Form 8-K PTC INC. For: Jan 28
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of report (Date of earliest event reported)
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January 28, 2015
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PTC Inc.
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(Exact Name of Registrant as Specified in Its Charter)
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Massachusetts
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(State or Other Jurisdiction of Incorporation)
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0-18059
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04-2866152
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(Commission File Number)
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(IRS Employer Identification No.)
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140 Kendrick Street
Needham, Massachusetts
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02494-2714
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(Address of Principal Executive Offices)
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(Zip Code)
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(781) 370-5000
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(Registrants Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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�����Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Section 2 - Financial Information
Item 2.02.�������������������Results of Operations and Financial Condition.
On January 28, 2015, PTC Inc. announced its financial results for its first fiscal quarter ended January�3, 2015.��PTC also posted a copy of its supplemental prepared remarks about the completed quarter on the Investor Relations section of its website at www.ptc.com.��Copies of the press release and the prepared remarks are furnished herewith as Exhibits�99.1 and 99.2, respectively.
Section 9 - Financial Statements and Exhibits
Item 9.01.�������������������Financial Statements and Exhibits.
(d)�����������Exhibits.
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99.1��
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PTC Inc. press release dated January 28, 2015.
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99.2��
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Prepared remarks posted by PTC Inc. on January 28, 2015.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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PTC Inc.
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Date:��January 28, 2015
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By:
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/s/ Jeffrey Glidden
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Jeffrey Glidden
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Executive Vice President and Chief Financial Officer
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PTC Announces Q1 FY15 Results;
Provides Q2 and Updated FY15 Outlook
NEEDHAM, MA, January 28, 2015 - PTC (Nasdaq: PTC) today reported results for its first fiscal quarter ended January 3, 2015.
Highlights
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Q1 Results:
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Non-GAAP revenue of $327 million, up 1% over Q114 non-GAAP revenue and up 4% on a constant currency basis; unfavorable currency movements vs. year-ago rates impacted revenue by approximately $12 million.
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Non-GAAP EPS of $0.50, up 1% year over year and up 12% year over year on a constant currency basis; unfavorable currency movements vs. year-ago rates impacted non-GAAP EPS by approximately $0.05.
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Non-GAAP operating margin of 21.4%, down 400 basis points year over year and down 270 basis points on a constant currency basis.
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Subscription solutions bookings (1) represented 19% of total L&SS bookings (2), above our guidance assumption of 15%. We believe this higher than expected level of subscription solutions, while positive long-term, reduced L&SS revenue by $3 million and non-GAAP EPS by $0.02.
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GAAP revenue of $325 million, GAAP operating margin of 11.6% and GAAP EPS of $0.26
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Non-GAAP revenue contribution from acquired businesses Atego (acquired on June 30, 2014), and Axeda (acquired on August 11, 2014) was $14 million.
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(1)��
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Subscription solutions bookings are new subscription solutions annualized contract value (ACV) bookings multiplied by a conversion factor of 2. Annualized contract value (ACV) is the total value of a new subscription services booking divided by the term of the contract (in days) multiplied by 365.� If the contract term is less than one year, then the ACV is the actual value of the contract.
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(2)��
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Total L&SS bookings are new license revenue plus subscription solutions bookings.
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Updated Guidance:
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Please refer to Table 2 for detailed guidance and key assumptions
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A reconciliation between the GAAP and non-GAAP results for Q115 is contained in the tables attached to this press release.
Results Commentary
James Heppelmann, president and chief executive officer, commented, We had a solid quarter with 4% non-GAAP revenue growth and 12% non-GAAP EPS growth on a constant currency basis. Having established a leadership position in the market for smart, connected products during FY14, our results in Q115 suggest we are seeing good customer traction for our Internet of Things (IoT) solutions, as we added 42 new IoT customer logos in the quarter. We believe growth in IoT, when combined with our strong product offerings in the CAD, PLM, ALM, and SLM markets, positions PTC as the foremost provider of solutions to help customers create, operate and service smart, connected products. In addition, with the Q115 rollout of subscription pricing across the vast majority of our products, customers now have greater flexibility in how they buy software from PTC. We were encouraged to see solid customer acceptance of this offering, with subscription solutions bookings in the quarter representing 19% of our total bookings, which was higher than our expectation of 15%. Furthermore, approximately 60% of Q115 revenue came from recurring revenue streams, up from approximately 53% in the year ago period.
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Heppelmann added, Looking at Q115 results, PTC non-GAAP revenue exceeded the high end of our guidance range, driven by higher than expected support and professional services revenue. Non-GAAP license & subscription solutions (L&SS) revenue of $80 million was flat year over year on a constant currency basis (YoY CC) while non-GAAP L&SS bookings increased 3% YoY CC. From a geographic perspective, we saw good L&SS YoY revenue and bookings results in Japan, the Pac Rim, and Europe offset by a difficult compare in the Americas due to strong performance in FY14. Please refer to Table�1 for a breakdown of our L&SS performance by solution area and region.
Table 1: Q115 Non-GAAP L&SS Performance by Solution Area and Region
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L&SS
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L&SS
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L&SS
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L&SS
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Revenue 3
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Revenue 3
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Bookings 2
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Bookings 2
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Non-GAAP
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YoY 1
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YoY CC 1
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YoY 1
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YoY CC 1
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Solution Area
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CAD
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(13%)
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(9%)
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(9%)
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(5%)
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EPLM
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(13%)
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(9%)
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(4%)
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(0%)
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SLM
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(23%)
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(20%)
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(30%)
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(26%)
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IoT
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*
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*
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*
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*
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Total
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(4%)
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(0%)
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0%
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4%
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Region
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Americas
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(18%)
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(18%)
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(5%)
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(5%)
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Europe
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7%
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16%
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(1%)
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8%
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Japan
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(0%)
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12%
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10%
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23%
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Pac Rim
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13%
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14%
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13%
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14%
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Total
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(4%)
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(0%)
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0%
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4%
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1 YoY and YoY CC means year over year and year over year constant currency, respectively
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2 L&SS bookings refers to new license revenue plus new subscription solutions annualized contract value (ACV) bookings multiplied by a
��conversion factor of 2
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3 Revenue includes run rate subscription solutions revenue
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* No prior year data for YoY comparison
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Heppelmann continued, CAD L&SS non-GAAP revenue and bookings declined YoY versus a strong Q114.��Extended PLM (EPLM) L&SS non-GAAP revenue and bookings declined as well, with solid growth in our PLM business on a bookings basis offset by a decline in our ALM business. L&SS IoT non-GAAP revenue reached $9�million in Q115, up $4 million sequentially with the acquisition of Axeda (LS&S IoT revenue was $8�million on a GAAP basis). We believe our leadership position within the application enablement platforms space, combined with an ability to sell IoT solutions to new and existing PTC customers, will enable us to achieve healthy double digit growth rates in this business going forward. SLM L&SS non-GAAP revenue and bookings declined YoY. While we remain encouraged by our current SLM pipeline, longer sales cycles led to lower than expected close rates relative to our corporate average, and affected our ability to grow SLM L&SS revenue. We continue to believe our SLM L&SS business can return to double digit growth rates over time, particularly as we introduce new connected SLM applications.
We had 15 large deals (greater than $1 million of bookings from a customer during the quarter) in Q115, up from 14 in Q114. There were no mega deals (transactions resulting in bookings of over $5 million in the quarter) in Q115. During the quarter we recognized revenue from leading organizations such as Brainlab, CKD Pharm, CNH Industrial Italia, General Dynamics, Johnson Controls, KTM Motorrad,
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Kuhn, LG Display, Shanghai Volkswagen Automotive, and Sirona Dental Systems, remarked Heppelmann.
Jeff Glidden, chief financial officer, commented, From a profitability standpoint, we delivered $0.50 non-GAAP EPS, at the high end of our guidance range, driven by higher support revenue and a lower tax rate, offset by a higher mix of subscription solutions business in the quarter, lower gross profit due to a greater mix of professional services business, and investments we are making in select strategic customer engagements, as well as higher operating expenses due to investments in our Internet of Things business. Unfavorable currency movements impacted non-GAAP EPS by approximately $0.05. Additionally, the higher than expected mix of subscription solutions bookings impacted EPS by $0.02. Q1 non-GAAP operating margin of 21.4% was down 400 basis points year over year. We generated $12 million in operating cash flow, repaid $6 million on our credit facility, and ended the quarter with a cash balance of $261 million.
Updated Outlook Commentary
Heppelmann remarked, We are targeting constant currency non-GAAP revenue growth of 4% to 6% and approximately 15% non-GAAP EPS growth for FY15 on a constant currency basis. This assumes a less robust global manufacturing economy than we saw in 2014 offset by strong growth in our IoT solutions. While our FY15 outlook is unchanged on a constant currency basis, we are reducing our FY15 revenue, operating margin, and EPS guidance to factor in further depreciation of the Euro and Yen relative to the US dollar. Looking out to FY18 we believe we can achieve approximately 15% per year non-GAAP EPS growth, driven by a healthy mix of revenue growth, further non-GAAP operating margin expansion, and reduced share count through our capital allocation strategy. Detailed guidance using current currency assumptions is outlined in Table 2 below.
Glidden noted, For planning purposes we assume subscription solutions bookings will represent approximately 15% of our total bookings in FY15, up from 8% in FY14. Importantly, if a greater percentage of our customers elect our subscription offerings than our assumption, it will have an adverse impact on revenue, operating margin, cash flow and EPS growth relative to our guidance. Should this happen, we believe it will be net present value positive to PTC over the long-term and we will provide relevant information to help investors understand how our business model is evolving.
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Table 2: Q2 and FY15 Guidance Table (1)
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Q2'15
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Q2'15
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FY'15
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FY'15
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Low
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High
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Low
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High
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Subscription Solutions Bookings % of Total L&SS Bookings
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~15%
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~15%
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~15%
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~15%
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License & Subscription Solutions (L&SS) Revenue
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80
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95
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380
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410
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Support Revenue
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165
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165
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690
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690
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Professional Services Revenue
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60
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60
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250
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250
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Total Revenue
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305
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320
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1,320
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1,350
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L&SS YoY Change
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-10%
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7%
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-3%
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5%
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Support YoY Change
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-1%
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-1%
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0%
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0%
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Professional Services YoY Change
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-19%
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-19%
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-10%
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-10%
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Total Revenue YoY Change
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-7%
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-3%
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-3%
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-1%
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Non-GAAP Gross Margin
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74%
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75%
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75%
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75%
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GAAP Gross Margin
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72%
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72%
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73%
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73%
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Non-GAAP Operating Margin
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21%
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22%
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24%
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25%
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GAAP Operating Margin
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10%
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11%
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14%
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15%
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Total GAAP Adjustments (2)
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33
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33
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127
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127
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Other Income (Expense)
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-4
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-4
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-14
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-14
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Non-GAAP Tax Rate
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15%
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15%
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15%
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15%
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GAAP Tax Rate
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15%
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15%
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12%
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12%
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Share Count
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117
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117
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117
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117
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Non-GAAP EPS
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$0.42
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$0.50
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$2.20
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$2.35
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Non-GAAP EPS Growth
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-12%
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5%
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1%
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8%
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GAAP EPS
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$0.18
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$0.26
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$1.32
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$1.47
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GAAP EPS Growth
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-50%
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-28%
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-1%
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10%
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Note: subscription solutions bookings % mix of will fluctuate based on low and high end of guidance; 15% mix assumes guidance midpoint; at high end of guidance, subscription solutions mix ~10% and at low end of guidance subscription solutions mix ~20%
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(1) FX Assumptions:��USD/EURO = 1.14; YEN/USD = 118
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Impact of currency fluctuation vs. Q214 on Q215 non-GAAP revenue guidance is ~$20 million and on non-GAAP EPS is ~$0.07
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Impact of currency fluctuation vs. FY14 on FY15 non-GAAP revenue guidance is ~$80 million and on non-GAAP EPS is ~$0.25
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(2) Described below table
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The Q2 guidance adjusts for the impact of the following items and their income tax effects, as well as any additional discrete tax items or restructuring costs: approximately $1 million of the effect of acquisition accounting on the fair value of acquired deferred revenue; approximately $14 million of stock-based compensation expense; approximately $14 million of intangible asset amortization expense; and approximately $4 million of other charges, net (primarily acquisition-related and pension plan termination related expenses).
