PTC Announces Fiscal Second Quarter 2020 Results

PTC’s Fiscal Second Quarter 2020 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 conference call to discuss results at 5:00 pm ET on Wednesday, April 29, 2020.

To access the live webcast, we recommend you visit PTC’s Investor Relations website at investor.ptc.com 15 minutes before the scheduled start time to download any necessary audio or plug-in software.

To participate in the live conference call, dial 866-987-6881 or 270-215-9571 and provide the conference ID: 1299773. The call will be recorded, and replay will be available via webcast on PTC’s Investor Relations website.


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

			Three Months Ended						Six Months Ended
			March 28,			March 30,			March 28,			March 30,
				2020			2019			2020			2019

Revenue:
	Recurring revenue		$	315,863		$	239,185		$	621,231		$	490,623
	Perpetual license			8,217			10,336			17,215			52,141
	Professional services			35,523			40,930			77,267			82,376
Total revenue⁽¹⁾				359,603			290,451			715,713			625,140

Cost of revenue				83,027			79,904			170,432			157,256

Gross margin				276,576			210,547			545,281			467,884

Operating expenses:
	Sales and marketing ⁽²⁾			107,438			103,722			215,042			207,940
	Research and development ⁽²⁾			59,954			61,402			125,262			122,184
	General and administrative ⁽²⁾			33,629			35,371			78,186			73,235
	Amortization of acquired intangible assets			7,288			5,930			14,065			11,866
	Restructuring and other charges, net			18,242			26,980			32,276			45,473
Total operating expenses				226,551			233,405			464,831			460,698

Operating income (loss)				50,025			(22,858	)		80,450			7,186
	Other expense, net			(34,247	)		(10,562	)		(45,641	)		(20,184	)
Income (loss) before income taxes				15,778			(33,420	)		34,809			(12,998	)
	Provision (benefit) for income taxes			8,622			10,093			(7,802	)		9,530
Net income (loss)			$	7,156		$	(43,513	)	$	42,611		$	(22,528	)

Earnings (loss) per share:
	Basic		$	0.06		$	(0.37	)	$	0.37		$	(0.19	)
		Weighted average shares outstanding		115,606			118,461			115,401			118,392

	Diluted		$	0.06		$	(0.37	)	$	0.37		$	(0.19	)
		Weighted average shares outstanding		116,017			118,461			115,856			118,392

	(1)	See supplemental financial data for revenue by license, support, and professional services.
	(2)	See supplemental financial data for additional information about stock-based compensation.


PTC Inc.
SUPPLEMENTAL FINANCIAL DATA FOR REVENUE AND STOCK-BASED COMPENSATION
(in thousands, except per share data)

Revenue by license, support and services is as follows:
		Three Months Ended				Six Months Ended
		March 28,		March 30,		March 28,		March 30,
		2020		2019		2020		2019
License revenue ⁽¹⁾		$	127,607	$	61,876	$	251,037	$	167,198
Support and cloud services revenue			196,473		187,645		387,409		375,566
Professional services revenue			35,523		40,930		77,267		82,376
	Total revenue	$	359,603	$	290,451	$	715,713	$	625,140

	(1) License revenue includes the portion of subscription revenue allocated to license.

The amounts in the income statement include stock-based compensation as follows:

		Three Months Ended				Six Months Ended
		March 28,		March 30,		March 28,		March 30,
		2020		2019		2020		2019
Cost of revenue		$	3,000	$	3,112	$	6,043	$	6,223
Sales and marketing			7,146		9,522		14,598		19,244
Research and development			4,765		5,190		11,697		10,090
General and administrative			5,573		9,143		16,082		20,817
	Total stock-based compensation	$	20,484	$	26,967	$	48,420	$	56,374


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

			Three Months Ended						Six Months Ended
			March 28,			March 30,			March 28,			March 30,
				2020			2019			2020			2019

GAAP revenue			$	359,603		$	290,451		$	715,713		$	625,140
	Fair value adjustment of acquired deferred revenue			-			198			-			471
Non-GAAP revenue			$	359,603		$	290,649		$	715,713		$	625,611

