PTC Inc.
Jul 28, 2009

PTC Announces Q3 Results

Issues Q4 Guidance and Fiscal Year 2009 Targets

NEEDHAM, Mass.--(BUSINESS WIRE)--Jul. 28, 2009-- PTC (Nasdaq: PMTC), The Product Development Company®, today reported results for its third fiscal quarter ended July 4, 2009.

Highlights

The Q3 non-GAAP results exclude a $6.6 million restructuring charge, $11.5 million of stock-based compensation expense, $9.4 million of acquisition-related intangible asset amortization and in-process research and development expenses and $8.3 million of income tax adjustments. The Q3 results include a non-GAAP tax rate of 21% and a GAAP tax benefit rate of 153%.

Q3 Results Commentary & Outlook

C. Richard Harrison, chairman and chief executive officer, commented, “On a constant currency and non-GAAP basis, our total Q3 revenue was down 11% compared to last year, which in this challenging economy highlights the stability provided by our maintenance and services businesses. Importantly, on a sequential basis we are seeing a number of positive data points: 1) total revenue is stabilizing, 2) we delivered license revenue growth in all of our major geographies except Japan, 3) active maintenance paying seats are up, driven by Windchill seat growth, and 4) we won three additional strategically important “domino” accounts during Q3.”

“Our pipeline for new business opportunities remains strong and lead times to close enterprise deals seem to be shortening,” continued Harrison. “We received major orders from leading organizations such as BAE Systems, Caterpillar, EDF Group, Knorr Bremse, Komatsu America Corporation, NASA, Otis Elevator, Raytheon, RWTH Aachen University, and the US Army.”

James Heppelmann, president and chief operating officer added, “We believe that our technology leadership position in the industry is becoming increasingly clear. In addition to competitive displacement wins in the market, PTC continues to be on the forefront of innovation with our social product development initiative and partnership with Microsoft, our growing product analytics platform, and our Arbortext product information delivery solutions. We are very optimistic about the long-term opportunity for PTC and will continue to make strategic investments that we believe are critical to delivering value to our customers and gaining market share, while remaining mindful of our goal of 20% non-GAAP EPS growth for 2010 and beyond.”

Neil Moses, chief financial officer, commented, “Our Q3 operating margins and EPS were stronger than expected primarily due to stronger than expected license revenue, favorable currency impact as well as a lower than anticipated tax rate. Our balance sheet remains strong with $231 million of cash, down from $268 million in Q2 primarily due to our acquisition of Relex, which we acquired in June to further expand our product analytics platform. We also have an additional $175 million

available on our revolving credit facility.”

“Looking forward to Q4, we are initiating guidance of $235 to $245 million in revenue with non-GAAP EPS of $0.25 to $0.30,” continued Moses. “Consequently, we are now targeting FY’09 revenue of approximately $931 million, 13% non-GAAP operating margins, and non-GAAP EPS of approximately $0.77.”

The Q4 guidance assumes a non-GAAP tax rate of 20%, a GAAP tax benefit rate in excess of 40% and 119 million diluted shares outstanding. The Q4 non-GAAP guidance excludes approximately $14 million of stock-based compensation expense, $9 million of acquisition-related intangible asset amortization expense, $10 million of restructuring related expense and the related income tax effects.

The FY’09 target assumes a non-GAAP tax rate of 21%, a GAAP tax benefit rate in excess of 130% and 117 million diluted shares outstanding. The FY’09 non-GAAP guidance excludes approximately $43 million of stock-based compensation expense, $36 million of acquisition-related intangible asset amortization and in-process research and development expense, $26 million of restructuring related expense and the related income tax effects.

Q3 Earnings Conference Call and Webcast

Supplemental financial and operating metric information and prepared remarks for the conference call will be posted to the investor relations section of our website simultaneously with this press release. The prepared remarks will not be read live; the call will be primarily Q&A.

When:

  Wednesday, July 29, 2009 at 8:30 a.m. Eastern Time
 

Dial-in:

1-888-566-8560 or 1-517-623-4768
Call Leader: Richard Harrison with Passcode: PTC
 

Webcast:

http://www.ptc.com/for/investors.htm

 

Replay:

The audio replay of this event will be archived for public replay until 4:00 p.m. on August 3, 2009
at 1-800-925-5415 or 1-402-530-8074. To access the replay via webcast, please visit

http://www.ptc.com/for/investors.htm.