The FY15 guidance adjusts for the impact of the following items and their income tax effects, as well as any additional discrete tax items or restructuring costs: approximately $4 million for the effect of acquisition accounting on the fair value of acquired deferred revenue; approximately $55 million of stock-based compensation expense; approximately $55 million of intangible asset amortization expense; and approximately $13 million of other charges, net (primarily acquisition-related and pension plan termination related expenses).
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FY15 non-GAAP guidance also excludes settlement losses related to the termination of our U.S. pension plan. While we expect to complete the termination process by September 30, 2015, the amount of the losses and timing of the charges is subject to the timing of regulatory approvals and the projected benefit obligations and assets in the plan measured as of the dates the settlements occur. We currently estimate the pre-tax settlement losses to be approximately $65 million.
New Chief Financial Officer (CFO)
As previously��announced, Mr. Andrew Miller will assume the position of Executive Vice President and CFO in February 2015. Mr. Miller will replace Mr. Glidden, who announced his intention to retire in August 2014. Mr. Glidden will serve as a consultant to PTC for a transition period following Mr. Millers commencement of employment with the company.
Glidden remarked, Im pleased that during my tenure as CFO, and under the leadership of our CEO Jim Heppelmann, PTC experienced significant improvement in both operating margin and free cash flow growth, while repositioning our solutions portfolio to focus on smart, connected products. I expect the focus on delivering value to our shareholders via improving financials and strategic growth will continue under the leadership of Jim and the rest of PTCs management team.
Q1 FY15 Earnings Conference Call and Webcast
Prepared remarks for the conference call (which include supplemental financial and statistical information) have been posted to the Investor Relations section of our website.
The prepared remarks will not be read live; the call will be primarily Q&A.
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What:
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PTC Fiscal Q115 Conference Call and Webcast
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When:
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Thursday, January 29, 2015 at 8:30am (ET)
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�����Dial-in:
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1-800-857-5592 or 1-773-799-3757
Call Leader: James Heppelmann
Passcode: PTC
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Webcast:
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www.ptc.com/for/investors.htm
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Replay:
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The audio replay of this event will be archived for public replay until 5:00 pm (CT) on February 9, 2015.
Dial-in: 800-879-7617��Passcode: 4906
To access the replay via webcast, please visit www.ptc.com/for/investors.htm.
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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, stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses, costs associated with terminating a U.S. pension plan, certain identified non-operating gains and 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
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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 PTCs financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results. PTC also provides results on a constant currency basis to provide a year-over-year view of our results excluding the effect of currency translation. Our constant currency disclosures are calculated by multiplying the actual results for the first quarter of 2015 by the exchange rates in effect for the comparable period in the prior year.
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Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our fiscal 2015 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 or adopt our solutions when or at the rates we expect and that our pipeline deals may not convert as we expect, the possibility that our businesses, including the Internet of Things (IoT) and SLM businesses, may not expand and/or generate the revenue 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 we may not achieve the license and subscription solutions (L&SS), support and professional services growth rates that we expect, which could result in a different mix of revenue between L&SS, support and professional services and could impact our EPS results, the possibility that customers may purchase more of our solutions as subscriptions, 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 we may be unable to improve services margins as we expect,��the possibility that we may not generate sufficient operating cash flow to repurchase our shares as we plan or that other uses of cash may preclude such repurchases; the possibility that we may incur additional acquisition-related and pension plan termination-related expenses and losses than we expect, and the possibility that fines and penalties may be assessed against us in connection with our previously announced investigation in China . 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.
PTC, the PTC logo, ThingWorx, Axeda, Creo, Servigistics, 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: PTC) enables manufacturers to achieve sustained product and service advantage. PTCs technology solutions help customers transform the way they create, operate and service products for a smart, connected, world. Founded in 1985, PTC employs approximately 6,000 professionals serving more than 28,000 businesses in rapidly-evolving, globally distributed manufacturing industries worldwide. Get more information at www.ptc.com.
Contact:
PTC Investor Relations
James Hillier, 781-370-6359
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PTC Inc.
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UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
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(in thousands, except per share data)
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Three Months Ended
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January 3,
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December 28,
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2015
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� | � |
2013
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Revenue:
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License and subscription solutions (L&SS)
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� | $ | 78,971 | � | � | $ | 82,866 | � | |||
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Support
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� | � | 181,629 | � | � | � | 170,142 | � | |||
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Professional services
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� | � | 64,842 | � | � | � | 71,917 | � | |||
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Total revenue
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� | � | 325,442 | � | � | � | 324,925 | � | ||||
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Cost of revenue:
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� | � | � | � | � | � | � | � | ||||
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Cost of L&SS revenue (1)
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� | � | 13,329 | � | � | � | 10,319 | � | |||
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Cost of support revenue (1)
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� | � | 21,396 | � | � | � | 19,916 | � | |||
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Cost of professional services revenue (1)
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� | � | 58,217 | � | � | � | 62,721 | � | |||
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Total cost of revenue
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� | � | 92,942 | � | � | � | 92,956 | � | ||||
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Gross margin
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� | � | 232,500 | � | � | � | 231,969 | � | ||||
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Operating expenses:
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� | � | � | � | � | � | � | � | ||||
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Sales and marketing (1)
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� | � | 87,607 | � | � | � | 84,238 | � | |||
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Research and development (1)
|
� | � | 61,097 | � | � | � | 53,073 | � | |||
| � |
General and administrative (1)
|
� | � | 37,007 | � | � | � | 30,931 | � | |||
| � |
Amortization of acquired intangible assets
|
� | � | 9,413 | � | � | � | 7,789 | � | |||
| � |
Restructuring charges
|
� | � | (255 | ) | � | � | 1,067 | � | |||
|
Total operating expenses
|
� | � | 194,869 | � | � | � | 177,098 | � | ||||
| � | � | � | � | � | � | � | � | � | � | � | � | |
|
Operating income
|
� | � | 37,631 | � | � | � | 54,871 | � | ||||
| � |
Other income (expense), net
|
� | � | (3,224 | ) | � | � | (1,753 | ) | |||
|
Income before income taxes
|
� | � | 34,407 | � | � | � | 53,118 | � | ||||
| � |
Provision (benefit) for income taxes
|
� | � | 4,123 | � | � | � | 13,461 | � | |||
|
Net income
|
� | $ | 30,284 | � | � | $ | 39,657 | � | ||||
| � | � | � | � | � | � | � | � | � | � | � | � | |
|
Earnings per share:
|
� | � | � | � | � | � | � | � | ||||
| � |
Basic
|
� | $ | 0.26 | � | � | $ | 0.33 | � | |||
| � | � | � |
Weighted average shares outstanding
|
� | � | 115,341 | � | � | � | 118,933 | � | |
| � | � | � | � | � | � | � | � | � | � | � | � | |
| � |
Diluted
|
� | $ | 0.26 | � | � | $ | 0.33 | � | |||
| � | � | � |
Weighted average shares outstanding
|
� | � | 117,027 | � | � | � | 121,100 | � | |
| � | � | � | � | � | � | � | � | � | � | � | � | |
| � | � | � | � | � | � | � | � | � | � | � | � | |
| � | � | � | � | � | � | � | � | � | � | � | � | |
| � | � | (1 | ) |
The amounts in the tables above include stock-based compensation as follows:
|
� | |||||||
| � | � | � | � | � | � | � | � | � | � | � | � | � |
| � | � | � | � | � | � |
Three Months Ended
|
� | |||||
| � | � | � | � | � | � |
January 3,
|
� | � |
December 28,
|
� | ||
| � | � | � | � | � | � | � | 2015 | � | � | � | 2013 | � |
| � |
Cost of L&SS revenue
|
� | $ | 142 | � | � | $ | 65 | � | |||
| � |
Cost of support revenue
|
� | � | 776 | � | � | � | 924 | � | |||
| � |
Cost of service revenue
|
� | � | 1,689 | � | � | � | 1,537 | � | |||
| � |
Sales and marketing
|
� | � | 2,872 | � | � | � | 2,499 | � | |||
| � |
Research and development
|
� | � | 3,086 | � | � | � | 2,689 | � | |||
| � |
General and administrative
|
� | � | 2,677 | � | � | � | 5,050 | � | |||
| � | � | � | � |
Total stock-based compensation
|
� | $ | 11,242 | � | � | $ | 12,764 | � |
| � | � | � | � | � | � | � | � | � | � | � | � | � |
�
�
�
|
PTC Inc.
|
� | |||||||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
|
� | |||||||
|
(in thousands, except per share data)
|
� | |||||||
| � | � | � | � | � | � | � | ||
| � | � |
Three Months Ended
|
� | |||||
| � | � |
January 3,
|
� | � |
December 28,
|
� | ||
| � | � |
2015
|
� | � |
2013
|
� | ||
| � | � | � | � | � | � | � | ||
|
GAAP revenue
|
� | $ | 325,442 | � | � | $ | 324,925 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Non-GAAP revenue
|
� | $ | 326,846 | � | � | $ | 324,925 | � |
| � | � | � | � | � | � | � | � | � |
|
GAAP gross margin
|
� | $ | 232,500 | � | � | $ | 231,969 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Fair value adjustment to deferred services cost
|
� | � | (106 | ) | � | � | - | � |
|
Stock-based compensation
|
� | � | 2,607 | � | � | � | 2,526 | � |
|
Amortization of acquired intangible assets
|
� | � | � | � | � | � | � | � |
|
included in cost of L&SS revenue
|
� | � | 4,767 | � | � | � | 4,497 | � |
|
Non-GAAP gross margin
|
� | $ | 241,172 | � | � | $ | 238,992 | � |
| � | � | � | � | � | � | � | � | � |
|
GAAP operating income
|
� | $ | 37,631 | � | � | $ | 54,871 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Fair value adjustment to deferred services cost
|
� | � | (106 | ) | � | � | - | � |
|
Stock-based compensation
|
� | � | 11,242 | � | � | � | 12,764 | � |
|
Amortization of acquired intangible assets
|
� | � | � | � | � | � | � | � |
|
included in cost of license revenue
|
� | � | 4,767 | � | � | � | 4,497 | � |
|
Amortization of acquired intangible assets
|
� | � | 9,413 | � | � | � | 7,789 | � |
|
Charges included in general and administrative expenses (3)
|
� | � | 5,717 | � | � | � | 1,305 | � |
|
Restructuring charges
|
� | � | (255 | ) | � | � | 1,067 | � |
|
Non-GAAP operating income (2)
|
� | $ | 69,813 | � | � | $ | 82,293 | � |
| � | � | � | � | � | � | � | � | � |
|
GAAP net income
|
� | $ | 30,284 | � | � | $ | 39,657 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Fair value adjustment to deferred services cost
|
� | � | (106 | ) | � | � | - | � |
|
Stock-based compensation
|
� | � | 11,242 | � | � | � | 12,764 | � |
|
Amortization of acquired intangible assets
|
� | � | � | � | � | � | � | � |
|
included in cost of license revenue
|
� | � | 4,767 | � | � | � | 4,497 | � |
|
Amortization of acquired intangible assets
|
� | � | 9,413 | � | � | � | 7,789 | � |
|
Charges included in general and administrative expenses (3)
|
� | � | 5,717 | � | � | � | 1,305 | � |
|
Restructuring charges
|
� | � | (255 | ) | � | � | 1,067 | � |
|
Income tax adjustments (5)
|
� | � | (3,486 | ) | � | � | (6,858 | ) |
|
Non-GAAP net income
|
� | $ | 58,980 | � | � | $ | 60,221 | � |
| � | � | � | � | � | � | � | � | � |
�
�
�
|
PTC Inc.