GAAP gross margin			$	276,576		$	210,547		$	545,281		$	467,884
	Fair value adjustment of acquired deferred revenue			-			198			-			471
	Fair value adjustment to deferred services cost			-			(77	)		-			(162	)
	Stock-based compensation			3,000			3,112			6,043			6,223
	Amortization of acquired intangible assets included in cost of revenue			6,879			6,842			13,678			13,559
Non-GAAP gross margin			$	286,455		$	220,622		$	565,002		$	487,975

GAAP operating income (loss)			$	50,025		$	(22,858	)	$	80,450		$	7,186
	Fair value adjustment of acquired deferred revenue			-			198			-			471
	Fair value adjustment to deferred services cost			-			(77	)		-			(162	)
	Stock-based compensation			20,484			26,967			48,420			56,374
	Amortization of acquired intangible assets included in cost of revenue			6,879			6,842			13,678			13,559
	Amortization of acquired intangible assets			7,288			5,930			14,065			11,866
	Acquisition-related and other transactional charges included in general and administrative costs			261			372			7,390			791
	Restructuring and other charges, net			18,242			26,980			32,276			45,473
Non-GAAP operating income ⁽¹⁾			$	103,179		$	44,354		$	196,279		$	135,558

GAAP net income (loss)			$	7,156		$	(43,513	)	$	42,611		$	(22,528	)
	Fair value adjustment of acquired deferred revenue			-			198			-			471
	Fair value adjustment to deferred services cost			-			(77	)		-			(162	)
	Stock-based compensation			20,484			26,967			48,420			56,374
	Amortization of acquired intangible assets included in cost of revenue			6,879			6,842			13,678			13,559
	Amortization of acquired intangible assets			7,288			5,930			14,065			11,866
	Acquisition-related and other transactional charges included in general and administrative costs			261			372			7,390			791
	Restructuring and other charges, net			18,242			26,980			32,276			45,473
	Debt early redemption premium			15,000			-			15,000			-
	Income tax adjustments ⁽²⁾			(6,855	)		2,138			(38,821	)		(12,718	)
Non-GAAP net income			$	68,455		$	25,837		$	134,619		$	93,126

GAAP diluted earnings (loss) per share			$	0.06		$	(0.37	)	$	0.37		$	(0.19	)
	Fair value adjustment of acquired deferred revenue			-			-			-			-
	Stock-based compensation			0.18			0.23			0.42			0.47
	Amortization of acquired intangibles			0.12			0.11			0.24			0.21
	Acquisition-related and other transactional charges			-			-			0.06			0.01
	Restructuring and other charges, net			0.16			0.23			0.28			0.38
	Debt early redemption premium			0.13			-			0.13			-
	Income tax adjustments			(0.06	)		0.02			(0.34	)		(0.11	)
Non-GAAP diluted earnings per share			$	0.59		$	0.22		$	1.16		$	0.78

GAAP diluted weighted average shares outstanding				116,017			118,461			115,856			118,392
	Dilutive effect of stock-based compensation plans			-			881			-			1,098
Non-GAAP diluted weighted average shares outstanding				116,017			119,342			115,856			119,490

	(1)	Operating margin impact of non-GAAP adjustments:
			Three Months Ended						Six Months Ended
			March 28,			March 30,			March 28,			March 30,
				2020			2019			2020			2019
	GAAP operating margin			13.9	%		-7.9	%		11.2	%		1.1	%
		Fair value adjustment of acquired deferred revenue		0.0	%		0.1	%		0.0	%		0.1	%
		Fair value adjustment to deferred services cost		0.0	%		0.0	%		0.0	%		0.0	%
		Stock-based compensation		5.7	%		9.3	%		6.8	%		9.0	%
		Amortization of acquired intangibles		3.9	%		4.4	%		3.9	%		4.1	%
		Acquisition-related and other transactional charges		0.1	%		0.1	%		1.2	%		0.1	%
		Restructuring and other charges, net		5.1	%		9.3	%		4.5	%		7.3	%
	Non-GAAP operating margin			28.7	%		15.3	%		27.4	%		21.7	%

	(2)	We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the 2020 and 2019 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.


PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	March 28,		September 30,
	2020		2019

ASSETS

Cash and cash equivalents ⁽¹⁾	$	826,776	$	269,579
Marketable securities		56,941		57,435
Accounts receivable, net		352,673		372,743
Property and equipment, net		104,147		105,531
Goodwill and acquired intangible assets, net		1,854,272		1,408,128
Lease assets, net ⁽²⁾		157,016		-
Other assets		514,646		451,172

Total assets	$	3,866,471	$	2,664,588

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue	$	417,202	$	396,632
Debt, net of deferred issuance costs		1,630,722		669,134
Lease obligations ⁽²⁾		224,158		-
Other liabilities		320,308		396,824
Stockholders' equity		1,274,081		1,201,998

Total liabilities and stockholders' equity	$	3,866,471	$	2,664,588

(1)	We have notified bondholders that we will redeem the $500 million of 2024 Senior Notes in May 2020. Of the March cash balance, $530 million is reserved for that redemption.
(2)	In the first quarter of 2020, we adopted Accounting Standards Update 2016-02, Leases (Topic 842).


PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Three Months Ended						Six Months Ended
		March 28,			March 30,			March 28,			March 30,
			2020			2019			2020			2019

Cash flows from operating activities:
	Net income (loss)	$	7,156		$	(43,513	)	$	42,611		$	(22,528	)
	Stock-based compensation		20,484			26,967			48,420			56,374
	Depreciation and amortization		20,605			19,505			40,193			39,558
	Accounts receivable		(14,127	)		30,476			20,187			54,501
	Accounts payable and accruals		23,086			9,264			7,564			(27,868	)
	Deferred revenue		52,345			58,767			17,393			36,947
	Income taxes		(1,113	)		5,991			(43,815	)		(15,677	)
	Other		(20,619	)		33,673			(37,224	)		41,037
Net cash provided by operating activities			87,817			141,130			95,329			162,344

Capital expenditures			(5,536	)		(20,936	)		(10,243	)		(51,268	)
Acquisition of businesses, net of cash acquired ⁽¹⁾			(771	)		103			(468,520	)		(69,453	)
Borrowings (payments) on debt, net			520,000			(40,000	)		975,000			95,000
Net proceeds associated with issuance of common stock			8,980			8,798			8,980			4,158
Repurchases of common stock			-			(64,994	)		-			(64,994	)
Payments of withholding taxes in connection with
	vesting of stock-based awards		(722	)		(703	)		(23,571	)		(34,491	)
Proceeds from (purchase of) investment			-			(7,500	)		-			(7,500	)
Contingent consideration			-			-			-			(1,575	)
Credit facility origination costs			(15,261	)		-			(16,266	)		-
Other financing & investing activities			2,983			1,205			2,020			(119	)
Foreign exchange impact on cash			(7,731	)		196			(5,740	)		2,237

Net change in cash, cash equivalents, and restricted cash			589,759			17,299			556,989			34,339
Cash, cash equivalents, and restricted cash, beginning of period			237,919			278,133			270,689			261,093
Cash, cash equivalents, and restricted cash, end of period		$	827,678		$	295,432		$	827,678		$	295,432


		Three Months Ended						Six Months Ended
		March 28,			March 30,			March 28,			March 30,
			2020			2019			2020			2019
Cash provided by operating activities			87,817			141,130			95,329			162,344
Capital expenditures			(5,536	)		(20,936	)		(10,243	)		(51,268	)
	Free cash flow ⁽²⁾		82,281			120,194			85,086			111,076

(1)	In the three months ended December 28, 2019, we acquired Onshape for $468 million, net of cash acquired. In the three months ended December 29, 2018, we acquired Frustum for $70 million, net of cash acquired.
(2)	Free cash flow includes $18.0 million and $21.3 million of restructuring payments in the three and six months ended March 28, 2020, respectively, compared with $9.6 million and $17.9 million in the three and six months ended March 30, 2019. Free cash flow includes $2.1 million and $8.6 million of acquisition-related payments for the three and six months ended March 28, 2020, respectively. There were no acquisition-related payments in the first half of 2019.

Important Disclosures

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