Form 8-K PTC INC. For: Jan 17
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 17, 2018
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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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(Registrant’s
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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☐
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
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☐
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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☐
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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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☐
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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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Indicate by check
mark whether the registrant is an emerging growth company as
defined in Rule 405 of the Securities Act of 1933 (§230.405 of
this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934
(§240.12b-2 of this chapter).
Emerging growth
company ☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Section
2 - Financial Information
Item
2.02.
Results
of Operations and Financial Condition.
On
January 17, 2018, PTC Inc. announced its financial results for its
first quarter ended December 30, 2017. 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.
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 17, 2018
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By:
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/s/
Andrew Miller
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Andrew
Miller
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Executive
Vice President and Chief Financial Officer
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PTC Announces First Quarter Fiscal Year 2018 Results
First Quarter Bookings and Revenue Exceed High End of Guidance
Range
NEEDHAM, MA, January 17, 2018 -PTC
(NASDAQ: PTC) today reported financial
results for its fiscal first quarter ended December 30,
2017.
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First
quarter FY’18 total revenue was $307 million
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First
quarter GAAP net income was $14 million or $0.12 per diluted share;
non-GAAP net income was $36 million or $0.31 per diluted
share
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First
quarter license and subscription bookings were $104 million and
subscription mix was 67%
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Total
deferred revenue, billed and unbilled, was $1.17 billion, an
increase of 42% from the same period last year
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First
quarter subscription Annualized Recurring Revenue (ARR) was $402
million, an increase of $183 million or 84% from the same period
last year
“We are very pleased with our first quarter fiscal 2018
results and the continuing momentum we see in our business,”
said James Heppelmann, President and CEO, PTC. “Bookings of
$104 million exceeded the high end of our guidance range by $12
million, powered by large strategic wins in our Solutions business
with marquee customers like BMW, momentum in our IoT business where
we had five deals with bookings of over $1 million, and strength in
the channel.”
Heppelmann added, “This is a strong start to fiscal year 2018
with broad-based strength both geographically and across our
product portfolio. CAD, PLM, and IoT performed above our
expectations, while the demand environment, particularly for our
subscription offerings, remains strong around the globe. Given the
strong start, we are raising our FY’18
guidance.”
Additional first quarter operating and financial highlights are set
forth below. Information about our bookings and other reporting
measures is provided beginning on page four.
For additional details, please refer
to the prepared remarks and financial data tables that have been
posted to the Investor Relations section of our website at
investor.ptc.com.
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Q1’18
license and subscription bookings were $104 million, up 16%
year-over-year.
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Total
bookings in the first quarter exceeded the high end of our guidance
by $12 million and subscription bookings comprised 67% of total
bookings. We believe that the announced discontinuation of new
perpetual license sales in the Americas and Western Europe led to
an increase in perpetual license purchases of approximately $4
million in the quarter, which impacted the subscription mix by
about 3% percentage points.
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Total deferred revenue – billed and unbilled
- increased $344 million or 42% year-over-year and increased $77
million or 7% sequentially to $1.17 billion.
Billed deferred revenue increased 15%
year-over year and declined 6% sequentially, as expected, to $431
million, due to the timing of support billings during the year.
Billed deferred revenue can fluctuate quarterly based upon the
contractual billings dates in our recurring revenue
contracts,
as well as the timing of our fiscal
reporting periods.
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GAAP and non-GAAP software revenue in the first
quarter were both approximately $265 million, an increase of 10%
year-over-year,
despite a higher mix of subscription
bookings than the same period last year.
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Approximately
87% of first quarter GAAP and non-GAAP software revenue came from
recurring revenue streams.
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Annualized
Recurring Revenue (ARR) was approximately $928 million, an increase
of 13% year-over-year and the fourth consecutive quarter of
double-digit growth.
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GAAP
operating expenses in the first quarter were approximately $206
million, compared to $200 million in the same period last year;
non-GAAP operating expenses were approximately $183 million,
compared to $170 million in the same period last year.
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GAAP
operating margin in the first quarter was 6%, compared to 2% in the
same period last year; non-GAAP operating margin was 17%, compared
to 15% in the same period last year.
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Operating
cash flows in the first quarter were $25 million, and free cash
flow was $19 million, ahead of our expectations, and both include
cash payments related to our October 2015 restructuring plan of
approximately $1 million.
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Total
cash, cash equivalents, and marketable securities as of the end of
the first quarter was $342 million and total debt, net of deferred
issuance costs, was $743 million.
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On
December 22, 2017, the United States enacted tax reform legislation
through the Tax Cuts and Jobs Act, which significantly changed the
existing U.S. tax laws, including a reduction in the corporate tax
rate from 35% to 21%, and a move from a worldwide tax system to a
territorial system. We have recorded the impact of this legislation
in our Q1 GAAP earnings, resulting in a non-cash tax benefit of
approximately $7 million. In addition, we recorded a non-cash tax
benefit of approximately $0.5 million related to the new
stock-based compensation accounting guidance. We have adjusted our
balance sheet accounts accordingly and excluded these benefits from
our non-GAAP results.
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Continuing
the phased global rollout of our subscription licensing model, we
separately announced that new software licenses for our core
solutions and ThingWorx industrial innovation platform will be
available globally only by subscription, effective January 1, 2019,
with a few exceptions. Those exceptions apply to China, Korea,
Taiwan, Russia, Turkey and India where we have not announced the
end-of-life of perpetual licenses. Also, Kepware will continue to
be available under perpetual licensing. We previously announced the
transition to subscription-only licensing in the Americas and
Western Europe effective January 1, 2018. Customers globally will
be able to continue to use their existing perpetual licenses and
renew support on active licenses.
Fiscal 2018 Business Outlook
For the second quarter and fiscal year ending September 30, 2018,
the company expects:
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In millions except per share amounts
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Operating Measures(1)
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Q2’18 Low
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Q2’18
High
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FY’18 Low
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FY’18 High
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Subscription ACV
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$ 37
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$ 41
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$ 181
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$ 189
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License and Subscription Bookings
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$ 94
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$ 104
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$ 455
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$ 475
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Subscription % of Bookings
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79%
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79%
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80%
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80%
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(1) An explanation of the
metrics included in this table is provided
below.
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Financial Measures
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Q2’18 Low
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Q2’18 High
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FY’18 Low
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FY’18 High
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Subscription Revenue
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$ 111
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$ 113
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$ 460
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$ 470
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Support Revenue
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126
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126
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510
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510
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Perpetual License Revenue
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20
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23
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92
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97
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Total Software Revenue
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257
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262
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1,062
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1,077
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Professional Services Revenue
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43
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43
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173
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173
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Total Revenue
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$ 300
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$ 305
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$ 1,235
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$ 1,250
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Operating Expense (GAAP)
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$ 202
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$ 205
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$ 825
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$ 836
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Operating Expense (Non-GAAP)
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176
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179
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727
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737
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Operating Margin (GAAP)
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4%
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6%
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6%
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7%
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Operating Margin (Non-GAAP)
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16%
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17%
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17%
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18%
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Tax Rate (GAAP)
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15%
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15%
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(5%)
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(5%)
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Tax Rate (Non-GAAP)
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11%
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9%
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11%
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9%
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Shares Outstanding (GAAP)
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117
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117
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117
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117
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Shares Outstanding (Non-GAAP)
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117
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117
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117
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117
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EPS (GAAP)
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$ 0.01
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$ 0.04
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$ 0.28
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$ 0.37
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EPS (Non-GAAP)
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$ 0.28
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$ 0.32
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$ 1.29
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$ 1.39
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Free Cash Flow
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$ 195
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$ 205
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Adjusted Free Cash Flow
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$ 199
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$ 209
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The
second quarter and fiscal 2018 non-GAAP operating margin and
non-GAAP EPS guidance exclude the estimated items outlined in the
table below, as well as any tax effects and discrete tax items
(which are not known nor reflected).
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In millions
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Q2’18
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FY’18
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Effect of acquisition accounting on fair value of acquired deferred
revenue
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$ 0
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$ 2
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Restructuring charges
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-
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0
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Intangible asset amortization expense
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15
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58
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Stock-based compensation expense
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21
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79
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Total Estimated Pre-Tax GAAP adjustments
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$ 36
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$ 139
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PTC’s Fiscal 2018 First Quarter Results Conference Call,
Prepared Remarks and Data Tables
Prepared remarks and financial data tables have been posted to the
Investor Relations section of our website at ptc.com. The Company
will host a management presentation to discuss results at 5:00 pm
ET on Wednesday, January 17, 2018. To access the live webcast,
please visit PTC’s Investor Relations website at
investor.ptc.com at least 15 minutes before the scheduled start
time to download any necessary audio or plug-in software. To participate in the live conference
call, dial 773-799-3757 or 800-857-5592 and provide the passcode
PTC. The call will be recorded and a replay will be available for
10 days following the call by dialing 866-376-2452 and entering the
pass code 0513. The archived webcast will also be available
on PTCs Investor
Relations website.
