PTC Announces Third Quarter FY’15 Results

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fourth quarter and full fiscal 2015 targets and other future financial and growth expectations and anticipated tax rates, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that the macroeconomic and/or global manufacturing climates may not improve or may deteriorate, the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility that our businesses, including our Internet of Things (IoT) business, may not expand and/or generate the revenue we expect, the possibility that new products released and planned products, including IoT enabled core products, may not generate the revenue we expect or be released as we expect, the possibility that foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that the mix of revenue between license & subscription solutions, support and professional services could be different than we expect, which could impact our EPS results, the possibility that our customers may purchase more of our solutions as subscriptions than we expect, which would adversely affect near-term revenue, operating margins, and EPS, the possibility that sales of our solutions as subscriptions may not have the longer-term effect on revenue that we expect, the possibility that our workforce realignment may adversely affect our operations, the possibility that we may be unable to generate sufficient operating cash flow to return 40% of free cash flow to shareholders or that other uses of cash could preclude share repurchases, and the possibility that we may incur additional acquisition-related and pension plan termination-related expenses and losses than we expect.

Further, our results could be materially adversely affected by the resolution of our previously announced investigation in China. In the third quarter, we recorded a liability of $13.6 million associated with pending discussions with the Securities and Exchange Commission and the Department of Justice to resolve this matter. This is the minimum amount of liability we expect to incur if we are able to reach a settlement in this matter, and does not include any amounts associated with potential fines that might be imposed by either or both of the SEC and DOJ, which amounts would increase our liability and could be significant. There can be no assurance that we will reach a settlement with these agencies or that the cost of such settlements, if reached, would not materially exceed the existing accrual.

In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and Quarterly Report 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

PTC (NASDAQ: PTC) is a global provider of technology platforms and enterprise applications for smart and connected products, operations, and systems. PTC’s enterprise applications serve manufacturers and other businesses that create, operate and service products. Led by its award winning ThingWorx^® application enablement platform, PTC’s platform technologies help companies deliver new value emerging from the Internet of Things. An early pioneer in Computer Aided Design (CAD) software, PTC today employs more than 6,000 professionals serving more than 28,000 businesses worldwide.


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


	Three Months Ended						Nine Months Ended
	July 4, 2015			June 28, 2014			July 4, 2015			June 28, 2014

Revenue:
License and subscription solutions (L&SS)	$	83,926		$	97,703		$	248,850		$	269,114
Support		165,687			172,021			516,042			508,412
Total software revenue		249,613			269,724			764,892			777,526
Professional services		53,500			66,910			177,782			212,733
Total revenue		303,113			336,634			942,674			990,259

Cost of revenue:
Cost of L&SS revenue (1)		12,830			11,246			39,349			32,454
Cost of support revenue (1)		20,452			21,118			63,176			62,598
Total cost of software revenue		33,282			32,364			102,525			95,052
Cost of professional services revenue (1)		46,094			58,712			155,847			182,777
Total cost of revenue		79,376			91,076			258,372			277,829

Gross margin		223,737			245,558			684,302			712,430

Operating expenses:
Sales and marketing ⁽¹⁾		86,454			91,440			256,085			261,612
Research and development ⁽¹⁾		54,078			57,405			175,333			166,109
General and administrative ⁽¹⁾		48,100			33,817			119,342			98,888
Amortization of acquired intangible assets		9,105			7,998			27,691			23,772
Restructuring charges		4,393			514			42,625			1,581
Total operating expenses		202,130			191,174			621,076			551,962

Operating income		21,607			54,384			63,226			160,468
Other expense, net		(3,668	)		(2,278	)		(10,492	)		(6,724	)
Income before income taxes		17,939			52,106			52,734			153,744
Provision (benefit) for income taxes		504			14,080			(377	)		32,305
Net income	$	17,435		$	38,026		$	53,111		$	121,439

Earnings per share:
Basic	$	0.15		$	0.32		$	0.46		$	1.02
Weighted average shares outstanding		114,764			118,328			115,021			118,753

Diluted	$	0.15		$	0.32		$	0.46		$	1.01
Weighted average shares outstanding		116,025			119,901			116,330			120,573



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

	Three Months Ended						Nine Months Ended
	July 4, 2015			June 28, 2014			July 4, 2015			June 28, 2014
Cost of L&SS revenue	$	121		$	63		$	381		$	210
Cost of support revenue		1,012			898			2,777			2,711
Cost of service revenue		1,317			1,549			4,510			4,435
Sales and marketing		3,430			3,065			9,383			8,583
Research and development		2,928			2,231			9,015			7,067
General and administrative		5,263			4,726			12,069			14,856
Total stock-based compensation	$	14,071		$	12,532		$	38,135		$	37,862


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

	Three Months Ended						Nine Months Ended
	July 4, 2015			June 28, 2014			July 4, 2015			June 28, 2014