Important Information About Non-GAAP References

PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue excludes the effect of purchase accounting on the fair value of the acquired deferred revenue of CoCreate Software GmbH. Non-GAAP operating expenses, margin and EPS exclude stock-based compensation expense, amortization of acquired intangible assets, acquired in-process research and development expense, restructuring charges, non-cash effects of liquidating subsidiaries, and the related tax effects of the preceding items and any one-time tax items, such as valuation allowance reversals. PTC provides this non-GAAP information to facilitate period-to-period comparisons of its operational performance by adjusting for certain non-cash and certain episodic expenses. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies. PTC management also uses this and other non-GAAP financial information to evaluate, manage and plan our business because the information provides additional insight into ongoing financial performance. 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 use, non-GAAP measures in conjunction with our GAAP results.

About PTC (www.ptc.com)

Statements in this news release that are not historic facts, including statements about our fiscal 2009 and other future expectations, financial targets, anticipated tax rates, the expected impact of our planned strategic investments on our future success, the stability of our maintenance and services businesses, and the long-term prospects for PTC 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 our customers may further reduce, defer or forego investment in our solutions in the current economic climate, the possibility that our customers may not renew maintenance or enter into services engagements at historic rates, the possibility that our strategic investments may not have the effects we expect, the possibility that we will experience a shortfall in revenue that causes us to decrease or eliminate planned strategic investments in our business, the possibility that our efforts to reduce our operating expenses may not have the effects we expect and could harm our operations, the possibility that we may be unable to attain or maintain a technology leadership position, and the possibility that we may be unable to draw from our revolving credit facility when or to the extent we decide to do so. 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 (including restructuring charges) 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 Quarterly Report on Form 10-Q and Annual Report on Form 10-K.

PTC, The Product Development Company, and all other PTC product names and logos are trademarks or registered trademarks of Parametric Technology Corporation 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.



PARAMETRIC TECHNOLOGY CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
     
Three Months Ended Nine Months Ended
July 4, June 28, July 4, June 28,
2009   2008 2009   2008
Revenue:
License $ 49,450 $ 79,911 $ 142,022 $ 228,748
Service   176,709     191,837     549,820     542,035  
Total revenue   226,159     271,748     691,842     770,783  
 
Costs and expenses:
Cost of license revenue(1) 7,644 8,980 22,204 20,563
Cost of service revenue(1) 66,162 76,582 214,205 221,437
Sales and marketing(1) 73,823 78,762 225,072 223,149
Research and development(1) 46,562 47,374 139,675 134,656
General and administrative(1) 19,245 20,294 58,375 64,653
Amortization of acquired intangible assets 3,827 4,044 11,510 11,252
In-process research and development 300 -- 300 1,887
Restructuring charges   6,609     3,790     16,397     15,367  
Total costs and expenses   224,172     239,826     687,738     692,964  
 
Operating income 1,987 31,922 4,104 77,819
Other expense, net   (491 )   (7,110 )   (1,812 )   (5,859 )
Income before income taxes 1,496 24,812 2,292 71,960
Provision for (benefit from) income taxes   (2,292 )   10,342     (13,330 )   28,762  
Net income $ 3,788   $ 14,470   $ 15,622   $ 43,198  
Earnings per share:
Basic $ 0.03 $ 0.13 $ 0.14 $ 0.38
Weighted average shares outstanding 115,194 113,491 114,843 113,661
Diluted $ 0.03 $ 0.12 $ 0.13 $ 0.37
Weighted average shares outstanding 117,074 117,363 116,691 117,565

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

Three Months Ended   Nine Months Ended
July 4,   June 28, July 4,   June 28,
2009 2008 2009 2008
Cost of license revenue $ 11 $ 12 $ 28 $ 26
Cost of service revenue 2,055 2,298 5,601 6,867
Sales and marketing 3,491 3,130 8,592 8,933
Research and development 1,986 2,322 5,810 6,929
General and administrative   3,969   3,387   8,742   9,926
Total stock-based compensation $ 11,512 $ 11,149 $ 28,773 $ 32,681
PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
     
Three Months Ended Nine Months Ended
July 4, June 28, July 4, June 28,
2009   2008   2009   2008
GAAP revenue $ 226,159 $ 271,748 $ 691,842 $ 770,783
Fair value adjustment of acquired CoCreate deferred maintenance revenue   --     978     --     3,920  
Non-GAAP revenue $ 226,159   $ 272,726   $ 691,842   $ 774,703  
 
GAAP operating income $ 1,987 $ 31,922 $ 4,104 $ 77,819
Fair value adjustment of acquired CoCreate deferred maintenance revenue -- 978 -- 3,920
Stock-based compensation 11,512 11,149 28,773 32,681
Amortization of acquired intangible assets

included in cost of license revenue

5,221 6,289 14,592 13,850
Amortization of acquired intangible assets

included in cost of service revenue

--

17

8 51
Amortization of acquired intangible assets 3,827 4,044 11,510 11,252
In-process research and development 300 -- 300 1,887
Restructuring charges   6,609     3,790     16,397     15,367  
Non-GAAP operating income $ 29,456   $ 58,189   $ 75,684   $ 156,827  
 
