BOSTON--(BUSINESS WIRE)--PTC (NASDAQ: PTC) today reported financial results for its fiscal second quarter 2019.
Financial Summary - ASC 606 (1)
- Revenue of $290 million
- GAAP net loss was $44 million or ($0.37) per diluted share; non-GAAP net income was $26 million or $0.22 per diluted share
- GAAP operating margin of (8%); non-GAAP operating margin of 15%
Financial Summary ASC 605 (1)
- Revenue of $315 million
- GAAP net loss was $12 million or ($0.10) per diluted share; non-GAAP net income was $45 million or $0.38 per diluted share
- GAAP operating margin of 0%; non-GAAP operating margin of 21%
(1) We adopted ASC 606 on October 1, 2018, which impacted our reported financial results, including the timing and classification of revenue. For comparability purposes, and unless otherwise specified, the amounts included in the commentary below refer to results under ASC 605, as shown in our financial statements, including the notes thereto.
“We are pleased with our second quarter financial performance with revenue, margin and EPS at or above the high end of our guidance range,” said James Heppelmann, President and CEO, PTC. “Bookings growth of 18% year over year in constant currency was driven by a strong quarter for IoT, with IoT bookings growth well above the estimated 30-40% market growth rate. With our subscription business model transition complete, we were pleased to deliver Subscription bookings mix above 90%.”
Other second quarter 2019 results:
Additional operating and
financial highlights are set forth below. Information about our bookings
and other reporting measures (as updated) is provided 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 investor.ptc.com.
Additional Operating Highlights:
License and subscription bookings: Q2’19 license and subscription bookings were $112 million, an increase of 18% on a constant currency basis, driven by a strong quarter for IoT; for the first time IoT bookings surpassed both CAD and PLM in the quarter.
Software revenue: Q2’19 software revenue was $277 million, an increase of 6% year over year or 8% in constant currency.
Recurring Software revenue: Q2’19 software recurring revenue was $266 million, an increase of 11% year over year or 14% in constant currency.
IoT software revenue: Q2’19 IoT software revenue was $37 million, up 27% year over year or 30% on a constant currency basis, driven by 48% constant currency growth in subscription revenue.
Annualized recurring revenue (ARR): Q2’19 ARR was $1,065 million, a constant currency increase of 15% year over year and the ninth consecutive quarter of double-digit year-over-year growth.
Deferred revenue: Billed deferred revenue increased 11% year over year to $554 million. Total deferred revenue – billed and unbilled - increased $61 million year over year, despite a 400-basis point currency headwind. Billed deferred revenue primarily relates to software agreements invoiced to customers for which the revenue has not yet been recognized. Billed deferred revenue fluctuates quarterly based upon the contractual billing dates in our recurring revenue contracts, and the timing of our fiscal reporting periods. Additionally, total deferred revenue is impacted by changes in FX rates and the length of new and renewal contracts.
Operating margin: GAAP operating margin in the second quarter was 0%, compared to 7% in the same period last year driven by restructuring charges associated with the relocation of our headquarters; non-GAAP operating margin was 21%, compared to 18% in the same period last year.
Operating cash flow and free cash flow: Operating cash flow in the second quarter was $141 million, up 27% over Q2’18, and free cash flow was $120 million, up 13% over Q2’18. Free cash flow in Q2’19 includes cash payments of approximately $10 million related to our restructuring plan, including the relocation of our headquarters.
Total cash, cash equivalents, and marketable securities: As of the end of the second quarter total cash, cash equivalents, and marketable securities was $351 million and total debt, net of deferred issuance costs, was $739 million. During the second quarter we used $65 million to repurchase 725,000 shares.
Restructuring: The restructuring charge in the second quarter related to exiting our headquarters in Needham was $27 million.
Other information – Q2’19 subscription bookings: Bookings include a $7.5 million IoT booking for which the contract terms were approved on March 30, but for which the electronic signature process was not fully complete until the morning of March 31.
Management's 2019 Financial Outlook:
The Company's third
quarter and fiscal year 2019 revenue and diluted earnings per share
guidance is provided below. The revenue and diluted earnings per share
guidance is provided on both a GAAP and a non-GAAP basis, and in
accordance with both ASC 606 and ASC 605. Non-GAAP financial measures
exclude the income statement effects of acquisition adjustments to
deferred revenue, stock-based compensation, amortization of acquired
intangible assets, acquisition-related transaction costs, restructuring
charges and measurement-period adjustments related to the Tax Cuts and
Jobs Act.
