Blueprint
 
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)                                                                                                                      July 24, 2019
 
PTC Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Massachusetts
0-18059
04-2866152
(State or Other Jurisdiction
of Incorporation)
(Commission File Number)
(IRS Employer Identification No.)
 
 
121 Seaport Boulevard, Boston, MA
02210
(Address of Principal Executive Offices)
(Zip Code)
 
 
(Registrant’s Telephone Number, Including Area Code)                                                                                                 (781) 370-5000
 
 
 
 
(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):
 
 
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbols
Name of each exchange on which registered
Common Stock, $.01 par value per share
PTC
NASDAQ Global Select Market
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
 
 
 
Section 2 – Financial Information
 
Item 2.02.                       
Results of Operations and Financial Condition.
 
On July 24, 2019, PTC Inc. announced its financial results for its third quarter ended June 29, 2019. PTC also posted a copy of its supplemental prepared remarks about the completed first quarter on the Investor Relations section of its website at www.ptc.com. Copies of the press release and 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                  
PTC Inc. press release dated July 24, 2019.
 
99.2                  
Prepared remarks posted by PTC Inc. on July 24, 2019.
 
 
 
 
 
 
 
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.
 
 
 
PTC Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
Date: July 24, 2019
By:
/s/ Kristian Talvitie
 
 
 
Kristian Talvitie
 
 
 
Executive Vice President, Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
Blueprint
 
EXHIBIT 99.1
 
PTC ANNOUNCES THIRD QUARTER FISCAL YEAR 2019 RESULTS
 
Strong Subscription Revenue Growth with Margins at High End of ASC 605 Guidance;
Resets FY19 Outlook; Updates $850 Million Free Cash Flow Target to 2024
 
BOSTON, MA, July 24, 2019 - PTC (NASDAQ: PTC) today reported financial results for its fiscal third quarter 2019.
 
Financial Summary - ASC 606 (1)
 
Revenue of $295 million
GAAP net loss was $15 million or ($0.13) per diluted share; non-GAAP net income was $27 million or $0.23 per diluted share
GAAP operating margin of 3%; non-GAAP operating margin of 13%
 
Financial Summary ASC 605 (1)
 
Revenue of $322 million
GAAP net income was $12 million or $0.10 per diluted share; non-GAAP net income was $42 million or $0.36 per diluted share
GAAP operating margin of 10%; non-GAAP operating margin of 19%
 
(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 delivered solid third quarter financial performance reflecting the strength of our subscription model,” said James Heppelmann, President and CEO, PTC. “Momentum in our growth business continues to be strong where we had five deals with bookings of over $1 million, as customers increasingly leverage our IoT and AR offerings to enable digital transformation.”
 
Heppelmann added, “The transition to a subscription business model plus operational changes we have made this year, which are important elements to our long-term success, have created some short-term headwinds in the business, but the balance of the business is performing well. We remain excited about the growth opportunities in the market and our unparalleled competitive position, backed by important strategic alliances and partner relationships. PTC is well-positioned to continue creating substantial value for our customers and shareholders.”
 
Other third quarter 2019 results:
Additional operating and financial highlights are set forth below. Information about our bookings and other reporting measures 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 www.investor.ptc.com.
 
Additional Operating Highlights: 
 
License and subscription bookings: Q3’19 license and subscription bookings were $109 million, a decrease of 3% YoY or 1% in constant currency.
 
 
1
 
 
Software revenue: Q3’19 software revenue was $282 million, an increase of 3% year over year or 6% in constant currency.
 
Recurring Software revenue: Q3’19 recurring software revenue was $271 million, an increase of 9% year over year or 13% in constant currency.
 
IoT software revenue: Q3’19 IoT software revenue was $38 million, up 21% year over year or 24% on a constant currency basis, driven by subscription revenue growth of 35% year over year or 38% on a constant currency basis.
 
Annualized recurring revenue (ARR): Q3’19 ARR was $1,088 million, an increase of 9% year over year, or 13% in constant currency.
 