GAAP net income $ 3,788 $ 14,470 $ 15,622 $ 43,198
Fair value adjustment of acquired CoCreate deferred maintenance revenue

--

978

--

3,920

Stock-based compensation 11,512 11,149 28,773 32,681
Amortization of acquired intangible assets included in cost of license revenue

5,221

6,289

14,592

13,850

Amortization of acquired intangible assets included in cost of service revenue

--

17

8

51

Amortization of acquired intangible assets 3,827 4,044 11,510 11,252
In-process research and development 300 -- 300 1,887
Restructuring charges 6,609 3,790 16,397 15,367
One-time non-cash loss included in other expense, net (2) -- 6,206 -- 6,206
Income tax adjustments (3)   (8,325 )   (7,724 )   (29,244 )   (22,371 )
Non-GAAP net income $ 22,932   $ 39,219   $ 57,958   $ 106,041  
 
GAAP diluted earnings per share $ 0.03 $ 0.12 $ 0.13 $ 0.37
Stock-based compensation 0.10 0.09 0.25 0.28
All other items identified above   0.07     0.12     0.12     0.25  
Non-GAAP diluted earnings per share $ 0.20   $ 0.33   $ 0.50   $ 0.90  
 
Weighted average shares outstanding – diluted
Non-GAAP diluted earnings per share 117,074 117,363 116,691 117,565
 

(2) Reflects a one-time non-cash loss from the liquidation of certain legal entities related to previous acquisitions.

(3) Reflects the tax effect of non-GAAP adjustments above, as well as the effect of a $7.6 million one-time tax benefit recorded in the second quarter of 2009 due to the recognition of deferred tax assets in a foreign jurisdiction.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
   
 
July 4, September 30,
2009 2008
 
ASSETS
 
Cash and cash equivalents $ 231,345 $ 256,941
Accounts receivable, net 149,198 201,509
Property and equipment, net 58,560 55,253
Goodwill and acquired intangibles, net 593,280 587,537
Other assets 264,139 248,333
       
Total assets $ 1,296,522 $ 1,349,573
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deferred revenue $ 255,206 $ 258,295
Borrowings under revolving credit facility 55,286 88,505
Other liabilities 240,995 300,248
Stockholders' equity 745,035 702,525
       
Total liabilities and stockholders' equity $ 1,296,522 $ 1,349,573
PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
     
 
Three Months Ended Nine Months Ended
July 4, June 28, July 4, June 28,
2009 2008 2009 2008
 
Cash flows from operating activities:
Net income $ 3,788 $ 14,470 $ 15,622 $ 43,198
Stock-based compensation 11,512 11,149 28,773 32,681
Depreciation and amortization 15,601 16,636 45,558 43,484
Accounts receivable (9,560 ) 268 67,455 69,819
Accounts payable and accruals(4) 963 1,041 (29,986 ) (29,155 )
Deferred revenue (9,559 ) (5,411 ) (2,700 ) 16,305
In-process research and development 300 -- 300 1,887
Income taxes (18,584 ) (868 ) (53,371 ) 1,645
Other   (5,814 )     16,017       5,646       1,242  
Net cash (used) provided by operating activities (11,353 ) 53,302 77,297 181,106
 
Capital expenditures (8,543 ) (9,785 ) (23,809 ) (20,492 )
Acquisitions of businesses, net of cash acquired (5) (24,315 ) -- (32,790 ) (261,592 )
Proceeds from (payments on) debt, net -- (53,643 ) (31,951 ) 98,999
Repurchases of common stock -- (5,288 ) (9,581 ) (27,297 )
Other investing and financing activities 716 3,929 (1,694 ) (3,313 )
Foreign exchange impact on cash   7,122     (5,441 )   (3,068 )   11,338  
 
Net change in cash and cash equivalents (36,373 ) (16,926 ) (25,596 ) (21,251 )
Cash and cash equivalents, beginning of period   267,718     258,946     256,941     263,271  
Cash and cash equivalents, end of period $ 231,345   $ 242,020   $ 231,345   $ 242,020  
 

(4) Includes accounts payable, accrued expenses, and accrued compensation and benefits.

(5) Acquisitions of businesses:

a. The third quarter of 2009 includes $24 million for our acquisition of Relex, net of cash acquired.



b. The first quarter of 2009 includes $7 million for our acquisition of Synapsis and $1 million for a contingent purchase price earned during the quarter related to a prior acquisition.

c. The first quarter of 2008 includes $248 million for our acquisition of CoCreate and $14 million for two other acquisitions, net of cash acquired.

Source: PTC

PTC Investor Relations
Kristian Talvitie, 781-370-6151
ktalvitie@ptc.com