Bookings Metrics
We offer both perpetual and subscription licensing options to our
customers, as well as monthly software rentals for certain
products. Given the difference in revenue recognition between the
sale of a perpetual software license (revenue is recognized at the
time of sale) and a subscription (revenue is deferred and
recognized ratably over the subscription term), we use bookings for
internal planning, forecasting and reporting of new license and
cloud services transactions. In order to normalize between
perpetual and subscription licenses, we define subscription
bookings as the subscription annualized contract value
(subscription ACV) of new subscription bookings multiplied by a
conversion factor of 2. We arrived at the conversion factor of 2 by
considering a number of variables including pricing, support,
length of term, and renewal rates. We define subscription ACV as
the total value of a new subscription booking divided by the term
of the contract (in days) multiplied by 365. If the term of the
subscription contract is less than a year, the ACV is equal to the
total contract value.
License and subscription bookings equal subscription bookings (as
described above) plus perpetual license bookings plus any monthly
software rental bookings during the period. Total ACV equals
subscription ACV (as described above) plus the annualized value of
incremental monthly software rental bookings during the
period.
Because subscription bookings is a metric we use to approximate the
value of subscription sales if sold as perpetual licenses, it does
not represent the actual revenue that will be recognized with
respect to subscription sales or that would be recognized if the
sales were perpetual licenses, nor does the annualized value of
monthly software rental bookings represent the value of any such
booking.
Total Deferred Revenue
Total Deferred Revenue consists of Billed Deferred Revenue and
Unbilled Deferred Revenue. We define Unbilled Deferred Revenue as
contractually committed orders for license, subscription and
support with a customer for which the associated revenue has not
been recognized and the customer has not been invoiced. We do not
record Unbilled Deferred Revenue on our Consolidated Balance Sheet
until we invoice the customer. Billed Deferred Revenue primarily
relates to software agreements invoiced to customers for which the
revenue has not yet been recognized.
Software Revenue
Any reference to “total recurring software revenue” or
“recurring software revenue” means the sum of
subscription revenue and support revenue. Any reference to
“total software revenue” or “software
revenue” means the sum of subscription revenue, support
revenue and perpetual license revenue. “Subscription
revenue” includes cloud services revenue.
Annualized Recurring Revenue (ARR)
To help investors understand and assess the success of our
subscription transition, we provide an Annualized Recurring Revenue
operating measure. Annualized Recurring Revenue (ARR) for a given
quarter is calculated by dividing the portion of non-GAAP software
revenue attributable to subscription and support for the quarter by
the number of days in the quarter and multiplying by 365. (A
related metric is Subscription ARR, which is calculated by dividing
the portion of non-GAAP revenue attributable to subscription for
the quarter by the number of days in the quarter and multiplying by
365.) ARR should be viewed independently of revenue and deferred
revenue as it is an operating measure and is not intended to be
combined with or to replace either of those items. ARR is not a
forecast of future revenue, which can be impacted by contract
expiration and renewal rates, and does not include revenue reported
as perpetual license or professional services revenue in our
consolidated statement of income. Subscription and support revenue
and ARR disclosed in a quarter can be impacted by multiple factors,
including
but not limited to (1) the timing of the start of a contract or a
renewal, including the impact of on-time renewals, support
win-backs, and support conversions, which may vary by quarter, (2)
the ramping of committed monthly payments under a subscription
agreement over time, and (3) multiple other contractual factors
with the customer including other elements sold with the
subscription or support contract. These factors can result in
variability in disclosed ARR.
Navigate Allocation
Revenue and bookings for Navigate are allocated 50% to Solutions
and 50% to IoT.
Constant Currency Change Metric
Year-over-year changes in revenue and bookings on a constant
currency basis compare reported results excluding the effect of any
hedging converted into U.S. dollars based on the corresponding
prior year’s foreign currency exchange rates to reported
results for the comparable prior year period.
Important Information about Non-GAAP References
PTC provides non-GAAP supplemental information to its financial
results. 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 operating results. We believe that these non-GAAP
measures help illustrate underlying trends in our business, and we
use the measures to establish budgets and operational goals,
communicated internally and externally, for managing our business
and evaluating our performance. We believe that providing non-GAAP
measures affords investors a view of our operating results that may
be more easily compared to the results of peer companies. In
addition, compensation of our executives is based in part on the
performance of our business based on these non-GAAP measures.
However, non-GAAP information should not be construed as an
alternative to GAAP information as the items excluded from the
non-GAAP measures often have a material impact on PTC’s
financial results and such items often recur. Management uses, and
investors should consider, non-GAAP measures in conjunction with
our GAAP results.
Non-GAAP revenue, non-GAAP operating expense, non-GAAP operating
margin, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net
income and non-GAAP EPS exclude the effect of the following items:
fair value of acquired deferred revenue, fair value adjustment to
deferred services cost, stock-based compensation, amortization of
acquired intangible assets, acquisition-related charges included in
general and administrative costs, restructuring charges, and income
tax adjustments. Additional information about the items we exclude
from our non-GAAP financial measures and the reasons we exclude
them can be found in “Non-GAAP Financial Measures”
beginning on page 33 of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2017.
A reconciliation of non-GAAP measures to GAAP results is provided
within this press release.
PTC also provides information on “free cash flow” and
“adjusted free cash flow” to enable investors to assess
our ability to generate cash without incurring additional external
financings and to evaluate our performance against our announced
long term goal of returning approximately 40% of our free cash flow
to shareholders via stock repurchases. Free cash flow is net cash
provided by (used in) operating activities less capital
expenditures; adjusted free cash flow is free cash flow excluding
restructuring payments and certain identified non-ordinary course
payments. Free cash flow and adjusted free cash flow are not
measures of cash available for discretionary
expenditures.
Forward-Looking Statements
Statements in this press release that are not historic facts,
including statements about our second quarter and full fiscal 2018
targets, and other future financial and growth expectations and
targets, 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 macroeconomic and/or global manufacturing climates may
deteriorate; customers may not purchase our solutions when or at
the rates we expect; our businesses, including our Internet of
Things (IoT) business, may not expand and/or generate the revenue
we expect; foreign currency exchange rates may vary from our
expectations and thereby affect our reported revenue and expense;
the mix of revenue between license & subscription solutions,
support and professional services could be different than we
expect, which could impact our EPS results; our transition to
subscription-only licensing in the Americas and Western Europe
could adversely affect sales and revenue; sales of our solutions as
subscriptions may not have the longer-term effect on revenue and
earnings that we expect; we may be unable to expand our partner
ecosystem as we expect and our partners may not generate the
revenue we expect; we may be unable to improve performance in Japan
when or as we expect; we may be unable to generate sufficient
operating cash flow to return 40% of free cash flow to shareholders
and other uses of cash or our credit facility limits could preclude
share repurchases. 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. Other risks
and uncertainties that could cause actual results to differ
materially from those projected are detailed from time to time in
reports we file with the Securities and Exchange Commission,
including our most recent Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q.
PTC and the PTC logo are trademarks or registered trademarks of PTC
Inc. or its subsidiaries in the United States and in other
countries.
About PTC (NASDAQ: PTC)
PTC has the most robust Internet of Things technology in the world.
In 1986 we revolutionized digital 3D design, and in 1998 were first
to market with Internet-based PLM. Now our leading IoT and AR
platform and field-proven solutions bring together the physical and
digital worlds to reinvent the way you create, operate, and service
products. With PTC, global manufacturers and an ecosystem of
partners and developers can capitalize on the promise of the IoT
today and drive the future of innovation.