Deferred revenue: Billed deferred revenue in the third quarter increased 14% year over year to $551 million. Total deferred revenue – billed and unbilled - increased $105 million year over year. 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 cash flow and free cash flow: Operating cash flow in the third quarter was $68 million, up 37% over Q3’18, and free cash flow was $59 million, up 42% over Q3’18. Free cash flow in Q3’19 includes cash payments of approximately $3 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 third quarter total cash, cash equivalents, and marketable securities was $322 million and total debt, net of deferred issuance costs, was $699 million. During the third quarter we used $25 million to repurchase 287,000 shares at an average price of $87. Additionally, we paid down $40 million towards our revolving credit facility. We also retired 3 million shares at no cost related to the ASR initiated in the fourth quarter of fiscal 2018.
 
Management's Financial Outlook:
The Company's fourth 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.
 
Kristian Talvitie, EVP and CFO, said, “Given our year-to-date performance and our revised outlook for the fourth fiscal quarter, we believe it is prudent to reset our long-term financial targets. We remain committed to delivering $850M in free cash flow, but now expect to achieve this target in fiscal 2024. We will provide more detail around our FY’20 and long-range targets under ASC 606 following the end of this fiscal year.”
 
 
2
 
 
Fiscal 2019 Business Outlook – ASC 606
For the fourth quarter and fiscal year ending September 30, 2019, the company expects:
 
In millions except per share amounts
 
 
 
 
 
 
 
 
 
 
 
 
Operating Measures (1)
 
Q4’19 Low
 
 
Q4’19 High
 
 
FY’19 Low
 
 
FY’19 High
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subscription ACV
 $62 
 $67 
 $192 
 $197 
License and Subscription Bookings
 $135 
 $145 
 $458 
 $468 
Subscription % of Bookings
  93%
  93%
  84%
  84%
 
(1) An explanation of the metrics included in this table is provided below.
 
Financial Measures(1)
 
Q4’19 Low
 
 
Q4’19 High
 
 
FY’19 Low
 
 
FY’19 High
 
Subscription Revenue
 $181 
 $190 
 $601 
 $609 
Perpetual Support Revenue
 $97 
 $99 
 $412 
 $414 
Total Recurring Software Revenue
 $278 
 $289 
 $1,013 
 $1,024 
Perpetual License Revenue
 $9 
 $11 
 $70 
 $72 
Total Software Revenue
 $287 
 $300 
 $1,083 
 $1,096 
Professional Services Revenue
 $41 
 $43 
 $166 
 $168 
Total Revenue
 $328 
 $343 
 $1,249 
 $1,264 
 
    
    
    
    
Operating Expense (GAAP)
 $216 
 $218 
 $880 
 $882 
Operating Expense (Non-GAAP)
 $186 
 $188 
 $723 
 $725 
Operating Margin (GAAP)
  9%
  12%
  4%
  5%
Operating Margin (Non-GAAP)
  21%
  24%
  19%
  20%
Tax Rate (GAAP)
  0%
  0%
  70%
  70%
Tax Rate (Non-GAAP)
  16%
  16%
  16%
  16%
Shares Outstanding
  116 
  116 
  118 
  118 
EPS (GAAP)
 $0.16 
 $0.28 
 $0.01 
 $0.05 
EPS (Non-GAAP) 
 $0.42 
 $0.52 
 $1.43 
 $1.53 
Free Cash Flow
    
    
 $235 
 $245 
Adjusted Free Cash Flow
    
    
 $260 
 $270 
 
(1) The fourth 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.
 
In millions
 
Q4’19
 
 
FY’19
 
 
 
 
 
 
 
 
Effect of acquisition accounting on fair value of acquired deferred revenue
 $0 
 $1 
Acquisition-related charges
 $0 
 $1 
Restructuring and headquarters relocation charges (1)
 $0 
 $45 
Intangible asset amortization expense
 $13 
 $51 
Stock-based compensation expense
 $27 
 $98 
Total Estimated Pre-Tax GAAP adjustments
 $40 
 $196 
  
(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.
 
 
3
 
 
Fiscal 2019 Business Outlook – ASC 605
For the fourth quarter and fiscal year ending September 30, 2019, the company expects: 
 
In millions except per share amounts
 
 
 
 
 
 
 
 
 
 
 
 
Operating Measures (1)
 
Q4’19 Low
 
 
Q4’19 High
 
 
FY’19 Low
 
 
FY’19 High
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subscription ACV
 $62 
 $67 
 $192 
 $197 
License and Subscription Bookings
 $135 
 $145 
 $458 
 $468 
Subscription % of Bookings
  93%
  93%
  84%
  84%
 
(1) An explanation of the metrics included in this table is provided below.
 
