PTC Announces Q4 and FY'09 Results

October 27, 2009 5:19 PM EDT

Issues Q1 FY'10 Guidance and FY'10 Targets

NEEDHAM, Mass.--(BUSINESS WIRE)-- PTC (Nasdaq: PMTC), The Product Development Company(R), today reported results for its fourth fiscal quarter and full fiscal year ended September 30, 2009.

Highlights

    --  Q4 Results: Revenue of $246.3 million and non-GAAP EPS of $0.30
        o Non-GAAP operating margin of 18.4%; GAAP operating margin of 6.2%
        o GAAP EPS of $0.13, including $6.3 million restructuring charge to
          reduce operating expenses
        o Relative to Q4 guidance, currency was favorable to revenue by
          approximately $1.6 million and unfavorable to expenses by
          approximately $0.7 million
    --  FY'09 Results: Revenue of $938.2 million and non-GAAP EPS of $0.80
        o Non-GAAP operating margin of 12.9%; GAAP operating margin of 2.1%
        o GAAP EPS of $0.27, including $22.7 million in restructuring charges to
          reduce operating expenses
    --  FY 2010 Targets: Revenue of approximately $980 million and non-GAAP EPS
        of approximately $0.96
        o Non-GAAP operating margin of approximately 15%; GAAP operating margin
          of approximately 7%
        o GAAP EPS of approximately $0.43
        o Assumes $1.46 USD / EURO
    --  Q1 Guidance: Revenue of $230 to $240 million and non-GAAP EPS of $0.12
        to $0.18
        o GAAP EPS of ($0.02) to $0.04
        o Assumes $1.46 USD / EURO

The Q4 non-GAAP results exclude a $6.3 million restructuring charge, $14.6 million of stock-based compensation expense, $9.2 million of acquisition-related intangible asset amortization and $10.3 million of income tax adjustments. The Q4 results include a non-GAAP tax rate of 21% and a GAAP tax benefit rate of 7%.

The FY'09 non-GAAP results exclude a $22.7 million restructuring charge, $43.3 million of stock-based compensation expense, $35.6 million of acquisition-related intangible asset amortization and acquired in-process research and development expenses and $39.6 million of income tax adjustments. The FY'09 results include a non-GAAP tax rate of 21% and a GAAP tax benefit rate of 84%.

Results Commentary & Outlook

C. Richard Harrison, chairman and chief executive officer, commented, "We exit fiscal 2009 on solid financial footing with a product portfolio that has never been in better shape. Our decision to invest in R&D through the downturn is paying off as we are seeing some very encouraging signs of market momentum, especially as it relates to our Windchill product suite."

"Our constant currency non-GAAP FY'09 revenue was down 9% compared to last year," continued Harrison. "While license revenue was down 34%, maintenance and services revenue were up 3% and 1%, respectively, highlighting the stability of our business model and the support of a solid customer base. We are continuing to see positive sequential data points: 1) we again delivered license revenue growth in all of our major geographies except Japan, 2) we had better license and total revenue in North America than we did in Q4'08, which was PTC's best revenue quarter ever, 3) we won 2 additional strategically important "domino" accounts, and 4) we also had a number of other large Windchill competitive wins during Q4."

"Our pipeline for new business opportunities remains strong and lead times to close enterprise deals seem to be shortening," continued Harrison. "We received major orders from leading organizations such as AVIC, Carrier, Deere & Company, General Atomics, Ingersoll Rand, ITT Corporation, and Stryker."

James Heppelmann, president and chief operating officer added, "We remain focused on expanding and leveraging our technology leadership position. We have significant further enhancements underway for Windchill, Pro/ENGINEER, Arbortext, Windchill ProductPoint, and our other core products. We also continue to add to the breadth of our portfolio with future enhancements to our social product development initiative and our product analytics platform, which we launched in FY'09, and remain on target to launch our embedded software and program portfolio management platforms in FY'10. We are very optimistic about the long-term opportunity for PTC and will continue to make strategic investments that we believe are critical to delivering value to our customers and gaining market share, while remaining committed to our goal of 20% non-GAAP EPS growth for 2010 and beyond."

