 67,673 221,894 204,855
Sales and marketing(1) 78,762 74,573 223,149 215,694
Research and development(1) 47,374 39,798 134,656 117,935
General and administrative(1) 20,294 16,855 64,653 56,489
Amortization of acquired intangible assets 4,044 1,764 11,252 5,440
In-process research and development -- 544 1,887 544
Restructuring charge   3,790       --     15,367       --  
Total costs and expenses   239,826       205,291     692,964       612,812  
 
Operating income 31,922 19,573 77,819 61,815
Other income (expense), net   (7,110 )     2,268     (5,859 )     4,396  
Income before income taxes 24,812 21,841 71,960 66,211
Provision for (benefit from) income taxes   10,342       (58,624 )   28,762       (46,806 )
Net income $ 14,470     $ 80,465   $ 43,198     $ 113,017  
Earnings per share:
Basic $ 0.13 $ 0.71 $ 0.38 $ 1.00
Weighted average shares outstanding 113,491 113,154 113,661 112,610
Diluted $ 0.12 $ 0.68 $ 0.37 $ 0.96
Weighted average shares outstanding 117,363 117,500 117,565 117,423

(1) Stock-based compensation is accounted for under SFAS 123(R), Share-Based Payment. The amounts in the tables above include stock-based compensation as follows:

Three Months Ended   Nine Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
Cost of license revenue $ 12 $ 60 $ 26 $ 100
Cost of service revenue 2,298 993 6,867 4,671
Sales and marketing 3,130 2,035 8,933 5,926
Research and development 2,322 1,058 6,929 4,529
General and administrative   3,387   884   9,926   7,281
Total stock-based compensation $ 11,149 $ 5,030 $ 32,681 $ 22,507

PARAMETRIC TECHNOLOGY CORPORATION

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
           
Three Months Ended Nine Months Ended
June 28, June 30, June 28, June 30,
2008   2007       2008   2007
GAAP revenue $ 271,748 $ 224,864 $ 770,783 $ 674,627
Fair value adjustment of acquired CoCreate deferred maintenance revenue   978       --     3,920       --  
Non-GAAP revenue $ 272,726     $ 224,864   $ 774,703     $ 674,627  
 
GAAP operating income $ 31,922 $ 19,573 $ 77,819 $ 61,815
Fair value adjustment of acquired CoCreate deferred maintenance revenue 978 -- 3,920 --
Stock-based compensation 11,149 5,030 32,681 22,507
Amortization of acquired intangible assets

included in cost of license revenue

6,289 1,728 13,850 4,895
Amortization of acquired intangible assets

included in cost of service revenue

17

17 51 66
Amortization of acquired intangible assets 4,044 1,764 11,252 5,440
In-process research and development -- 544 1,887 544
Restructuring charge   3,790       --     15,367       --  
Non-GAAP operating income $ 58,189     $ 28,656   $ 156,827     $ 95,267  
 
GAAP net income $ 14,470 $ 80,465 $ 43,198 $ 113,017
Fair value adjustment of acquired CoCreate deferred maintenance revenue

978

--

3,920

--
Stock-based compensation 11,149 5,030 32,681 22,507
Amortization of acquired intangible assets included in cost of license revenue

6,289

1,728

13,850

4,895

Amortization of acquired intangible assets included in cost of service revenue

17

17

51

66

Amortization of acquired intangible assets 4,044 1,764 11,252 5,440
In-process research and development -- 544 1,887 544
Restructuring charge 3,790 -- 15,367 --
One-time non-cash loss included in other income (expense), net (2) 6,206 -- 6,206 --
Income tax adjustments (3)   (7,724 )     (71,049 )   (22,371 )     (72,924 )
Non-GAAP net income $ 39,219     $ 18,499   $ 106,041     $ 73,545  
 
GAAP diluted earnings per share $ 0.12 $ 0.68 $ 0.37 $ 0.96
Stock-based compensation 0.09 0.04 0.28 0.19
All other items identified above   0.12       (0.56 )   0.25       (0.52 )
Non-GAAP diluted earnings per share $ 0.33     $ 0.16   $ 0.90     $ 0.63  
 
Weighted average shares outstanding - diluted 117,363 117,500 117,565 117,423

(2) Reflects a one-time non-cash loss from the liquidation of certain legal entities related to previous acquisitions.

(3) Reflects the tax effect of non-GAAP adjustments above, as well as the effect of one-time tax benefits recorded in the three and nine months ended June 30, 2007 due to the reversal of the valuation allowance recorded in the United States and a foreign jurisdiction of $58.9 million and the favorable resolution of a tax claim of $3.9 million.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
   
 
June 28, September 30,
2008 2007
 
ASSETS
 
Cash and cash equivalents $ 242,020 $ 263,271
Accounts receivable, net 180,094 217,101
Property and equipment, net 56,851 54,745
Goodwill and acquired intangibles, net 617,574 325,052
Other assets 226,499 230,144
   
Total assets $ 1,323,038 $ 1,090,313
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 265,632 $ 227,164
Borrowings under revolving credit facility 109,556 --
Other liabilities 295,427 268,642
Stockholders' equity 652,423 594,507
   
Total liabilities and stockholders' equity $ 1,323,038 $ 1,090,313
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                   
 
Three Months Ended Nine Months Ended
June 28, June 30, June 28, June 30,
2008 2007 2008 2007
 
Cash flows from operating activities:
Net income $ 14,470 $ 80,465 $ 43,198 $ 113,017
Stock-based compensation 11,149 5,030 32,681 22,507
Amortization of acquired intangible assets 10,350 3,509 25,153 10,401
Depreciation and other amortization 6,286 6,150 18,331 18,481
Accounts receivable 268 18,751 69,819 33,483
Accounts payable and accruals(4) 1,041 (4,945 ) (29,155 ) (25,999 )
Deferred revenue (5,411 ) 450 16,305 21,454
In-process research and development -- 544 1,887 544
Income taxes (868 ) (65,380 ) 1,645 (62,308 )
Other   16,017           (5,625 )         1,242           (16,508 )
Net cash provided by operating activities 53,302 38,949 181,106 115,072
 
Capital expenditures (9,785 ) (4,746 ) (20,492 ) (17,139 )
Acquisitions of businesses, net of cash acquired (5) -- (10,879 ) (261,592 ) (28,518 )
Proceeds (payments) from debt, net (53,643 ) -- 98,999 --
Repurchases of common stock (5,288 ) (1,809 ) (27,297 ) (1,809 )
Other investing and financing activities 3,929 2,949 (3,313 ) 7,302
Foreign exchange impact on cash   (5,441 )   (2,535 )   11,338     1,600  
 
Net change in cash and cash equivalents (16,926 ) 21,929 (21,251 ) 76,508
Cash and cash equivalents, beginning of period   258,946     238,027     263,271     183,448  
Cash and cash equivalents, end of period $ 242,020   $ 259,956   $ 242,020   $ 259,956  
    (4)   Includes accounts payable, accrued expenses, and accrued compensation and benefits.
(5) Acquisitions of businesses:
a. The nine months ended June 28, 2008 includes $248 million for our acquisition of CoCreate and $14 million for two other acquisitions, net of cash acquired.
b. The nine months ended June 30, 2007 includes $16 million for our acquisition of ITEDO and $7 million for our acquisition of NC Graphics, both net of cash acquired; $2 million of contingent purchase price earned in the first quarter of 2007 related to 2006 acquisitions; and $4 million for the acquisition of the remaining equity interest in a controlled subsidiary.



Contact:

PTC
Kristian Talvitie, 781-370-6151
Email Contact