Financial Measures(1)
 
Q4’19 Low
 
 
Q4’19 High
 
 
FY’19 Low
 
 
FY’19 High
 
Subscription Revenue
 $183 
 $188 
 $665 
 $670 
Perpetual Support Revenue
 $98 
 $100 
 $410 
 $412 
Total Recurring Software Revenue
 $281 
 $288 
 $1,076 
 $1,083 
Perpetual License Revenue
 $9 
 $10 
 $73 
 $74 
Total Software Revenue
 $290 
 $298 
 $1,148 
 $1,156 
Professional Services Revenue
 $40 
 $40 
 $159 
 $159 
Total Revenue
 $330 
 $338 
 $1,307 
 $1,315 
 
    
    
    
    
Operating Expense (GAAP)
 $219 
 $220 
 $897 
 $899 
Operating Expense (Non-GAAP)
 $189 
 $191 
 $740 
 $742 
Operating Margin (GAAP)
  9%
  11%
  7%
  8%
Operating Margin (Non-GAAP)
  21%
  22%
  22%
  23%
Tax Rate (GAAP)
  50%
  50%
  50%
  50%
Tax Rate (Non-GAAP)
  17%
  16%
  18%
  18%
Shares Outstanding
  116 
  116 
  118 
  118 
EPS (GAAP)
 $0.09 
 $0.11 
 $0.23 
 $0.25 
EPS (Non-GAAP) 
 $0.42 
 $0.47 
 $1.73 
 $1.78 
Free Cash Flow
    
    
 $235 
 $245 
Adjusted Free Cash Flow
    
    
 $260 
 $270 
 
(1) The fourth 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.
 
In millions
 
Q4’19
 
 
FY’19
 
 
 
 
 
 
 
 
Effect of acquisition accounting on fair value of acquired deferred revenue
 $0 
 $1 
Acquisition-related charges
 $0 
 $1 
Restructuring and headquarters relocation charges (1)
 $0 
 $45 
Intangible asset amortization expense
 $13 
 $51 
Stock-based compensation expense
 $27 
 $98 
Total Estimated Pre-Tax GAAP adjustments
 $40 
 $196 
    
(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.
 
 
4
 
 
PTC’s Fiscal Third 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, July 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 888-403-4669 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 transactions (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 and without regard to contractual termination options) 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 our Navigate™ ThingWorx®-based IoT solution for PLM are allocated 50% to Solutions and 50% to IoT.
 
 
5
 
  
Annualized Recurring Revenue (ARR) - Under ASC605
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.
 
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” beginning on page 35 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.
 
 
6
 
 
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), and Augmented Reality businesses, 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.com           @PTC           Blogs
 
PTC Investor Relations Contacts  
Tim Fox, 781-370-5961
Noelle Faris, 781-370-6899
tifox@ptc.com
nfaris@ptc.com
 
 
7
 
 
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
 
 
 
Three Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Subscription license
 $53,705 
 
 
 
 
 
 
Subscription support & cloud services
  90,159 
 
 
 
 
 
 
Total Subscription
  143,864 
 $171,631 
 $126,712 
Perpetual support
  100,328 
  99,664 
  121,127 
Total recurring revenue
  244,192 
  271,295 
  247,839 
Perpetual license
  9,213 
  10,644 
  25,780 
Total software revenue
  253,405 
  281,939 
  273,619 
Professional services
  42,081 
  40,471 
  41,158 
Total revenue (1)
  295,486 
  322,410 
  314,777 
 
    
    
    
Cost of revenue:
    
    
    
Cost of software revenue (2) (3)
  47,092 
  46,604 
  46,273 
Cost of professional services revenue (2) (3)
  35,613 
  34,629 
  35,360 
Total cost of revenue
  82,705 
  81,233 
  81,633 
 
    
    
    
Gross margin
  212,781 
  241,177 
  233,144 
 
    
    
    
Operating expenses:
    