Neil Moses, chief financial officer, commented, "Our Q4 operating margins and EPS were stronger than expected primarily due to stronger than expected license revenue. Our balance sheet remains solid with $235 million of cash, up from $231 million in Q3 primarily due to strong license sales. We also have an additional $172 million available on our revolving credit facility."

"Looking forward to FY'10, we are establishing a revenue target of $980 million and a non-GAAP EPS target of $0.96," continued Moses. "We expect that the actions we took in FY'09 to right-size our business to the current economic conditions, partially offset by some incremental investment in the business in FY'10 in support of our long-term growth objectives, will allow us to improve our non-GAAP operating margin to approximately 15%." The GAAP EPS target for FY'10 is $0.43.

"For Q1 we are initiating guidance of $230 to $240 million in revenue with non-GAAP EPS of $0.12 to $0.18," Moses added. The Q1 guidance assumes a non-GAAP tax rate of 23%, a GAAP tax rate of 21% and 121 million diluted shares outstanding. The Q1 non-GAAP guidance excludes approximately $14 million of stock-based compensation expense, $9 million of acquisition-related intangible asset amortization expense and the related income tax effects.

The FY'10 target assumes a non-GAAP tax rate of 23%, a GAAP tax rate of 21% and 119 million diluted shares outstanding. The FY'10 non-GAAP guidance excludes approximately $49 million of stock-based compensation expense, $35 million of acquisition-related intangible asset amortization and the related income tax effects.

Q4 Earnings Conference Call and Webcast

Supplemental financial and operating metric information and prepared remarks for the conference
call will be posted to the investor relations section of our website simultaneously with this
press release. The prepared remarks will not be read live; the call will be primarily Q&A.

When:     Wednesday, October 28, 2009 at 8:30 a.m. Eastern Time

Dial-in:  1-888-566-8560 or 1-517-623-4768

          Call Leader: Richard Harrison with Passcode: PTC

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

          The audio replay of this event will be archived for public replay until 4:00 p.m. (CT)
Replay:   on November 2, 2009 at 1-866-463-2193 or 1-203-369-1378. To access the replay via
          webcast, please visit www.ptc.com/for/investors.htm.

FY'10 Investor Day and Webcast

PTC willhost its FY'10 Investor Day on Tuesday, November 3, 2009 from 10:00am to 3:00pm (ET).
This event will be held at the Grand Hyatt New York Hotel, Park Ave at Grand Central. To
register, please contact Sharon Feintuck at 781-370-6909 or sfeintuck@ptc.com.

When:     Tuesday, November 3, 2009, from 10:00am to 3:00pm (ET)

Where:    http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=116312&eventID=2492231

Replay:   The presentation will be archived for public replay until November 6, 2009 at
          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 revenue of CoCreate Software GmbH. Non-GAAP operating expenses, margin and EPS exclude stock-based compensation expense, amortization of acquired intangible assets, acquired in-process research and development expense, restructuring charges, non-cash effects of liquidating subsidiaries, and the related tax effects of the preceding items and any one-time tax items. PTC provides this non-GAAP information to facilitate period-to-period comparisons of its operational performance by adjusting for certain non-cash and certain 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 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 use, 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 2010 and other future financial expectations, anticipated tax rates, the expected impact of our planned strategic investments on our future success, the stability of our maintenance and services businesses, and the long-term prospects for PTC 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 resume purchases of our solutions when we expect or that they may further reduce, defer or forego investment in our solutions in the current economic climate, the possibility that our customers may not renew maintenance or enter into services engagements at historic rates, the possibility that strategic customer wins may not generate the revenue we expect, the possibility that our strategic investments may not have the effects we expect, the possibility that we will experience a shortfall in revenue that causes us to decrease or eliminate planned strategic investments in our business, the possibility that our efforts to reduce our operating expenses may not have the effects we expect and could harm our operations, the possibility that we may be unable to attain or maintain a technology leadership position or that any such leadership position may not generate the revenue we expect, and the possibility that we may be unable to draw from our revolving credit facility when or to the extent we decide to do so. 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 (including restructuring charges) 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 Quarterly Reports on Form 10-Q and 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.