|
� | |||||||||||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) - Continued
|
� | |||||||||||
|
(in thousands, except per share data)
|
� | |||||||||||
| � | � | � | � | � | � | � | � | � | � | |||
| � | � | � | � | � |
Three Months Ended
|
� | ||||||
| � | � | � | � | � |
January 3,
|
� | � |
December 28,
|
� | |||
| � | � | � | � | � |
2015
|
� | � |
2013
|
� | |||
| � | � | � | � | � | � | � | � | � | � | |||
|
GAAP diluted earnings per share
|
� | $ | 0.26 | � | � | $ | 0.33 | � | ||||
| � |
Fair value adjustment of acquired deferred revenue
|
� | � | 0.01 | � | � | � | - | � | |||
| � |
Fair value adjustment to deferred costs
|
� | � | - | � | � | � | - | � | |||
| � |
Stock-based compensation
|
� | � | 0.10 | � | � | � | 0.11 | � | |||
| � |
Amortization of acquired intangibles
|
� | � | 0.12 | � | � | � | 0.10 | � | |||
| � |
Charges included in general and administrative expenses (3)
|
� | � | 0.05 | � | � | � | 0.01 | � | |||
| � |
Restructuring charges
|
� | � | - | � | � | � | 0.01 | � | |||
| � |
Income tax adjustments (4)
|
� | � | (0.03 | ) | � | � | (0.06 | ) | |||
|
Non-GAAP diluted earnings per share
|
� | $ | 0.50 | � | � | $ | 0.50 | � | ||||
| � | � | � | � | � | � | � | � | � | � | � | � | |
| � | � | (2 | ) |
Operating margin impact of non-GAAP adjustments:
|
� | � | � | � | � | � | � | � |
| � | � | � | � | � | � |
Three Months Ended
|
� | |||||
| � | � | � | � | � | � |
January 3,
|
� | � |
December 28,
|
� | ||
| � | � | � | � | � | � | � | 2015 | � | � | � | 2013 | � |
| � |
GAAP operating margin
|
� | � | 11.6 | % | � | � | 16.9 | % | |||
| � | � | � | � |
Fair value adjustment of acquired deferred revenue
|
� | � | 0.4 | % | � | � | 0.0 | % |
| � | � | � | � |
Fair value adjustment to deferred costs
|
� | � | 0.0 | % | � | � | 0.0 | % |
| � | � | � | � |
Stock-based compensation
|
� | � | 3.5 | % | � | � | 3.9 | % |
| � | � | � | � |
Amortization of acquired intangibles
|
� | � | 4.4 | % | � | � | 3.8 | % |
| � | � | � | � |
Charges included in general and administrative expenses (3)
|
� | � | 1.8 | % | � | � | 0.4 | % |
| � | � | � | � |
Restructuring charges
|
� | � | -0.1 | % | � | � | 0.3 | % |
| � |
Non-GAAP operating margin
|
� | � | 21.4 | % | � | � | 25.3 | % | |||
| � | � | � | � | � | � | � | � | � | � | � | � | � |
| � | � | (3 | ) |
Represents acquisition-related charges, as well as, expense related to a terminating U.S. pension plan of $1.7 million in the three months ended January 3, 2015.
|
� | |||||||
| � | � | (4 | ) |
Income tax adjustments for the three months ended January 3, 2015 and December 28, 2013 reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, and also include any identified tax items.�In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets.�Similarly, in the fourth quarter of 2014, valuation allowances were established against our foreign net deferred tax assets in two foreign jurisdictions.�As the U.S. and the two foreign jurisdictions are profitable on a non-GAAP basis, the 2015 and 2014 non-GAAP tax provisions are being calculated assuming there is no valuation allowance in these jurisdictions.
|
� | |||||||
| � | � | � | � | � | � | � | � | � | � | � | � | � |
�
�
�
�
|
PTC Inc.
|
� | |||||||
|
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
� | |||||||
|
(in thousands)
|
� | |||||||
| � | � | � | � | � | � | � | ||
| � | � | � | � | � | � | � | ||
| � | � |
January 3,
|
� | � |
September 30,
|
� | ||
| � | � |
2015
|
� | � |
2014
|
� | ||
| � | � | � | � | � | � | � | ||
|
ASSETS
|
� | � | � | � | � | � | ||
| � | � | � | � | � | � | � | ||
|
Cash and cash equivalents
|
� | $ | 261,052 | � | � | $ | 293,654 | � |
|
Accounts receivable, net
|
� | � | 201,391 | � | � | � | 235,688 | � |
|
Property and equipment, net
|
� | � | 65,766 | � | � | � | 67,783 | � |
|
Goodwill and acquired intangible assets, net
|
� | � | 1,320,013 | � | � | � | 1,349,400 | � |
|
Other assets
|
� | � | 289,001 | � | � | � | 253,429 | � |
| � | � | � | � | � | � | � | � | � |
|
Total assets
|
� | $ | 2,137,223 | � | � | $ | 2,199,954 | � |
| � | � | � | � | � | � | � | � | � |
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
� | � | � | � | � | � | � | � |
| � | � | � | � | � | � | � | � | � |
|
Deferred revenue
|
� | $ | 397,620 | � | � | $ | 382,544 | � |
|
Borrowings under credit facility
|
� | � | 605,625 | � | � | � | 611,875 | � |
|
Other liabilities
|
� | � | 278,525 | � | � | � | 351,646 | � |
|
Stockholders' equity
|
� | � | 855,453 | � | � | � | 853,889 | � |
| � | � | � | � | � | � | � | � | � |
|
Total liabilities and stockholders' equity
|
� | $ | 2,137,223 | � | � | $ | 2,199,954 | � |
| � | � | � | � | � | � | � | � | � |
�
�
�
�
|
PTC Inc.
|
� | ||||||||
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
� | ||||||||
|
(in thousands)
|
� | ||||||||
| � | � | � | � | � | � | � | � | ||
| � | � | � | � | � | � | � | � | ||
| � | � | � | � | � | � | � | � | ||
| � | � | � |
Three Months Ended
|
� | |||||
| � | � | � |
January 3,
|
� | � |
December 28,
|
� | ||
| � | � | � |
2015
|
� | � |
2013
|
� | ||
| � | � | � | � | � | � | � | � | ||
|
Cash flows from operating activities:
|
� | � | � | � | � | � | |||
| � |
Net income
|
� | $ | 30,284 | � | � | $ | 39,657 | � |
| � |
Stock-based compensation
|
� | � | 11,242 | � | � | � | 12,764 | � |
| � |
Depreciation and amortization
|
� | � | 21,237 | � | � | � | 19,100 | � |
| � |
Accounts receivable
|
� | � | 25,800 | � | � | � | 19,273 | � |
| � |
Accounts payable and accruals
|
� | � | (53,229 | ) | � | � | (42,862 | ) |
| � |
Deferred revenue
|
� | � | (8,776 | ) | � | � | (10,827 | ) |
| � |
Income taxes
|
� | � | (2,953 | ) | � | � | 7,393 | � |
| � |
Excess tax benefits from stock-based awards
|
� | � | 163 | � | � | � | (6,802 | ) |
| � |
Other
|
� | � | (12,121 | ) | � | � | (1,454 | ) |
|
Net cash provided by operating activities (6)
|
� | � | 11,647 | � | � | � | 36,242 | � | |
| � | � | � | � | � | � | � | � | � | � |
|
Capital expenditures
|
� | � | (5,636 | ) | � | � | (5,774 | ) | |
|
Acquisitions of businesses, net of cash acquired
|
� | � | 180 | � | � | � | - | � | |
|
Proceeds (payments) on debt, net
|
� | � | (6,250 | ) | � | � | 110,000 | � | |
|
Proceeds from issuance of common stock
|
� | � | 3 | � | � | � | 351 | � | |
|
Payments of withholding taxes in connection with
|
� | � | � | � | � | � | � | � | |
|
����vesting of stock-based awards
|
� | � | (21,669 | ) | � | � | (19,363 | ) | |
|
Excess tax benefits from stock-based awards
|
� | � | (163 | ) | � | � | 6,802 | � | |
|
Other financing & investing activities
|
� | � | (1,000 | ) | � | � | - | � | |
|
Foreign exchange impact on cash
|
� | � | (9,714 | ) | � | � | 1,206 | � | |
| � | � | � | � | � | � | � | � | � | � |
|
Net change in cash and cash equivalents
|
� | � | (32,602 | ) | � | � | 129,464 | � | |
|
Cash and cash equivalents, beginning of period
|
� | � | 293,654 | � | � | � | 241,913 | � | |
|
Cash and cash equivalents, end of period
|
� | $ | 261,052 | � | � | $ | 371,377 | � | |
| � | � | � | � | � | � | � | � | � | � |
| � | � | � | � | � | � | � | � | � | � |
|
(6)
|
� The quarter ended January 3, 2015 includes $10 million of voluntary contribution funding payments to a non-U.S. pension plan.
|
� | |||||||
| � | � | � | � | � | � | � | � | � | � |
�
�
�
Q1 FISCAL 2015 PREPARED REMARKS
Our long-term strategy
Our goal is to drive value for our shareholders by achieving 15% compound annual growth in non-GAAP EPS through 2018, with commensurate growth in free cash flow, based on improving revenue growth, further expansion of operating margins, and a lower share count through our capital allocation strategy. Having established PTC as a leader in the fast-growing Internet of Things (IoT) space, we believe that our IoT capabilities, when combined with our strong solutions portfolio across the computer-aided design (CAD), product lifecycle management (PLM), application lifecycle management (ALM), and service lifecycle management (SLM) markets, uniquely positions us to help companies create, operate and service products. We believe our strategic positioning, capitalizing on the trend toward smart, connected products and associated service-oriented business models, will enable us to achieve our financial objectives and drive increasing value for customers.
Industry trends and our addressable market
Our customers and the manufacturing industry in general are now creating products with increasing mechanical complexity and far greater software intelligence, and they are progressively following the trend of servitization and deploying these products with an associated service strategy or business model. These products are the things in the Internet of Things , and as products become both smart and connected, the feedback loops now being created from the product back to the customer or operator and to the engineering, manufacturing, and sales and service departments of the manufacturer represent a breakthrough opportunity to dramatically transform the way products are created, operated, and serviced.
Following this trend toward smart, connected products and associated service-oriented business models, we have expanded our product portfolio over the last five years to include ALM, SLM, and IoT software solutions. As a result, we are now able to provide a full technology stack for smart connected products, helping customers to design both the physical (CAD) and smart elements (ALM), and to connect those products to the cloud (IoT), and in so doing to gather feedback and capture knowledge of the product in its operational environment to enhance the product operation, evolve the products design and configuration (PLM), and optimize service needs (SLM) over the full lifecycle of the product. With our cloud services offering, we are lowering the barrier of entry for our customers by hosting and managing PTC enterprise applications. We are also launching a new PLM offering, PTC PLM Cloud, geared to the needs of small and midsized (SMB) product companies. This solution leverages the power of PTC Windchill, while simplifying PLM adoption with a flexible, hosted subscription offering deployable at a pace that matches the needs of SMBs. With our professional services offerings, we are also increasingly acting as the trusted guide that can help our customers transform their businesses and capture this technology-enabled value opportunity.
�
�
�
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We estimate the total addressable market for our software products is approximately $17 billion for our FY15, growing approximately 8% per year, based on third party data sources and our PTC strategy teams forecasts. Based on overall market penetration rates and relative maturity levels, we see the strongest growth potential in the IoT and SLM markets, with more modest growth expectations for CAD and extended PLM (EPLM), which encompasses the PLM and ALM markets. We believe we can grow at or modestly faster than the markets in which we participate based on our technology leadership position in these markets. In particular, the cross-sell opportunities between CAD, EPLM, SLM, and IoT within our customer base are substantial, and SLM and IoT in particular, represent an excellent opportunity for new account capture and development.
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PTC Addressable Market Estimates (Assumes Increasing Mix of IoT and SLM Business)
| � | � |
FY15
|
FY15-'18
|
FY15-18
|
| � |
PTC
|
Total
|
Total
|
PTC
|
| � |
Solution
|
Addressable
|
Market
|
License
|
|
Market
|
Area
|
Size
|
CAGR
|
CAGR (1)
|
|
Computer-Aided Design (CAD) (3)
|
CAD
|
$4.3B
|
~4%
|
3% - 5%
|
|
Product Lifecycle Management (PLM) (4)
|
Extended PLM
|
$5.2B
|
~6%
|
6% - 8%
|
|
Application Lifecycle Management (ALM) (5)
|
Extended PLM
|
$3.5B
|
~8%
|
7% - 9%
|
|
Service Lifecycle Management (SLM) (6)
|
SLM & IoT
|
$4.0B
|
~11%
|
10% - 15%
|
|
Internet of Things (IoT) (7)
|
SLM & IoT
|
$1.1B
|
~38%
|
~40%
|
|
Total
|
� |
$17B
|
~8%
|
10% - 12% (2)
|
|
(1) Includes perpetual software license and subscriptions
|
||||
|
(2) Assumes steadily��increasing mix of IoT and SLM business throughout FY15-FY18 CAGR period
|
||||
|
(3) PTC Creo� and PTC Mathcad�
|
||||
|
(4) PTC Windchill� and supply chain management (SCM) software solutions
|
||||
|
(5) PTC IntegrityTM and Atego�
|
||||
|
(6) PTC Arbortext� and PTC Servigistics�
|
||||
|
(7) PTC ThingWorx� and Axeda�
|
||||
Software licensing models: perpetual and subscription
A majority of our software license sales to date have been perpetual licenses, where customers own the software license. Typically our customers choose to pay for ongoing support, which includes the right to software upgrades and technical support, and attach rates on support are in the high 90% range with retention rates also in the 90% range. A small but growing percentage of our business consists of ratably recognized subscriptions. Under a subscription, customers pay a periodic fee for the continuing right to use our software, including access to technical support. They may also elect to use our cloud services and have us manage the application.