GAAP revenue	$	303,113		$	336,634		$	942,674		$	990,259
Fair value adjustment of acquired deferred L&SS revenue		352			-			1,624			-
Fair value adjustment of acquired deferred support revenue		125			-			855			-
Fair value adjustment of acquired deferred service revenue		309			-			844			-
Non-GAAP revenue	$	303,899		$	336,634		$	945,997		$	990,259

GAAP gross margin	$	223,737		$	245,558		$	684,302		$	712,430
Fair value adjustment of acquired deferred L&SS revenue		352			-			1,624			-
Fair value adjustment of acquired deferred support revenue		125			-			855			-
Fair value adjustment of acquired deferred service revenue		309			-			844			-
Fair value adjustment to deferred services cost		(135	)		-			(392	)		-
Stock-based compensation		2,450			2,510			7,668			7,356
Amortization of acquired intangible assets included in cost of L&SS revenue		4,957			4,415			14,438			13,319
Non-GAAP gross margin	$	231,795		$	252,483		$	709,339		$	733,105

GAAP operating income	$	21,607		$	54,384		$	63,226		$	160,468
Fair value adjustment of acquired deferred L&SS revenue		352			-			1,624			-
Fair value adjustment of acquired deferred support revenue		125			-			855			-
Fair value adjustment of acquired deferred service revenue		309			-			844			-
Fair value adjustment to deferred services cost		(135	)		-			(392	)		-
Stock-based compensation		14,071			12,532			38,135			37,862
Amortization of acquired intangible assets included in cost of L&SS revenue		4,957			4,415			14,438			13,319
Amortization of acquired intangible assets		9,105			7,998			27,691			23,772
Acquisition-related charges included in general and administrative expenses		2,778			1,528			8,703			6,768
US pension plan termination-related costs		1,995			-			5,392			-
Pending legal settlement accrual		13,622			-			13,622			-
Restructuring charges		4,393			514			42,625			1,581
Non-GAAP operating income ⁽²⁾	$	73,179		$	81,371		$	216,763		$	243,770

GAAP net income	$	17,435		$	38,026		$	53,111		$	121,439
Fair value adjustment of acquired deferred L&SS revenue		352			-			1,624			-
Fair value adjustment of acquired deferred support revenue		125			-			855			-
Fair value adjustment of acquired deferred service revenue		309			-			844			-
Fair value adjustment to deferred services cost		(135	)		-			(392	)		-
Stock-based compensation		14,071			12,532			38,135			37,862
Amortization of acquired intangible assets included in cost of L&SS revenue		4,957			4,415			14,438			13,319
Amortization of acquired intangible assets		9,105			7,998			27,691			23,772
Acquisition-related charges included in general and administrative expenses		2,778			1,528			8,703			6,768
US pension plan termination-related costs		1,995			-			5,392			-
Pending legal settlement accrual		13,622			-			13,622			-
Restructuring charges		4,393			514			42,625			1,581
Income tax adjustments ⁽³⁾		(7,309	)		(1,275	)		(24,551	)		(23,088	)
Non-GAAP net income	$	61,698		$	63,738		$	182,097		$	181,653

GAAP diluted earnings per share	$	0.15		$	0.32		$	0.46		$	1.01
Fair value of acquired deferred revenue		0.01			-			0.03			-
Fair value adjustment to deferred services cost		-			-			-			-
Stock-based compensation		0.12			0.10			0.33			0.31
Amortization of acquired intangibles		0.12			0.10			0.36			0.31
Acquisition-related charges		0.02			0.01			0.07			0.06
US pension plan termination-related costs		0.02			-			0.05			-
Pending legal settlement accrual		0.12			-			0.12			-
Restructuring charges		0.04			-			0.37			0.01
Income tax adjustments		(0.06	)		(0.01	)		(0.21	)		(0.19	)
Non-GAAP diluted earnings per share	$	0.53		$	0.53		$	1.57		$	1.51

(2)Operating margin impact of non-GAAP adjustments:

	Three Months Ended						Nine Months Ended
	July 4, 2015			June 28, 2014			July 4, 2015			June 28, 2014
GAAP operating margin		7.1	%		16.2	%		6.7	%		16.2	%
Fair value of acquired deferred revenue		0.3	%		0.0	%		0.4	%		0.0	%
Fair value adjustment to deferred services cost		0.0	%		0.0	%		0.0	%		0.0	%
Stock-based compensation		4.6	%		3.7	%		4.0	%		3.8	%
Amortization of acquired intangibles		4.6	%		3.7	%		4.5	%		3.7	%
Acquisition-related charges		0.9	%		0.5	%		0.9	%		0.7	%
US pension plan termination-related costs		0.7	%		0.0	%		0.6	%		0.0	%
Pending legal settlement accrual		4.5	%		0.0	%		1.4	%		0.0	%
Restructuring charges		1.4	%		0.2	%		4.5	%		0.2	%
Non-GAAP operating margin		24.1	%		24.2	%		22.9	%		24.6	%

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