Fiscal 2019 Business Outlook – ASC 606
For the third quarter
and fiscal year ending September 30, 2019, the company expects:
| In millions except per share amounts | ||||||||||
| Operating Measures (1) |
Q3’19 |
Q3’19 |
FY’19 |
FY’19 |
||||||
| Subscription ACV | $51 | $55 | $ 207 | $ 217 | ||||||
| License and Subscription Bookings | $110 | $120 | $ 485 | $ 505 | ||||||
| Subscription % of Bookings | 92% | 92% | 86% | 86% | ||||||
| (1) An explanation of the metrics included in this table is provided below. | ||||||||||
| Financial Measures (1) |
Q3’19 |
Q3’19 |
FY’19 |
FY’19 |
||||||
| Total Subscription Revenue | $138 | $147 | $ 596 | $ 616 | ||||||
| Perpetual Support Revenue | $100 | $103 | $419 | $424 | ||||||
| Total Recurring Revenue | $238 | $250 | $1,015 | $1,040 | ||||||
| Perpetual License Revenue | $9 | $10 | $70 | $73 | ||||||
| Total Software Revenue | $247 | $260 | $1,084 | $1,112 | ||||||
| Professional Services Revenue | $41 | $43 | $166 | $168 | ||||||
| Total Revenue | $288 | $303 | $ 1,250 | $ 1,280 | ||||||
| Operating Expense (GAAP) | $211 | $212 | $ 886 | $ 890 | ||||||
| Operating Expense (Non-GAAP) | $180 | $182 | $715 | $718 | ||||||
| Operating Margin (GAAP) | (1%) | 4% | 3% | 6% | ||||||
| Operating Margin (Non-GAAP) | 13% | 17% | 20% | 22% | ||||||
| Tax Rate (GAAP) | (50%) | (50%) | (60%) | (60%) | ||||||
| Tax Rate (Non-GAAP) | 18% | 18% | 19% | 18% | ||||||
| Shares Outstanding | 118 | 118 | 118 | 118 | ||||||
| EPS (GAAP) | ($0.15) | $0.03 | $ 0.02 | $ 0.44 | ||||||
| EPS (Non-GAAP) | $0.20 | $0.30 | $1.45 | $ 1.70 | ||||||
| Free Cash Flow | $ 265 | $ 275 | ||||||||
| Adjusted Free Cash Flow | $ 290 | $ 300 | ||||||||
(1) The third quarter and fiscal 2019 non-GAAP operating expense, 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). Adjusted free cash flow excludes $25 million of restructuring payments related to our workforce realignment and headquarters relocation. From a cash perspective, the free rent and estimated sublease income over the first 18 months on our Seaport headquarters total approximately $30 million, as compared to the estimated cash outflows of $34 million on the Needham headquarters facility, which will be incurred over the next 44 months.
|
In millions |
Q3’19 | FY’19 | |||
| Effect of acquisition accounting on fair value of acquired deferred revenue | $0 | $1 | |||
| Acquisition-related charges | - | 1 | |||
| Restructuring and headquarters relocation charges (1) | - | 45 | |||
| Intangible asset amortization expense | 13 | 51 | |||
| Stock-based compensation expense | 28 | 114 | |||
| Total Estimated Pre-Tax GAAP adjustments | $41 | $212 | |||
(1) Includes $16 million related to our workforce realignment recorded in the first quarter of 2019 and $29 million recorded in the first and second quarters of 2019 related to lease commitments and accelerated depreciation expense associated with exiting the Needham headquarters facility and relocating to our new worldwide headquarters in the Boston Seaport District, which occurred in January 2019.
Fiscal 2019 Business Outlook – ASC 605
For the third quarter
and fiscal year ending September 30, 2019, the company expects:
| In millions except per share amounts | ||||||||||
| Operating Measures (1) |
Q3’19 |
Q3’19 |
FY’19 |
FY’19 |
||||||
| Subscription ACV | $51 | $55 | $ 207 | $ 217 | ||||||
| License and Subscription Bookings | $110 | $120 | $ 485 | $ 505 | ||||||
| Subscription % of Bookings | 92% | 92% | 86% | 86% | ||||||
| (1) An explanation of the metrics included in this table is provided below. | ||||||||||
| Financial Measures |
Q3’19 |
Q3’19 |
FY’19 |
FY’19 |
||||||
| Subscription Revenue | $166 | $170 | $ 664 | $ 670 | ||||||
| Support Revenue | $105 | $105 | $424 | $425 | ||||||
| Perpetual License Revenue | $9 | $10 | $70 | $73 | ||||||
| Total Software Revenue | $280 | $285 | $1,158 | $1,168 | ||||||
| Professional Services Revenue | $40 | $40 | $155 | $157 | ||||||
| Total Revenue | $320 | $325 | $ 1,313 | $ 1,325 | ||||||
| Operating Expense (GAAP) | $221 | $223 | $ 912 | $917 | ||||||
| Operating Expense (Non-GAAP) | $190 | $ 192 | $740 | $745 | ||||||
| Operating Margin (GAAP) | 5% | 7% | 6% | 7% | ||||||
| Operating Margin (Non-GAAP) | 18% | 19% | 23% | 23% | ||||||
| Tax Rate (GAAP) | 30% | 30% | 30% | 30% | ||||||
| Tax Rate (Non-GAAP) | 19% | 18% | 19% | 18% | ||||||
| Shares Outstanding | 118 | 118 | 118 | 118 | ||||||
| EPS (GAAP) | $0.03 | $0.07 | $ 0.25 | $ 0.32 | ||||||
| EPS (Non-GAAP) | $0.31 | $0.36 | $ 1.75 | $ 1.85 | ||||||
| Free Cash Flow | $ 265 | $ 275 | ||||||||
| Adjusted Free Cash Flow | $ 290 | $ 300 | ||||||||
The third quarter and fiscal 2019 non-GAAP operating expense, 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). Adjusted free cash flow excludes $25 million of restructuring payments related to our workforce realignment and headquarters relocation. From a cash perspective, the free rent and estimated sublease income over the first 18 months on our Seaport headquarters total approximately $30 million, as compared to the estimated cash outflows of $34 million on the Needham headquarters facility, which will be incurred over the next 44 months.