While we expect a majority of our customer base to continue to purchase our software offerings under a perpetual licensing arrangement, we began offering subscription pricing as an option for most PTC products starting in Q115. We believe this additional buying option will prove attractive to customers over time as it: (1)�increases customer flexibility and opportunity to change their mix of licenses; (2)�lowers the initial purchase commitment; and (3) allows customers to use operating rather than capital budgets. Over a three to five year period we believe the net present value (NPV) of a subscription is likely to exceed a perpetual license, assuming similar seat counts. However,
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�
initial revenue, operating margin, and EPS will be lower as revenue is recognized ratably in a subscription, rather than up front.
�
New business line categories
We are now disclosing revenue trends across three lines of business: (1) license & subscription solutions; (2) support; and (3) professional services. As part of this new line of business breakdown, cloud services revenue, which was formerly reported in services, is now included in license & subscription solutions. For FY14 we have also reclassified a modest amount of support revenue as subscription (less than $4 million). These changes are reflected in the revenue tables that follow for FY13 and FY14. There is no impact from these changes to our reported financial results prior to FY13.
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New reporting metric -�bookings
�
Given the difference in revenue recognition between the purchase of a perpetual software license (revenue is recognized at the time of sale) and a subscription booking (revenue is deferred and recognized ratably over the subscription term), new bookings are a key metric we use to gauge the health of our subscription solution business (subscription and cloud services) for internal planning and forecasting purposes.
We define new bookings as the annualized contract value (ACV) of a subscription multiplied by a conversion factor of 2, where ACV is the total value of a new subscription solutions booking divided by the term of the contract (in days) multiplied by 365, unless the term is less than one year, in which case the contract value equals the ACV. We use the conversion factor of 2 (arrived at by considering a number of variables including pricing, support, length of term, and renewal rates) in order to normalize for the differences between new subscription bookings and new perpetual license revenue. When calculating L&SS bookings, we multiply new subscription solutions ACV by a conversion factor of 2, and then add this amount to our perpetual license revenue.
Our subscription offering is new and we are still learning about customer adoption. We believe that approximately 10% to 20% of our L&SS bookings will come in as subscription solutions bookings. For planning purposes, we are assuming 15%, which is up from 8% in FY14. Fluctuation below or above 15% will impact revenue positively or negatively, respectively.
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Delivering value for shareholders; long-term financial targets
Our goal remains to enhance value for our stakeholders through improving financial performance. We believe our revenue growth strategy and operational discipline will enhance free cash flow (operating cash flow less capital expenditures) over time, and we have committed to a long-term goal of returning approximately 40% of our free cash flow to shareholders via stock repurchases.
Assuming a mix of subscription solutions bookings in line with our guidance, we expect to achieve a 24% to 25% non-GAAP operating margin in FY15, down from 26% assumed previously, reflecting depreciation of the Euro and Yen vs. the US dollar, with a 28% to 30% non-GAAP operating margin by FY17 and into FY18. We anticipate
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achieving non-GAAP operating margin improvement through a mix of measures including: (1)�increasing our non-GAAP professional services gross margin toward our longer-term goal of 20% by FY18; (2)�further expanding our professional services partner ecosystem to reduce professional services revenue as a percentage of total revenue; (3)�enhancing sales force productivity and efficiency; (4)�implementing solutions that require shorter sales cycles and less professional services; (5)�continued vigilance on cost control; and (6)�driving revenue growth across our existing markets while capitalizing on new opportunities, such as the trend toward smart, connected products and the Internet of Things. Based on these initiatives, we expect to grow non-GAAP EPS at a compound annual rate of approximately 15% through FY18.
Our FY18 long-term revenue growth target assumes a stable, healthy macroeconomic environment, and that we grow at or greater than the growth rates of the markets in which we participate, as well as 2% to 4% of acquisition-related growth. If our subscription offerings prove more attractive to our customers than our base case assumption, it will have a more adverse impact on revenue, operating margin, cash flow and EPS growth than we are currently anticipating in our financial targets. Should this happen, we believe it will be NPV positive to PTC over the long term.
PTC Financial Targets
| � | � | � | � | � | � |
Prior
|
Revised
|
� | |
| � | � | � | � | � | � |
FY'15
|
FY'15
|
FY'18
|
|
|
Non-GAAP
|
FY'10
|
FY'11
|
FY'12
|
FY'13
|
FY'14
|
Outlook
|
Outlook
|
Target
|
|
|
Bookings & Revenue Metrics
|
� | � | � | � | � | � | � | � | |
|
Bookings
|
� | � | � | � | � | � | � | � | |
|
Subscription Solutions Bookings % of L&SS Bookings
|
0%
|
0%
|
0%
|
1%
|
8%
|
~15%
|
~15%
|
~30%
|
|
|
Revenue
|
� | � | � | � | � | � | � | � | |
|
Perpetual License & Subscription Solutions YoY Change
|
39%
|
16%
|
2%
|
2%
|
10%
|
4%-10%
|
(3%)-5%
|
12%-15%
|
|
|
Support YoY Change
|
(1%)
|
13%
|
10%
|
7%
|
5%
|
1%
|
0%
|
2%-4%
|
|
|
Professional Services YoY Change
|
(4%)
|
23%
|
11%
|
(4%)
|
(2%)
|
(6%)
|
(10%)
|
(0%)-(3%)
|
|
|
Total Revenue YoY Change
|
8%
|
16%
|
8%
|
3%
|
5%
|
0%-2%
|
(3%)-(1%)
|
6%-10%
|
|
|
Operating Metrics
|
� | � | � | � | � | � | � | � | |
|
Gross Margin
|
72%
|
71%
|
72%
|
73%
|
75%
|
75%-76%
|
~75%
|
76%-78%
|
|
|
Sales & Marketing
|
30%
|
29%
|
29%
|
27%
|
26%
|
25%-26%
|
~25%
|
24%-25%
|
|
|
R & D
|
19%
|
17%
|
16%
|
16%
|
16%
|
15%-16%
|
~17%
|
15%-16%
|
|
|
G & A
|
8%
|
7%
|
7%
|
8%
|
8%
|
7%-8%
|
~8%
|
7%-8%
|
|
|
Operating Margin
|
16%
|
18%
|
20%
|
22%
|
25%
|
~26%
|
24%-25%
|
28%-30%
|
|
|
Tax Rate
|
23%
|
24%
|
24%
|
22%
|
21%
|
~18%
|
~15%
|
18%-20%
|
|
|
Shares Outstanding
|
120M
|
121M
|
121M
|
121M
|
120M
|
~117M
|
~117M
|
~112M
|
|
|
EPS Growth
|
25%
|
26%
|
20%
|
20%
|
20%
|
7%-10%
|
1%-8%
|
~15%
|
|
| � | � | ||||||||
�
�
�
�
�
Macroeconomic factors impact our business
A significant percentage of our annual revenue comes from large customers in the broader manufacturing space. As a result, the historic license revenue growth in our core CAD and EPLM segments correlates to growth in broader measures of the global manufacturing economy including GDP, industrial production and manufacturing PMI. Current indicators suggest the global manufacturing economy is modestly weaker than during the year-ago and prior quarter periods. In particular, the pace of recovery in the US appears to have moderated while GDP and PMI data in the Eurozone and China suggest manufacturing economies in those regions are slowing. For 2015, our financial guidance assumes a less robust global manufacturing economy than we saw in 2014.
Trailing 12 Month Revenue by Industry Vertical and by Region
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||||
|
Note: percentages may not sum to 100% due to rounding
|
� | � | � | � | |
Financial guidance based on comprehensive planning methodology
We rely on a number of factors to set our internal plan and financial guidance including: (1) sales pipeline coverage data; (2) input from field sales; (3) large deal trends; (4) market and vertical industry analysis; and (5)�macroeconomic factors, which correlate to significant portions of our business.
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Q2 and FY15 Guidance Table (1)
| � |
Q2'15
|
Q2'15
|
� |
FY'15
|
FY'15
|
� | � |
| � |
Low
|
High
|
� |
Low
|
High
|
� | � |
|
Subscription Solutions Bookings % of Total Bookings
|
~15%
|
~15%
|
� |
~15%
|
~15%
|
� | � |
|
License & Subscription Solutions (L&SS) Revenue
|
80
|
95
|
� |
380
|
410
|
� | � |
|
Support Revenue
|
165
|
165
|
� |
690
|
690
|
� | � |
|
Professional Services Revenue
|
60
|
60
|
� |
250
|
250
|
� | � |
|
Total Revenue
|
305
|
320
|
� |
1,320
|
1,350
|
� | � |
|
L&SS YoY Change
|
-10%
|
7%
|
� |
-3%
|
5%
|
� | � |
|
Support YoY Change
|
-1%
|
-1%
|
� |
0%
|
0%
|
� | � |
|
Professional Services YoY Change
|
-19%
|
-19%
|
� |
-10%
|
-10%
|
� | � |
|
Total Revenue YoY Change
|
-7%
|
-3%
|
� |
-3%
|
-1%
|
� | � |
|
Non-GAAP Gross Margin
|
74%
|
75%
|
� |
75%
|
75%
|
� | � |
|
GAAP Gross Margin
|
72%
|
72%
|
� |
73%
|
73%
|
� | � |
|
Non-GAAP Operating Margin
|
21%
|
22%
|
� |
24%
|
25%
|
� | � |
|
GAAP Operating Margin
|
10%
|
11%
|
� |
14%
|
15%
|
� | � |
|
Total GAAP Adjustments (2)
|
33
|
33
|
� |
127
|
127
|
� | � |
|
Other Income (Expense)
|
-4
|
-4
|
� |
-14
|
-14
|
� | � |
|
Non-GAAP Tax Rate
|
15%
|
15%
|
� |
15%
|
15%
|
� | � |
|
GAAP Tax Rate
|
15%
|
15%
|
� |
12%
|
12%
|
� | � |
|
Share Count
|
117
|
117
|
� |
117
|
117
|
� | � |
|
Non-GAAP EPS
|
$0.42
|
$0.50
|
� |
$2.20
|
$2.35
|
� | � |
|
Non-GAAP EPS Growth
|
-12%
|
5%
|
� |
1%
|
8%
|
� | � |
|
GAAP EPS
|
$0.18
|
$0.26
|
� |
$1.32
|
$1.47
|
� | � |
|
GAAP EPS Growth
|
-50%
|
-28%
|
� |
-1%
|
10%
|
� | � |
|
Note: subscription solutions bookings % mix of will fluctuate based on low and high end of guidance; 15% mix assumes guidance midpoint; at high end of guidance, subscription solutions mix ~10% and at low end of guidance subscription solutions mix ~20%
|
� | ||||||
|
(1) FX Assumptions:��USD/EURO = 1.14; YEN/USD = 118
|
� | ||||||
|
Impact of currency fluctuation vs. Q214 on Q215 non-GAAP revenue guidance is ~$20 million and on non-GAAP EPS is ~$0.07
|
|||||||
|
Impact of currency fluctuation vs. FY14 on FY15 non-GAAP revenue guidance is ~$80 million and on non-GAAP EPS is ~$0.25
|
� | ||||||
|
(2) Described below in Q1 FY'15 Expenses Commentary and Q2 & FY'15 Outlook
|
� | ||||||
New CFO
As previously announced, Mr. Andrew Miller will assume the position of Executive Vice President and CFO in February 2015. Mr. Miller will replace Mr. Glidden, who announced his intention to retire in August 2014. Mr. Glidden will serve as a consultant to PTC for a transition period following Mr. Millers commencement of employment with the company. During Mr. Gliddens tenure as CFO, and under the leadership of our CEO Jim Heppelmann, PTC experienced significant improvement in both operating margin and free cash flow growth, while repositioning our solutions portfolio to focus on smart, connected products. We expect the focus on improving financials and strategic growth will continue under the leadership of Mr. Heppelmann, Mr. Miller, and the PTC executive management team.
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Supplemental Information
We provide non-GAAP supplemental information to our GAAP information. A reconciliation between GAAP results and non-GAAP information and PTC's reasons for providing this information are at the end of this document. Year-over-year changes in revenue on a constant currency (FX) basis compare actual reported results converted into U.S. dollars based on the corresponding prior years foreign currency exchange rates to reported results for the comparable prior year period. Also please note that when discussing growth rates in the sections below, YoY CC refers to changes on a year over year constant currency basis.