PTC.com @PTC Blogs
PTC Investor Relations Contacts
Tim Fox, 781-370-5961
Jason Howard, 781-370-5087
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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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December 30,
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December 31,
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2017
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2016
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Revenue:
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Subscription
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$100,008
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$54,362
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Support
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131,197
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151,478
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Total
recurring revenue
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231,205
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205,840
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Perpetual
license
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33,985
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34,379
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Total
subscription, support and license revenue
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265,190
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240,219
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Professional
services
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41,454
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46,108
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Total
revenue
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306,644
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286,327
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Cost
of revenue:
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Cost of license and subscription
revenue (1)
(2)
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24,376
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20,130
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Cost of support revenue
(1)
(2)
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22,200
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22,817
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Total
cost of software revenue
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46,576
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42,947
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Cost of professional services
revenue(1)
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36,382
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39,168
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Total
cost of revenue
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82,958
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82,115
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Gross
margin
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223,686
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204,212
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Operating
expenses:
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Sales and marketing
(1)
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99,315
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90,690
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Research and development
(1)
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63,969
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57,914
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General and administrative
(1)
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35,004
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36,695
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Amortization
of acquired intangible assets
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7,821
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8,067
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Restructuring
charges, net
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105
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6,285
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Total
operating expenses
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206,214
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199,651
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Operating
income
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17,472
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4,561
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Other
expense, net
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(11,001)
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(11,064)
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Income
(loss) before income taxes
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6,471
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(6,503)
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Provision (benefit) for income
taxes (3)
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(7,406)
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2,638
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Net
income (loss)
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$13,877
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$(9,141)
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Earnings
(loss) per share:
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|
|
Basic
|
$0.12
|
$(0.08)
|
|
Weighted
average shares outstanding
|
115,731
|
115,290
|
|
|
|
|
|
Diluted
|
$0.12
|
$(0.08)
|
|
Weighted
average shares outstanding
|
117,656
|
115,290
|
|
|
|
|
|
|
(1)
|
The amounts in the tables above include stock-based compensation as
follows:
|
||||
|
|
Three Months Ended
|
|
|
|
December 30,
|
December 31,
|
|
|
2017
|
2016
|
|
Cost
of license and subscription revenue
|
$413
|
$293
|
|
Cost
of support
|
808
|
1,144
|
|
Cost
of professional services revenue
|
1,706
|
1,457
|
|
Sales
and marketing
|
4,879
|
3,621
|
|
Research
and development
|
2,960
|
2,997
|
|
General
and administrative
|
7,565
|
8,476
|
|
Total stock-based compensation
|
$18,331
|
$17,988
|
|
|
|
|
|
|
(2)
|
In the third quarter of 2017, PTC began reporting cost of support
revenue separate from cost of license and subscription revenue.
Costs for previous periods have also been separately reported to
conform to the current period presentation.
|
||||
|
|
(3)
|
In Q1’18 our effective tax rate was lower than the 24.5%
statutory federal income tax rate due, in large part, to our
corporate structure in which our foreign taxes are at an effective
tax rate lower than the U.S. Additionally, our rate includes a
benefit of $7.0M relating to the enactment of the Tax Cuts and Jobs
Act.
|
||||
|
PTC Inc.
|
|||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
(UNAUDITED)
|
|||
|
(in thousands, except per share
data)
|
|
|
Three Months Ended
|
|
|
|
December 30,
|
December 31,
|
|
|
2017
|
2016
|
|
|
|
|
|
GAAP
revenue
|
$306,644
|
$286,327
|
|
Fair
value adjustment of acquired deferred subscription
revenue
|
117
|
646
|
|
Fair
value adjustment of acquired deferred services revenue
|
246
|
268
|
|
Non-GAAP
revenue
|
$307,007
|
$287,241
|
|
|
|
|
|
GAAP
gross margin
|
$223,686
|
$204,212
|
|
Fair
value adjustment of acquired deferred revenue
|
363
|
914
|
|
Fair
value adjustment to deferred services cost
|
(104)
|
(113)
|
|
Stock-based
compensation
|
2,927
|
2,894
|
|
Amortization
of acquired intangible assets included in cost of
revenue
|
6,675
|
6,388
|
|
Non-GAAP
gross margin
|
$233,547
|
$214,295
|
|
|
|
|
|
GAAP
operating income
|
$17,472
|
$4,561
|
|
Fair
value adjustment of acquired deferred revenue
|
363
|
914
|
|
Fair
value adjustment to deferred services cost
|
(104)
|
(113)
|
|
Stock-based
compensation
|
18,331
|
17,988
|
|
Amortization
of acquired intangible assets included in cost of
revenue
|
6,675
|
6,388
|
|
Amortization
of acquired intangible assets
|
7,821
|
8,067
|
|
Acquisition-related
charges included in general and administrative costs
|
7
|
169
|
|
Restructuring
charges, net
|
105
|
6,285
|
|
Non-GAAP operating income (1)
|
$50,670
|
$44,259
|
|
|
|
|
|
GAAP
net income (loss)
|
$13,877
|
$(9,141)
|
|
Fair
value adjustment of acquired deferred revenue
|
363
|
914
|
|
Fair
value adjustment to deferred services cost
|
(104)
|
(113)
|
|
Stock-based
compensation
|
18,331
|
17,988
|
|
Amortization
of acquired intangible assets included in cost of
revenue
|
6,675
|
6,388
|
|
Amortization
of acquired intangible assets
|
7,821
|
8,067
|
|
Acquisition-related
charges included in general and administrative costs
|
7
|
169
|
|
Restructuring
charges, net
|
105
|
6,285
|
|
Income tax adjustments (2)
|
(11,000)
|
148
|
|
Non-GAAP
net income
|
$36,075
|
$30,705
|
|
|
|
|
|
GAAP
diluted earnings (loss) per share
|
$0.12
|
$(0.08)
|
|
Fair
value adjustment of acquired deferred revenue
|
-
|
0.01
|
|
Stock-based
compensation
|
0.16
|
0.15
|
|
Amortization
of acquired intangibles
|
0.12
|
0.12
|
|
Acquisition-related
charges
|
-
|
-
|
|
Restructuring
charges, net
|
-
|
0.05
|
|
Income
tax adjustments
|
(0.09)
|
-
|
|
Non-GAAP
diluted earnings per share
|
$0.31
|
$0.26
|
|
|
|
|
|
GAAP
diluted weighted average shares outstanding
|
117,656
|
115,290
|
|
Dilutive effect of
stock-based compensation plans
|
-
|
1,735
|
|
Non-GAAP
diluted weighted average shares outstanding
|
117,656
|
117,025
|
(1)
Operating margin impact of
non-GAAP adjustments:
|
|
|
Three Months Ended
|
|
|
|
|
December 30,
|
December 31,
|
|
|
|
2017
|
2016
|
|
GAAP operating margin
|
5.7%
|
1.6%
|
|
|
|
Fair
value of acquired deferred revenue
|
0.1%
|
0.3%
|
|
|
Fair
value adjustment to deferred services cost
|
0.0%
|
0.0%
|
|
|
Stock-based
compensation
|
6.0%
|
6.3%
|
|
|
Amortization
of acquired intangibles
|
4.7%
|
5.0%
|
|
|
Acquisition-related
charges
|
0.0%
|
0.1%
|
|
|
Restructuring
charges, net
|
0.0%
|
2.2%
|
|
Non-GAAP operating margin
|
16.5%
|
15.4%
|
|
|
|
|
|
|
(2)
We have recorded a full valuation allowance against our U.S. net
deferred tax assets and a valuation allowance against net deferred
tax assets in certain foreign jurisdictions. As we are profitable
on a non-GAAP basis, the 2018 and 2017 non-GAAP tax provisions are
being calculated assuming there is no valuation allowance. Income
tax adjustments 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. We have
recorded the impact of the Tax Cuts and Jobs Act in our Q1'18 GAAP
earnings, resulting in a non-cash benefit of approximately $7
million. We have excluded this benefit from our non-GAAP
results.
|
PTC Inc.
|
|||
|
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|||
|
(in thousands)
|
|
|
December 30,
|
September 30,
|
|
|
2017
|
2017
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$291,679
|
$280,003
|
|
Marketable
securities
|
50,567
|
50,315
|
|
Accounts
receivable, net
|
131,059
|
152,299
|
|
Property
and equipment, net
|
61,219
|
63,600
|
|
Goodwill
and acquired intangible assets, net
|
1,427,988
|
1,440,680
|
|
Other
assets
|
343,430
|
373,487
|
|
|
|
|
|
Total
assets
|
$2,305,942
|
$2,360,384
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Deferred
revenue
|
$431,494
|
$458,907
|
|
Debt,
net of deferred issuance costs
|
742,622
|
712,406
|
|
Other
liabilities
|
242,727
|
303,635
|
|
Stockholders'
equity
|
889,099
|
885,436
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
$2,305,942
|
$2,360,384
|
|
|
|
|
|
PTC Inc.