|
In millions |
Q3’19 | FY’19 | |||
| Effect of acquisition accounting on fair value of acquired deferred revenue | $0 | $1 | |||
| Acquisition-related charges | - | 1 | |||
| Restructuring and headquarters relocation charges (1) | - | 45 | |||
| Intangible asset amortization expense | 13 | 51 | |||
| Stock-based compensation expense | 28 | 114 | |||
| Total Estimated Pre-Tax GAAP adjustments | $41 | $212 | |||
(1) Includes $16 million related to our workforce realignment recorded in the first quarter of 2019 and $29 million recorded in the first and second quarters of 2019 related to lease commitments and accelerated depreciation expense associated with exiting the Needham headquarters facility and relocating to our new worldwide headquarters in the Boston Seaport District, which occurred in January 2019.
PTC’s Fiscal Second 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, April 24, 2019. 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 dialling 866-483-9088 and entering the
passcode 8020. The archived webcast will also be available on PTC’s
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
and a subscription, we use bookings for internal planning, forecasting
and reporting of new license and cloud services transaction (as
subscription bookings includes cloud services bookings).
In order to normalize between perpetual and subscription licenses, we define subscription bookings as the subscription annualized contract value (subscription ACV) of new subscription contracts 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 contract (which may include annual values that increase over time) divided by the term of the contract (in days) multiplied by 365. If the term of the subscription contract is less than a year, and is not associated with an existing contract, the booking is equal to the total contract value. Beginning in Q3’18, minimum ACV commitments under our Strategic Alliance Agreement with Rockwell Automation are included in subscription ACV if the period-to-date minimum ACV commitment exceeds actual ACV sold under the Agreement.
License and subscription bookings equal subscription bookings (as described above) plus perpetual license bookings. 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.
Billed Deferred Revenue primarily relates to software agreements invoiced to customers for which the revenue has not yet been recognized. Billed deferred revenue can fluctuate quarterly based upon the contractual billing dates in our recurring revenue contracts and the timing of our fiscal reporting periods. Additionally, total deferred revenue is impacted by changes in FX rates and the length of new and renewal contracts.
Unbilled Deferred Revenue is the aggregate of booked orders for license, support and subscription (including multi-year subscription contracts with start dates after October 1, 2018 that are subject to a limited annual cancellation right) 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; we record such amounts as deferred revenue when we invoice the customer.
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.
Navigate Allocation
Revenue and
bookings for Navigate™, a ThingWorx-based IoT solution for PLM, are
allocated 50% to Solutions and 50% to IoT.
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 subscriptions 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, (3) multiple other contractual factors
with the customer including other elements sold with the subscription or
support contract, and (4) the impact of currency fluctuations. These
factors can cause disclosed ARR to vary.
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 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 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 and other transactional charges included in general and administrative costs, restructuring and headquarters relocation 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” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
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 future financial and growth expectations and targets, 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 due to, among other factors, the geopolitical
environment, including the focus on technology transactions with
non-U.S. entities and potential expanded prohibitions, and ongoing trade
tensions and tariffs; customers may not purchase our solutions or
convert existing support contracts to subscription when or at the rates
we expect; our businesses, including our Internet of Things (IoT)
business, and Augmented Reality 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
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; bookings associated with minimum ACV
commitments under our Strategic Alliance Agreement with Rockwell
Automation may not result in subscription contracts sold through to
end-user customers; our strategic initiatives and investments may not
generate the revenue 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 generate sufficient operating cash flow to
return 40% of free cash flow to shareholders and other uses of cash or
our credit facility limits or other matters 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.
About PTC (NASDAQ: PTC)
PTC
unleashes industrial innovation with award-winning, market-proven
solutions that enable companies to differentiate their products and
services, improve operational excellence, and increase workforce
productivity. With PTC, and its partner ecosystem, manufacturers can
capitalize on the promise of today’s new technology to drive digital
transformation.
