PTC
PARAMETRIC TECHNOLOGY CORP (Form: 8-K, Received: 01/23/2013 17:12:30)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of report (Date of earliest event reported)
January 23, 2013
 
Parametric Technology Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Massachusetts
(State or Other Jurisdiction of Incorporation)
 
0-18059
04-2866152
(Commission File Number)
(IRS Employer Identification No.)
 
140 Kendrick Street
Needham, Massachusetts
 
02494-2714
(Address of Principal Executive Offices)
(Zip Code)
 
(781) 370-5000
(Registrant’s Telephone Number, Including Area Code)
 
 
(Former Name or Former Address, if Changed Since Last Report)


     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
   
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
   
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
   
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


 
 

 


Section 2 - Financial Information

Item 2.02.                   Results of Operations and Financial Condition.

On January 23, 2013, Parametric Technology Corporation issued a press release announcing results for its first fiscal quarter ended December 29, 2012.  PTC also posted a copy of its supplemental prepared remarks with respect to the completed quarter on the Investor Relations section of its website at www.ptc.com.  A copy of the press release and a copy of the prepared remarks are furnished herewith as Exhibits 99.1 and 99.2, respectively.


Section 9 - Financial Statements and Exhibits

Item 9.01.                   Financial Statements and Exhibits.

(d)            Exhibits .

99.1  
A copy of the press release issued by Parametric Technology Corporation on January 23, 2013 is furnished herewith.
 
99.2  
A copy of the prepared remarks posted by Parametric Technology Corporation to its website on January 23, 2013 is furnished herewith.
 


 
 

 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
Parametric Technology Corporation
 
       
       
       
Date:  January 23, 2013
By:
/s/ Jeffrey Glidden
 
   
Jeffrey Glidden
 
   
Executive Vice President and Chief Financial Officer
       
       



PTC Announces Q1 Results, Initiates Q2 Guidance and Updates FY’13 Targets
 
 
NEEDHAM, Mass. -- PTC (Nasdaq: PMTC) today reported results for its first fiscal quarter ended December 29, 2012.

Highlights
·  
Q1 Results:

¡
Non-GAAP revenue of $321 million, flat year over year (up 2% on a constant currency basis)
¡
Non-GAAP EPS of $0.36, up 3% year over year (up 6% on a constant currency basis)
¡
Q1 revenue contribution from Servigistics (acquired on October 2, 2012) was $27 million on a non-GAAP basis and $25 million on a GAAP basis
¡
GAAP revenue of $320 million and GAAP EPS of $0.29, including a $15 million restructuring charge and a one-time non-cash tax benefit of $33 million associated with the purchase accounting for the Servigistics acquisition

·  
Q2 Guidance:

¡
Non-GAAP revenue of $305 to $325 million and non-GAAP EPS of $0.32 to $0.39
¡
License revenue of $70 to $85 million
¡
GAAP revenue of $304 to $324 million and GAAP EPS of $0.03 to $0.10, including $15 million of restructuring charges
¡
Assumes $1.33 USD / EURO and 90 YEN / USD.


·  
FY’13 Targets:

¡
Non-GAAP revenue of $1,340 to $1,370 million and non-GAAP EPS of $1.70 to $1.80
¡
License revenue of $360 to $380 million
¡
Non-GAAP operating margin of approximately 21.5%
¡
GAAP revenue of approximately $1,337 to $1,367 million and GAAP EPS of $0.95 to $1.05; GAAP operating margin of approximately 11%
¡
Revenue guidance assumes at least $80 million contribution from Servigistics, including $3 million in non-GAAP revenue
¡
Assumes $1.33 USD / EURO and 90 YEN / USD.


The Q1 non-GAAP revenue and non-GAAP EPS results exclude a $1.6 million effect of purchase accounting on the fair value of the acquired deferred maintenance balance of Servigistics. The Q1 non-GAAP EPS results also exclude $11.9 million of stock-based compensation expense, $11.3 million of acquisition-related intangible asset amortization, $15.4 million of restructuring charges, and $4.6 million of acquisition-related expense . The Q1 non-GAAP EPS results include a tax rate of 22% and 122 million diluted shares outstanding.  The Q1 GAAP EPS results include a tax benefit of $33 million and 122 million diluted shares outstanding.

Results Commentary
James Heppelmann, president and chief executive officer, commented, “Given the economic environment we are pleased with our Q1 results, including strong performance from the recently acquired Servigistics business, which significantly broadens our Service Lifecycle Management (SLM) offering.  Our license revenue of $79 million was down 10% on a constant currency basis as compared to very strong performance in Q1’12, and consistent with our guidance range . We again delivered on our commitment to earnings growth with Q1 non-GAAP EPS exceeding the high end of our guidance range.”

 
 

 
Heppelmann added, “We continued to demonstrate our PLM market leadership in Q1 with a competitive displacement of the legacy PLM provider at Brazilian-based Embraer, one of the world’s largest aircraft manufacturers.  Embraer chose PTC as its partner of record for its entire global aircraft development program – commercial, executive and defense.  The selection further extends PTC’s position as a leading PLM technology solution provider for the aerospace and defense (A&D) industry. We also had a strong quarter in our SLM business with double-digit organic license growth, further bolstered by strong performance from the Servigistics business.  We remain excited about our unique positioning in the growing after-market service market.”

“We had 27 large deals (recognized license + services revenue of more than $1 million) in Q1’13, driven primarily by activity in the Americas. Consistent with last quarter, the mix of large deal revenue was skewed more heavily toward Services, reflecting strong PLM implementation activity and a lower level of large license transactions. During the quarter we recognized revenue from leading organizations such as AGCO, Caterpillar, Embraer, Esaote Group, Otto Bock Healthcare, Sulzer Pumpen, Turbomeca, and the Washington Metro Area Transit Authority.”

Jeff Glidden, chief financial officer, commented, “From a profitability standpoint we had another solid quarter; we delivered $0.36 non-GAAP EPS and achieved an 18.2% non-GAAP operating margin. We ended Q1 with $248 million of cash, down from $490 million at the end of Q4’12, reflecting in part $222 million used to complete the Servigistics acquisition and $16 million for stock repurchases.”  Q1 GAAP EPS was $0.29 and GAAP operating margin was 4.3%.
 
Outlook Commentary
“We continue to be excited about our long-term growth opportunity based on the strength of our pipeline, market acceptance of our products in core markets, as well as the significant interest we are seeing in our broader solution areas. While the slowdown in the global manufacturing industry and uncertainty about the near-term economy remains a headwind for revenue growth, we remain committed to driving operating margin expansion and achieving our goal of 25% to 27% non-GAAP operating margin in FY’15,” said Heppelmann.

Glidden added, “For Q2’13, we are providing guidance of $305 to $325 million in non-GAAP revenue with $70 to $85 million in license revenue, $75 to $80 million in services revenue and approximately $160 million in non-GAAP support revenue. We are expecting Q2 non-GAAP EPS of $0.32 to $0.39.” The GAAP revenue target is $304 to $324 million, the target GAAP support revenue is $159 million, and the GAAP EPS target range is $0.03 to $0.10.