|
|||||
|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|||||
|
(in thousands)
|
|
|
Three Months Ended
|
|
|
|
December 30,
|
December 31,
|
|
|
2017
|
2016
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
Net
income (loss)
|
$13,877
|
$(9,141)
|
|
Stock-based
compensation
|
18,331
|
17,988
|
|
Depreciation
and amortization
|
21,046
|
21,454
|
|
Accounts
receivable
|
21,603
|
21,184
|
|
Accounts
payable and accruals
|
(53,057)
|
(53,608)
|
|
Deferred
revenue
|
22,055
|
(11,726)
|
|
Income
taxes
|
(14,272)
|
(6,096)
|
|
Other
|
(4,456)
|
(27,931)
|
|
Net
cash provided (used) by operating activities(1)
|
25,127
|
(47,876)
|
|
|
|
|
|
Capital
expenditures
|
(6,377)
|
(7,100)
|
|
Purchase
of intangible asset
|
(2,500)
|
-
|
|
Proceeds
(payments) on debt, net
|
30,000
|
(20,000)
|
|
Payments of withholding taxes in connection with
|
|
|
|
vesting
of stock-based awards
|
(33,488)
|
(18,623)
|
|
Proceeds
from investments
|
-
|
1,502
|
|
Contingent
consideration
|
(3,176)
|
(2,711)
|
|
Purchases
of marketable securities, net
|
(508)
|
-
|
|
Foreign
exchange impact on cash
|
2,598
|
(9,760)
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
11,676
|
(104,568)
|
|
Cash
and cash equivalents, beginning of period
|
280,003
|
277,935
|
|
Cash
and cash equivalents, end of period
|
$291,679
|
$173,367
|
|
(1)
|
Effective the beginning of fiscal 2018, in accordance with the
adoption of ASU 2016-09, "Compensation - Stock Compensation (Topic
718): Improvements to Employee Share-Based Payment Accounting,"
excess tax benefits are now classified as an operating activity on
the statement of cash flows rather than as a financing activity.
The prior period excess tax benefits have been reclassified for
comparability.
|
|||
PTC PREPARED REMARKS
FIRST QUARTER FISCAL 2018
January 17, 2018
Please
refer to the “Important Disclosures” section of these
prepared remarks for important information about our operating
metrics (including Subscription ACV, License and Subscription
Bookings, and Subscription % of Bookings), GAAP and non-GAAP
definitions, and other important disclosures. Additional financial
information is provided in the PTC Financial Data Tables posted
with these prepared remarks to PTC’s Investor Relations
website at investor.ptc.com.
Any
reference to “total recurring software revenue” or
“recurring software revenue” means the sum of
subscription revenue and support revenue. Any reference to
“total software revenue” or “software
revenue” means the sum of subscription revenue, support
revenue and perpetual license revenue. “Subscription
revenue” includes cloud services revenue.
Q1’18 Results vs. October 25, 2017 Guidance
|
Operating Measures
|
Guidance
|
Results
|
|
|
In
millions
|
Q1’18Low
|
Q1’18High
|
Actual
|
|
Subscription ACV
|
$28
|
$31
|
$34
|
|
License and Subscription Bookings
|
$82
|
$92
|
$104
|
|
Subscription % of Bookings
|
68%
|
68%
|
67%
|
|
Financial Measures
|
GAAP Guidance
|
GAAP Results
|
Non-GAAP Guidance
|
Non-GAAP Results
|
Non-GAAP at Guidance Mix(1)
|
||
|
In
millions, except per share amounts
|
Q1’18 Low
|
Q1’18 High
|
Q1’18 Low
|
Q1’18 High
|
|||
|
Subscription Revenue
|
$98
|
$100
|
$100
|
$98
|
$100
|
$100
|
$100
|
|
Support Revenue
|
$132
|
$132
|
$131
|
$132
|
$132
|
$131
|
$131
|
|
Recurring Software Revenue
|
$230
|
$232
|
$231
|
$230
|
$232
|
$231
|
$231
|
|
Perpetual License Revenue
|
$27
|
$30
|
$34
|
$27
|
$30
|
$34
|
$33
|
|
Software Revenue
|
$257
|
$262
|
$265
|
$257
|
$262
|
$265
|
$265
|
|
Professional Services Revenue
|
$40
|
$40
|
$41
|
$40
|
$40
|
$42
|
$42
|
|
Total Revenue
|
$297
|
$302
|
$307
|
$297
|
$302
|
$307
|
$306
|
|
Operating Expense
|
$199
|
$202
|
$206
|
$176
|
$180
|
$183
|
$183
|
|
Operating Margin
|
5%
|
7%
|
6%
|
16%
|
17%
|
17%
|
16%
|
|
Tax Rate
|
25%
|
25%
|
(114%)
|
11%
|
9%
|
9%
|
9%
|
|
EPS
|
$0.03
|
$0.05
|
$0.12
|
$0.28
|
$0.32
|
$0.31
|
$0.30
|
(1) Operating measure
that adjusts Non-GAAP results to guidance mix of 68% vs. actual
Q1’18 mix of 67% and includes
other
adjustments as described in “Important Disclosures” set
forth below.
Key Highlights of Operating Measures
|
In
millions
|
Q1’18
|
YoY
|
YoY CC
|
Management Comments
|
|
License and Subscription Bookings
|
$104
|
16%
|
11%
|
● Q1’18
bookings of $104M were $12M above the high end of our guidance
range of $82M to $92M. Bookings grew 16% as reported and 11% in
constant currency despite an eight-figure IoT mega-deal in the
Americas in a strong Q1’17. Strength in subscription bookings
drove the majority of the beat. The quarter included one mega-deal
that was just under $7 million.
● We saw continued
strength across the product portfolio, particularly from PLM, CAD,
and IoT (when adjusting for an eight-figure mega-deal in
Q1’17), which all grew well above our estimated market growth
rates. Additionally, our global channel continues to exceed
expectations, growing in double-digits for the eighth consecutive
quarter.
● Geographically,
Europe continues to perform well, growing 35% YoY (23% CC); APAC
grew 26% YoY (21% CC), driven by China and Korea, and helped by
modest YoY growth in Japan; and Americas declined 3% YoY due to the
difficult compare with the eight-figure IoT mega-deal in
Q1’17. Excluding the Q1’17 mega-deal, the Americas
would have grown greater than 30% YoY.
● We estimate that
the discontinuation of new perpetual license sales in the Americas
and Western Europe as of January 1, 2018 resulted in approximately
$4M of last time perpetual buys.
|
|
Subscription ACV
|
$34
|
18%
|
13%
|
● Q1’18 new
subscription ACV of $34 million was $3M above the high end of our
guidance range of $28M to $31M due to strong bookings in the
quarter and a higher subscription mix YoY.
|
|
Subscription % of Bookings
|
67%
|
2%
|
2%
|
● Q1’18
subscription mix of 67% was one percentage point below our guidance
of 68%, due in part to a higher than anticipated volume of
perpetual bookings in the quarter ahead of the discontinuation of
new perpetual license sales in the Americas and Western Europe,
excluding Kepware, as of January 1, 2018.
● We estimate that
approximately $4M of perpetual bookings were associated with
last-time perpetual buys, which negatively impacted subscription
mix by approximately three percentage points.
|
Key Highlights of Quarterly Financial Measures
|
In
millions, except per share amounts
|
Q1’18
|
YoY
|
YoY CC
|
Management Comments
|
|
Software
Revenue:
GAAP
Non-GAAP
|
$265
$265
|
10%
10%
|
8%
8%
|
● Software revenue
grew double digits for the second consecutive quarter.
● Recurring software
revenue grew 12% YoY in Q1’18 and has now grown double-digits
for four consecutive quarters, demonstrating the momentum we have
been building due to the success of our subscription transition
program and continued bookings growth.
● Please note that
Q1’18 had one less day than Q1’17, which we estimate
negatively impacted recurring software revenue growth by
approximately 1 percentage point.
|
|
Total
Revenue:
GAAP
Non-GAAP
|
$307
$307
|
7%
7%
|
4%
4%
|
● Total revenue grew
more slowly than software revenue due to our strategy of leveraging
our services partner ecosystem, which led to a 10% decline in
professional services revenue YoY.
|
|
EPS:
GAAP
Non-GAAP
|
$0.12
$0.31
|
249%
17%
|
158%
15%
|
● GAAP EPS improved
by $0.20 YoY in Q1’18 due to a combination of revenue growth,
lower restructuring charges in the quarter ($0.1M in Q1’18
vs. $6.3M in Q1’17), disciplined expense management, and a
tax benefit from new US tax legislation (this tax benefit is
excluded from our non-GAAP results).
● Non-GAAP EPS
improved by $0.05 YoY in Q1’18 due to a combination of
revenue growth and disciplined expense management.
|
Software Revenue Performance by Group
All
references are to GAAP revenue, unless otherwise noted
|
In
millions
|
Q1’18
|
YoY
|
YoY CC
|
Management Comments
|
|
Solutions Software Revenue
|
$239
|
9%
|
7%
|
● Solutions software
revenue growth was driven by strong CAD, PLM and global channel
bookings.