Q1 FY15 - Key Points
|
1)��
|
Our non-GAAP EPS was $0.50 (up 1% YoY and 12% YoY CC), at the high end of our guidance range, driven by higher support revenue and a lower tax rate, offset by a greater mix of subscription business in the quarter, lower gross profit due to a higher percentage of professional services revenue and investments we are making in select strategic customer engagements, as well as higher operating expenses due to investments in our Internet of Things business. Unfavorable currency movements vs. year-ago rates impacted non-GAAP EPS by approximately $0.05.
|
|
2)��
|
Total non-GAAP revenue of $327 million was up 1% YoY, up 4% YoY CC, and above the high end of our guidance range driven by higher support and professional services revenue. Unfavorable currency movements vs. year-ago rates impacted non-GAAP revenue by approximately $12 million.
|
|
3)��
|
Subscription solutions bookings represented 19% of L&SS bookings, above our guidance assumption of 15%. We believe this higher than expected level of subscription solutions, while positive long-term, reduced L&SS revenue by $3 million and non-GAAP EPS by $0.02.
|
|
4)��
|
Non-GAAP L&SS revenue of $80 million decreased 4% YoY, was flat YoY CC, and decreased 11% YoY CC on an organic basis. Non-GAAP L&SS bookings increased 4% YoY CC. L&SS revenue and bookings were strongest in Europe, the Pac Rim, and Japan, and within our IoT and PLM businesses. We added 42 new IoT customer logos in Q115.
|
|
5)��
|
We delivered non-GAAP support revenue of $182 million, above our guidance and up 7% YoY, 11% YoY CC, and 8% YoY CC on an organic basis, helped by 5% YoY CC perpetual license non-GAAP revenue growth during FY14 and six additional days in Q115 vs. the year-ago period.
|
|
6)��
|
Non-GAAP professional services revenue of $65 million came in above our guidance and was down 9% YoY, down 6% YoY CC, and down 8% YoY CC on an organic basis. Non-GAAP professional services gross margin of 13.0% declined from 14.9% in Q114 due to investments we are making in certain projects with strategic customers, which we expect to continue through the first half of FY15.
|
|
7)��
|
We had 15 large deals (greater than $1 million of L&SS bookings from a customer during the quarter) in Q115, up from 14 in Q114. There were no mega deals (transactions resulting in L&SS bookings of over $5 million in the quarter) in Q115.
|
|
8)��
|
We generated $12 million in operating cash flow, repaid $6 million on our credit facility, and ended the quarter with a cash balance of $261 million.
|
�
�
�
�
�
|
9)��
|
Approximately 60% of Q115 non-GAAP revenue came from recurring revenue streams (subscription solutions and support), up from approximately 53% in the year ago period.
|
�
|
10)��
|
Non-GAAP revenue contribution from acquired businesses Atego (acquired on June 30, 2014), and Axeda (acquired on August 11, 2014) was $14 million.
|
�
REVENUE AND BOOKINGS TRENDS
LICENSE & SUBSCRIPTION SOLUTIONS (L&SS):
L&SS sales generate our highest non-GAAP gross margins, which are approximately 90% overall and 96% excluding subscription solutions. We believe both subscription solutions bookings and license revenue are important indicators of the incremental business we generate in a given quarter. We expect the subscription solutions bookings percentage of L&SS bookings to increase over time. From a revenue perspective, L&SS historically has tended to represent 25% to 30% of our total revenue in any given quarter, with Q4 generally being our strongest quarter. The following tables show our L&SS revenue and bookings growth trends by solution area and region.
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�
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Q115 Non-GAAP L&SS Performance by Solution Area and Region
| � |
L&SS
|
L&SS
|
L&SS
|
L&SS
|
| � |
Revenue 3
|
Revenue 3
|
Bookings 2
|
Bookings 2
|
|
Non-GAAP
|
YoY 1
|
YoY CC 1
|
YoY 1
|
YoY CC 1
|
|
Solution Area
|
� | � | � | � |
|
CAD
|
(13%)
|
(9%)
|
(9%)
|
(5%)
|
|
EPLM
|
(13%)
|
(9%)
|
(4%)
|
(0%)
|
|
SLM
|
(23%)
|
(20%)
|
(30%)
|
(26%)
|
|
IoT
|
*
|
*
|
*
|
*
|
|
Total
|
(4%)
|
(0%)
|
0%
|
4%
|
|
Region
|
� | � | � | � |
|
Americas
|
(18%)
|
(18%)
|
(5%)
|
(5%)
|
|
Europe
|
7%
|
16%
|
(1%)
|
8%
|
|
Japan
|
(0%)
|
12%
|
10%
|
23%
|
|
Pac Rim
|
13%
|
14%
|
13%
|
14%
|
|
Total
|
(4%)
|
(0%)
|
0%
|
4%
|
|
1 YoY and YoY CC means year over year and year over year constant currency, respectively
|
||||
|
2 L&SS bookings refers to new license revenue plus new subscription solutions annualized contract value (ACV) bookings multiplied by a
��conversion factor of 2
|
||||
|
3 Revenue includes run rate subscription solutions revenue
|
||||
|
* No prior year data for YoY comparison
|
||||
�
Q1 L&SS non-GAAP revenue was flat YoY CC and declined 11% YoY CC on an organic basis, near the high end of our guidance range. L&SS bookings increased 4% YoY CC. From a geographic perspective, we saw good L&SS revenue and bookings results in Japan, the Pac Rim, and Europe offset by weakness in the Americas.
�
CAD L&SS: Q1 CAD L&SS revenue declined 9% YoY CC and bookings were down 5% YoY CC in our CAD solution area versus a strong compare. We saw a modest decline in revenue from new Creo� seats, modules, and upgrades and a more significant decline in business from sales of other CAD software products, training software, and eLearning. Sales of new licenses, modules and upgrades associated with our Creo� platform accounted for over 80% of CAD L&SS revenue, our highest percentage of CAD L&SS revenue from Creo� since we introduced the platform in FY11. Looking forward, 80% of our CAD customers have now adopted the Creo� platform, in line with our expectations, with positive customer feedback on the transition. For FY15, we continue to expect customers will transition to Creo�, although with fewer large customers making the switch and more difficult comparisons relative to FY14, we expect CAD license revenue growth could underperform the market. Through FY18, we expect our CAD business will grow in line with market growth rates.
�
EPLM L&SS: Q1 EPLM L&SS non-GAAP revenue declined 9% YoY CC with bookings flat YoY CC. Within our EPLM business, a solid PLM performance was offset by a decline in our ALM bookings.� Looking forward, we believe our EPLM business can modestly outgrow the overall PLM market based on our technology leadership position and our planned closed-loop lifecycle management solutions, with embedded IoT functionality, that we expect to release to customers in the near future.
�
�
�
�
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IoT L&SS: Q1 IoT L&SS non-GAAP revenue of $8.8 million increased 99% sequentially and 31% on an organic basis sequentially. During Q115 we added 42 new IoT customer logos in the quarter. New IoT customer logos may be either new or existing PTC customers that have purchased an IoT solution from us for the first time. Within our IoT business, we believe new logos and bookings growth will be key metrics with which to measure our success penetrating this market opportunity.
�
SLM L&SS: Q1 SLM L&SS revenue declined 20% YoY CC with bookings down 26% YoY CC. We remain encouraged by our current SLM pipeline, but longer sales cycles led to lower than expected close rates relative to our corporate average, and affected our ability to grow SLM L&SS bookings. We continue to believe our SLM L&SS business can return to double digit growth rates over time, particularly as we introduce new connected SLM applications.
�
LARGE DEAL ACTIVITY:
Large deals are a significant growth driver and have historically tended to generate 30% to 50% of our L&SS bookings in any given quarter. We are now defining large deals as greater than $1 million of L&SS bookings from a customer during the quarter, which we believe more accurately reflects incremental new software business in a given quarter. Previously we defined large deals as more than $1 million of license and service revenue recognized from a customer during a quarter. We also track mega deals, which we now define as transactions resulting in L&SS bookings of over $5 million in a quarter. During Q115 we had no mega deals.
�
�
In Q115 we had 15 large deals up from 14 in Q114. We continue to have a strong pipeline of large deals that we are working on worldwide, though the timing of closing and the size of large deals may be affected by the overall health of the manufacturing economy, among other factors.
Looking forward, we are expecting fewer mega deals in FY15 than we had in FY14.
�
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SALES PRODUCTIVITY AND CAPACITY TRENDS:
A key part of our long-term growth strategy is to expand the productivity of our quota-carrying sales reps to generate increasing L&SS bookings per dollar of sales and marketing expense. Over the trailing 12 months ending Q115 we were able to generate approximately $1.13 in L&SS bookings for each $1.00 of sales and marketing expenditure, down slightly from $1.15 in FY14 but up from $1.00 in FY13. We had 366 quota-carry sales reps at the end of Q1, up 10% year over year.
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Sales Capacity and Productivity Trend
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Sales Capacity
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Sales Productivity
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As part of our effort to improve sales productivity and enhance our go-to-market strategy, we segment our sellers within four distinct groups: (1) full product line, which focus on our top strategic accounts; (2) product development, which focus on selling CAD, PLM, and ALM solutions into the research and development organization; (3) service, which focus on selling SLM solutions into the service organization; and (4) IoT new logo, which focus on selling IoT and connected SLM solutions. Our current sales capacity breaks down as follows: 96 full product line; 189 product development; 26 service; and 55 IoT new logo.
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SUPPORT: strong source of recurring revenue
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Our support business is an important barometer of customer satisfaction with our solutions. Support gross margins are approximately 88% on a non-GAAP basis. Support revenue has historically tended to represent approximately 50% of our total revenues in any given quarter, with Q4 usually being at the low end as a percent of total revenue due to historically strong performance of L&SS sales in that quarter.
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Q1 non-GAAP support revenue was up 11% YoY CC and 8% YoY CC on an organic basis. Support revenue increased in all regions and business areas YoY CC, helped by 5% YoY CC perpetual license revenue growth during FY14 and six additional days in Q115 vs. the year-ago period. Looking forward, for Q215 we are targeting non-GAAP support revenue of approximately $165 million. For FY15 we are targeting approximately $690 million of non-GAAP support revenue.
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Active Support Seats
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in (000's)
|
Q1'13
|
Q2'13
|
Q3'13
|
Q4'13
|
Q1'14
|
Q2'14
|
Q3'14
|
Q4'14
|
Q1'15
|
|
CAD
|
241.3
|
238.6
|
244.0
|
246.0
|
244.3
|
243.1
|
245.2
|
248.9
|
249.0
|
|
EPLM
|
1,506.5
|
1,531.9
|
1,564.2
|
1,591.7
|
1,579.4
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1,580.9
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1,646.5
|
1,720.5
|
1,722.0
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SLM
|
55.2
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55.8
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70.9
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93.7
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95.9
|
95.6
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96.5
|
111.6
|
118.5
|
|
Total
|
1,803.0
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1,826.3
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1,879.1
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1,931.4
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1,919.6
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1,919.6
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1,988.2
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2,081.0
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2,089.5
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Note: the seat count in the above table excludes seats from our acquired Axeda and ThingWorx businesses
PROFESSIONAL SERVICES: focus on margin and partner ecosystem expansion
Our professional services business provides significant value to our customers, helping them re-engineer their global product development business processes and implement our solutions and providing them with training on our software. Professional services revenue has historically tended to represent 20% to 25% of our total revenues in any given quarter. Over time we expect the consulting portion of our professional services business to decline as a percentage of our total revenue as a result of our strategy to grow our professional services partner ecosystem.
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Q1 professional services revenue was down 6% YoY CC and 8% YoY CC on an organic basis. Consulting revenue (84% of total services revenue), was down by a double digit percentage YoY due to: (1) an increasing focus on profitability within our consulting and implementation business; and (2) expansion of our professional services partner ecosystem. Our training business (16% of total services revenue) was up by a high single digit percentage YoY driven primarily by strength in CAD license sales during the trailing 12 months.
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On a geographic basis, the decrease in professional services revenue reflects double digit YoY CC percentage declines in the Pac Rim and the Americas, a more modest YoY CC decline in Europe, partially offset by double digit YoY CC professional services revenue growth in Japan. By solution area, CAD professional services revenue decreased 7% YoY CC, EPLM professional services revenue decreased 7% YoY CC and 9% YoY CC on an organic basis, and SLM professional services revenue decreased 4% YoY CC.