The Q2 guidance assumes $1.33 USD / EURO, 90.0 YEN / USD, a non-GAAP tax rate of 18% reflecting the extension of the federal R&D tax credit, a GAAP tax rate of 30% and 122 million diluted shares outstanding. The Q2 non-GAAP guidance excludes $1 million of the effect of purchase accounting on deferred maintenance revenue from Servigistics, $12 million of stock-based compensation expense, $15 million of restructuring costs, $2   million of acquisition related expenses, $11 million of acquisition-related intangible asset amortization expense, their related income tax effects, as well as any discrete tax items.

Glidden continued, “Looking to the full year FY’13, we are targeting non-GAAP revenue of $1,340 to $1,370 million, reflecting a wider range on our license guidance given the macroeconomic environment, as well as a $10 million reduction to our previous Services revenue guidance. We are, however, increasing our non-GAAP gross margin target for FY’13 by 100 bps reflecting continued improvements in our Services business.  We are targeting license revenue of $360 to $380 million, services revenue of $320 to $330 million and non-GAAP support revenue of approximately $660 million. Our commitment to profitability remains on track, and we believe that vigilance on cost controls position us to achieve our non-GAAP FY’13 EPS target. We continue to target approximately 200 basis points of

 
 

 
non-GAAP operating margin improvement during FY’13. Our FY’13 non-GAAP EPS target remains $1.70 to $1.80.” We are targeting GAAP revenue of $1,337 to $1,367 million (including GAAP support revenue of $597 million) and GAAP EPS of $0.95 to $1.05 .

The FY’13 targets assume a non-GAAP tax rate of 22%, a GAAP tax rate of 12% and 122 million diluted shares outstanding.  The FY’13 non-GAAP targets exclude approximately $30 million in restructuring charges, $3   million of the effect of purchase accounting on acquired Servigistics deferred revenue, $50 million of stock-based compensation expense, $45 million of acquisition-related intangible asset amortization, $7 million of acquisition-related expenses, their related income tax effects, as well as any discrete tax items.

Q1 Earnings Conference Call and Webcast
Prepared remarks for the conference call have been posted to the investor relations section of our website.  The prepared remarks will not be read live; the call will be primarily Q&A.


What:
  PTC Fiscal Q1 Conference Call and Webcast
   
When:
  Thursday, January 24 th , 2013 at 8:30am (ET)
   
     Dial-in:
  1-800-857-5592 or 1-773-799-3757
  Call Leader: James Heppelmann
  Passcode: PTC
   
Webcast:
  www.ptc.com/for/investors.htm
   
Replay :
  The audio replay of this event will be archived for public replay until 4:00 pm (CT) on February 3 rd , 2013.
  Dial-in: 866-484-4215  Passcode: 5689
  To access the replay via webcast, please visit 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, operating expenses, margin and EPS exclude the effect of purchase accounting on the fair value of acquired deferred revenue of MKS Inc. and Servigistics, Inc., stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses, certain foreign currency transaction losses, and the related tax effects of the preceding items and any one-time 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.   
 
 
 

 
Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our fiscal 2013 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 our solutions when or at the rates we expect and that our pipeline deals may not convert as we expect, the possibility the 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 maintenance growth rates that we expect, which could result in a different mix of revenue between license, service and maintenance and could impact our EPS results, the possibility that new products, including new releases of Creo and our newly expanded SLM solutions, may not generate the revenue we expect, the possibility that resource constraints and staff reductions could adversely affect our revenue, the possibility that our strategic investments may not generate the growth or revenues we expect, the possibility that the acquisition of Servigistics may not generate the revenue we expect, and 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, 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.

About PTC
PTC (Nasdaq: PMTC) enables manufacturers to achieve sustained product and service advantage. The company’s technology solutions help customers transform the way they create and service products across the entire product lifecycle – from conception and design to sourcing and service. Founded in 1985, PTC employs nearly 6,000 professionals serving more than 27,000 businesses in rapidly-evolving, globally distributed manufacturing industries worldwide. Get more information at www.ptc.com .

Contact:
PTC Investor Relations
Tim Fox, 781-370-5961
tifox@ptc.com

 
 

 

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
                   
                   
         
Three Months Ended
 
         
December 29,
   
December 31,
 
         
2012
   
2011
 
                   
Revenue:
           
 
License
  $ 79,185     $ 89,088  
 
Service
    76,760       75,627  
 
Support
    163,806       153,561  
Total revenue
    319,751       318,276  
                       
Cost of revenue:
               
 
Cost of license revenue (1)
    8,012       7,659  
 
Cost of service revenue (1)
    68,592       71,450  
 
Cost of support revenue (1)
    20,468       19,110  
Total cost of revenue
    97,072       98,219  
                       
Gross margin
    222,679       220,057  
                       
Operating expenses:
               
 
Sales and marketing (1)
    93,549       97,778  
 
Research and development (1)
    57,429       54,993  
 
General and administrative (1)
    35,817       29,572  
 
Amortization of acquired intangible assets
    6,623       5,209  
 
Restructuring charges
    15,402       -  
Total operating expenses
    208,820       187,552  
                       
Operating income
    13,859       32,505  
 
Other expense, net
    (1,805 )     (2,643 )
Income before income taxes
    12,054       29,862  
 
(Benefit) provision for income taxes
    (23,757 )     7,739  
Net income
  $ 35,811     $ 22,123  
                       
Earnings per share:
               
 
Basic
  $ 0.30     $ 0.19  
     
Weighted average shares outstanding
    119,927       117,715  
                       
 
Diluted
  $ 0.29     $ 0.18  
     
Weighted average shares outstanding
    121,805       120,576  
                       
                       
                       
    (1 )
The amounts in the tables above include stock-based compensation as follows:
 
                         
           
Three Months Ended
 
           
December 29,
   
December 31,
 
              2012       2011  
 
Cost of license revenue
  $ 5     $ 5  
 
Cost of service revenue
    1,612       1,563  
 
Cost of support revenue
    826       950  
 
Sales and marketing
    2,458       3,728  
 
Research and development
    2,512       2,549  
 
General and administrative
    4,480       4,587  
       
Total stock-based compensation
  $ 11,893     $ 13,382  
                         

 
 

 

PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
                   
         
Three Months Ended
 
         
December 29,
   
December 31,
 
         
2012
   
2011
 
                   
GAAP revenue
  $ 319,751     $ 318,276  
 
Fair value of acquired company's
               
     
deferred maintenance revenue
    1,554       1,522  
Non-GAAP revenue
  $ 321,305     $ 319,798  
                       
GAAP gross margin
  $ 222,679     $ 220,057  
 
Fair value of acquired company's
               
     
deferred maintenance revenue
    1,554       1,522  
 
Stock-based compensation
    2,443       2,518  
 
Amortization of acquired intangible assets
               
     
included in cost of license revenue
    4,639       4,103  
Non-GAAP gross margin
  $ 231,315     $ 228,200  
                       
GAAP operating income
  $ 13,859     $ 32,505  
 
Fair value of acquired company's
               
     
deferred maintenance revenue
    1,554       1,522  
 
Stock-based compensation
    11,893       13,382  
 
Amortization of acquired intangible assets
               
     
included in cost of license revenue
    4,639       4,103  
 
Amortization of acquired intangible assets
    6,623       5,209  
 
Acquisition-related charges included in
               
     
general and administrative expenses
    4,599       2,068  
 
Restructuring charges
    15,402       -  
Non-GAAP operating income (2)
  $ 58,569     $ 58,789  
                       