| PTC Inc. | |||||||||||||
| UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| Three Months Ended | |||||||||||||
| March 30, | March 30, | March 31, | |||||||||||
| 2019 | 2019 | 2018 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | |||||||||||
| Revenue: | |||||||||||||
| Subscription license | $ | 51,540 | |||||||||||
| Subscription support & cloud services | 83,228 | ||||||||||||
| Total Subscription | 134,768 | $ | 162,070 | $ | 112,931 | ||||||||
| Perpetual support | 104,417 | 103,564 | 126,683 | ||||||||||
| Total recurring revenue | 239,185 | 265,634 | 239,614 | ||||||||||
| Perpetual license | 10,336 | 11,267 | 22,839 | ||||||||||
| Total software revenue | 249,521 | 276,901 | 262,453 | ||||||||||
| Professional services | 40,930 | 38,598 | 45,430 | ||||||||||
| Total revenue (1) | 290,451 | 315,499 | 307,883 | ||||||||||
| Cost of revenue: | |||||||||||||
| Cost of software revenue (2) (3) | 45,749 | 45,222 | 46,189 | ||||||||||
| Cost of professional services revenue (2) (3) | 34,155 | 32,745 | 37,519 | ||||||||||
| Total cost of revenue | 79,904 | 77,967 | 83,708 | ||||||||||
| Gross margin | 210,547 | 237,532 | 224,175 | ||||||||||
| Operating expenses: | |||||||||||||
| Sales and marketing (2) (3) | 103,722 | 109,421 | 98,390 | ||||||||||
| Research and development (2) (3) | 61,402 | 61,402 | 62,197 | ||||||||||
| General and administrative (2) (3) | 35,371 | 35,371 | 33,369 | ||||||||||
| Amortization of acquired intangible assets | 5,930 | 5,930 | 7,895 | ||||||||||
| Restructuring and other charges, net | 26,980 | 26,980 | 114 | ||||||||||
| Total operating expenses | 233,405 | 239,104 | 201,965 | ||||||||||
| Operating income (loss) | (22,858 | ) | (1,572 | ) | 22,210 | ||||||||
| Other expense, net (3) | (10,562 | ) | (10,318 | ) | (10,664 | ) | |||||||
| Income (loss) before income taxes | (33,420 | ) | (11,890 | ) | 11,546 | ||||||||
| Provision for income taxes | 10,093 | 140 | 3,624 | ||||||||||
| Net income (loss) | $ | (43,513 | ) | $ | (12,030 | ) | $ | 7,922 | |||||
| Earnings (loss) per share: | |||||||||||||
| Basic | $ | (0.37 | ) | $ | (0.10 | ) | $ | 0.07 | |||||
| Weighted average shares outstanding | 118,461 | 118,461 | 116,241 | ||||||||||
| Diluted | $ | (0.37 | ) | $ | (0.10 | ) | $ | 0.07 | |||||
| Weighted average shares outstanding | 118,461 | 118,461 | 117,905 | ||||||||||
|
|
|||||||||||||
| (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. | |
| (3) | In the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) 2017-07 - Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost. In accordance with this guidance, we reclassified $0.2 million of non-service related net periodic pension income to other expense, net from cost of revenue and operating expenses for the three months ended March 31, 2018. | |
| PTC Inc. | |||||||||||||
| UNAUDITED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| Six Months Ended | |||||||||||||
| March 30, | March 30, | March 31, | |||||||||||
| 2019 | 2019 | 2018 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | |||||||||||
| Revenue: | |||||||||||||
| Subscription license | $ | 115,057 | |||||||||||
| Subscription support & cloud services | 160,652 | ||||||||||||
| Total Subscription | 275,709 | $ | 310,483 | $ | 212,939 | ||||||||
| Perpetual support | 214,914 | 212,789 | 257,880 | ||||||||||
| Total recurring revenue | 490,623 | 523,272 | 470,819 | ||||||||||
| Perpetual license | 52,141 | 53,017 | 56,824 | ||||||||||
| Total software revenue | 542,764 | 576,289 | 527,643 | ||||||||||
| Professional services | 82,376 | 77,967 | 86,884 | ||||||||||
| Total revenue (1) | 625,140 | 654,256 | 614,527 | ||||||||||
| Cost of revenue: | |||||||||||||
| Cost of software revenue (2) (3) | 89,509 | 88,199 | 92,805 | ||||||||||
| Cost of professional services revenue (2) (3) | 67,747 | 64,964 | 73,938 | ||||||||||
| Total cost of revenue | 157,256 | 153,163 | 166,743 | ||||||||||
| Gross margin | 467,884 | 501,093 | 447,784 | ||||||||||
| Operating expenses: | |||||||||||||
| Sales and marketing (2) (3) | 207,940 | 216,725 | 197,765 | ||||||||||
| Research and development (2) (3) | 122,184 | 122,184 | 126,169 | ||||||||||
| General and administrative (2) (3) | 73,235 | 73,235 | 68,389 | ||||||||||
| Amortization of acquired intangible assets | 11,866 | 11,866 | 15,716 | ||||||||||
| Restructuring and other charges, net | 45,473 | 45,473 | 219 | ||||||||||
