PTC Announces Q3 Results; Provides Q4 and Updated FY’14 Outlook

Important Information About Non-GAAP References

PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue, operating expenses, margin and EPS exclude the effect of purchase accounting on the fair value of acquired deferred revenue of Servigistics, Inc., stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses, costs associated with terminating a U.S. pension plan, certain identified non-operating gains and losses, and the related tax effects of the preceding items and discrete tax items. We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals, communicated internally and externally, for managing our business and evaluating our performance. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to the results of peer companies. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. However, non-GAAP information should not be construed as an alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTC’s financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results. PTC also provides results on a constant currency basis to provide a year-over-year view of our results excluding the effect of currency translation. Our constant currency disclosures are calculated by multiplying the actual results for the third quarter of 2014 by the exchange rates in effect for the comparable period in 2013.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2014 and other future financial and growth expectations and anticipated tax rates, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that the macroeconomic climate may not improve or may deteriorate, the possibility that customers may not purchase or adopt our solutions when or at the rates we expect and that our pipeline deals may not convert as we expect, the possibility that foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that we may not achieve the license, services or support growth rates that we expect, which could result in a different mix of revenue between license, service and support and could impact our EPS results, the possibility that we may be unable to improve services margins as we expect, the possibility that we may be unable to improve sales productivity as we expect, the possibility that our businesses, including the SLM business and the ThingWorx/Internet of Things/Smart, Connected Products business, may not expand and/or generate the revenue we expect, the possibility that we may not complete the acquisition of Axeda Corporation when or as we expect, the possibility that resource constraints and personnel reductions could adversely affect our revenue, the possibility that remedial actions relating to our previously announced investigation in China will have a material impact on our operations in China and that fines and penalties may be assessed against us in connection with this matter. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

PTC, the PTC logo, ThingWorx, Creo, Servigistics, and all other PTC product names and logos are trademarks or registered trademarks of PTC Inc. or its subsidiaries in the United States and in other countries. All other companies referenced herein are trademarks or registered trademarks of their respective holders.

About PTC

PTC (Nasdaq: PTC) enables manufacturers to achieve sustained product and service advantage. PTC’s technology solutions help customers transform the way they create, operate and service products for a smart, connected, world. Founded in 1985, PTC employs approximately 6,000 professionals serving more than 28,000 businesses in rapidly-evolving, globally distributed manufacturing industries worldwide. Get more information at www.ptc.com.


PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)


			Three Months Ended					Nine Months Ended
			June 28,			June, 29		June 28,			June, 29
				2014			2013		2014			2013

Revenue:
	License		$	92,707		$	79,902	$	257,118		$	238,777
	Service			70,187			72,540		222,942			222,384
	Support			173,740			162,554		510,199			487,535
Total revenue				336,634			314,996		990,259			948,696

Cost of revenue:
	Cost of license revenue ⁽¹⁾			7,831			8,431		23,348			24,734
	Cost of service revenue ⁽¹⁾			61,910			62,941		191,666			196,083
	Cost of support revenue ⁽¹⁾			21,335			19,796		62,815			60,693
Total cost of revenue				91,076			91,168		277,829			281,510

Gross margin				245,558			223,828		712,430			667,186

Operating expenses:
	Sales and marketing ⁽¹⁾			91,440			88,298		261,612			269,906
	Research and development ⁽¹⁾			57,405			53,834		166,109			166,791
	General and administrative ⁽¹⁾			33,817			28,812		98,888			98,027
	Amortization of acquired intangible assets			7,998			6,532		23,772			19,795
	Restructuring charges			514			3,137		1,581			34,349
Total operating expenses				191,174			180,613		551,962			588,868

Operating income				54,384			43,215		160,468			78,318
	Other income (expense), net			(2,278	)		3,181		(6,724	)		(491	)
Income before income taxes				52,106			46,396		153,744			77,827
	Provision (benefit) for income taxes			14,080			11,941		32,305			(9,476	)
Net income			$	38,026		$	34,455	$	121,439		$	87,303

Earnings per share:
	Basic		$	0.32		$	0.29	$	1.02		$	0.73
		Weighted average shares outstanding		118,328			119,440		118,753			119,628

	Diluted		$	0.32		$	0.29	$	1.01		$	0.72
		Weighted average shares outstanding		119,901			120,828		120,573			121,234



	(1)	The amounts in the tables above include stock-based compensation as follows:

			Three Months Ended					Nine Months Ended
			June 28,			June, 29		June 28,			June, 29
				2014			2013		2014			2013
	Cost of license revenue		$	4		$	4	$	13		$	17
	Cost of service revenue			1,608			1,372		4,632			4,404
	Cost of support revenue			898			722		2,711			2,383
	Sales and marketing			3,065			2,693		8,583			7,986
	Research and development			2,231			2,139		7,067			6,475
	General and administrative			4,726			4,247		14,856			13,615
		Total stock-based compensation	$	12,532		$	11,177	$	37,862		$	34,880


PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)

			Three Months Ended						Nine Months Ended
			June 28,			June, 29			June 28,			June, 29
				2014			2013			2014			2013

GAAP revenue			$	336,634		$	314,996		$	990,259		$	948,696
	Fair value of acquired company's
		deferred support revenue		-			534			-			2,748
Non-GAAP revenue			$	336,634		$	315,530		$	990,259		$	951,444

GAAP gross margin			$	245,558		$	223,828		$	712,430		$	667,186
	Fair value of acquired company's
		deferred support revenue		-			534			-			2,748
	Stock-based compensation			2,510			2,098			7,356			6,804
	Amortization of acquired intangible assets
		included in cost of license revenue		4,323			4,598			13,044			13,865
	Amortization of acquired intangible assets
		included in cost of service revenue		92			-			275			-
Non-GAAP gross margin			$	252,483		$	231,058		$	733,105		$	690,603

GAAP operating income			$	54,384		$	43,215		$	160,468		$	78,318
	Fair value of acquired company's
		deferred support revenue		-			534			-			2,748
	Stock-based compensation			12,532			11,177			37,862			34,880
	Amortization of acquired intangible assets
		included in cost of license revenue		4,323			4,598			13,044			13,865
	Amortization of acquired intangible assets
		included in cost of service revenue		92			-			275			-
	Amortization of acquired intangible assets			7,998			6,532			23,772			19,795
	Charges included in general and administrative expenses ⁽³⁾			1,528			900			6,768			7,609
	Restructuring charges			514			3,137			1,581			34,349
Non-GAAP operating income ⁽²⁾			$	81,371		$	70,093		$	243,770		$	191,564

GAAP net income			$	38,026		$	34,455		$	121,439		$	87,303
	Fair value of acquired company's
		deferred support revenue		-			534			-			2,748
	Stock-based compensation			12,532			11,177			37,862			34,880
	Amortization of acquired intangible assets
		included in cost of license revenue		4,323			4,598			13,044			13,865
	Amortization of acquired intangible assets
		included in cost of service revenue		92			-			275			-
	Amortization of acquired intangible assets			7,998			6,532			23,772			19,795
	Charges included in general and administrative expenses ⁽³⁾			1,528			900			6,768			7,609
	Restructuring charges			514			3,137			1,581			34,349
	Non-operating one-time gain ⁽⁴⁾			-			(5,123	)		-			(5,123	)
	Income tax adjustments ⁽⁵⁾			(1,275	)		(2,303	)		(23,088	)		(47,844	)
Non-GAAP net income			$	63,738		$	53,907		$	181,653		$	147,582

GAAP diluted earnings per share			$	0.32		$	0.29		$	1.01		$	0.72
	Fair value of acquired deferred support revenue			-			-			-			0.02
	Stock-based compensation			0.10			0.09			0.31			0.29
	Amortization of acquired intangibles			0.10			0.09			0.31			0.28
	Charges included in general and administrative expenses ⁽³⁾			0.01			0.01			0.06			0.06
	Restructuring charges			-			0.03			0.01			0.28
	Non-operating one-time gain ⁽⁴⁾			-			(0.04	)		-			(0.04	)
	Income tax adjustments ⁽⁵⁾			(0.01	)		(0.02	)		(0.19	)		(0.39	)
Non-GAAP diluted earnings per share			$	0.53		$	0.45		$	1.51		$	1.22

	(2)	Operating margin impact of non-GAAP adjustments:
			Three Months Ended						Nine Months Ended
			June 28,			June, 29			June 28,			June, 29
				2014			2013			2014			2013
	GAAP operating margin			16.2	%		13.7	%		16.2	%		8.3	%
		Fair value of acquired deferred support revenue		0.0	%		0.2	%		0.0	%		0.3	%
		Stock-based compensation		3.7	%		3.5	%		3.8	%		3.7	%
		Amortization of acquired intangibles		3.7	%		3.5	%		3.7	%		3.5	%
		Charges included in general and administrative expenses ⁽³⁾		0.5	%		0.3	%		0.7	%		0.8	%
		Restructuring charges		0.2	%		1.0	%		0.2	%		3.6	%
	Non-GAAP operating margin			24.2	%		22.2	%		24.6	%		20.1	%

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