GAAP net income
  $ 35,811     $ 22,123  
 
Fair value of acquired company's
               
     
deferred maintenance revenue
    1,554       1,522  
 
Stock-based compensation
    11,893       13,382  
 
Amortization of acquired intangible assets
               
     
included in cost of license revenue
    4,639       4,103  
 
Amortization of acquired intangible assets
    6,623       5,209  
 
Acquisition-related charges included in
               
     
general and administrative expenses
    4,599       2,068  
 
Restructuring charges
    15,402       -  
 
Non-operating foreign currency transaction losses (3)
    -       761  
 
Income tax adjustments (4)
    (36,400 )     (6,678 )
Non-GAAP net income
  $ 44,121     $ 42,490  
                       
GAAP diluted earnings per share
  $ 0.29     $ 0.18  
 
Fair value of deferred maintenance revenue
    0.01       0.01  
 
Stock-based compensation
    0.10       0.11  
 
Amortization of acquired intangibles
    0.09       0.08  
 
Acquisition-related charges
    0.04       0.02  
 
Restructuring charges and other
    0.13       0.01  
 
Income tax adjustments
    (0.30 )     (0.06 )
Non-GAAP diluted earnings per share
  $ 0.36     $ 0.35  
                       
    (2 )
Operating margin impact of non-GAAP adjustments:
         
           
Three Months Ended
 
           
December 29,
   
December 31,
 
              2012       2011  
 
GAAP operating margin
    4.3 %     10.2 %
       
Fair value of deferred maintenance revenue
    0.5 %     0.5 %
       
Stock-based compensation
    3.7 %     4.2 %
       
Amortization of acquired intangibles
    3.5 %     2.9 %
       
Acquisition-related charges
    1.4 %     0.6 %
       
Restructuring charges
    4.8 %     0.0 %
 
Non-GAAP operating margin
    18.2 %     18.4 %
                         
    (3 )
In the first quarter of 2012 we recorded $0.8 million of foreign currency transaction losses related to legal entity mergers completed during the quarter.
 
                         
    (4 )
Reflects the tax effects of non-GAAP adjustments for the first quarter of 2013 and 2012, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, as well as one-time non-cash GAAP charges. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets. As the U.S. is profitable on a non-GAAP basis, the 2013 non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance and as a result an income tax benefit of $6.2 million is included in the first quarter of 2013. The first quarter of 2013 also includes a one-time non-cash tax benefit of $32.6 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established in accounting for the acquisition of Servigistics. In the first quarter of 2012, the tax effects exclude one-time non-cash GAAP charges net, of $1.4 million related to the impact from a reduction in the statutory tax rate in Japan on deferred tax assets from a litigation settlement.
 
 
 
 
 

 

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
             
             
   
December 29,
   
September 30,
 
   
2012
   
2012
 
             
ASSETS
           
             
Cash and cash equivalents
  $ 248,392     $ 489,543  
Accounts receivable, net
    221,687       217,370  
Property and equipment, net
    66,109       63,466  
Goodwill and acquired intangible assets, net
    1,048,000       796,232  
Other assets
    218,458       225,023  
                 
Total assets
  $ 1,802,646     $ 1,791,634  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Deferred revenue
  $ 303,107     $ 327,529  
Borrowings under credit facility
    368,125       370,000  
Other liabilities
    305,456       296,846  
Stockholders' equity
    825,958       797,259  
                 
Total liabilities and stockholders' equity
  $ 1,802,646     $ 1,791,634  
                 

 
 

 

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
               
               
               
     
Three Months Ended
 
     
December 29,
   
December 31,
 
     
2012
   
2011
 
               
Cash flows from operating activities:
           
 
Net income
  $ 35,811     $ 22,123  
 
Stock-based compensation
    11,893       13,382  
 
Depreciation and amortization
    19,477       17,026  
 
Accounts receivable
    16,142       13,295  
 
Accounts payable and accruals (5)
    (27,958 )     (32,856 )
 
Deferred revenue
    (3,534 )     (2,075 )
 
Income taxes
    (33,779 )     (2,409 )
 
Excess tax benefits from stock-based awards
    (28 )     (150 )
 
Other
    (4,388 )     8,149  
Net cash provided by operating activities (6)
    13,636       36,485  
                   
Capital expenditures
    (7,393 )     (7,570 )
Acquisitions of businesses, net of cash acquired (7)
    (222,423 )     (880 )
Proceeds (payments) on debt, net
    (1,875 )     -  
Proceeds from issuance of common stock
    645       7,196  
Payments of withholding taxes in connection with
               
 
 vesting of stock-based awards
    (9,348 )     (12,661 )
Repurchases of common stock
    (15,792 )     -  
Excess tax benefits from stock-based awards
    28       150  
Foreign exchange impact on cash
    1,371       (3,247 )
                   
Net change in cash and cash equivalents
    (241,151 )     19,473  
Cash and cash equivalents, beginning of period
    489,543       167,878  
Cash and cash equivalents, end of period
  $ 248,392     $ 187,351  
                   
                   
(5)
Includes accounts payable, accrued expenses, and accrued compensation and benefits
 
                   
(6)
The first quarter of 2013 includes $10 million in restructuring payments and $4 million in acquisition-related payments.
 
                   
(7)
We acquired Servigistics on October 2, 2012, for $222.4 million (net of cash acquired) which was funded with $230 million in borrowings under our revolving credit facility. We borrowed the funds in the fourth quarter of 2012 in contemplation of the acquisition closing.
 
                   
                   
                   


Q1 FISCAL 2013 PREPARED REMARKS

Technology and market leadership, margin growth, commitment to long-term targets
Our long-term financial goal is simple: We intend to deliver non-GAAP operating margin expansion over the next three years, reaching the 25% to 27% range in FY’15. We plan to achieve this goal through a combination of revenue growth from a broad set of software solutions spanning our customers’ entire product “lifecycle” and cost efficiencies within our operating model. The table below illustrates these goals. Given the continued slowdown within the global manufacturing industry (for reference see http://investor.ptc.com), which impacted license revenue results over the last four quarters, we believe it is prudent to provide guidance that reflects a moderated revenue growth scenario for FY’13. We are targeting FY’13 non-GAAP revenues of approximately $1,340 to $1,370 million and non-GAAP EPS of $1.70 to $1.80. However, we believe that as the economic backdrop improves into FY’14 as we expect, we will be well positioned to achieve our target growth rates.
 
1)  
Our Q1 non-GAAP EPS of $0.36 (up 6% year over year on a constant currency basis) exceeded the high-end of our guidance due to stronger than anticipated license performance of Servigistics, better than planned services margins, and continued focus on cost efficiency as part of our commitment to margin expansion. There was no material impact to Q1 non-GAAP EPS from currency effects relative to guidance.

The company is focused on the following five markets: Computer Aided Design (CAD), Product Lifecycle Management (PLM), Application Lifecycle Management (ALM), Supply Chain Management (SCM), and Services Lifecycle Management (SLM). We characterize the markets we participate in with the graphic below. The graphic depicts PTC’s addressable market with market size and growth estimates from industry analysts. Industry analysts estimate that four of these five markets will grow at a 9-10% CAGR from 2009 to 2014, with the more mature CAD market growing approximately 5% over the same time frame. We also include our view of PTC’s growth rates within these markets which are predicated on an improving global macroeconomic environment and our ability to outperform market growth rates due to superior competitive positioning.