| Total operating expenses | 460,698 | 469,483 | 408,258 | ||||||||||
| Operating income | 7,186 | 31,610 | 39,526 | ||||||||||
| Other expense, net (3) | (20,184 | ) | (20,046 | ) | (21,509 | ) | |||||||
| Income (loss) before income taxes | (12,998 | ) | 11,564 | 18,017 | |||||||||
| Provision (benefit) for income taxes (4) | 9,530 | 4,346 | (3,782 | ) | |||||||||
| Net income (loss) | $ | (22,528 | ) | $ | 7,218 | $ | 21,799 | ||||||
| Earnings (loss) per share: | |||||||||||||
| Basic | $ | (0.19 | ) | $ | 0.06 | $ | 0.19 | ||||||
| Weighted average shares outstanding | 118,392 | 118,392 | 115,986 | ||||||||||
| Diluted | $ | (0.19 | ) | $ | 0.06 | $ | 0.19 | ||||||
| Weighted average shares outstanding | 118,392 | 119,490 | 117,780 | ||||||||||
|
|
|||||||||||||
| (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. | |
| (3) | In the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) 2017-07 - Improving the presentation of net periodic pension cost and net periodic postretirement benefit cost. In accordance with this guidance, we reclassified $0.3 million of non-service related net periodic pension income to other expense, net from cost of revenue and operating expenses for the six months ended March 31, 2018. | |
| (4) | Our 2018 year-to-date tax rate includes a benefit of $7 million 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) | ||||||||||
| Revenue by license, support and services is as follows: | ||||||||||
| Three Months Ended | ||||||||||
| March 30, | March 30, | March 31, | ||||||||
| 2019 | 2019 | 2018 | ||||||||
| ASC 606 | ASC 605 | ASC 605 | ||||||||
| License revenue (1) | $ | 61,876 | $ | 156,131 | $ | 120,505 | ||||
| Support and cloud services revenue | 187,645 | 120,770 | 141,948 | |||||||
| Professional services revenue | 40,930 | 38,598 | 45,430 | |||||||
| Total revenue | $ | 290,451 | $ | 315,499 | $ | 307,883 | ||||
| Six Months Ended | ||||||||||
| March 30, | March 30, | March 31, | ||||||||
| 2019 | 2019 | 2018 | ||||||||
| ASC 606 | ASC 605 | ASC 605 | ||||||||
| License revenue (1) | $ | 167,198 | $ | 330,036 | $ | 240,023 | ||||
| Support and cloud services revenue | 375,566 | 246,253 | 287,620 | |||||||
| Professional services revenue | 82,376 | 77,967 | 86,884 | |||||||
| Total revenue | $ | 625,140 | $ | 654,256 | $ | 614,527 | ||||
| (1) Under ASC 605, all subscription revenue is classified as license revenue. | ||||||||||
| The amounts in the income statement include stock-based compensation as follows: | ||||||||||
| Three Months Ended | ||||||||||
| March 30, | March 30, | March 31, | ||||||||
| 2019 | 2019 | 2018 | ||||||||
| ASC 606 | ASC 605 | ASC 605 | ||||||||
| Cost of software revenue | $ | 1,206 | $ | 1,206 | $ | 1,098 | ||||
| Cost of professional services revenue | 1,906 | 1,906 | 1,669 | |||||||
| Sales and marketing | 9,522 | 9,522 | 5,038 | |||||||
| Research and development | 5,190 | 5,190 | 3,383 | |||||||
| General and administrative | 9,143 | 9,143 | 5,838 | |||||||
| Total stock-based compensation | $ | 26,967 | $ | 26,967 | $ | 17,026 | ||||
| Six Months Ended | ||||||||||
| March 30, | March 30, | March 31, | ||||||||
| 2019 | 2019 | 2018 | ||||||||
| ASC 606 | ASC 605 | ASC 605 | ||||||||
| Cost of software revenue | $ | 2,503 | $ | 2,503 | $ | 2,319 | ||||
| Cost of professional services revenue | 3,720 | 3,720 | 3,375 | |||||||
| Sales and marketing | 19,244 | 19,244 | 9,917 | |||||||
| Research and development | 10,090 | 10,090 | 6,343 | |||||||
| General and administrative | 20,817 | 20,817 | 13,403 | |||||||
| Total stock-based compensation | $ | 56,374 | $ | 56,374 | $ | 35,357 | ||||
| PTC Inc. | |||||||||||||
| NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| Three Months Ended | |||||||||||||
| March 30, | March 30, | March 31, | |||||||||||
| 2019 | 2019 | 2018 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | |||||||||||
| GAAP revenue | $ | 290,451 | $ | 315,499 | $ | 307,883 | |||||||
| Fair value adjustment of acquired deferred subscription revenue | - | - | 75 | ||||||||||
| Fair value adjustment of acquired deferred services revenue | 198 | 198 | 233 | ||||||||||
| Non-GAAP revenue | $ | 290,649 | $ | 315,697 | $ | 308,191 | |||||||
| GAAP gross margin | $ | 210,547 | $ | 237,532 | $ | 224,175 | |||||||
| Fair value adjustment of acquired deferred revenue | 198 | 198 | 308 | ||||||||||
| Fair value adjustment to deferred services cost | (77 | ) | (77 | ) | (96 | ) | |||||||