    
    
Sales and marketing (2) (3)
  108,202 
  113,533 
  107,801 
Research and development (2) (3)
  60,590 
  60,590 
  61,221 
General and administrative (2) (3)
  28,773 
  28,773 
  33,098 
Amortization of acquired intangible assets
  5,920 
  5,920 
  7,850 
Restructuring and other charges, net
  (9)
  (9)
  1,627 
Total operating expenses
  203,476 
  208,807 
  211,597 
 
    
    
    
Operating income
  9,305 
  32,370 
  21,547 
Other expense, net (3)
  (9,790)
  (10,080)
  (11,576)
Income (loss) before income taxes
  (485)
  22,290 
  9,971 
Provision (benefit) for income taxes
  14,273 
  10,585 
  (7,026)
Net income (loss)
 $(14,758)
 $11,705 
 $16,997 
 
    
    
    
Earnings (loss) per share:
    
    
    
Basic
 $(0.13)
 $0.10 
 $0.15 
Weighted average shares outstanding
  116,133 
  116,133 
  115,774 
 
    
    
    
Diluted
 $(0.13)
 $0.10 
 $0.14 
Weighted average shares outstanding
  116,133 
  117,019 
  117,500 
 
    
    
    
 
(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)
Periods prior to 2019 reflect immaterial expense reclassifications in connection with the adoption of new pension accounting prescribed in Accounting Standards Update 2017-07.
 
 
8
 
 
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
 
 
 
Nine Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Subscription license
 $168,762 
 
 
 
 
 
 
Subscription support & cloud services
  250,811 
 
 
 
 
 
 
Total Subscription
  419,573 
 $482,114 
 $339,651 
Perpetual support
  315,242 
  312,453 
  379,007 
Total recurring revenue
  734,815 
  794,567 
  718,658 
Perpetual license
  61,354 
  63,661 
  82,604 
Total software revenue
  796,169 
  858,228 
  801,262 
Professional services
  124,457 
  118,438 
  128,041 
Total revenue (1)
  920,626 
  976,666 
  929,303 
 
    
    
    
Cost of revenue:
    
    
    
Cost of software revenue (2) (3)
  136,601 
  134,803 
  139,078 
Cost of professional services revenue (2) (3)
  103,360 
  99,593 
  109,298 
Total cost of revenue
  239,961 
  234,396 
  248,376 
 
    
    
    
Gross margin
  680,665 
  742,270 
  680,927 
 
    
    
    
Operating expenses:
    
    
    
Sales and marketing (2) (3)
  316,142 
  330,258 
  305,566 
Research and development (2) (3)
  182,774 
  182,774 
  187,390 
General and administrative (2) (3)
  102,008 
  102,008 
  101,487 
Amortization of acquired intangible assets
  17,786 
  17,786 
  23,566 
Restructuring and other charges, net
  45,464 
  45,464 
  1,846 
Total operating expenses
  664,174 
  678,290 
  619,855 
 
    
    
    
Operating income
  16,491 
  63,980 
  61,072 
Other expense, net (3)
  (29,974)
  (30,126)
  (33,085)
Income (loss) before income taxes
  (13,483)
  33,854 
  27,987 
Provision (benefit) for income taxes (4)
  23,803 
  14,931 
  (10,809)
Net income (loss)
 $(37,286)
 $18,923 
 $38,796 
 
    
    
    
Earnings (loss) per share:
    
    
    
Basic
 $(0.32)
 $0.16 
 $0.33 
Weighted average shares outstanding
  117,636 
  117,636 
  115,915 
 
    
    
    
Diluted
 $(0.32)
 $0.16 
 $0.33 
Weighted average shares outstanding
  117,636 
  118,664 
  117,687 
 
    
    
    
 
(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)
Periods prior to 2019 reflect immaterial expense reclassifications in connection with the adoption of new pension accounting prescribed in Accounting Standards Update 2017-07.
 
(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.
 