Beginning this quarter, we are providing additional revenue disclosure that we believe provides valuable insight into how our business is performing within the markets we serve. Along with line of business, geographic and large deal metrics, we are reporting revenue in three solution areas: CAD, SLM and “Extended PLM”, which encompasses our PLM, ALM and SCM businesses. Each of these solution areas serves a market with unique secular and cyclical dynamics, growth rates, and “buyers” within our customer base.


 
 

 
Revenue from product families is mapped to the following areas:
·  
CAD: PTC Creo ® and PTC Mathcad ®
·  
Extended PLM: PTC Windchill ® and PTC Integrity TM
·  
SLM: PTC Arbortext ® and PTC Servigistics ®



Non-GAAP Supplemental Information
We provide non-GAAP supplemental information to our GAAP information.  PTC's reasons for providing this information are described at the end of this document.  A reconciliation to the corresponding GAAP revenue amounts is provided in the revenue tables affected by the adjustment.

Maintenance Re-branded as PTC Global Support
Beginning in January of 2013, PTC launched a series of enhanced support offerings to drive increased value to our customers and as part of the launch re-branded our Maintenance business as “PTC Global Support”, which will be referred to as “Support” in our financial reporting going forward.

Q1 FY’13 - Key Points
 
1)  
Our Q1 non-GAAP EPS of $0.36 (up 6% year over year on a constant currency basis) exceeded the high-end of our guidance due to stronger than anticipated license performance of Servigistics, better than planned services margins, and continued focus on cost efficiency as part of our commitment to margin expansion. There was no material impact to Q1 non-GAAP EPS from currency effects relative to guidance.
 
 
 
 

 
2)  
Total non-GAAP revenue for Q1 was $321.3 million, flat year over year (up 2% on a constant currency basis) compared to a very strong performance in Q1’12, and was at the mid-point of our guidance range. Servigistics delivered solid Q1 results with total non-GAAP revenue of $26.9 million.
3)  
License revenue of $79.2 million was at the mid-point of our Q1 guidance range and was down 11% year over year (down 10% on a constant currency basis) compared to very strong performance in the year-ago period. Total license revenue, including $9.6 million from Servigistics, was solid in the Americas, Pacific Rim and Japan, however our organic license growth was impacted by the soft macroeconomic environment in Europe. Q1 results included one mega deal (license revenue of greater than $5 million).
4)  
We delivered non-GAAP support revenue of $165.3 million, in line with our guidance, up 7% year over year and up 9% on a constant currency basis. Results included $8.1 million in non-GAAP support revenue from Servigistics.
5)  
Services revenue of $76.8 million (up 2% year over year, 3% on a constant currency basis) was slightly above our guidance. Results included $9.2 million in revenue from Servigistics. Importantly, our initiatives to enhance services margins continued to yield positive results, with non-GAAP services gross margins of 12.7% for the quarter.
6)  
We had 27 large deals (>$1M in license and services revenue recognized in the quarter) that contributed $61.8 million in revenue, a 10% decrease in revenue year over year, reflecting smaller deal sizes in the current macroeconomic environment.
7)  
We ended the quarter with 348 quota-carrying sales representatives, which was flat YoY and as anticipated down by 10 reps vs. Q4’12 following final integration of the ALM sales team into PTC’s global sales organization. Given the growth in sales capacity we achieved over the past two years and continued concern about the global macroeconomic environment, our focus is on improving the productivity of the increased capacity we now have.
8)  
We ended Q1’13 with $248 million of cash down from $490 million at the end of Q4’12, reflecting in part $222 million to finance the Servigistics acquisition and $16 million for stock repurchases.

Servigistics Establishes PTC as Clear Market Leader in SLM
On October 2, 2012, PTC completed the acquisition of Servigistics, Inc., developer of an innovative suite of service lifecycle management (SLM) software solutions.  We believe the combination of the two companies firmly establishes PTC's market leadership in SLM with the deepest domain expertise, broadest customer base, and largest market share in the industry.  With over 27,000 customers worldwide, PTC has long been known for its world-class technology solutions that transform the way companies create products.  By adding Servigistics, PTC is now fully able to help global manufacturers transform the way they service those same products.  From a technology perspective, PTC's SLM solution portfolio is now unparalleled in the industry, covering: PTC Technical Information, PTC Service Parts Information, PTC Service Knowledge Management, PTC Warranty and Contract Management, PTC Service Parts Management, PTC Field Service Management, PTC Service Parts Pricing, and PTC Service Network Visibility. Results of Servigistics have been included in our results of operations beginning on the acquisition date.  Results for Q1 ’13 included $26.9 million of non-GAAP revenue ($25.3 million on a GAAP basis) related to Servigistics. References to organic revenue in the discussion that follows exclude Servigistics revenue.
 
 
 
 

 
Q2 AND FY’13 OUTLOOK:  Targets reflect commitment to margin expansion
In providing guidance for Q2 and FY’13, we are weighing company specific factors such as our pipeline of opportunities and our support and services base as well as external considerations, including the macroeconomic environment (which continued to impact customer spending in Q1’13), currency, and visibility into customer spending patterns. We are now targeting FY’13 non-GAAP revenue of $1,340 to $1,370 million, including a wider license revenue guidance range and a $10 million reduction to our previous services revenue guidance. Our FY’13 guidance now assumes Servigistics will contribute at least $80 million in non-GAAP revenue, up from our previous guidance of $60 to $70 million. We are maintaining our FY’13 non-GAAP EPS guidance of $1.70 to $1.80. Our non-GAAP gross margin target for FY’13 has increased by 100 bps reflecting continued improvements in our services business.



 
REVENUE TRENDS
Year over year changes in revenue on a constant currency (FX) basis in the tables that follow compare actual reported results 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.

LICENSE:  Results pressured by large license deal activity
License sales generate the highest gross margins, which are approximately 96%. License revenue historically has tended to represent 28% to 33% of our total revenue in any given quarter, with Q4 generally being our strongest quarter.
 
 
 

 
Q1 License revenue of $79.2 million was down 11% year over year (10% on a constant currency basis), in line with our guidance range of $75 million to $85 million, reflecting growth in the Americas, Japan and the Pacific Rim, with year-over-year growth of 5%, 15% and 9%, respectively, offset by weak results in Europe with a year-over-year decline of 36% (34% on a constant currency basis) due to in part strong performance in Q1’12. Servigistics delivered strong results in Q1 (which had historically been the company’s seasonally strong fiscal fourth quarter) with license revenue of $9.6 million.

Organic license revenue was down 22% (21% on a constant currency basis) due primarily to lower large deal activity in Europe and Japan concentrated in our PLM and CAD markets. However, we had strong double-digit organic license performance in SLM and ALM – two of our emerging growth markets.

Looking forward to Q2 we are expecting license revenue of $70 to $85 million; for FY’13, we are expecting total license revenue of $360 to $380 million, an increase of 3% to 9% year over year.