| Stock-based compensation | 3,112 | 3,112 | 2,767 | ||||||||||
| Amortization of acquired intangible assets included in cost of revenue | 6,842 | 6,842 | 6,556 | ||||||||||
| Non-GAAP gross margin | $ | 220,622 | $ | 247,607 | $ | 233,710 | |||||||
| GAAP operating income (loss) | $ | (22,858 | ) | $ | (1,572 | ) | $ | 22,210 | |||||
| Fair value adjustment of acquired deferred revenue | 198 | 198 | 308 | ||||||||||
| Fair value adjustment to deferred services cost | (77 | ) | (77 | ) | (96 | ) | |||||||
| Stock-based compensation | 26,967 | 26,967 | 17,026 | ||||||||||
| Amortization of acquired intangible assets included in cost of revenue | 6,842 | 6,842 | 6,556 | ||||||||||
| Amortization of acquired intangible assets | 5,930 | 5,930 | 7,895 | ||||||||||
| Acquisition-related and other transactional charges included in general and administrative costs | 372 | 372 | 133 | ||||||||||
| Restructuring and other charges, net | 26,980 | 26,980 | 114 | ||||||||||
| Non-GAAP operating income (1) | $ | 44,354 | $ | 65,640 | $ | 54,146 | |||||||
| GAAP net income (loss) | $ | (43,513 | ) | $ | (12,030 | ) | $ | 7,922 | |||||
| Fair value adjustment of acquired deferred revenue | 198 | 198 | 308 | ||||||||||
| Fair value adjustment to deferred services cost | (77 | ) | (77 | ) | (96 | ) | |||||||
| Stock-based compensation | 26,967 | 26,967 | 17,026 | ||||||||||
| Amortization of acquired intangible assets included in cost of revenue | 6,842 | 6,842 | 6,556 | ||||||||||
| Amortization of acquired intangible assets | 5,930 | 5,930 | 7,895 | ||||||||||
| Acquisition-related and other transactional charges included in general and administrative costs | 372 | 372 | 133 | ||||||||||
| Restructuring and other charges, net | 26,980 | 26,980 | 114 | ||||||||||
| Income tax adjustments (2) | 2,138 | (10,399 | ) | (80 | ) | ||||||||
| Non-GAAP net income | $ | 25,837 | $ | 44,783 | $ | 39,778 | |||||||
| GAAP diluted earnings (loss) per share | $ | (0.37 | ) | $ | (0.10 | ) | $ | 0.07 | |||||
| Fair value adjustment of acquired deferred revenue | - | - | - | ||||||||||
| Stock-based compensation | 0.23 | 0.23 | 0.14 | ||||||||||
| Amortization of acquired intangibles | 0.11 | 0.11 | 0.12 | ||||||||||
| Acquisition-related and other transactional charges | - | - | - | ||||||||||
| Restructuring and other charges, net | 0.23 | 0.23 | - | ||||||||||
| Income tax adjustments | 0.02 | (0.09 | ) | - | |||||||||
| Non-GAAP diluted earnings per share | $ | 0.22 | $ | 0.38 | $ | 0.34 | |||||||
| GAAP diluted weighted average shares outstanding | 118,461 | 118,461 | 117,905 | ||||||||||
| Dilutive effect of stock-based compensation plans | 881 | 881 | - | ||||||||||
| Non-GAAP diluted weighted average shares outstanding | 119,342 | 119,342 | 117,905 | ||||||||||
|
(1)Operating margin impact of non-GAAP adjustments: |
|||||||||||||
| Three Months Ended | |||||||||||||
| March 30, | March 30, | March 31, | |||||||||||
| 2019 | 2019 | 2018 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | |||||||||||
| GAAP operating margin | -7.9 | % | -0.5 | % | 7.2 | % | |||||||
| Fair value adjustment of acquired deferred revenue | 0.1 | % | 0.1 | % | 0.1 | % | |||||||
| Fair value adjustment to deferred services cost | 0.0 | % | 0.0 | % | 0.0 | % | |||||||
| Stock-based compensation | 9.3 | % | 8.5 | % | 5.5 | % | |||||||
| Amortization of acquired intangibles | 4.4 | % | 4.0 | % | 4.7 | % | |||||||
| Acquisition-related and other transactional charges | 0.1 | % | 0.1 | % | 0.0 | % | |||||||
| Restructuring and other charges, net | 9.3 | % | 8.6 | % | 0.0 | % | |||||||
| Non-GAAP operating margin | 15.3 | % | 20.8 | % | 17.6 | % | |||||||
|
|
|||||||||||||
| (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 2019 and 2018 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. | |||||||||||||
| NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) | |||||||||||||
| (in thousands, except per share data) | |||||||||||||
| Six Months Ended | |||||||||||||
| March 30, | March 30, | March 31, | |||||||||||
| 2019 | 2019 | 2018 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | |||||||||||
| GAAP revenue | $ | 625,140 | $ | 654,256 | $ | 614,527 | |||||||
| Fair value adjustment of acquired deferred subscription revenue | 66 | 66 | 191 | ||||||||||
| Fair value adjustment of acquired deferred services revenue | 405 | 405 | 480 | ||||||||||