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 solutions, organizations in the Industrial, High-Tech, Aerospace and Defense, Automotive, Consumer and Medical industries are able to support key business objectives and create innovative products that meet customer needs and comply with industry regulations.

(continues)

PARAMETRIC TECHNOLOGY CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

                    Three Months Ended              Year Ended

                    September 30,  September 30,    September 30,  September 30,

                    2009           2008             2009           2008

Revenue:

License             $ 70,688       $ 103,632        $ 212,710      $ 332,380

Service               175,655        195,915        725,475          737,950

Total revenue         246,343        299,547        938,185          1,070,330

Costs and
expenses:

Cost of license       7,758          9,560          29,962           30,123
revenue(1)

Cost of service       65,592         79,226         279,797          300,663
revenue(1)

Sales and             76,297         83,731         301,369          306,880
marketing(1)

Research and          48,826         47,366         188,501          182,022
development(1)

General and           22,295         23,176         80,670           87,829
administrative(1)

Amortization of
acquired              4,110          4,327          15,620           15,579
intangible assets

In-process
research and          --             --             300              1,887
development

Restructuring         6,274          4,735          22,671           20,102
charges

Total costs and       231,152        252,121        918,890          945,085
expenses

Operating income      15,191         47,426         19,295           125,245

Other expense, net    (312    )      (500    )      (2,124    )      (6,359    )

Income before         14,879         46,926         17,171           118,886
income taxes

Provision for
(benefit from)        (1,021  )      10,422         (14,351   )      39,184
income taxes

Net income          $ 15,900       $ 36,504         $ 31,522       $ 79,702

Earnings per
share:

Basic               $ 0.14         $ 0.32           $ 0.27         $ 0.70

Weighted average      115,288        113,829        114,950          113,703
shares outstanding

Diluted             $ 0.13         $ 0.31           $ 0.27         $ 0.68

Weighted average      119,379        118,780        117,359          117,870
shares outstanding

(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,

                    2009           2008             2009           2008

Cost of license     $ 22           $ 12             $ 50           $ 38
revenue

Cost of service       2,562          2,305            8,163        9,172
revenue

Sales and             4,205          3,296            12,797       12,229
marketing

Research and          2,404          2,500            8,214        9,429
development

General and           5,362          3,602            14,104       13,528
administrative

Total stock-based   $ 14,555       $ 11,715         $ 43,328       $ 44,396
compensation

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,

                      2009           2008           2009           2008

GAAP revenue          $ 246,343      $ 299,547      $ 938,185      $ 1,070,330

Fair value
adjustment of
acquired CoCreate       --             668            --             4,588
deferred maintenance
revenue

Non-GAAP revenue      $ 246,343      $ 300,215      $ 938,185      $ 1,074,918

GAAP operating        $ 15,191       $ 47,426       $ 19,295       $ 125,245
income

Fair value
adjustment of
acquired CoCreate       --             668            --             4,588
deferred maintenance
revenue

Stock-based             14,555         11,715         43,328         44,396
compensation

Amortization of
acquired intangible
assets                  5,082          5,991          19,674         19,841

included in cost of
license revenue

Amortization of
acquired intangible
assets                  --             16             8              67

included in cost of
service revenue

Amortization of
acquired intangible     4,110          4,327          15,620         15,579
assets

In-process research     --             --             300            1,887
and development

Restructuring           6,274          4,735          22,671         20,102
charges

Non-GAAP operating    $ 45,212       $ 74,878       $ 120,896      $ 231,705
income

GAAP net income       $ 15,900       $ 36,504       $ 31,522       $ 79,702

Fair value
adjustment of
acquired CoCreate       --             668            --             4,588
deferred maintenance
revenue

Stock-based             14,555         11,715         43,328         44,396
compensation

Amortization of
acquired intangible
assets included in      5,082          5,991          19,674         19,841
cost of license
revenue