LARGE DEAL ACTIVITY:
Large deal activity is a significant growth driver and has historically tended to generate 20% to 25% of our total revenue in any given quarter, with Q4 typically at the high end of the range.  Large deal activity is driven primarily by direct sales teams.  We define “large deals” as recognizing more than $1 million of license and service revenue from a customer during a quarter. License revenue typically comprises approximately 50% of the total large deal revenue each quarter.


In Q1 we had 27 large deals totaling $61.8 million.  12 of these customers were in the Americas, 9 were in Europe and 6 were in Asia.  Large deal license revenue was 45% of total large deal revenue in Q1’13, below the low end of the typical range due to continued weakness in the economic environment in Europe.  Despite the macroeconomic environment, we continue to have a strong pipeline of large deals that we are working on worldwide, though the timing of closing large deals is being impacted by the economy.  We are winning competitive deals with large global companies and are actively engaged in a substantial number of competitive opportunities with other large global companies.  For example, in Q1 we won a competitive displacement of the legacy PLM provider at Brazilian-based Embraer, one of the world’s largest aircraft manufacturers. Embraer chose PTC as its partner of record for its entire global aircraft development program – commercial, executive and defense.
 

 
 
 

 
SALES CAPACITY TRENDS:
A key part of our long-term growth strategy last year was to increase the number of quota-carrying sales reps as we penetrate adjacent market opportunities (i.e. ALM, SLM, and SCM) within our existing customer base and target new customers. Given the significant growth in sales capacity we achieved over the past two years (up 27%, half of which was organic) and concerns over the macroeconomic outlook, our focus is on improving the productivity of the increased capacity we now have. We ended the quarter with 348 quota-carrying reps, consistent with the number at the end of Q1’12. As expected, the number of primary quota carrying sales reps decreased QoQ following the completion of the ALM sales integration, as many of the ALM reps moved into specialist roles allowing us to better leverage the scale of the core PTC distribution capacity. Similarly, new sales reps that joined PTC through the Servigistics acquisition have been integrated into our existing SLM sales teams.


SERVICES:  Margin improvement and partner ecosystem traction
Our services business provides significant value to our customers, helping them re-engineer their global product development business processes and implement our solutions - and providing them with training on our software. Services revenue has historically tended to represent 20% to 25% of our total revenues in any given quarter.


Q1 Services revenue of $76.8 million was up 2% year over year (3% on a constant currency basis). On an organic basis, services revenue was down 11% (down 9% on a constant currency basis).  Our organic consulting services revenue, which primarily supports PTC Windchill implementations, was down 13% year over year. We are having considerable success with our partner ecosystem, which saw bookings growth of over 70% on a year over year basis. Our training business, which typically represents about 15% of our total services revenue, was up 6% year over year (6% on an organic basis).  We delivered solid, non-GAAP services gross margin of 12.7% in Q1’13 (up 5.1 percentage points from the Q1’12 non-GAAP services gross margin of 7.6%).

 
Looking forward to Q2, we are expecting services revenue to be up approximately 2% on a year-over-year basis. For FY’13 we are now expecting services revenue to grow approximately 10% year over year (vs. our previous guidance of approximately 13%) with organic growth rates consistent with Q2’12.  Our lower anticipated Services revenue reflects the traction we are gaining with our Service partner ecosystem and lower anticipated license revenue. We expect our non-GAAP services margins to be approximately 13% in FY’13, an increase of 100 basis points over our previous guidance due to solid execution on our margin improvement
 
 
 

 
initiatives. We remain committed to achieving non-GAAP services margins of approximately 15% by FY’15 and reducing our mix of direct services through the expansion of our services ecosystem and delivery of solutions that fundamentally require less services.
 

SUPPORT:  More than 1.8 million active seats
Our support business is an important barometer of customer satisfaction with our solutions.  It is also a strong source of recurring revenue for PTC.  Support gross margins are approximately 88% on a non-GAAP basis.  Support revenue has historically tended to represent 45% to 50% of our total revenues in any given quarter, with Q4 usually being at the low end as a percent of total revenue due to historically strong performance of license sales in that quarter.


Q1 non-GAAP support revenue of $165.3 million was up 7% year over year (up 9% on a constant currency basis), reflecting strong execution and the impact of Servigistics.  On an organic basis, support revenue was up 1% year over year (4% on a constant currency basis).

Looking forward to Q2, we are expecting non-GAAP support revenue to increase approximately 6% on a year-over-year basis, although decrease QoQ due to the normal seasonality of Support contract renewals.  For FY’13 we are expecting approximately 7% non-GAAP support revenue growth on a year-over-year basis.

Active Support Seats

REVENUE BY SOLUTION
The following tables provide license, services and support revenue for each of our solution areas. Results include combined revenue from direct sales and our channel.
 
CAD:
 
 
 
 

 
CAD revenue in Q1 was down 9% (down 7% on a constant currency basis) compared with the year ago period primarily due to lower license revenue in Europe. Our year over year European results reflect continued weak economic conditions that are impacting customer buying behavior and the strong Q1’12 performance that included a CAD mega deal.  License revenue in the Americas and Pacific Rim experienced modest growth year over year, while Japan delivered double-digit year-over-year growth.

CAD channel revenue, which represents approximately 40% of total CAD revenue, was flat year-over-year, reflecting modest growth in Americas, Pacific Rim and Japan offset by soft results in Europe.

Extended PLM:
 
 
In Q1 Extended PLM revenue, which includes our PLM, ALM and SCM solutions was down 8% year over year (down 6% on a constant currency basis), reflecting very strong performance in the year ago period, and soft license revenue in PLM contrasted with solid performance in ALM. We attribute the softness in PLM results to the lower number of large license transactions in this quarter, which are being impacted by macro headwinds in the global manufacturing industry.  As evidenced by the strategic Q1 win with Embraer, one of the world’s largest aircraft manufacturers, we remain confident in our competitive positioning in PLM and growth prospects as macroeconomic conditions improve.

SLM:
 
 
Q1 SLM license revenue included 16% organic, constant currency growth and strong performance from Servigistics, which delivered $9.6 million in license revenue. Including Servigistics, license revenue performance was strongest in the Americas and Europe and notably was driven by healthy large deal activity, supporting our view that the SLM market may be less economically sensitive than our CAD and Extended PLM markets.

 
 

 
 
REVENUE BY REGION
Americas:
 

Americas non-GAAP revenue in Q1 of $133.9 million was up 13% year over year due to strong services revenue growth.  Q1 license revenue in the Americas was up 5% year over year, driven by strong results for ALM, solid results in our organic SLM business and our strong performance of Servigistics. Organic license revenue and total non-GAAP revenue were down 11% and 3%, respectively, due to pressure on large deals in PLM and CAD. While the macroeconomic environment remains soft in the Americas, our pipeline continues to build and we are optimistic about the outlook for this region.

Europe:
 

Europe non-GAAP revenue was $119.9 million in Q1, down 10% year over year and down 7% on a constant currency basis. Q1 license revenue in Europe was down 36% year over year and down 34% on a constant currency basis. Organic license revenue and total non-GAAP revenue were down 44% and 14%, respectively. We were expecting a decline in Europe on a year-over-year basis, given strong comparative results in Q1’12, however results were further impacted by the weakening manufacturing sector in Europe that impacted the closure of large deals in PLM and CAD during the quarter. Given the uncertain macroeconomic environment in Europe, we are currently expecting only moderate growth in the region for FY’13.