| Non-GAAP revenue | $ | 625,611 | $ | 654,727 | $ | 615,198 | |||||||
| GAAP gross margin | $ | 467,884 | $ | 501,093 | $ | 447,784 | |||||||
| Fair value adjustment of acquired deferred revenue | 471 | 471 | 671 | ||||||||||
| Fair value adjustment to deferred services cost | (162 | ) | (162 | ) | (200 | ) | |||||||
| Stock-based compensation | 6,223 | 6,223 | 5,694 | ||||||||||
| Amortization of acquired intangible assets included in cost of revenue | 13,559 | 13,559 | 13,231 | ||||||||||
| Non-GAAP gross margin | $ | 487,975 | $ | 521,184 | $ | 467,180 | |||||||
| GAAP operating income | $ | 7,186 | $ | 31,610 | $ | 39,526 | |||||||
| Fair value adjustment of acquired deferred revenue | 471 | 471 | 671 | ||||||||||
| Fair value adjustment to deferred services cost | (162 | ) | (162 | ) | (200 | ) | |||||||
| Stock-based compensation | 56,374 | 56,374 | 35,357 | ||||||||||
| Amortization of acquired intangible assets included in cost of revenue | 13,559 | 13,559 | 13,231 | ||||||||||
| Amortization of acquired intangible assets | 11,866 | 11,866 | 15,716 | ||||||||||
| Acquisition-related and other transactional charges included in general and administrative costs | 791 | 791 | 140 | ||||||||||
| Restructuring and other charges, net | 45,473 | 45,473 | 219 | ||||||||||
| Non-GAAP operating income (1) | $ | 135,558 | $ | 159,982 | $ | 104,660 | |||||||
| GAAP net income (loss) | $ | (22,528 | ) | $ | 7,218 | $ | 21,799 | ||||||
| Fair value adjustment of acquired deferred revenue | 471 | 471 | 671 | ||||||||||
| Fair value adjustment to deferred services cost | (162 | ) | (162 | ) | (200 | ) | |||||||
| Stock-based compensation | 56,374 | 56,374 | 35,357 | ||||||||||
| Amortization of acquired intangible assets included in cost of revenue | 13,559 | 13,559 | 13,231 | ||||||||||
| Amortization of acquired intangible assets | 11,866 | 11,866 | 15,716 | ||||||||||
| Acquisition-related and other transactional charges included in general and administrative costs | 791 | 791 | 140 | ||||||||||
| Restructuring and other charges, net | 45,473 | 45,473 | 219 | ||||||||||
| Income tax adjustments (2) | (12,718 | ) | (22,540 | ) | (11,080 | ) | |||||||
| Non-GAAP net income | $ | 93,126 | $ | 113,050 | $ | 75,853 | |||||||
| GAAP diluted earnings (loss) per share | $ | (0.19 | ) | $ | 0.06 | $ | 0.19 | ||||||
| Fair value adjustment of acquired deferred revenue | - | - | 0.01 | ||||||||||
| Stock-based compensation | 0.47 | 0.47 | 0.30 | ||||||||||
| Amortization of acquired intangibles | 0.21 | 0.21 | 0.25 | ||||||||||
| Acquisition-related and other transactional charges | 0.01 | 0.01 | - | ||||||||||
| Restructuring and other charges, net | 0.38 | 0.38 | - | ||||||||||
| Income tax adjustments | (0.11 | ) | (0.19 | ) | (0.09 | ) | |||||||
| Non-GAAP diluted earnings per share | $ | 0.78 | $ | 0.95 | $ | 0.64 | |||||||
| GAAP diluted weighted average shares outstanding | 118,392 | 119,490 | 117,780 | ||||||||||
| Dilutive effect of stock-based compensation plans | 1,098 | - | - | ||||||||||
| Non-GAAP diluted weighted average shares outstanding | 119,490 | 119,490 | 117,780 | ||||||||||
|
(1) Operating margin impact of non-GAAP adjustments: |
|||||||||||||
| Six Months Ended | |||||||||||||
| March 30, | March 30, | March 31, | |||||||||||
| 2019 | 2019 | 2018 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | |||||||||||
| GAAP operating margin | 1.1 | % | 4.8 | % | 6.4 | % | |||||||
| Fair value adjustment of acquired deferred revenue | 0.1 | % | 0.1 | % | 0.1 | % | |||||||
| Fair value adjustment to deferred services cost | 0.0 | % | 0.0 | % | 0.0 | % | |||||||
| Stock-based compensation | 9.0 | % | 8.6 | % | 5.8 | % | |||||||
| Amortization of acquired intangibles | 4.1 | % | 3.9 | % | 4.7 | % | |||||||
| Acquisition-related and other transactional charges | 0.1 | % | 0.1 | % | 0.0 | % | |||||||
| Restructuring and other charges, net | 7.3 | % | 7.0 | % | 0.1 | % | |||||||
| Non-GAAP operating margin | 21.7 | % | 24.4 | % | 17.0 | % | |||||||
|
|
|||||||||||||
| (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 2019 and 2018 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) | ||||||||||
| March 30, | March 30, | September 30, | ||||||||
| 2019 | 2019 | 2018 | ||||||||
| ASC 606 (1) | ASC 605 | ASC 605 | ||||||||
| ASSETS | ||||||||||
| Cash and cash equivalents | $ | 294,299 | $ | 294,299 | $ | 259,946 | ||||
| Marketable securities | 56,415 | 56,415 | 55,951 | |||||||