● Solutions recurring
software revenue grew 11% YoY and has grown double-digits for four
consecutive quarters. As our transition matures, recurring software
revenue growth is expected to accelerate due to the compounding
benefit of a subscription business model, driving accelerated total
software revenue growth.
|
|
IoT Software Revenue
|
$26
|
23%
|
22%
|
● Excluding an
eight-figure IoT mega-deal from Q1’17, IoT bookings once
again grew above estimated market growth rates of
30-40%.
● IoT software
revenue grew 23% YoY and 4% sequentially;recurring software revenue
grew 31% YoY and 10% sequentially on continued strong bookings
growth. As our transition matures, recurring software revenue
growth is expected to accelerate due to the compounding benefit of
a subscription business model, driving accelerated total software
revenue growth.
|
Software Revenue Performance by Region
All references are to GAAP revenue, unless otherwise
noted
|
In
millions
|
Q1’18
|
YoY
|
YoY CC
|
Management Comments
|
|
Americas Software Revenue
|
$113
|
6%
|
5%
|
● Americas recurring
software revenue has grown double-digits for four consecutive
quarters.
● Americas bookings
declined 3% YoY due to a tough compare with an eight-figure IoT
mega-deal in Q1’17. Excluding the mega-deal, Americas
bookings would have grown greater than 30% YoY.
|
|
Europe Software Revenue
|
$101
|
21%
|
14%
|
● Europe recurring
software revenue has grown double-digits for four consecutive
quarters in constant currency.
● Europe bookings
grew 35% YoY and 23% in CC, continuing its run of strong bookings
performance.
|
|
APAC Software Revenue
|
$51
|
3%
|
3%
|
● APAC recurring
software revenue grew 7%, slightly behind the other regions largely
due to a bookings decline in FY’17.
● However, APAC
bookings grew 26% YoY and 21% in constant currency, improving from
a difficult FY’17, driven by growth in China and Korea.
Recovery in Japan continued, with modest bookings growth
YoY.
|
Operating Performance
All references are to GAAP revenue, unless otherwise
noted
|
In
millions
|
Q1’18
|
Management Comments
|
|
Professional Services
Gross Margin:
GAAP
Non-GAAP
|
12%
17%
|
● Our Q1’18
non-GAAP margin of 17% is slightly below our expectation for the
quarter primarily due to a revenue deferral related to a PO that
was not received until January 2nd (our fiscal Q2) for
work performed in Q1.
● We expect to
achieve our target non-GAAP professional services gross margin of
20% in FY’18.
|
|
Operating
Expense:
GAAP
Non-GAAP
|
$206
$183
|
● GAAP operating
expenses were above the high end of our guidance by $4M due to a
combination of higher commissions related to bookings
over-performance, incremental stock-based compensation expenses and
the impact from changes in foreign currency rates.
● Non-GAAP operating
expenses were above the high end of our guidance by $3M due
primarily to higher commissions related to bookings
over-performance as well as the impact from changes in foreign
currency rates.
|
|
Operating
Margin:
GAAP
Non-GAAP
|
6%
17%
|
● GAAP operating
margin of 6% was at the midpoint of our guidance range and an
improvement of 410 basis points YoY and non-GAAP operating margin
of 16.5% was at the midpoint of our guidance range and an
improvement of 110 basis points YoY.
● Both GAAP and
non-GAAP operating margin improved despite (1) a higher bookings
subscription mix in the quarter than in the same period last year
(67% vs. 65%), and (2) higher commissions on higher
bookings.
|
|
Tax
Rate:
GAAP
Non-GAAP
|
(114%)
9%
|
● Our GAAP tax rate
was impacted by a $7M non-cash benefit related to the enactment of
the US Tax Cuts and Jobs Act in December 2017, as well as a $0.5M
non-cash benefit related to the new stock compensation accounting
guidance. We have excluded these benefits from our non-GAAP
results.
|
Other Highlights in Quarterly and Annual Operating
Performance
●
In Q1’18,
subscription bookings exceeded the high end of our guidance range
and represented 67% of total bookings, one percentage point lower
than our guidance of 68% and two percentage points higher than our
Q1’17 bookings mix of 65%. We estimate that approximately $4M
of perpetual bookings were associated with last-time perpetual
buys, which negatively impacted subscription mix by approximately
three percentage points. Programs promoting the benefits of
subscription as well as our support conversion program are driving
our ongoing success in our transition to a subscription business
model.
●
For Q1’18,
annualized recurring revenue (ARR) was approximately $928 million,
which grew 13% or $109 million year-over-year and grew 3% or $23
million sequentially. ARR has now grown double-digits for four
consecutive quarters. Due to our calculation methodology, quarterly
variability in this metric should be expected, primarily due to the
linearity of support billings during the year and the percentage of
on-time renewals, the amount of support win-backs in a quarter, and
whether the win-backs are traditional support, with immediate
revenue recognition of the past-due amount, or a conversion to
subscription, where all revenue is recognized over the future
period. Multiple other contractual factors including ramping of
committed monthly payments and other elements that may be sold with
the subscription or support contract can impact the timing of
revenue and calculated ARR.
●
Total Deferred
Revenue consists of Billed Deferred Revenue and Unbilled Deferred
Revenue. Billed Deferred Revenue primarily relates to software
agreements invoiced to customers for which the revenue has not yet
been recognized. Unbilled Deferred Revenue is contractually
committed orders for license, subscription and support with a
customer for which the customer has not been invoiced and the
associated revenue has not been recognized. We generally do not
invoice prior to the contractual subscription start date. We do not
record Unbilled Deferred Revenue on our Consolidated Balance Sheet
until we invoice the customer. In Q1’18, Total Deferred
Revenue grew 42% year-over-year and 7% sequentially.
●
Billed Deferred
Revenue grew 15% year-over-year, and declined 6% sequentially due
to the timing of billings in the year. Please recall that we
expected Billed Deferred Revenue to decline sequentially for this
reason. Billed deferred revenue can fluctuate quarterly based upon
the contractual billings dates in our recurring revenue contracts,
as well as the timing of our fiscal reporting periods. Note that
Q1’18 ended on December 30th this year, as opposed to
December 31st in FY’17, and January 2nd in FY’16.
Recurring revenue billings from December 31, 2017 to January 2,
2018 were approximately $100 million.
●
Unbilled Deferred
Revenue grew 64% year-over-year and 17% sequentially. Note that the
increase in unbilled deferred revenue is not due to a longer
average contract duration, which remained at approximately 2 years
for new subscription contracts. Also please note that we believe
that Total Deferred Revenue is the most relevant indicator, as
billed deferred revenue fluctuates throughout the year based upon
the seasonality of our recurring revenue billings and the timing of
our fiscal quarter ends. For example, recurring revenue billings
from December 31, 2017 to January 2, 2018 were approximately $100
million.
|
(in millions)
|
Q1’18
12/30/17
|
Q4’17
9/30/17
|
Q1’17
12/31/16
|
Q/Q
% Change
|
Y/Y
% Change
|
|
Billed
Deferred Revenue
|
$431
|
$459
|
$375
|
(6%)
|
15%
|
|
Unbilled
Deferred Revenue
|
$738
|
$633
|
$450
|
17%
|
64%
|
|
Total Deferred Revenue
|
$1,169
|
$1,092
|
$825
|
7%
|
42%
|
●
For Q1’18,
approximately 87% of GAAP and non-GAAP software revenue came from
recurring revenue streams.
●
For Q1’18,
cash flow provided by operating activities was $25 million, and
free cash flow was $19 million, both of which include cash payments
related to our October 2015 restructuring plan of approximately $1
million.
●
Cash, cash
equivalents, and marketable securities totaled $342 million as of
December 30, 2017.
●
As of December 30,
2017, gross borrowings totaled $748 million, including $500 million
of senior notes and $248 million outstanding under our revolving
credit facility. Under our revolving credit facility, our leverage
covenant is limited to 4.5 times adjusted EBITDA. Further, if our
leverage covenant ratio exceeds 3.25 times adjusted EBITDA, our
stock repurchases are limited to $50 million in a year plus a $100
million aggregate basket through June 30, 2018. Our leverage ratio
at the end of Q1’18 was 2.40. As of December 30, 2017, we had
approximately $332 million available to borrow under the credit
facility.