Amortization of
acquired intangible
assets included in      --             16             8              67
cost of service
revenue

Amortization of
acquired intangible     4,110          4,327          15,620         15,579
assets

In-process research     --             --             300            1,887
and development

Restructuring           6,274          4,735          22,671         20,102
charges

One-time non-cash
loss included in        --             --             --             6,206
other expense, net
(2)

Income tax              (10,308 )      (9,984  )      (39,552 )      (32,355   )
adjustments (3)

Non-GAAP net income   $ 35,613       $ 53,972       $ 93,571       $ 160,013

GAAP diluted          $ 0.13         $ 0.31         $ 0.27         $ 0.68
earnings per share

Stock-based             0.12           0.10           0.37           0.38
compensation

All other items         0.05           0.04           0.16           0.30
identified above

Non-GAAP diluted      $ 0.30         $ 0.45         $ 0.80         $ 1.36
earnings per share

Weighted average
shares outstanding -    119,379        118,780        117,359        117,870
diluted

(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 a $7.6 million one-time tax benefit recorded in the second quarter of 2009 due to the recognition of deferred tax assets in a foreign jurisdiction.

PARAMETRIC TECHNOLOGY CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

                                            September 30,  September 30,

                                            2009           2008

ASSETS

Cash and cash equivalents                   $ 235,122      $ 256,941

Accounts receivable, net                      166,591        201,509

Property and equipment, net                   58,105         55,253

Goodwill and acquired intangibles, net        596,517        587,537

Other assets                                  293,877        248,333

Total assets                                $ 1,350,212    $ 1,349,573

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue                            $ 234,270      $ 258,295

Borrowings under revolving credit facility    57,880         88,505

Other liabilities                             296,481        300,248

Stockholders' equity                          761,581        702,525

Total liabilities and stockholders' equity  $ 1,350,212    $ 1,349,573

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,

                      2009           2008           2009           2008

Cash flows from
operating
activities:

Net income            $ 15,900       $ 36,504       $ 31,522       $ 79,702

Stock-based             14,555         11,715         43,328         44,396
compensation

Depreciation and        16,052         16,537         61,610         60,021
amortization

Accounts receivable     (10,566 )      (27,813 )      56,889         42,006

Accounts payable and    10,705         15,915         (19,281 )      (13,240  )
accruals(4)

Deferred revenue        (24,556 )      (14,228 )      (27,256 )      2,077

In-process research     --             --             300            1,887
and development

Income taxes            (13,329 )      2,933          (66,700 )      4,578

Other                   (3,288  )      (429    )      2,358          813

Net cash provided by    5,473          41,134         82,770         222,240
operating activities

Capital expenditures    (6,278  )      (4,947  )      (30,087 )      (25,439  )

Acquisitions of
businesses, net of      --             --             (32,790 )      (261,592 )
cash acquired (5)

Proceeds from
(payments on) debt,     --             (10,860 )      (31,951 )      88,139
net

Repurchases of          (4,576  )      --             (14,157 )      (27,297  )
common stock

Other investing and     2,256          4,928          562            1,615
financing activities

Foreign exchange        6,902          (15,334 )      3,834          (3,996   )
impact on cash

Net change in cash      3,777          14,921         (21,819 )      (6,330   )
and cash equivalents

Cash and cash
equivalents,            231,345        242,020        256,941        263,271
beginning of period

Cash and cash
equivalents, end of   $ 235,122      $ 256,941      $ 235,122      $ 256,941
period

(4) Includes accounts payable, accrued expenses, and accrued compensation and benefits.

(5) Acquisitions of businesses:

a. The third quarter of 2009 includes $24 million for our acquisition of Relex, net of cash acquired.

b. The first quarter of 2009 includes $7 million for our acquisition of Synapsis and $1 million for a contingent purchase price earned during the quarter related to a prior acquisition.

c. The first quarter of 2008 includes $248 million for our acquisition of CoCreate and $14 million for two other acquisitions, net of cash acquired.

    Source: PTC

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