 
 
9
 
 
PTC Inc.
SUPPLEMENTAL FINANCIAL DATA FOR REVENUE AND STOCK-BASED COMPENSATION
(in thousands)
 
Revenue by license, support and services is as follows:           
 
 
 
Three Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
License revenue (1)
 $62,918 
 $163,220 
 $136,568 
Support and cloud services revenue
  190,487 
  118,719 
  137,051 
Professional services revenue
  42,081 
  40,471 
  41,158 
Total revenue
 $295,486 
 $322,410 
 $314,777 
 
 
 
NIne Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
License revenue (1)
 $230,116 
 $493,256 
 $376,591 
Support and cloud services revenue
  566,053 
  364,972 
  424,671 
Professional services revenue
  124,457 
  118,438 
  128,041 
Total revenue
 $920,626 
 $976,666 
 $929,303 
 
(1) Under ASC 605, we have classified all subscription revenue as license revenue.
 
The amounts in the income statement include stock-based compensation as follows:
 
 
 
Three Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
Cost of software revenue
 $1,219 
 $1,219 
 $948 
Cost of professional services revenue
  1,345 
  1,345 
  1,471 
Sales and marketing
  5,870 
  5,870 
  4,910 
Research and development
  4,761 
  4,761 
  3,283 
General and administrative
  2,039 
  2,039 
  6,046 
Total stock-based compensation
 $15,234 
 $15,234 
 $16,658 
 
 
 
Nine Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
Cost of software revenue
 $3,722 
 $3,722 
 $3,267 
Cost of professional services revenue
  5,065 
  5,065 
  4,846 
Sales and marketing
  25,114 
  25,114 
  14,827 
Research and development
  14,851 
  14,851 
  9,626 
General and administrative
  22,856 
  22,856 
  19,449 
Total stock-based compensation
 $71,608 
 $71,608 
 $52,015 
 
 
10
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
 
 
 
Three Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
 
 
 
 
 
 
 
 
 
 
GAAP revenue
 $295,486 
 $322,410 
 $314,777 
Fair value adjustment of acquired deferred subscription revenue
  - 
  - 
  75 
Fair value adjustment of acquired deferred services revenue
  124 
  124 
  225 
Non-GAAP revenue
 $295,610 
 $322,534 
 $315,077 
 
    
    
    
GAAP gross margin
 $212,781 
 $241,177 
 $233,144 
Fair value adjustment of acquired deferred revenue
  124 
  124 
  300 
Fair value adjustment to deferred services cost
  (58)
  (58)
  (93)
Stock-based compensation
  2,564 
  2,564 
  2,419 
Amortization of acquired intangible assets included in cost of revenue
  6,873 
  6,873 
  6,798 
Non-GAAP gross margin
 $222,284 
 $250,680 
 $242,568 
 
    
    
    
GAAP operating income
 $9,305 
 $32,370 
 $21,547 
Fair value adjustment of acquired deferred revenue
  124 
  124 
  300 
Fair value adjustment to deferred services cost
  (58)
  (58)
  (93)
Stock-based compensation
  15,234 
  15,234 
  16,658 
Amortization of acquired intangible assets included in cost of revenue
  6,873 
  6,873 
  6,798 
Amortization of acquired intangible assets
  5,920 
  5,920 
  7,850 
Acquisition-related and other transactional charges included in general and administrative costs
  424 
  424 
  1,578 
Restructuring and other charges, net
  (9)
  (9)
  1,627 
Non-GAAP operating income (1)
 $37,813 
 $60,878 
 $56,265 
 
    
    
    
GAAP net income (loss)
 $(14,758)
 $11,705 
 $16,997 
Fair value adjustment of acquired deferred revenue
  124 
  124 
  300 
Fair value adjustment to deferred services cost
  (58)
  (58)
  (93)
Stock-based compensation
  15,234 
  15,234 
  16,658 
Amortization of acquired intangible assets included in cost of revenue
  6,873 
  6,873 
  6,798 
Amortization of acquired intangible assets
  5,920 
  5,920 
  7,850 
Acquisition-related and other transactional charges included in general and administrative costs
  424 
  424 
  1,578 
Restructuring and other charges, net
  (9)
  (9)
  1,627 
Income tax adjustments (2)
  13,121 
  1,683 
  (9,657)
Non-GAAP net income
 $26,871 
 $41,896 
 $42,058 
 
    
    