●
Continuing the
phased global rollout of our subscription licensing model, we
separately announced that new software licenses for our core
solutions and ThingWorx industrial innovation platform will be
available globally only by subscription, effective January 1, 2019,
with a few exceptions. Those exceptions apply to China, Korea,
Taiwan, Russia, Turkey and India where we have not announced the
end-of-life of perpetual licenses. Also, Kepware will continue to
be available under perpetual licensing. We previously announced the
transition to subscription-only licensing in the Americas and
Western Europe effective January 1, 2018. Customers globally will
be able to continue to use their existing perpetual licenses and
renew support on active licenses.
●
On December 22,
2017, the United States enacted tax reform legislation through the
Tax Cuts and Jobs Act, which significantly changed existing U.S.
tax laws, including a reduction in the corporate tax rate from 35%
to 21%, and a move from a worldwide tax system to a territorial
system. We have recorded the impact of this legislation in our Q1
GAAP earnings, resulting in a non-cash tax benefit of approximately
$7 million. In addition, we recorded a non-cash tax benefit of
approximately $0.5 million related to the new stock-based
compensation accounting guidance. We have excluded these benefits
from our non-GAAP results. We continue to expect our FY18 non-GAAP
effective tax rate to be between 9% and 11%, and we continue to
expect our long term non-GAAP effective tax rate to be between 15%
and 20%. We also do not expect a significant change to our cash tax
payments due to the new legislation because, while we have
accumulated international earnings and profits that are subject to
the new toll tax, we have offsetting tax attributes, such as NOL
carryforwards and tax credits.
Net Reporting of Deferred Revenue Changes
PTC has
historically reported the impact of deferred revenue changes on
cash flow from operations using a “net” method. Under
this “net” method, the change in deferred revenue is
presented net of the change in uncollected receivables related to
such deferred revenues. Particularly in quarters where we have
significant billings at or near the end of a quarter (like January
1 or April 1), this presentation provides a more accurate
reflection of the cash flows in the period. Under the
“gross” method (illustrated on the right-side of the
table below), the total change in deferred revenue on the balance
sheet is presented ($27 million, plus a $2 million impact related
to changes in foreign currency exchange rates), offset by a change
in other current assets of $51 million. Cash flow from operating
activities is the same in both cases.
|
|
As Reported (Net)
|
Pro Forma (Gross)
|
|
(in millions)
|
Q1’18
|
Q1’18
|
|
Cash flows from operating activities:
|
12/30/17
|
12/30/17
|
|
Net
income
|
$14
|
$14
|
|
Stock-based
comp and D&A
|
39
|
39
|
|
Accounts
receivable
|
22
|
22
|
|
Deferred
revenue
|
22
|
(29)
|
|
Other
|
(72)
|
(21)
|
|
Net cash provided by operating activities
|
$25
|
$25
|
Q2’18 and FY’18 Guidance
Our
Q2’18 and FY’18 guidance includes the following general
considerations:
●
We discontinued new
perpetual license sales in the Americas and Western Europe as of
January 1, 2018, except for Kepware.
●
A higher mix of
subscription bookings is expected to benefit us over the long term,
but results in lower revenue and lower earnings in the near
term.
●
It can be
challenging to forecast the rate of customer adoption of the
subscription offering in certain geographies and therefore the
overall impact to near-term reported financial
results.
●
Global
macroeconomic conditions appear to have mostly stabilized and no
longer appear to be a headwind to our performance, particularly in
the industrial sector, creating an improving backdrop in the more
mature CAD and PLM markets, which tend to be more cyclical. These
more favorable economic conditions have been factored into our
guidance.
●
While our
performance in Japan has improved in the past two quarters, we
still have work to do. Therefore, we have been cautious about our
performance expectation for Japan in FY’18. In fact, while we
are assuming some growth vs. FY’17, our internal plan calls
for much lower bookings than in FY’14, FY’15 or
FY’16.
●
Our Fx assumptions
in our guidance approximate current rates.
|
Q2’18 and
FY’18 Operating Guidance
|
|||||
|
In
millions
|
Q2’18Low
|
Q2’18High
|
FY’18Low
|
FY’18High
|
Management Comments
|
|
Subscription ACV
|
$37
|
$41
|
$181
|
$189
|
● We increased
FY’18 guidance by $4M, based on Q1’18 performance, our
outlook for the remainder of the year and modest Fx
tailwinds.
● FY’18
guidance is up approximately 26% YoY at the low end to 32% YoY at
the high end compared to FY’17, based on continued adoption
of our subscription offerings and the discontinuation of new
perpetual license sales (except for Kepware) in the Americas and
Western Europe which went into effect January 1, 2018.
● Q2’18
guidance is up approximately 11% YoY at the low end to 22% YoY at
the high end compared to Q2’17.
|
|
License and Subscription Bookings
|
$94
|
$104
|
$455
|
$475
|
● We increased
FY’18 guidance by $10M, based on Q1’18 performance, our
outlook for the remainder of the year and modest Fx
tailwinds.
● FY’18
guidance is up approximately 9% YoY at the low end to 14% YoY at
the high end compared to FY’17, driven by continuing momentum
from our sales execution strategy and consistent with our long-term
plan.
● Q2’18
guidance represents 4% YoY growth at the midpoint and 9% YoY growth
at the high end, due to a difficult comparison with a strong
Q2’17.
|
|
Subscription % of Bookings
|
79%
|
79%
|
80%
|
80%
|
● We still expect 80%
of our bookings to be subscription in FY’18 vs. 69% in
FY’17, with subscription mix exiting the year at 85% in
Q4’18.
● For Q2’18 we
expect 79% of our bookings to be subscription, based on our current
view of the pipeline and the discontinuation of new perpetual
license sales (except for Kepware) in the Americas and Western
Europe as of January 1, 2018.
|
|
Q2’18 and
FY’18 Financial Guidance
|
|||||
|
In
millions
|
Q2’18 Low
|
Q2’18 High
|
FY’18 Low
|
FY’18 High
|
Management Comments
|
|
Subscription Revenue
|
$111
|
$113
|
$460
|
$470
|
● We increased
FY’18 guidance by $20M, based on Q1’18 performance and
our outlook for the remainder of the year, due to the continued
success of our subscription transition and conversion
programs.
● FY’18
guidance is up approximately 64% YoY at the low end to 67% YoY at
the high end compared to FY’17.
● Q2’18
guidance is up approximately 68% YoY at the low end to 71% YoY at
the high end compared to Q2’17.
|
|
Support Revenue
|
$126
|
$126
|
$510
|
$510
|
● We decreased
FY’18 guidance by $15M, as more customers converted their
perpetual licenses to subscription in the first
quarter.
● FY’18
guidance is down approximately 11% YoY compared to
FY’17.
● Q2’18
guidance is down approximately 11% YoY compared to
Q2’17.
|
|
Perpetual License Revenue
|
$20
|
$23
|
$92
|
$97
|
● We increased
FY’18 guidance by $2M, based on Q1’18 performance and
our outlook for the remainder of the year.
● FY’18
guidance is down approximately 29% YoY at the midpoint compared to
FY’17 as an increasing proportion of our customers purchase
software as a subscription.
● Q2’18
guidance is down approximately 24% YoY at the midpoint compared to
Q2’17.
● New perpetual
licenses are no longer available for sale in the Americas and
Western Europe as of January 1, 2018, except for
Kepware.
|
|
Software Revenue
|
$257
|
$262
|
$1,062
|
$1,077
|
● We increased
FY’18 guidance by $7M, based on Q1’18 performance and
our outlook for the remainder of the year.
● FY’18
guidance is up approximately 7% YoY at the low end to 9% YoY at the
high end compared to FY’17, and recurring software revenue is
up approximately 13% to 15% YoY compared to
FY’17.
● Q2’18
guidance is up approximately 9% YoY at the low end to 11% YoY at
the high end compared to Q2’17 and recurring software revenue
is up approximately 14% to 15% YoY compared to
Q2’17.
|
|
Professional Services Revenue
|
$43
|
$43
|
$173
|
$173
|
● We increased
FY’18 guidance by $3M, based on Q1’18 performance and
our outlook for the remainder of the year.
● FY’18
guidance is down approximately 3% YoY compared to FY’17
because of fewer large services engagements as we continue to
emphasize more standard implementations of our products, continue
to execute on our strategy of growing our service partner
ecosystem, and focus on expanding our professional services gross
margins.
● Q2’18
guidance is down approximately 6% YoY compared to
Q2’17.
|
|
Total Revenue
|
$300
|
$305
|
$1,235
|
$1,250
|
● We increased
FY’18 guidance by $10M, based on Q1’18 performance and
our outlook for the remainder of the year, based on the continued
success of our subscription transition and conversion programs,
continuing momentum with our sales execution strategy and modest Fx
tailwinds.