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From a margin standpoint, we delivered non-GAAP professional services gross margin of 13.0% in Q115, down from 14.9% in Q114 due to a decline in professional services revenue and investments we are making in certain projects with strategic customers, which we expect to continue through the first half of FY15.
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Q115 Service Advantage partner bookings were flat on a trailing 12-month basis versus Q414. As part of our strategy to improve overall margins and offer a range of professional services options to customers, we continue to expand our professional services partner ecosystem. Over time, we anticipate reducing our mix of direct services by shifting more business to our services partners and implementing solutions that fundamentally require less services.
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Looking forward, we are targeting professional services revenue to be approximately $60 million in Q215. For FY15 we are targeting professional services revenue of approximately $250 million. We are targeting non-GAAP gross margin in our professional services business of approximately 14% for FY15, down from our prior target of 15% to factor in further depreciation of the Euro and Yen relative to the US dollar. We expect to achieve this target through a combination of pricing discipline, cost control, and services partner ecosystem expansion. Given investments in certain strategic customer projects, we expect professional services margins to remain under pressure through the first half of FY15. We expect to increase our professional services non-GAAP gross margin to 20% by FY18.
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REVENUE BY SOLUTION AREA
We provide additional revenue disclosure that we believe provides valuable insight into how our business is performing within the markets we serve. Along with line of business, geographic, industry, and large deal metrics, we report revenue in four solution areas: CAD, SLM, IoT, and EPLM, which encompasses our PLM and ALM businesses). Each of our solution areas serves a market with unique secular and cyclical dynamics, growth rates, and buyers within our customer base.
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The following tables provide license & subscription solutions, support, and professional services revenue for each of our solution areas. Results include combined revenue from direct sales and our channel.
CAD:
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EPLM:
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IoT:
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SLM:
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REVENUE BY REGION
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REVENUE BY DISTRIBUTION TYPE
We sell our solutions through a direct sales force as well as indirect channel partners. Typically direct sales represent the majority (77% to 78%) of our total revenue. Most of our indirect revenue (77% to 78%) comes from our CAD solutions area, where indirect channel sales typically account for 40% to 45% of our total CAD revenue, with most of our remaining channel revenue coming from PLM solutions. Although our indirect channel partners continue to be focused on CAD and PLM, we are planning to expand their portfolios over time.
During Q115, direct sales increased 3% YoY CC and decreased 3% YoY CC on an organic basis. Indirect revenue increased 11% YoY CC and 11% YoY CC on an organic basis, driven by strength in CAD channel sales.
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REVENUE BY INDUSTRY VERTICAL
The largest industry verticals into which we sell our products include: (1)�industrial products; (2)�federal aerospace & defense; (3)�electronics & high tech; (4)�automotive; (5)�retail & consumer; and (6)�life sciences. During Q115, we saw our strongest revenue growth in the life sciences, retail & consumer, automotive, and electronics & high tech industries, offset by a revenue decline in federal aerospace & defense.
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Total Revenue by Industry Vertical
|
% Y/Y
|
FY13
|
FY14
|
Q115
|
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Automotive
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-2%
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17%
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12%
|
|
Electronics & High Tech
|
5%
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-8%
|
6%
|
|
Federal, Aerospace & Defense
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6%
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9%
|
-21%
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|
Industrial Products
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5%
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6%
|
-6%
|
|
Life Sciences
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9%
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21%
|
25%
|
|
Retail & Consumer
|
16%
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-2%
|
13%
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Other
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-16%
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1%
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25%
|
|
Total
|
3%
|
5%
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0%
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CURRENCY IMPACT ON RESULTS
We have a global business, with Europe and Asia historically representing approximately 60% of our revenue, and fluctuation in foreign currency exchange rates can significantly impact our results. We do not forecast currency movements; rather we provide detailed constant currency commentary. For example, in FY14, currency was a tailwind for PTC and positively impacted non-GAAP revenue by $2 million and negatively impacted GAAP and non-GAAP expenses by $1 million. In FY13, currency was a headwind for PTC and negatively impacted non-GAAP revenue by $18 million and favorably impacted GAAP and non-GAAP expenses by $9 million.
As a simple rule of thumb, based on current revenue and expense levels, a $0.10 move on the USD / EURO exchange rate will impact annualized revenue by approximately $35 to $40 million and EPS by approximately $0.10 to $0.12. Given recent fluctuation in the YEN / USD exchange rate, we also note that a 10 YEN move versus the USD will impact annualized revenue by approximately $13 to $17 million and EPS by approximately $0.05 to $0.07.
In Q115, currency was a headwind for PTC unfavorably impacting revenue by $12.3 million YoY and favorably impacting GAAP expenses by $6.0 million YoY and non-GAAP expenses by $5.4 million YoY. Our actual simple average Q115 exchange rate was $1.27 USD / EURO and 109 YEN / USD.
Looking forward, the guidance we are providing assumes exchange rates of approximately 1.14 USD / EURO and 118 YEN / USD. Compared with FY14, current FY15 FX assumptions reduce non-GAAP revenue guidance by
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approximately $80 million and reduce non-GAAP EPS by approximately $0.25. Compared with Q214, current Q215 FX assumptions reduce non-GAAP revenue guidance by approximately $20 million and reduce non-GAAP EPS guidance by approximately $0.07.
Q1 FY15 EXPENSES COMMENTARY AND Q2 & FY15 OUTLOOK
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Q1 non-GAAP�results exclude $11.2 million of stock-based compensation expense, $14.2 million of acquisition-related intangible asset amortization and $5.4 million of other charges, net (primarily acquisition-related costs). Q1 non-GAAP tax rate was 11%, GAAP tax rate was 12%, and total diluted shares outstanding was 117.0 million.
Q215 non-GAAP guidance adjusts for the impact of the following estimated expenses and their income tax effects, as well as any additional discrete tax items or restructuring costs:
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Approximately $1 million of the effect of acquisition accounting on the fair value of acquired
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deferred revenue
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Approximately $14 million of expense related to stock-based compensation
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Approximately $14 million of acquisition-related intangible asset amortization expense
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Approximately $4 million of other charges, net (primarily acquisition-related and pension plan
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termination related expense)
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FY15 GAAP and non-GAAP guidance adjusts for the impact of the following full-year estimated expenses and their income tax effects, as well as any additional discrete tax items or restructuring costs:
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l
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Approximately $4 million of the effect of acquisition accounting on the fair value of acquired
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deferred revenue
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l
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Approximately $55 million of expense related to stock-based compensation
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l
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Approximately $55 million of acquisition-related intangible asset amortization expense
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l
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Approximately $13 million of other charges, net (primarily acquisition-related and pension plan
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termination related expense)
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FY15 non-GAAP guidance also excludes settlement losses related to the termination of our U.S. pension plan.��While we expect to complete the termination process by September 30, 2015, the amount of the losses and timing of the charge is subject to the timing of regulatory approvals and the projected benefit obligations and assets in the plan measured as of the dates the settlements occur. We currently estimate the pre-tax settlement losses to be approximately $65 million.
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NON-GAAP GROSS MARGINS
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Our Q115 non-GAAP gross margin percentage increased 20 basis points year over year primarily due to leverage from higher support revenue and a lower mix of professional services business, partially offset by lower professional services gross margin. Adjusting for depreciation of the Euro and Yen versus the year ago period, non-GAAP gross margin would have been 74%. Q115 GAAP gross margin was 71.4%. Our Q115 professional services non-GAAP gross margin declined to 13.0% from 14.9% in Q114 due to lower professional services revenue and certain strategic customer project investments.
Looking forward, we are targeting Q215 non-GAAP gross margin of approximately 74% to 75% (GAAP gross margin of approximately 72%). For FY15, we are targeting non-GAAP gross margin of approximately 75% (GAAP gross margin of approximately 73%). As noted above, we expect gross margin in the first half of FY15 to reflect investments in certain strategic customer projects.
NON-GAAP OPERATING MARGINS
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Our Q115 non-GAAP operating expenses were $171 million ($195 million on a GAAP basis), compared to $157 million in Q114 ($177 million on a GAAP basis). The higher year over year spending reflects the acquisitions of Axeda and Atego, workforce additions in our IoT business, which we view as an important future growth opportunity for PTC. This was partially offset by cost reduction actions taken over the last 12 months. Non-GAAP Sales & Marketing expense increased approximately 70 basis points as a percentage of revenue reflecting additional spending related to our IoT business. Typically we see a modest increase in our sales & marketing expense during
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Q1 (related to spending for our Global Sales and Services Kickoffs) and during Q3 (related to spending for our PTC Live Global customer event). Non-GAAP R&D expenditure increased approximately 220 basis points YoY as a percentage of revenue, reflecting incremental investments we are making in IoT and smart connected products more broadly, as well as increased investments related to our ALM and SLM businesses. We expect these investments to continue through FY15. In addition, Non-GAAP G&A expenditures increased nearly 120 basis points YoY including increased legal, audit, and tax fees.
From an operating performance perspective, we achieved 21.4% non-GAAP operating margin as reported and 22.6% on a constant currency basis in Q115, compared to 25.3% in Q114. GAAP operating margin was 11.6% as reported and 13.0% on a constant currency basis for Q115 compared to 16.9% in Q114. The lower Q1 operating margin reflects incremental costs and investments we are making related to our smart connected products growth opportunity.
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Looking forward, we are targeting Q2 non-GAAP operating margin of approximately 21% to 22% (GAAP operating margin of approximately 10% to 11%). For FY15, we are targeting non-GAAP operating margin of approximately 24% to 25% (GAAP operating margin of approximately 14% to 15%).
Over the longer term we intend to increase our non-GAAP operating margin to the 28% to 30% range by FY17 and into FY18 primarily through increased efficiencies in our global sales and marketing organizations and improved non-GAAP gross margin (76% to 78% range) due to improved non-GAAP professional services margin and a more favorable revenue mix.
TAX RATE
Our Q1 non-GAAP tax rate was 11.4% and our Q1 GAAP tax rate was 12.0%. The lower non-GAAP tax rate relative to our guidance of 18% was due primarily to retroactive benefit from renewal of the R&D tax credit as well as our mix of pretax profit by region. In addition, on September 30, 2014 we executed a business realignment in which intellectual property was transferred between two wholly-owned foreign subsidiaries. The realignment allows us to more efficiently manage the distribution of our products to European customers. We expect this realignment to result in an annual tax benefit of approximately $15 million to $20 million for the next several years, declining annually thereafter through 2021.
Looking forward, we expect our non-GAAP tax rate to be approximately 15% for Q215 and FY15, and to be 18% to 20% for the foreseeable future. This is based on our current estimates for geographic mix of profits. Our guidance assumes a Q2 GAAP tax rate of 15% and FY15 GAAP tax rate of 15% to 20%.
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STOCK-BASED COMPENSATION
For Q115, expenses related to stock-based compensation were 3.4% of non-GAAP revenue compared to 3.9% of non-GAAP revenue in Q114.
SHARE COUNT / SHARE REPURCHASE
We had 117 million fully diluted weighted average shares outstanding for Q1. Under an accelerated share repurchase agreement (ASR) entered into in August 2014, we agreed to purchase $125 million of our common stock, in total, with payment in full in August 2014 and an initial delivery to us of 2.3 million shares.��We settled the ASR in December 2014 pursuant to which an additional 1.1 million shares were delivered to us and retired.
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Free Cash Flow Return
|
($ in millions)
|
FY'13
|
Q1'14
|
Q2'14
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Q3'14
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Q4'14
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FY'14
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Q1'15
|
|
Cash flow from operating activities
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224.7
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36.2
|
110.7
|
106.4
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51.2
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304.6
|
11.6
|
|
Capital expenditures
|
-29.3
|
-5.8
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-4.6
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-6.4
|
-8.6
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-25.3
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-5.6
|
|
Free cash flow
|
195.4
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30.5
|
106.2
|
100.0
|
42.6
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279.3
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6.0
|
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Repurchases of common stock
|
-74.9
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0.0
|
-40.0
|
-60.0
|
-125.0
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-224.9
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0.0
|
|
Weighted average shares outstanding
|
121.2
|
121.1
|
120.7
|
119.9
|
118.3
|
120.0
|
117.0
|
|
Free Cash Flow Return %
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38%
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0%
|
38%
|
60%
|
293%
|
81%
|
0%
|
Looking forward, we are committed to repurchasing shares in keeping with our long-term goal of returning approximately 40% of free cash flow to shareholders. We expect to have approximately 117 million fully diluted shares outstanding for Q215 and 117 million for the full fiscal year.