    
GAAP diluted earnings (loss) per share
 $(0.13)
 $0.10 
 $0.14 
Fair value adjustment of acquired deferred revenue
  - 
  - 
  - 
Stock-based compensation
  0.13 
  0.13 
  0.14 
Amortization of acquired intangibles
  0.11 
  0.11 
  0.12 
Acquisition-related and other transactional charges
  - 
  - 
  0.01 
Restructuring and other charges, net
  - 
  - 
  0.02 
Income tax adjustments
  0.11 
  0.01 
  (0.08)
Non-GAAP diluted earnings per share
 $0.23 
 $0.36 
 $0.36 
 
    
    
    
GAAP diluted weighted average shares outstanding
  116,133 
  117,019 
  117,500 
Dilutive effect of stock-based compensation plans
  886 
  - 
  - 
Non-GAAP diluted weighted average shares outstanding
  117,019 
  117,019 
  117,500 
 
(1)
Operating margin impact of non-GAAP adjustments:
 
 
 
Three Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
GAAP operating margin
  3.1%
  10.0%
  6.8%
Fair value adjustment of acquired deferred revenue
  0.0%
  0.0%
  0.1%
Fair value adjustment to deferred services cost
  0.0%
  0.0%
  0.0%
Stock-based compensation
  5.2%
  4.7%
  5.3%
Amortization of acquired intangibles
  4.3%
  4.0%
  4.7%
Acquisition-related and other transactional charges
  0.1%
  0.1%
  0.5%
Restructuring and other charges, net
  0.0%
  0.0%
  0.5%
Non-GAAP operating margin
  12.8%
  18.9%
  17.9%
 
(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 also excluded a tax charge of $0.9M relating to the change in the functional currency of a wholly owned foreign subsidiary.
 
 
11
 
  
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
                 
 
 
Nine Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
 
 
 
 
 
 
 
 
 
 
GAAP revenue
 $920,626 
 $976,666 
 $929,303 
Fair value adjustment of acquired deferred subscription revenue
  66 
  66 
  266 
Fair value adjustment of acquired deferred services revenue
  529 
  529 
  706 
Non-GAAP revenue
 $921,221 
 $977,261 
 $930,275 
 
    
    
    
GAAP gross margin
 $680,665 
 $742,270 
 $680,927 
Fair value adjustment of acquired deferred revenue
  595 
  595 
  972 
Fair value adjustment to deferred services cost
  (220)
  (220)
  (293)
Stock-based compensation
  8,787 
  8,787 
  8,113 
Amortization of acquired intangible assets included in cost of revenue
  20,432 
  20,432 
  20,029 
Non-GAAP gross margin
 $710,259 
 $771,864 
 $709,748 
 
    
    
    
GAAP operating income
 $16,491 
 $63,980 
 $61,072 
Fair value adjustment of acquired deferred revenue
  595 
  595 
  972 
Fair value adjustment to deferred services cost
  (220)
  (220)
  (293)
Stock-based compensation
  71,608 
  71,608 
  52,015 
Amortization of acquired intangible assets included in cost of revenue
  20,432 
  20,432 
  20,029 
Amortization of acquired intangible assets
  17,786 
  17,786 
  23,566 
Acquisition-related and other transactional charges included in general and administrative costs
  1,215 
  1,215 
  1,718 
Restructuring and other charges, net
  45,464 
  45,464 
  1,846 
Non-GAAP operating income (1)
 $173,371 
 $220,860 
 $160,925 
 
    
    
    
GAAP net income (loss)
 $(37,286)
 $18,923 
 $38,796 
Fair value adjustment of acquired deferred revenue
  595 
  595 
  972 
Fair value adjustment to deferred services cost
  (220)
  (220)
  (293)
Stock-based compensation
  71,608 
  71,608 
  52,015 
Amortization of acquired intangible assets included in cost of revenue
  20,432 
  20,432 
  20,029 
Amortization of acquired intangible assets
  17,786 
  17,786 
  23,566 
Acquisition-related and other transactional charges included in general and administrative costs
  1,215 
  1,215 
  1,718 
Restructuring and other charges, net
  45,464 
  45,464 
  1,846 
Income tax adjustments (2)
  403 
  (20,857)
  (20,738)
Non-GAAP net income
 $119,997 
 $154,946 
 $117,911 
 