| Accounts receivable, net | 352,217 | 110,510 | 129,297 | |||||||
| Property and equipment, net | 106,837 | 106,837 | 80,613 | |||||||
| Goodwill and acquired intangible assets, net | 1,421,913 | 1,421,913 | 1,382,659 | |||||||
| Other assets | 484,138 | 490,722 | 420,556 | |||||||
| Total assets | $ | 2,715,819 | $ | 2,480,696 | $ | 2,329,022 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
| Deferred revenue | $ | 391,807 | $ | 553,709 | $ | 499,442 | ||||
| Debt, net of deferred issuance costs | 738,700 | 738,700 | 643,268 | |||||||
| Other liabilities | 337,604 | 275,359 | 311,723 | |||||||
| Stockholders' equity | 1,247,708 | 912,928 | 874,589 | |||||||
| Total liabilities and stockholders' equity | $ | 2,715,819 | $ | 2,480,696 | $ | 2,329,022 | ||||
|
|
||||||||||
| (1) | Our consolidated balance sheet as of March 30, 2019 under ASC 606 is preliminary, pending final adjustments required as a result of our adoption of ASC 606 in the first quarter of 2019. We expect the adjustments to be finalized prior to the filing of our Form 10-Q for the second quarter of 2019. | |
| PTC Inc. | |||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||
| (in thousands) | |||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| March 30, | March 31, | March 30, | March 31, | ||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income (loss) | $ | (43,513 | ) | $ | 7,922 | $ | (22,528 | ) | $ | 21,799 | |||||||
| Stock-based compensation | 26,967 | 17,026 | 56,374 | 35,357 | |||||||||||||
| Depreciation and amortization | 19,505 | 21,681 | 39,558 | 42,727 | |||||||||||||
| Accounts receivable | 30,476 | 10,424 | 54,501 | 32,027 | |||||||||||||
| Accounts payable and accruals | 9,264 | 13,927 | (27,868 | ) | (39,130 | ) | |||||||||||
| Deferred revenue | 58,767 | 36,972 | 36,947 | 59,027 | |||||||||||||
| Income taxes | 5,991 | 138 | (15,677 | ) | (14,134 | ) | |||||||||||
| Other (1) | 33,673 | 2,993 | 41,037 | (1,075 | ) | ||||||||||||
| Net cash provided by operating activities (3) | 141,130 | 111,083 | 162,344 | 136,598 | |||||||||||||
| Capital expenditures | (20,936 | ) | (4,762 | ) | (51,268 | ) | (11,139 | ) | |||||||||
| Acquisition of businesses, net of cash acquired (2) | 103 | (3,000 | ) | (69,453 | ) | (3,000 | ) | ||||||||||
| Purchase of intangible asset | - | (500 | ) | - | (3,000 | ) | |||||||||||
| Borrowings (payments) on debt, net | (40,000 | ) | (100,000 | ) | 95,000 | (70,000 | ) | ||||||||||
| Net proceeds associated with issuance of common stock | 8,798 | 7,472 | 4,158 | 7,472 | |||||||||||||
| Repurchases of common stock | (64,994 | ) | - | (64,994 | ) | - | |||||||||||
|
|
- | ||||||||||||||||
|
Payments of withholding taxes in connection with vesting of stock-based awards |
(703 | ) | (454 | ) | (34,491 | ) | (33,942 | ) | |||||||||
| Proceeds from (purchase of) investment | (7,500 | ) | - | (7,500 | ) | - | |||||||||||
| Contingent consideration | - | - | (1,575 | ) | (3,176 | ) | |||||||||||
| Purchases of marketable securities, net | (504 | ) | (5,046 | ) | (233 | ) | (5,554 | ) | |||||||||
| Other financing & investing activities | 1,709 | - | 114 | - | |||||||||||||
| Foreign exchange impact on cash | 196 | 3,239 | 2,237 | 5,837 | |||||||||||||
| Net change in cash, cash equivalents, and restricted cash (1) | 17,299 | 8,032 | 34,339 | 20,096 | |||||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 278,133 | 293,273 | 261,093 |
|
281,209 | ||||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 295,432 | $ | 301,305 | $ | 295,432 | $ | 301,305 | |||||||||
| (1) | In the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) 2016-18 - Statement of Cash Flows (Topic 230). In accordance with this guidance, we excluded the $0.1 million decrease and $0.3 million increase related to the change in restricted cash from the change in other current assets for the three months and six months ended March 31, 2018, respectively. | |
| (2) | On December 29, 2018, we acquired Frustum for $70 million, net of cash acquired. | |
| (3) | Our consolidated cash flows as of March 30, 2019 under ASC 606 is preliminary, pending final balance sheet adjustments required as a result of our adoption of ASC 606 in the first quarter of 2019, which will impact components of operating cash flow, but not total cash from operating activities. We expect the adjustments to be finalized prior to the filing of our Form 10-Q for the second quarter of 2019. | |