● FY’18
guidance is up approximately 6% YoY at the low end to 7% YoY at the
high end YoY compared to FY’17.
● Q2’18
guidance is up approximately 7% YoY at the low end to 9% YoY at the
high end compared to Q2’17.
|
Q2’18 and FY’18 Financial Guidance,
Continued
|
In
millions
|
Q2’18Low
|
Q2’18High
|
FY’18Low
|
FY’18High
|
Management Comments
|
|
Operating
Expense:
GAAP
Non-GAAP
|
$202
$176
|
$205
$179
|
$825
$727
|
$836
$737
|
● We increased
FY’18 non-GAAP guidance by $4M, and FY’18 GAAP guidance
by $12M, due to the improved outlook for bookings, associated
incremental incentive compensation and a modest Fx
headwind.
● FY’18
non-GAAP guidance is up approximately 6% YoY at the low end and 7%
YoY at the high end compared to FY’17. Consistent with our
long-term model, non-GAAP operating expense growth is targeted at
about half of bookings growth. Approximately 200 basis points of
the YoY growth is Fx.
|
|
Operating
Margin:
GAAP
Non-GAAP
|
4%
16%
|
6%
17%
|
6%
17%
|
7%
18%
|
● We are maintaining
our FY’18 non-GAAP operating margin % guidance.
● FY’18
non-GAAP guidance is up approximately 105 bps YoY at the low end
and 170 bps YoY at the high end; Q2’18 non-GAAP guidance is
up approximately 10 bps YoY at the low end to 120 bps YoY at the
high end. The increases are despite higher subscription mix
guidance compared to last year.
● FY’18 GAAP
guidance is up approximately 300 bps YoY at the midpoint and
Q2’18 GAAP guidance is up approximately 230 bps YoY at the
midpoint. The increases are despite higher subscription mix
guidance compared to last year.
|
|
Tax
Rate:
GAAP
Non-GAAP
|
15%
11%
|
15%
9%
|
(5%)
11%
|
(5%)
9%
|
● Both GAAP and
non-GAAP guidance are based on current estimates.
● Non-GAAP guidance
excludes the $7.5M tax benefit recorded in
Q1’18.
|
|
Shares
Outstanding:
GAAP
Non-GAAP
|
117
117
|
117
117
|
117
117
|
117
117
|
● Both GAAP and
non-GAAP guidance are based on current estimates.
|
|
EPS:
GAAP
Non-GAAP
|
$0.01
$0.28
|
$0.04
$0.32
|
$0.28
$1.29
|
$0.37
$1.39
|
● We increased
FY’18 non-GAAP guidance by $0.02 and raised the midpoint of
FY’18 GAAP guidance by $0.05 based on Q1’18 performance
and the improved outlook for the year.
● FY’18
non-GAAP EPS is up approximately 10% YoY at the low end to 19% YoY
at the high end compared to FY’17 and FY’18 GAAP EPS is
up approximately 450% YoY at the low end and 630% at the high end
YoY compared to FY’17, despite the higher subscription mix
guidance compared to last year.
● Q2’18
non-GAAP EPS is up approximately 2% YoY at the midpoint to 9% at
the high end compared to Q2’17 and Q2’18 GAAP EPS
improves $0.02 YoY at the low end and $0.05 at the high end YoY
compared to Q2’17, despite the higher subscription mix
guidance compared to last year.
|
|
Free Cash Flow
Adjusted Free Cash Flow
|
|
|
$195
$199
|
$205
$209
|
● We increased Free
Cash Flow guidance by $5 million to reflect our increased non-GAAP
EPS outlook.
● FCF guidance
includes approximately $40 million of capex in FY’18, up from
$25M in FY’17, primarily due to the buildout of our new
headquarters. We expect capex to decline to historical levels when
the buildout is complete, which we estimate to be in Q2 of
FY’19. Guidance also includes approximately $4M of payments
related to our October 2015 restructuring plan, which we exclude
from Adjusted Free Cash Flow.
|
The
second quarter and full year FY’18 revenue, non-GAAP
operating margin and non-GAAP EPS guidance exclude the estimated
items outlined below, as well as any tax effects and discrete tax
items that occur (which are not known nor reflected).
|
In
millions
|
Q2’18
|
FY’18
|
|
Effect
of acquisition accounting on fair value of acquired deferred
revenue
|
$
0
|
$
2
|
|
Restructuring
charges
|
-
|
0
|
|
Intangible
asset amortization expense
|
15
|
58
|
|
Stock-based
compensation expense
|
21
|
79
|
|
Total Estimated GAAP adjustments
|
$ 36
|
$ 139
|
Long-Range Targets (Non-GAAP)
Our
long-range, non-GAAP targets are noted below. Please note that
these targets are included in a long-term operating model
presentation posted on our investor relations website at
investor.ptc.com.
●
$1.8 billion in
total revenue, growing double-digits; $1.6 billion of software
revenue, growing double-digits
●
85% subscription
mix, yielding 95% recurring software revenue
●
Non-GAAP operating
margin in the low 30% range
●
Non-GAAP EPS of
$4.15, and
●
Free cash flow of
$525 million
●
Given the
compounding benefit of a subscription business model, we expect
operating margin, EPS, and free cash flow growth will accelerate
significantly beginning in fiscal ’19, including between 400
to 600 basis points of annual operating margin expansion through
fiscal ’21.
Please
note that these future targets do not take into consideration the
impact of ASC 606, which PTC will adopt as of October 1, 2018
(fiscal year 2019).
Important Disclosures
Reporting metrics and non-GAAP definitions –
Management believes certain operating measures and non-GAAP
financial measures provide additional meaningful information that
should be considered when assessing our performance. These measures
should be considered in addition to, not as a substitute for, the
reported GAAP results.
Software licensing model – A majority of our software
sales historically were 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. For fiscal 2016
and fiscal 2017, a majority of our new license bookings have
consisted 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. We began offering subscription pricing as an option
for most PTC products in Q1 FY’15, and beginning in January
of 2018, we will no longer offer new perpetual licenses in the
Americas and Western Europe, except for Kepware. We believe
subscription has proved attractive to customers 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 four to five-year period we believe the value of a subscription
is likely to exceed that of a perpetual license, assuming similar
seat counts. However, initial revenue, operating margin, and EPS
will be lower as revenue is recognized ratably in a subscription,
rather than up front.
Bookings Metrics – We offer both perpetual and
subscription licensing options to our customers, as well as monthly
software rentals for certain products. Given the difference in
revenue recognition between the
sale of
a perpetual software license (revenue is recognized at the time of
sale) and a subscription (revenueis deferred and recognized ratably
over the subscription term), we use bookings for internal planning,
forecasting and reporting of new license and cloud services
transactions. In order to normalize between perpetual and
subscription licenses, we define subscription bookings as the
subscription annualized contract value (subscription ACV) of new
subscription bookings multiplied by a conversion factor of 2. We
arrived at the conversion factor of 2 by considering a number of
variables including pricing, support, length of term, and renewal
rates. We define subscription ACV as the total value of a new
subscription booking divided by the term of the contract (in days)
multiplied by 365. If the term of the subscription contract is less
than a year, the ACV is equal to the total contract value. Note
that both in FY’16 as well as FY’17, the weighted
average contract length of our subscription bookings was
approximately 2 years.
License
and subscription bookings equal subscription bookings (as described
above) plus perpetual license bookings plus any monthly software
rental bookings during the period. Total ACV equals subscription
ACV (as described above) plus the annualized value of incremental
monthly software rental bookings during the period.
Because
subscription bookings is a metric we use to approximate the value
of subscription sales if sold as perpetual licenses, it does not
represent the actual revenue that will be recognized with respect
to subscription sales or that would be recognized if the sales were
perpetual licenses, nor does the annualized value of monthly
software rental bookings represent the value of any such
booking.
Annualized Recurring Revenue (ARR) - To help investors
understand and assess the success of our subscription transition,
we provide an Annualized Recurring Revenue operating measure.
Annualized Recurring Revenue (ARR) for a given quarter is
calculated by dividing the portion of non-GAAP software revenue
attributable to subscription and support for the quarter by the
number of days in the quarter and multiplying by 365. (A related
metric is Subscription ARR, which is calculated by dividing the
portion of non-GAAP revenue attributable to subscription for the
quarter by the number of days in the quarter and multiplying by
365.) ARR should be viewed independently of revenue and deferred
revenue as it is an operating measure and is not intended to be
combined with or to replace either of those items. ARR is not a
forecast of future revenue, which can be impacted by contract
expiration and renewal rates, and does not include revenue reported
as perpetual license or professional services revenue in our
consolidated statement of income. Subscription and support revenue
and ARR disclosed in a quarter can be impacted by multiple factors,
including but not limited to (1) the timing of the start of a
contract or a renewal, including the impact of on-time renewals,
support win-backs, and support conversions, which may vary by
quarter, (2) the ramping of committed monthly payments under a
subscription agreement over time, and (3) multiple other
contractual factors with the customer including other elements sold
with the subscription or support contract. These factors can result
in variability in disclosed ARR.