Japan:
 

Japan non-GAAP revenue was $28.9 million in Q1, down 5% (down 2% on a constant currency basis) year over year.  Q1 license revenue in Japan was up 15% (up 19% on a constant currency basis) compared with last year. Organic license revenue and total revenue were both down 12%. Similar to Europe, we experienced delays in
 
 
 

 
 
closing large license transactions in Japan during Q1, however based on the significant growth in sales capacity and our strong pipeline in the region, we are expecting growth to improve in FY’13.

Pacific Rim:
 
 
Pacific Rim revenue was $38.6 million in Q1, up 4% (3% on a constant currency basis) compared with last year. Q1 license revenue in the Pac Rim was up 9% compared with last year (up 8% on a constant currency basis).  Organic license revenue and total revenue were up 7% and 2%, respectively.  China, which represents a significant portion of our Pac Rim revenue, increased 5% compared to Q1’12.  Given the momentum we experienced in the Pac Rim in FY’12 and solid pipeline, we are expecting another solid year of performance in FY’13 in this region.

CURRENCY IMPACT ON RESULTS COMPARED TO THE YEAR AGO PERIOD
Because we have a global business, with Europe and Asia historically representing approximately 65% of our revenue, our results are impacted by currency fluctuations.  On a constant currency basis, our non-GAAP revenue was up 2% year over year, down 6% on an organic constant currency basis.  Currency fluctuations unfavorably impacted Q1 non-GAAP revenue by $5.7 million and favorably impacted Q1 GAAP and non-GAAP expenses by $4.6 million and $4.0 million, respectively, compared to Q1’12 currency rates.

 
Looking forward , the guidance we are providing assumes exchange rates of approximately 1.33 USD / EURO and 90 YEN / USD.  Our actual simple average Q1 ’13 Fx rate was $1.29 USD / EURO.  We do not forecast currency movements; rather we provide detailed constant currency commentary.  Currency can significantly impact our results. For example, in FY’12, currency was a headwind for PTC and negatively impacted non-GAAP revenue by $25 million and favorably impacted GAAP and non-GAAP expenses by $19 million and $18 million, respectively.  In FY ’11 and FY’10 currency was a tailwind for us when compared to the prior year: non-GAAP revenue was positively impacted by $37 million and $15 million, respectively, and non-GAAP expenses were negatively impacted by $21 million and $10 million, respectively.

As a simple rule of thumb, based on current revenue and expense levels, a $0.10 move on the USD / EURO exchange rate will impact annualized revenue by approximately $35 to $40 million and EPS by approximately $0.08 to $0.10. Given the recent appreciation in the YEN / USD exchange rate, we also note that a 10 YEN move versus the USD will impact annualized revenue by approximately $13 to $17 million and expenses by approximately $6 to $8 million.

Q1 FY’13 EXPENSES COMMENTARY AND Q2 & FY’13 OUTLOOK
We initiated cost actions in Q1’13 and Q2’13 as part of our commitment to improve our operating efficiencies and to further our commitment to enhance long-term profitability. In total, these restructurings will result in cash expenditures of approximately $30 million during fiscal year 2013, primarily attributable to severance costs.  We
 
 
 

 
 
expect the restructuring to be substantially completed in the second fiscal quarter of 2013, with the full impact of the expense reductions being realized in the third fiscal quarter of 2013. Once completed, these cost actions are expected to reduce our operating expenses by approximately $9 million per quarter, and are a component of our plan to achieve non-GAAP EPS of $1.70 to $1.80 for fiscal year 2013.

Q1 non-GAAP results exclude $11.9 million of stock-based compensation expense, $11.3 million of acquisition- related intangible asset amortization, $15.4 million of restructuring charges, and $4.6 million of acquisition-related costs.  The Q1 non-GAAP results include a tax rate of 22% and 121.8 million diluted shares outstanding.  The Q1 GAAP results include a tax benefit of $33 million associated with the purchase accounting for the Servigistics acquisition and 121.8 million diluted shares outstanding.

Q2’13 non-GAAP guidance excludes the following estimated expenses and their tax effects:
 
·  
Approximately $12 million of expense related to stock-based compensation
·  
Approximately $15 million of restructuring charges
·  
Approximately $1 million of a fair value deferred support revenue adjustment
·  
Approximately $11 million of acquisition-related intangible asset amortization expense
·  
Approximately $2 million of acquisition-related expenses

FY’13 non-GAAP guidance excludes the following full-year estimated expenses and their tax effects, as well as any one-time tax items:
 
·  
Approximately $30 million of restructuring charges
·  
Approximately $3 million of a fair value deferred support revenue adjustment
·  
Approximately $50 million of expense related to stock-based compensation
·  
Approximately $45 million of acquisition-related intangible asset amortization expense
·  
Approximately $7 million of acquisition-related expenses

NON-GAAP GROSS MARGINS
 
 
NON-GAAP OPERATING MARGINS
 

Our Q1’13 non-GAAP gross margin was $231 million, or 72.0%, compared to $228 million, or 71.4% in the year ago period due primarily to higher services margins.  Q1’13 GAAP gross margin was $223 million, or 69.6%, compared to $220 million, or 69.1% in Q1’12.
 
 
 
 

 
Our Q1’13 non-GAAP operating expenses were $173 million ($209 million on a GAAP basis), up from $169 million in Q1’12 ($188 million on a GAAP basis), reflecting the Servigistics acquisition, offset by continued discipline on organic operating expenses.

From an operating performance perspective, we achieved 18.2% non-GAAP operating margin (18.4% on a constant currency basis) in Q1’13, compared to 18.4% in Q1’12.  GAAP operating margin was 4.3% (4.6% on a constant currency basis) for Q1’13 compared to 10.2% in Q1’12.

 
Looking forward , we are expecting Q2‘13 non-GAAP gross margins of 71% and non-GAAP operating margin of approximately 16% to 18%. While we expect a portion of our recent restructuring activity to benefit Q2 non-GAAP expenses, these benefits will largely be offset by planed seasonally higher payroll taxes, higher marketing program spend and higher sales commissions.

For FY ‘13, we are now expecting non-GAAP gross margin of approximately 72% (vs. our previous guidance of 71%), with non-GAAP services margin of approximately 13% (vs. our previous guidance of 12%), non-GAAP operating margins of approximately 21.5%, and GAAP operating margin of approximately 11%.

Over the longer-term we intend to increase our non-GAAP operating margin to the 25% to 27% range primarily through increased efficiency in our global sales organization, improved non-GAAP gross margin (74% to 76% range) due to improved non-GAAP services margin and more favorable revenue mix.
 
 
We made significant investments in R&D during FY’09 and FY’10 that have helped us achieve a technology leadership position and have driven substantial revenue growth. While we expect to continue to increase our R&D investments, our R&D expenditures are now back to more normalized historical levels, which we believe to be appropriate over the longer term. In FY’11 and FY’12 we invested in sales capacity to capitalize on our technology leadership position, drive long term revenue growth and create further operating leverage opportunities over time. Looking forward, we expect to continue to increase our sales and marketing investments, while having sales and marketing as a percentage of revenue to continue to decrease as productivity improves over the coming years.

