Solid Q4’19 Revenue and Operating Margin Performance

BOSTON — (BUSINESS WIRE) — October 23, 2019 — PTC (NASDAQ: PTC) today reported financial results for its fiscal fourth quarter and fiscal year ended September 30, 2019.

James Heppelmann, President and CEO said “PTC’s ARR grew 12% in fiscal 2019 reflecting the strength of our technology in the markets we serve and the value we provide to our customers. We also successfully completed the transition to subscription licensing and ended the year strong across key financial metrics including revenue and margins.”

Heppelmann added, “Today, we also announced PTC’s intention to acquire Onshape, creators of the first SaaS product development platform that unites next-generation CAD, data management, and collaboration tools. Onshape’s proven talent and technology are the perfect complement to PTC’s market leading on-premise CAD and PLM solutions, and will dramatically strengthen PTC’s ability to participate in the highest growth part of the market with a unique SaaS-based product offering. Most importantly, Onshape will put PTC in a position to lead the market’s inevitable shift to SaaS.”

Fourth quarter and fiscal year 2019 highlights¹
Additional operating and financial highlights are set forth below. 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 Email Contact. Note that all references to revenue and margins are under ASC 605.

• License and subscription bookings in Q4’19 were $150 million, $5 million above the high end of our guidance range driven by strong bookings in IoT and AR, including a mega deal with our strategic alliance partner Rockwell Automation.² FY’19 license and subscription bookings were $472 million, up 1% year over year or 4% on a constant currency basis.

• ARR per the new definition was $1,116 million, or $1,134 million at the guidance Fx rate, at the end of Q4’19, in line with the targets we provided in September. This is a 10% increase, or 12% increase consistent with the guidance rate, compared to Q4’18, reflecting the strength of our recurring revenue business.

• Operating cash flow was $55 million in Q4’19; FY’19 operating cash flow was $285 million. FY’19 free cash flow was $221 million and adjusted free cash flow was $245 million, increases of 4% and 13%, respectively, over Q4’18. FY’19 adjusted free cash flow excludes $25 million of restructuring payments related to our workforce realignment and headquarters relocation.

• Recurring software revenue was $284 million in Q4’19, an increase of 9% year over year or 11% in constant currency. FY’19 recurring software revenue was $1,079 million, an increase of 10% year over year or 13% in constant currency.
• Operating margin: Q4’19 GAAP operating margin was 11%, compared to 4% in Q4’18; Q4’19 non-GAAP operating margin was 22%, compared to 21% in Q4’18. FY’19 GAAP operating margin was 8%, compared to 6% in FY’18; FY’19 non-GAAP operating margin was 22%, compared to 18% in FY’18.

• Total cash, cash equivalents, and marketable securities: As of the end of Q4’19 total cash, cash equivalents, and marketable securities was $327 million and total debt, net of deferred issuance costs, was $669 million³. We repurchased approximately 378,000 shares in the fourth quarter of fiscal 2019 and 1.4 million shares in fiscal 2019, spending $25 million and $115 million, respectively. Additionally, in Q4’19, we repaid $30 million on our revolving credit facility. In Q3 of fiscal 2019, we also retired 3 million shares at no cost related to the ASR initiated in the fourth quarter of fiscal 2018.

Fiscal 2020 Operational Outlook
Our fiscal 2020 operational outlook includes the following general considerations:

• ARR guidance:
  • Allows for potential impact of moderate weakening of macroeconomic conditions
  • Onshape contribution of approximately 100 bps of incremental growth
  • Contribution from ramp deals and deals with FY’20 start dates
  • Modest improvement to churn
• FCF and adjusted FCF guidance reflects:
  • Operating cash flow of $248M - $268M
  • $30M of Capex
  • $37M of restructuring and headquarters relocation charges⁴
  • Short-term impacts of $65M including:
    • $25M of incremental interest expense related to the Onshape acquisition
    • $25M of higher cash taxes driven by the timing of ASC 606 revenue recognition
    • $15M of negative impact due to Fx

Fiscal 2020 Financial Outlook
Our fiscal 2020 financial outlook includes the following general considerations:

• The Onshape acquisition (excluding the impact of purchase accounting and acquisition-related costs).
• Operating expenses are expected to grow roughly 9%, slightly elevated due to the Onshape acquisition. We expect the run-rate to decline in the back half of FY’20.
• Allows for potential impact of moderate weakening of macroeconomic conditions
• Based on Fx rates as of September 30, 2019.
• Sharecount will be roughly flat compared to FY’19. We are suspending the share repurchase program for one year to accelerate debt repayment.
• ASC 606 creates quarterly and annual volatility for on-premise subscription companies due to factors that affect revenue recognition such as:
  • Term length for new and renewal bookings
  • Contract start-date timing
  • Quarterly spread of new and renewal bookings
  • Support to subscription conversions
  • Potential future changes to revenue recognition for certain products as they become further cloud enabled
• As such, we are providing a wide range on revenue and EPS.

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  ¹ We include operating and non-GAAP financial measures in our operational highlights. We revised the definition of ARR on September 5, 2019. The detailed definitions of these items and reconciliations of Non-GAAP financial measures to comparable GAAP measures are included below and in the reconciliation tables at the end of this press release.
  ² The mega deal from Rockwell Automation was issued to satisfy a portion of expected FY ’ 20 demand and will be credited against committed ACV minimums due in FY ’ 20 under the parties’ strategic alliance agreement, as amended. Excluding the mega deal, bookings for the quarter were within the guidance range.
  ³ We plan to increase the revolving credit facility from $700 million to $1 billion in FY’20.
  ⁴ Adjusted free cash flow excludes $37 million of estimated restructuring payments related primarily to our workforce realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition, and headquarters relocation.