Navigate Allocation -- Revenue and bookings for Navigate, a
ThingWorx-based IoT solution for PLM are allocated 50% to Solutions
and 50% to IoT.
Foreign Currency Impacts on our Business – 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. We employ a hedging strategy to limit
our exposure to currency risk.
Constant Currency Change Measure (YoY CC) –
Year-over-year changes in revenue on a constant currency basis
compare reported results excluding the effect of any hedging
converted into U.S. dollars based on the corresponding prior
year’s foreign currency exchange rates to reported results
for the comparable prior year period.
Important Information about Non-GAAP References
PTC
provides non-GAAP supplemental information to its financial
results. 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
our financial results and such items often recur. Management uses,
and investors should consider, non-GAAP measures in conjunction
with our GAAP results.
Non-GAAP
revenue, non-GAAP operating expense, non-GAAP operating margin,
non-GAAP gross profit, non-GAAP gross margin, non-GAAP net income
and non-GAAP EPS exclude the effect of the following items: fair
value of acquired deferred revenue, fair value adjustment to
deferred services cost, stock-based compensation, amortization of
acquired intangible assets, acquisition-related charges included in
general and administrative costs, restructuring charges, and income
tax adjustments. Additional information about the items we exclude
from our non-GAAP financial measures and the reasons we exclude
them can be found in “Non-GAAP Financial Measures”
beginning on page 33 of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2017.
A
reconciliation of non-GAAP measures to GAAP results is provided
within these prepared remarks.
PTC
also provides information on “free cash flow” and
“adjusted free cash flow” to enable investors to assess
our ability to generate cash without incurring additional external
financings and to evaluate our performance against our announced
long term goal of returning approximately 40% of our free cash flow
to shareholders via stock repurchases. Free cash flow is net cash
provided by (used in) operating activities less capital
expenditures; adjusted free cash flow is free cash flow excluding
restructuring payments and certain identified non-ordinary course
payments. Free cash flow and adjusted free cash flow are not
measures of cash available for discretionary
expenditures.
Forward-Looking Statements
Statements
in this press release that are not historic facts, including
statements about our second quarter and full fiscal 2018 targets,
and other future financial and growth expectations and targets, 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
macroeconomic and/or global manufacturing climates may deteriorate;
customers may not purchase our solutions when or at the rates we
expect; our businesses, including our Internet of Things (IoT)
business, may not expand and/or generate the revenue we expect;
foreign currency exchange rates may vary from our expectations and
thereby affect our reported revenue and expense; the mix of revenue
between license & subscription solutions, support and
professional services could be different than we expect, which
could impact our EPS results; our transition to subscription-only
licensing in the Americas and Western Europe could adversely affect
sales and revenue; sales of our solutions as subscriptions may not
have the longer-term effect on revenue and earnings that we expect;
we may be unable to expand our partner ecosystem as we expect and
our partners may not generate the revenue we expect;we may be
unable to improve performance in Japan when or as we expect; we may
be unable to generate sufficient operating cash flow to return 40%
of free cash flow to shareholders and other uses of cash or our
credit facility limits could preclude share repurchases. 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. Other risks and uncertainties that could
cause actual results to differ
materially
from those projected are detailed from time to time in reports we
file with the Securities and Exchange Commission, including our
most recent Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q.
|
PTC Inc.
|
|||
|
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
(UNAUDITED)
|
|||
|
(in thousands, except per share
data)
|
|
|
Three Months Ended
|
|
|
|
December 30,
|
December 31,
|
|
|
2017
|
2016
|
|
|
|
|
|
GAAP
revenue
|
$306,644
|
$286,327
|
|
Fair
value adjustment of acquired deferred subscription
revenue
|
117
|
646
|
|
Fair
value adjustment of acquired deferred services revenue
|
246
|
268
|
|
Non-GAAP
revenue
|
$307,007
|
$287,241
|
|
|
|
|
|
GAAP
gross margin
|
$223,686
|
$204,212
|
|
Fair
value adjustment of acquired deferred revenue
|
363
|
914
|
|
Fair
value adjustment to deferred services cost
|
(104)
|
(113)
|
|
Stock-based
compensation
|
2,927
|
2,894
|
|
Amortization
of acquired intangible assets included in cost of
revenue
|
6,675
|
6,388
|
|
Non-GAAP
gross margin
|
$233,547
|
$214,295
|
|
|
|
|
|
GAAP
operating income
|
$17,472
|
$4,561
|
|
Fair
value adjustment of acquired deferred revenue
|
363
|
914
|
|
Fair
value adjustment to deferred services cost
|
(104)
|
(113)
|
|
Stock-based
compensation
|
18,331
|
17,988
|
|
Amortization
of acquired intangible assets included in cost of
revenue
|
6,675
|
6,388
|
|
Amortization
of acquired intangible assets
|
7,821
|
8,067
|
|
Acquisition-related
charges included in general and administrative costs
|
7
|
169
|
|
Restructuring
charges, net
|
105
|
6,285
|
|
Non-GAAP operating income (1)
|
$50,670
|
$44,259
|
|
|
|
|
|
GAAP
net income (loss)
|
$13,877
|
$(9,141)
|
|
Fair
value adjustment of acquired deferred revenue
|
363
|
914
|
|
Fair
value adjustment to deferred services cost
|
(104)
|
(113)
|
|
Stock-based
compensation
|
18,331
|
17,988
|
|
Amortization
of acquired intangible assets included in cost of
revenue
|
6,675
|
6,388
|
|
Amortization
of acquired intangible assets
|
7,821
|
8,067
|
|
Acquisition-related
charges included in general and administrative costs
|
7
|
169
|
|
Restructuring
charges, net
|
105
|
6,285
|
|
Income tax adjustments (2)
|
(11,000)
|
148
|
|
Non-GAAP
net income
|
$36,075
|
$30,705
|
|
|
|
|
|
GAAP
diluted earnings (loss) per share
|
$0.12
|
$(0.08)
|
|
Fair
value adjustment of acquired deferred revenue
|
-
|
0.01
|
|
Stock-based
compensation
|
0.16
|
0.15
|
|
Amortization
of acquired intangibles
|
0.12
|
0.12
|
|
Acquisition-related
charges
|
-
|
-
|
|
Restructuring
charges, net
|
-
|
0.05
|
|
Income
tax adjustments
|
(0.09)
|
-
|
|
Non-GAAP
diluted earnings per share
|
$0.31
|
$0.26
|
|
|
|
|
|
GAAP
diluted weighted average shares outstanding
|
117,656
|
115,290
|
|
Dilutive
effect of stock-based compensation plans
|
-
|
1,735
|
|
Non-GAAP
diluted weighted average shares outstanding
|
117,656
|
117,025
|
(1)
Operating margin impact of non-GAAP adjustments:
|
|
|
Three Months Ended
|
|
|
|
|
December 30,
|
December 31,
|
|
|
|
2017
|
2016
|
|
GAAP operating margin
|
5.7%
|
1.6%
|
|
|
|
Fair
value of acquired deferred revenue
|
0.1%
|
0.3%
|
|
|
Fair
value adjustment to deferred services cost
|
0.0%
|
0.0%
|
|
|
Stock-based
compensation
|
6.0%
|
6.3%
|
|
|
Amortization
of acquired intangibles
|
4.7%
|
5.0%
|
|
|
Acquisition-related
charges
|
0.0%
|
0.1%
|
|
|
Restructuring
charges, net
|
0.0%
|
2.2%
|
|
Non-GAAP operating margin
|
16.5%
|
15.4%
|
|
|
|
|
|
|
(2)
We have recorded a full valuation allowance against our U.S. net
deferred tax assets and a valuation allowance against net deferred
tax assets in certain foreign jurisdictions. As we are profitable
on a non-GAAP basis, the 2018 and 2017 non-GAAP tax provisions are
being calculated assuming there is no valuation allowance. Income
tax adjustments 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. We have
recorded the impact of the Tax Cuts and Jobs Act in our Q1'18 GAAP
earnings, resulting in a non-cash benefit of approximately $7
million. We have excluded this benefit from our non-GAAP
results.