TAX RATE
Our Q1 non-GAAP tax rate was 22%.  Our GAAP tax was a benefit of $24 million in Q1 in part reflecting a one-time non-cash tax benefit of $33 million associated with purchase accounting for the Servigistics acquisition.

Looking forward , the Q2 guidance assumes a non-GAAP tax rate of 18% associated with the recent retroactive extension of the federal R&D tax credit and a GAAP tax rate of 30%. The FY’13 target now assumes a non-GAAP tax rate of 22% (vs. our previous guidance of 23%) and a GAAP tax rate of 12%.


 
 

 


STOCK-BASED COMPENSATION
Expenses related to stock-based compensation were 3.7% of non-GAAP revenue in Q1 ’13, compared to 4.2% of non-GAAP revenue in Q1’12. Over time, we expect that stock-based compensation as a percentage of non-GAAP revenue will trend down annually, ultimately reaching a sustainable long-term target of 3%.

SHARE COUNT / SHARE REPURCHASE
We had 121.8 million fully diluted weighted average shares outstanding for Q1. Our Board has authorized us to repurchase up to $100 million worth of our shares in the period October 1, 2012 through September 30, 2013.  We repurchased $16 million worth of shares in Q1.

Looking forward , we expect to have approximately 122 million fully diluted shares outstanding for Q2 ’13 and for the full fiscal year. We intend to repurchase $19 million worth of shares in Q2’13.  Our goal is to repurchase stock to offset dilution.

BALANCE SHEET:  Solid cash position
CASH / CASH FLOW FROM OPERATIONS
For Q1’13, our cash balance was $248 million, down from $490 million at the end of Q4’12, primarily due to $222 million paid to acquire Servigistics on October 2, 2012.  We generated $14 million from operations in Q1.  Uses of cash in the quarter included capital expenditures of $7 million.

DSO
We continue to have strong DSOs of 63 days in Q1’13 compared to 61 days in Q4’12 and 63 days in Q1’12.

OUTSTANDING DEBT
At the end of Q1’13, the balance outstanding under our $450 million credit facility was $368 million, $230 million of which was borrowed in Q4 ’12 to finance our acquisition of Servigistics.  We expect to repay $60 million of the balance outstanding under our credit facility in Q2 ’13.
 

MISCELLANEOUS COMMENTS
HEADCOUNT
Total headcount was 6,126 at the end of Q1, including approximately 400 heads added in connection with our acquisition of Servigistics, compared to 5,897 at the end of Q4.  Headcount at the end of Q1’12 was 6,110.

M&A
We view M&A primarily as a strategic vehicle to further enhance our product portfolio and growth opportunity. We intend to remain opportunistic as it relates to M&A.  The majority of our M&A opportunities have comprised small, strategic technology tuck-ins, although we consider and have completed larger transactions, including MKS in Q3’11 and Servigistics, Inc. in Q1’13. We continue to evaluate strategic acquisition opportunities of varying size as they arise. Our forecasted financial, cash and debt positions set forth herein are exclusive of the effects of any M&A that we may complete.
 
 
 

 

Other Information
As previously disclosed, we have been investigating payments and expenses by certain business partners and employees in China that raise questions of compliance with laws, including the Foreign Corrupt Practices Act, and/or compliance with our business policies. In connection with this matter, we have terminated certain employees and business partners in China, which may have an adverse impact on our level of sales in China until replacements for those employees and business partners are in place and productive. Revenue from China has historically represented 6% to 7% of our total revenue. We have voluntarily disclosed the results of our investigation and associated remedial actions to the United States Department of Justice and the Securities and Exchange Commission and are continuing to provide additional information as requested by those agencies with respect to this matter. Resolution of this matter could include fines or other sanctions but we are unable to estimate an amount, if any.
 

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 a fair value adjustment related to acquired deferred support revenue from MKS and Servigistics, stock-based compensation expense, gain on a litigation resolution, foreign currency transaction losses related to our acquisition of MKS and a litigation resolution, amortization of acquired intangible assets, acquisition-related expenses, restructuring charges, and the related tax effects of the preceding items and any one-time tax items. Constant currency measures are calculated by multiplying results by the exchange rates in effect for the comparable periods in the prior year and assumes no change in tax rates. 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.   
 

Forward-Looking Statements
Statements in these prepared remarks that are not historic facts, including statements about our second quarter and full fiscal 2013, and other future financial and growth expectations, anticipated tax rates, the expected impact of our planned strategic investments on our future success, expected market growth rates 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 customers may not purchase our solutions when or at the rates we expect, the possibility that our pipeline of opportunities may not generate the revenue we expect, the possibility that we will be unable to achieve planned services margins and operating margin improvements, the possibility 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 the increases in sales capacity may not generate the additional sales pipeline and revenue that we expect, the possibility that our strategic investments and restructurings may not have the effects or generate the revenue growth or operating margin improvements we expect, the possibility that we may be unable to attain or maintain a technology leadership position or that any such leadership position may not generate the revenue we expect, and the possibility that we may be unable to achieve our profitability targets with lower license revenue. 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.


 
 

 


 
 

PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands)
 
GAAP MARGINS
                                                             
                                                               
   
FY '10
       
Q1 '11
       
Q2 '11
       
Q3 '11
       
Q4 '11
       
FY '11
       
Revenue
  $ 1,010,049         $ 266,552         $ 269,189         $ 291,783         $ 339,425         $ 1,166,949        
Cost of license revenue
    31,047           5,954           6,558           7,617           8,663           28,792        
Cost of service revenue
    213,462           64,131           59,179           66,148           71,192           260,650        
Cost of support revenue
    63,186           15,976           16,034           16,644           18,672           67,326        
Gross Margin
  $ 702,354   69.5 %   $ 180,491   67.7 %   $ 187,418   69.6 %   $ 201,374   69.0 %   $ 240,898   71.0 %   $ 810,181     69.4 %
                                                                           
Sales & marketing
  $ 317,532   31.4 %   $ 84,521   31.7 %   $ 81,163   30.2 %   $ 89,106   30.5 %   $ 98,261   28.9 %   $ 353,051     30.3 %
Research & development
    201,567   20.0 %     51,522   19.3 %     53,051   19.7 %     51,103   17.5 %     55,730   16.4 %     211,406     18.1 %
General & administrative
    92,875   9.2 %     23,484   8.8 %     24,712   9.2 %     31,882   10.9 %     30,213   8.9 %     110,291     9.5 %
Amortization of acquired intangible assets
    15,605   1.5 %     3,854   1.4 %     4,266   1.6 %     4,753   1.6 %     5,446   1.6 %     18,319     1.6 %
Restructuring charge
    -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -     0.0 %
Operating Expenses
  $ 627,579   62.1 %   $ 163,381   61.3 %   $ 163,192   60.6 %   $ 176,844   60.6 %   $ 189,650   55.9 %   $ 693,067     59.4 %
                                                                           
GAAP Operating Margin
  $ 74,775   7.4 %   $ 17,110   6.4 %   $ 24,226   9.0 %   $ 24,530   8.4 %   $ 51,248   15.1 %   $ 117,114     10.0 %
                                                                           
                                                                           
ADJUSTMENTS TO DERIVE NON-GAAP MEASURES
                                                               
                                                                           
   