BALANCE SHEET:
CASH / CASH FLOW FROM OPERATIONS
As of the end of Q115 our cash balance was $261 million, down from $294 million at the end of Q414. We generated $12 million in operating cash flow, repaid $6 million of debt, and used $6 million for capital expenditures.
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Looking forward, we expect to make cash contributions totaling approximately $35 million in the remainder of FY15 to fund pension plans, including the estimated amount required to settle our U.S. pension obligations and expected voluntary contributions to a non-U.S. plan. We expect to make payments of approximately $8 million in the remainder of FY15 for restructuring accruals recorded in FY14.
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DSO
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We continue to have strong DSOs of 59 days in Q115, compared to 60 days in Q414 and 58 days in Q114.
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OUTSTANDING DEBT
Our credit facility consists of a $1 billion revolving line and a $500 million term loan. We expect to use our credit facility for general corporate purposes, including acquisitions of businesses, working capital requirements, and share repurchases. We currently have total borrowings outstanding under the credit facility of $606 million, reflecting net repayments of $6 million during the quarter. At the end of Q115, we had $112 million outstanding under the revolving loan portion of our credit facility. Under our leverage covenant, we are limited to 3.0 times adjusted EBITDA which, as of January 3, 2015, would limit additional revolving credit borrowings to $457 million.
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MISCELLANEOUS COMMENTS
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HEADCOUNT
Total headcount was 6,237 at the end of Q115, compared to 6,444 at the end of Q414 and 5,940 at the end of Q114.
M&A
We view M&A primarily as a strategic vehicle to further enhance our product portfolio and growth opportunity. We intend to remain opportunistic as it relates to M&A. Over the last three years, we have undertaken small, strategic technology tuck-ins (e.g. the acquisitions of Enigma and NetIDEAS in Q413 and Atego in Q314), as well as larger transactions, including Servigistics in Q113, ThingWorx in Q214, and Axeda in Q414. We continue to evaluate strategic acquisition opportunities of varying size as they arise. Our forecasted financial, cash and debt positions for FY15 described above are exclusive of the effects of any acquisitions that we may complete.
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, stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses, costs associated with terminating a U.S. pension plan, certain identified non-operating gains and 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 PTCs financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results. PTC also provides results on a constant currency basis to provide a year-over-year view of our results excluding the effect of currency translation. Our constant currency disclosures are calculated by multiplying the actual results for the current period by the exchange rates in effect for the comparable prior period.
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Forward-Looking Statements
Statements in these prepared remarks that are not historic facts, including statements about our second quarter and full fiscal 2015, long-term targets and other future financial and growth expectations, anticipated tax rates, expected
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market growth rates 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 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) and SLM businesses, may not expand and/or generate the revenue we expect, the possibility that market size and growth estimates may be incorrect and that we may be unable to grow our business at or in excess of market growth rates, the possibility that our pipeline of opportunities may not convert or generate the revenue we expect, the possibility that we will be unable to achieve planned professional services margins and operating margin improvements, the possibility that new products released and planned 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 we may not achieve the license and subscription solutions (L&SS), support or professional services revenue that we expect, which could result in a different mix of revenue between license & subscription solutions, support and professional services and 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 we may be unable to leverage our products and customer relationships to increase sales, the possibility that sales personnel productivity may not increase as we expect, the possibility that we may be unable to expand our services partner ecosystem or improve services margins as we expect, 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, 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, the possibility that we may incur additional acquisition-related and pension plan termination-related expenses and losses than we expect, and the possibility that fines and penalties may be assessed against PTC in connection with our previously announced investigation in China . 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.
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PTC Inc.
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NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
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(in thousands)
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GAAP MARGINS
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� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | |||||||
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | |||||||
| � |
FY '13
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� | � | � | � |
Q1 '14
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� | � | � | � |
Q2 '14
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� | � | � | � |
Q3 '14
|
� | � | � | � |
Q4 '14
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� | � | � | � |
FY '14
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� | � | � | � |
Q1 '15
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Revenue
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$ | 1,293,541 | � | � | � | � | $ | 324,925 | � | � | � | � | $ | 328,700 | � | � | � | � | $ | 336,634 | � | � | � | � | $ | 366,708 | � | � | � | � | $ | 1,356,967 | � | � | � | � | $ | 325,442 | � | � | � |
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Cost of L&SS revenue
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� | 39,037 | � | � | � | � | � | 10,319 | � | � | � | � | � | 10,889 | � | � | � | � | � | 11,246 | � | � | � | � | � | 12,550 | � | � | � | � | � | 45,005 | � | � | � | � | � | 13,329 | � | � | � |
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Cost of support revenue
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� | 81,081 | � | � | � | � | � | 19,916 | � | � | � | � | � | 21,564 | � | � | � | � | � | 21,118 | � | � | � | � | � | 22,105 | � | � | � | � | � | 84,703 | � | � | � | � | � | 21,396 | � | � | � |
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Cost of professional services revenue
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� | 252,921 | � | � | � | � | � | 62,721 | � | � | � | � | � | 61,344 | � | � | � | � | � | 58,712 | � | � | � | � | � | 61,199 | � | � | � | � | � | 243,975 | � | � | � | � | � | 58,217 | � | � | � |
|
Gross Margin
|
$ | 920,502 | � | 71.2 | % | � | $ | 231,969 | � | 71.4 | % | � | $ | 234,903 | � | 71.5 | % | � | $ | 245,558 | � | 72.9 | % | � | $ | 270,854 | � | 73.9 | % | � | $ | 983,284 | � | 72.5 | % | � | $ | 232,500 | � | 71.4 | % |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Sales & marketing
|
$ | 360,640 | � | 27.9 | % | � | $ | 84,238 | � | 25.9 | % | � | $ | 85,934 | � | 26.1 | % | � | $ | 91,440 | � | 27.2 | % | � | $ | 95,835 | � | 26.1 | % | � | $ | 357,447 | � | 26.3 | % | � | $ | 87,607 | � | 26.9 | % |
|
Research & development
|
� | 221,918 | � | 17.2 | % | � | � | 53,073 | � | 16.3 | % | � | � | 55,631 | � | 16.9 | % | � | � | 57,405 | � | 17.1 | % | � | � | 60,387 | � | 16.5 | % | � | � | 226,496 | � | 16.7 | % | � | � | 61,097 | � | 18.8 | % |
|
General & administrative
|
� | 131,937 | � | 10.2 | % | � | � | 30,931 | � | 9.5 | % | � | � | 34,140 | � | 10.4 | % | � | � | 33,817 | � | 10.0 | % | � | � | 43,344 | � | 11.8 | % | � | � | 142,232 | � | 10.5 | % | � | � | 37,007 | � | 11.4 | % |
|
Amortization of acquired intangible assets
|
� | 26,486 | � | 2.0 | % | � | � | 7,789 | � | 2.4 | % | � | � | 7,985 | � | 2.4 | % | � | � | 7,998 | � | 2.4 | % | � | � | 8,355 | � | 2.3 | % | � | � | 32,127 | � | 2.4 | % | � | � | 9,413 | � | 2.9 | % |
|
Restructuring charge
|
� | 52,197 | � | 4.0 | % | � | � | 1,067 | � | 0.3 | % | � | � | - | � | 0.0 | % | � | � | 514 | � | 0.2 | % | � | � | 26,825 | � | 7.3 | % | � | � | 28,406 | � | 2.1 | % | � | � | (255 | ) | -0.1 | % |
|
Operating Expenses
|
$ | 793,178 | � | 61.3 | % | � | $ | 177,098 | � | 54.5 | % | � | $ | 183,690 | � | 55.9 | % | � | $ | 191,174 | � | 56.8 | % | � | $ | 234,746 | � | 64.0 | % | � | $ | 786,708 | � | 58.0 | % | � | $ | 194,869 | � | 59.9 | % |
| � | � | � | � | � | � | � | �� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
GAAP Operating Margin
|
$ | 127,324 | � | 9.8 | % | � | $ | 54,871 | � | 16.9 | % | � | $ | 51,213 | � | 15.6 | % | � | $ | 54,384 | � | 16.2 | % | � | $ | 36,108 | � | 9.8 | % | � | $ | 196,576 | � | 14.5 | % | � | $ | 37,631 | � | 11.6 | % |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
ADJUSTMENTS TO DERIVE NON-GAAP MEASURES
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | ||||||||||||||
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
| � |
FY '13
|
� | � | � | � |
Q1 '14
|
� | � | � | � |
Q2 '14
|
� | � | � | � |
Q3 '14
|
� | � | � | � |
Q4 '14
|
� | � | � | � |
FY '14
|
� | � | � | � |
Q1 '15
|
� | � | � | |||||||
|
Revenue:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Fair value of deferred revenue
|
$ | 3,035 | � | 0.2 | % | � | $ | - | � | 0.0 | % | � | $ | - | � | 0.0 | % | � | $ | - | � | 0.0 | % | � | $ | 1,249 | � | 0.3 | % | � | $ | 1,249 | � | 0.1 | % | � | $ | 1,404 | � | 0.4 | % |
|
Cost of L&SS revenue:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Acquired intangible amortization
|
� | 18,586 | � | 1.4 | % | � | � | 4,497 | � | 1.4 | % | � | � | 4,407 | � | 1.3 | % | � | � | 4,415 | � | 1.3 | % | � | � | 4,793 | � | 1.3 | % | � | � | 18,112 | � | 1.3 | % | � | � | 4,767 | � | 1.5 | % |
|
Stock-based compensation
|
� | 21 | � | 0.0 | % | � | � | 65 | � | 0.0 | % | � | � | 82 | � | 0.0 | % | � | � | 63 | � | 0.0 | % | � | � | 105 | � | 0.0 | % | � | � | 314 | � | 0.0 | % | � | � | 142 | � | 0.0 | % |
|
Cost of support revenue:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Stock-based compensation
|
� | 3,324 | � | 0.3 | % | � | � | 924 | � | 0.3 | % | � | � | 889 | � | 0.3 | % | � | � | 898 | � | 0.3 | % | � | � | 1,034 | � | 0.3 | % | � | � | 3,745 | � | 0.3 | % | � | � | 776 | � | 0.2 | % |
|
Cost of professional service revenue:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | ||||
|
Fair value of deferred costs
|
� | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | (65 | ) | 0.0 | % | � | � | (65 | ) | 0.0 | % | � | � | (106 | ) | 0.0 | % |
|
Stock-based compensation
|
� | 6,134 | � | 0.5 | % | � | � | 1,537 | � | 0.5 | % | � | � | 1,349 | � | 0.4 | % | � | � | 1,549 | � | 0.5 | % | � | � | 1,915 | � | 0.5 | % | � | � | 6,351 | � | 0.5 | % | � | � | 1,689 | � | 0.5 | % |
|
Sales & marketing:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Fair value of deferred costs
|
� | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | (102 | ) | 0.0 | % | � | � | (102 | ) | 0.0 | % | � | � | - | � | 0.0 | % |
|
Stock-based compensation
|
� | 11,326 | � | 0.9 | % | � | � | 2,499 | � | 0.8 | % | � | � | 3,019 | � | 0.9 | % | � | � | 3,065 | � | 0.9 | % | � | � | 2,399 | � | 0.7 | % | � | � | 10,982 | � | 0.8 | % | � | � | 2,872 | � | 0.9 | % |
|
Research & development:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Stock-based compensation
|
� | 8,590 | � | 0.7 | % | � | � | 2,689 | � | 0.8 | % | � | � | 2,147 | � | 0.7 | % | � | � | 2,231 | � | 0.7 | % | � | � | 3,052 | � | 0.8 | % | � | � | 10,119 | � | 0.7 | % | � | � | 3,086 | � | 0.9 | % |
|
General & administrative:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Stock-based compensation
|
� | 19,392 | � | 1.5 | % | � | � | 5,050 | � | 1.6 | % | � | � | 5,080 | � | 1.5 | % | � | � | 4,726 | � | 1.4 | % | � | � | 4,522 | � | 1.2 | % | � | � | 19,378 | � | 1.4 | % | � | � | 2,677 | � | 0.8 | % |
|
Acquisition-related and other costs
|
� | 9,855 | � | 0.8 | % | � | � | 1,305 | � | 0.4 | % | � | � | 3,935 | � | 1.2 | % | � | � | 1,528 | � | 0.5 | % | � | � | 6,328 | � | 1.7 | % | � | � | 13,096 | � | 1.0 | % | � | � | 5,717 | � | 1.8 | % |
|
Amortization of acquired intangible assets
|
� | 26,486 | � | 2.0 | % | � | � | 7,789 | � | 2.4 | % | � | � | 7,985 | � | 2.4 | % | � | � | 7,998 | � | 2.4 | % | � | � | 8,355 | � | 2.3 | % | � | � | 32,127 | � | 2.4 | % | � | � | 9,413 | � | 2.9 | % |
|
Restructuring charge
|
� | 52,197 | � | 4.0 | % | � | � | 1,067 | � | 0.3 | % | � | � | - | � | 0.0 | % | � | � | 514 | � | 0.2 | % | � | � | 26,825 | � | 7.3 | % | � | � | 28,406 | � | 2.1 | % | � | � | (255 | ) | -0.1 | % |
|
Non-GAAP adjustments
|
$ | 158,946 | � | 12.3 | % | � | $ | 27,422 | � | 8.4 | % | � | $ | 28,893 | � | 8.8 | % | � | $ | 26,987 | � | 8.0 | % | � | $ | 60,410 | � | 16.5 | % | � | $ | 143,712 | � | 10.6 | % | � | $ | 32,182 | � | 9.9 | % |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
�
�
�
�
�
�
|
PTC Inc.
|
� | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED), Continued
|
� | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
NON-GAAP MARGINS
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
| � |
FY '13
|
� | � | � | � |
Q1 '14
|
� | � | � | � |
Q2 '14
|
� | � | � | � |
Q3 '14
|
� | � | � | � |
Q4 '14
|
� | � | � | � |
FY '14
|
� | � | � | � |
Q1 '15
|
� | � | � | |||||||
|
Revenue
|
$ | 1,296,576 | � | � | � | � | $ | 324,925 | � | � | � | � | $ | 328,700 | � | � | � | � | $ | 336,634 | � | � | � | � | $ | 367,957 | � | � | � | � | $ | 1,358,216 | � | � | � | � | $ | 326,846 | � | � | � |
|
Cost of L&SS revenue
|
� | 20,430 | � | � | � | � | � | 5,757 | � | � | � | � | � | 6,400 | � | � | � | � | � | 6,768 | � | � | � | � | � | 7,652 | � | � | � | � | � | 26,579 | � | � | � | � | � | 8,420 | � | � | � |
|
Cost of support revenue
|
� | 77,757 | � | � | � | � | � | 18,992 | � | � | � | � | � | 20,675 | � | � | � | � | � | 20,220 | � | � | � | � | � | 21,071 | � | � | � | � | � | 80,958 | � | � | � | � | � | 20,620 | � | � | � |
|
Cost of professional service revenue
|
� | 246,787 | � | � | � | � | � | 61,184 | � | � | � | � | � | 59,995 | � | � | � | � | � | 57,163 | � | � | � | � | � | 59,349 | � | � | � | � | � | 237,689 | � | � | � | � | � | 56,634 | � | � | � |
|
Gross Margin
|
$ | 951,602 | � | 73.4 | % | � | $ | 238,992 | � | 73.6 | % | � | $ | 241,630 | � | 73.5 | % | � | $ | 252,483 | � | 75.0 | % | � | $ | 279,885 | � | 76.1 | % | � | $ | 1,012,990 | � | 74.6 | % | � | $ | 241,172 | � | 73.8 | % |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Sales & marketing
|
$ | 349,314 | � | 26.9 | % | � | $ | 81,739 | � | 25.2 | % | � | $ | 82,915 | � | 25.2 | % | � | $ | 88,375 | � | 26.3 | % | � | $ | 93,538 | � | 25.4 | % | � | $ | 346,567 | � | 25.5 | % | � | $ | 84,735 | � | 25.9 | % |
|
Research & development
|
� | 213,328 | � | 16.5 | % | � | � | 50,384 | � | 15.5 | % | � | � | 53,484 | � | 16.3 | % | � | � | 55,174 | � | 16.4 | % | � | � | 57,335 | � | 15.6 | % | � | � | 216,377 | � | 15.9 | % | � | � | 58,011 | � | 17.7 | % |
|
General & administrative
|
� | 102,690 | � | 7.9 | % | � | � | 24,576 | � | 7.6 | % | � | � | 25,125 | � | 7.6 | % | � | � | 27,563 | � | 8.2 | % | � | � | 32,494 | � | 8.8 | % | � | � | 109,758 | � | 8.1 | % | � | � | 28,613 | � | 8.8 | % |
|
Amortization of acquired intangible assets
|
� | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % |
|
Restructuring charge
|
� | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % | � | � | - | � | 0.0 | % |
|
Operating Expenses
|
$ | 665,332 | � | 51.3 | % | � | $ | 156,699 | � | 48.2 | % | � | $ | 161,524 | � | 49.1 | % | � | $ | 171,112 | � | 50.8 | % | � | $ | 183,367 | � | 49.8 | % | � | $ | 672,702 | � | 49.5 | % | � | $ | 171,359 | � | 52.4 | % |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Non-GAAP Operating Margin
|
$ | 286,270 | � | 22.1 | % | � | $ | 82,293 | � | 25.3 | % | � | $ | 80,106 | � | 24.4 | % | � | $ | 81,371 | � | 24.2 | % | � | $ | 96,518 | � | 26.2 | % | � | $ | 340,288 | � | 25.1 | % | � | $ | 69,813 | � | 21.4 | % |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
�
�
�
�
|
PTC Inc.
|
� | |||||||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
|
� | |||||||
|
(in thousands, except per share data)
|
� | |||||||
| � | � | � | � | � | � | � | ||
| � | � |
Three Months Ended
|
� | |||||
| � | � |
January 3,
|
� | � |
December 28,
|
� | ||
| � | � |
2015
|
� | � |
2013
|
� | ||
| � | � | � | � | � | � | � | ||
|
GAAP revenue
|
� | $ | 325,442 | � | � | $ | 324,925 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Non-GAAP revenue
|
� | $ | 326,846 | � | � | $ | 324,925 | � |
| � | � | � | � | � | � | � | � | � |
|
GAAP gross margin
|
� | $ | 232,500 | � | � | $ | 231,969 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Fair value adjustment to deferred services cost
|
� | � | (106 | ) | � | � | - | � |
|
Stock-based compensation
|
� | � | 2,607 | � | � | � | 2,526 | � |
|
Amortization of acquired intangible assets
|
� | � | � | � | � | � | � | � |
|
included in cost of L&SS revenue
|
� | � | 4,767 | � | � | � | 4,497 | � |
|
Non-GAAP gross margin
|
� | $ | 241,172 | � | � | $ | 238,992 | � |
| � | � | � | � | � | � | � | � | � |
|
GAAP operating income
|
� | $ | 37,631 | � | � | $ | 54,871 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Fair value adjustment to deferred services cost
|
� | � | (106 | ) | � | � | - | � |
|
Stock-based compensation
|
� | � | 11,242 | � | � | � | 12,764 | � |
|
Amortization of acquired intangible assets
|
� | � | � | � | � | � | � | � |
|
included in cost of license revenue
|
� | � | 4,767 | � | � | � | 4,497 | � |
|
Amortization of acquired intangible assets
|
� | � | 9,413 | � | � | � | 7,789 | � |
|
Charges included in general and administrative expenses (2)
|
� | � | 5,717 | � | � | � | 1,305 | � |
|
Restructuring charges
|
� | � | (255 | ) | � | � | 1,067 | � |
|
Non-GAAP operating income (1)
|
� | $ | 69,813 | � | � | $ | 82,293 | � |
| � | � | � | � | � | � | � | � | � |
|
GAAP net income
|
� | $ | 30,284 | � | � | $ | 39,657 | � |
|
Fair value adjustment of acquired deferred L&SS revenue
|
� | � | 682 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred support revenue
|
� | � | 465 | � | � | � | - | � |
|
Fair value adjustment of acquired deferred service revenue
|
� | � | 257 | � | � | � | - | � |
|
Fair value adjustment to deferred services cost
|
� | � | (106 | ) | � | � | - | � |
|
Stock-based compensation
|
� | � | 11,242 | � | � | � | 12,764 | � |
|
Amortization of acquired intangible assets
|
� | � | � | � | � | � | � | � |
|
included in cost of license revenue
|
� | � | 4,767 | � | � | � | 4,497 | � |
|
Amortization of acquired intangible assets
|
� | � | 9,413 | � | � | � | 7,789 | � |
|
Charges included in general and administrative expenses (2)
|
� | � | 5,717 | � | � | � | 1,305 | � |
|
Restructuring charges
|
� | � | (255 | ) | � | � | 1,067 | � |
|
Income tax adjustments (3)
|
� | � | (3,486 | ) | � | � | (6,858 | ) |
|
Non-GAAP net income
|
� | $ | 58,980 | � | � | $ | 60,221 | � |
| � | � | � | � | � | � | � | � | � |
�
�
�
|
PTC Inc.
|
� | |||||||||||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) - Continued
|
� | |||||||||||
|
(in thousands, except per share data)
|
� | |||||||||||
| � | � | � | � | � | � | � | � | � | � | |||
| � | � | � | � | � |
Three Months Ended
|
� | ||||||
| � | � | � | � | � |
January 3,
|
� | � |
December 28,
|
� | |||
| � | � | � | � | � |
2015
|
� | � |
2013
|
� | |||
| � | � | � | � | � | � | � | � | � | � | |||
|
GAAP diluted earnings per share
|
� | $ | 0.26 | � | � | $ | 0.33 | � | ||||
| � |
Fair value adjustment of acquired deferred revenue
|
� | � | 0.01 | � | � | � | - | � | |||
| � |
Fair value adjustment to deferred costs
|
� | � | - | � | � | � | - | � | |||
| � |
Stock-based compensation
|
� | � | 0.10 | � | � | � | 0.11 | � | |||
| � |
Amortization of acquired intangibles
|
� | � | 0.12 | � | � | � | 0.10 | � | |||
| � |
Charges included in general and administrative expenses (2)
|
� | � | 0.05 | � | � | � | 0.01 | � | |||
| � |
Restructuring charges
|
� | � | - | � | � | � | 0.01 | � | |||
| � |
Income tax adjustments (3)
|
� | � | (0.03 | ) | � | � | (0.06 | ) | |||
|
Non-GAAP diluted earnings per share
|
� | $ | 0.50 | � | � | $ | 0.50 | � | ||||
| � | � | � | � | � | � | � | � | � | � | � | � | |
| � | � | (1 | ) |
Operating margin impact of non-GAAP adjustments:
|
� | � | � | � | � | � | � | � |
| � | � | � | � | � | � |
Three Months Ended
|
� | |||||
| � | � | � | � | � | � |
January 3,
|
� | � |
December 28,
|
� | ||
| � | � | � | � | � | � | � | 2015 | � | � | � | 2013 | � |
| � |
GAAP operating margin
|
� | � | 11.6 | % | � | � | 16.9 | % | |||
| � | � | � | � |
Fair value adjustment of acquired deferred revenue
|
� | � | 0.4 | % | � | � | 0.0 | % |
| � | � | � | � |
Fair value adjustment to deferred costs
|
� | � | 0.0 | % | � | � | 0.0 | % |
| � | � | � | � |
Stock-based compensation
|
� | � | 3.5 | % | � | � | 3.9 | % |
| � | � | � | � |
Amortization of acquired intangibles
|
� | � | 4.4 | % | � | � | 3.8 | % |
| � | � | � | � |
Charges included in general and administrative expenses (2)
|
� | � | 1.8 | % | � | � | 0.4 | % |
| � | � | � | � |
Restructuring charges
|
� | � | -0.1 | % | � | � | 0.3 | % |
| � |
Non-GAAP operating margin
|
� | � | 21.4 | % | � | � | 25.3 | % | |||
| � | � | � | � | � | � | � | � | � | � | � | � | � |
| � | � | (2 | ) |
Represents acquisition-related charges, as well as, expense related to a terminating U.S. pension plan of $1.7 million in the three months ended January 3, 2015.
|
� | |||||||
| � | � | (3 | ) |
Income tax adjustments for the three months ended January 3, 2015 and December 28, 2013 reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, and also include any identified tax items.�In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets.�Similarly, in the fourth quarter of 2014, valuation allowances were established against our foreign net deferred tax assets in two foreign jurisdictions.�As the U.S. and the two foreign jurisdictions are profitable on a non-GAAP basis, the 2015 and 2014 non-GAAP tax provisions are being calculated assuming there is no valuation allowance in these jurisdictions.
|
� | |||||||