FY '10
       
Q1 '11
       
Q2 '11
       
Q3 '11
       
Q4 '11
       
FY '11
       
Revenue:
                                                                         
Fair value of deferred revenue
  $ -   0.0 %   $ -   0.0 %   $ -   0.0 %   $ 693   0.2 %   $ 1,913   0.6 %   $ 2,606     0.2 %
Cost of license revenue:
                                                                         
Acquired intangible amortization
    18,367   1.8 %     3,363   1.3 %     3,339   1.2 %     3,895   1.3 %     4,796   1.4 %     15,393     1.3 %
Stock-based compensation
    24   0.0 %     3   0.0 %     3   0.0 %     4   0.0 %     5   0.0 %     15     0.0 %
Cost of service revenue:
                                                                         
Stock-based compensation
    5,459   0.5 %     1,356   0.5 %     1,016   0.4 %     1,227   0.4 %     1,412   0.4 %     5,011     0.4 %
Cost of support revenue:
                                                                         
Stock-based compensation
    3,663   0.4 %     781   0.3 %     567   0.2 %     630   0.2 %     743   0.2 %     2,721     0.2 %
Sales & marketing:
                                                                         
Stock-based compensation
    13,432   1.3 %     2,429   0.9 %     2,350   0.9 %     3,062   1.0 %     3,587   1.1 %     11,428     1.0 %
Research & development:
                                                                         
Stock-based compensation
    9,480   0.9 %     2,393   0.9 %     1,749   0.6 %     2,010   0.7 %     2,395   0.7 %     8,547     0.7 %
General & administrative:
                                                                         
Stock-based compensation
    16,853   1.7 %     4,065   1.5 %     4,186   1.6 %     4,627   1.6 %     4,802   1.4 %     17,680     1.5 %
Acquisition-related costs
    -   0.0 %     -   0.0 %     608   0.2 %     6,041   2.1 %     1,112   0.3 %     7,761     0.7 %
Amortization of acquired intangible assets
    15,605   1.5 %     3,854   1.4 %     4,266   1.6 %     4,753   1.6 %     5,446   1.6 %     18,319     1.6 %
Restructuring charge
    -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -     0.0 %
Non-GAAP adjustments
  $ 82,883   8.2 %   $ 18,244   6.8 %   $ 18,084   6.7 %   $ 26,942   9.2 %   $ 26,211   7.7 %   $ 89,481     7.7 %
                                                                           
NON-GAAP MARGINS
                                                                         
   
FY '10
       
Q1 '11
       
Q2 '11
       
Q3 '11
       
Q4 '11
       
FY '11
       
Revenue
  $ 1,010,049         $ 266,552         $ 269,189         $ 292,476         $ 341,338         $ 1,169,555        
Cost of license revenue
    12,656           2,588           3,216           3,718           3,862           13,384        
Cost of service revenue
    208,003           62,775           58,163           64,921           69,780           255,639        
Cost of support revenue
    59,523           15,195           15,467           16,014           17,929           64,605        
Gross Margin
  $ 729,867   72.3 %   $ 185,994   69.8 %   $ 192,343   71.5 %   $ 207,823   71.1 %   $ 249,767   73.2 %   $ 835,927     71.5 %
                                                                           
Sales & marketing
  $ 304,100   30.1 %   $ 82,092   30.8 %   $ 78,813   29.3 %   $ 86,044   29.4 %   $ 94,674   27.7 %   $ 341,623     29.2 %
Research & development
    192,087   19.0 %     49,129   18.4 %     51,302   19.1 %     49,093   16.8 %     53,335   15.6 %     202,859     17.3 %
General & administrative
    76,022   7.5 %     19,419   7.3 %     19,918   7.4 %     21,214   7.3 %     24,299   7.1 %     84,850     7.3 %
Amortization of acquired intangible assets
    -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -     0.0 %
Restructuring charge
    -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -   0.0 %     -     0.0 %
Operating Expenses
  $ 572,209   56.7 %   $ 150,640   56.5 %   $ 150,033   55.7 %   $ 156,351   53.5 %   $ 172,308   50.5 %   $ 629,332     53.8 %
                                                                           
Non-GAAP Operating Margin
  $ 157,658   15.6 %   $ 35,354   13.3 %   $ 42,310   15.7 %   $ 51,472   17.6 %   $ 77,459   22.7 %   $ 206,595     17.7 %
                                                                           

 
 

 
 
PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands)
 
GAAP MARGINS
                                                             
                                                               
   
Q1 '12
       
Q2 '12
       
Q3 '12
       
Q4 '12
       
FY '12
       
Q1 '13
       
Revenue
  $ 318,276         $ 301,125         $ 310,983         $ 325,295         $ 1,255,679         $ 319,751        
Cost of license revenue
    7,659           7,824           7,634           7,478           30,595           8,012        
Cost of service revenue
    71,450           66,366           65,689           61,977           265,482           68,592        
Cost of support revenue
    19,110           19,026           19,531           18,384           76,051           20,468        
Gross Margin
  $ 220,057   69.1 %   $ 207,909   69.0 %   $ 218,129   70.1 %   $ 237,456   73.0 %   $ 883,551   70.4 %   $ 222,679     69.6 %
                                                                           
Sales & marketing
  $ 97,778   30.7 %   $ 90,962   30.2 %   $ 94,706   30.5 %   $ 94,350   29.0 %   $ 377,796   30.1 %   $ 93,549     29.3 %
Research & development
    54,993   17.3 %     54,576   18.1 %     53,260   17.1 %     52,131   16.0 %     214,960   17.1 %     57,429     18.0 %
General & administrative
    29,572   9.3 %     29,534   9.8 %     29,851   9.6 %     28,511   8.8 %     117,468   9.4 %     35,817     11.2 %
Amortization of acquired intangible assets
    5,209   1.6 %     5,132   1.7 %     5,103   1.6 %     4,859   1.5 %     20,303   1.6 %     6,623     2.1 %
Restructuring charge
    -   0.0 %     20,802   6.9 %     4,126   1.3 %     -   0.0 %     24,928   2.0 %     15,402     4.8 %
Operating Expenses
  $ 187,552   58.9 %   $ 201,006   66.8 %   $ 187,046   60.1 %   $ 179,851   55.3 %   $ 755,455   60.2 %   $ 208,820     65.3 %
                                                                           
GAAP Operating Margin
  $ 32,505   10.2 %   $ 6,903   2.3 %   $ 31,083   10.0 %   $ 57,605   17.7 %   $ 128,096   10.2 %   $ 13,859     4.3 %
                                                                           
                                                                           
ADJUSTMENTS TO DERIVE NON-GAAP MEASURES
 
                                                                           
   
Q1 '12
       
Q2 '12
       
Q3 '12
       
Q4 '12
       
FY '12
       
Q1 '13
       
Revenue:
                                                                         
Fair value of deferred revenue
  $ 1,522   0.5 %   $ 736   0.2 %   $ 227   0.1 %   $ -   0.0 %   $ 2,485   0.2 %   $ 1,554     0.5 %
Cost of license revenue:
                                                                         
Acquired intangible amortization
    4,103   1.3 %     3,931   1.3 %     3,933   1.3 %     3,852   1.2 %     15,819   1.3 %     4,639     1.5 %
Stock-based compensation
    5   0.0 %