    
    
    
GAAP diluted earnings (loss) per share
 $(0.32)
 $0.16 
 $0.33 
Fair value adjustment of acquired deferred revenue
  0.01 
  0.01 
  0.01 
Stock-based compensation
  0.60 
  0.60 
  0.44 
Amortization of acquired intangibles
  0.32 
  0.32 
  0.37 
Acquisition-related and other transactional charges
  0.01 
  0.01 
  0.01 
Restructuring and other charges, net
  0.38 
  0.38 
  0.02 
Income tax adjustments
  - 
  (0.18)
  (0.18)
Non-GAAP diluted earnings per share
 $1.01 
 $1.31 
 $1.00 
 
    
    
    
GAAP diluted weighted average shares outstanding
  117,636 
  118,664 
  117,687 
Dilutive effect of stock-based compensation plans
  1,028 
  - 
  - 
Non-GAAP diluted weighted average shares outstanding
  118,664 
  118,664 
  117,687 
 
  (1) Operating margin impact of non-GAAP adjustments:
 
 
 
Nine Months Ended
 
 
 
June 29,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606
 
 
ASC 605
 
 
ASC 605
 
GAAP operating margin
  1.8%
  6.6%
  6.6%
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
  7.8%
  7.3%
  5.6%
Amortization of acquired intangibles
  4.2%
  3.9%
  4.7%
Acquisition-related and other transactional charges
  0.1%
  0.1%
  0.2%
Restructuring and other charges, net
  5.0%
  4.7%
  0.2%
Non-GAAP operating margin
  18.8%
  22.6%
  17.3%
 
(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 also excluded a tax charge of $0.9M relating to the change in the functional currency of a wholly owned foreign subsidiary.
 
 
12
 
  
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
 
June 29,
 
 
June 29,
 
 
September 30,
 
 
 
2019
 
 
2019
 
 
2018
 
 
 
ASC 606 (1)(2)
 
 
ASC 605
 
 
ASC 605
 
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 $267,862 
 $267,862 
 $259,946 
Marketable securities
  54,626 
  54,626 
  55,951 
Accounts receivable, net
  321,426 
  111,165 
  129,297 
Property and equipment, net
  107,752 
  107,752 
  80,613 
Goodwill and acquired intangible assets, net
  1,428,423 
  1,428,423 
  1,382,659 
Other assets
  468,500 
  478,928 
  420,556 
 
    
    
    
Total assets
 $2,648,589 
 $2,448,756 
 $2,329,022 
 
    
    
    
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
    
    
 
    
    
    
Deferred revenue
 $382,579 
 $550,933 
 $499,442 
Debt, net of deferred issuance costs
  698,916 
  698,916 
  643,268 
Other liabilities
  351,499 
  292,409 
  311,723 
Stockholders' equity
  1,215,595 
  906,498 
  874,589 
 
    
    
    
Total liabilities and stockholders' equity
 $2,648,589 
 $2,448,756 
 $2,329,022 
 
 (1) The adoption of ASC 606 resulted in up front license recognition under our subscription contracts, resulting in unbilled receivables, and an increase in receivables previously included in other current assets under ASC 605 related to billed but uncollected support and subscription receivables that had corresponding deferred revenue. The adoption also resulted in a decrease in deferred revenue primarily due to the up front license recognition to accumulated deficit at the time of adoption related to on-premise subscription software licenses.
(2) Our consolidated balance sheet as of June 29, 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 third quarter of 2019.
 
 
13
 
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
 Three Months Ended
 
 
Nine Months Ended
 
 
 
June 29,
 
 
June 30,
 
 
June 29,
 
 
June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(14,758)
 $16,997 
 $(37,286)
 $38,796 
Stock-based compensation
  15,234 
  16,658 
  71,608 
  52,015 
Depreciation and amortization
  19,076 
  22,576 
  58,634 
  65,303 
Accounts receivable
  33,753 
  (10,832)
  88,254 
  21,195 
Accounts payable and accruals
  8,550 
  243 
  (19,318)
  (38,887)
Deferred revenue
  (11,622)
  23,767 
  25,325 
  82,794 
Income taxes
  2,900 
  (15,871)
  (12,777)
  (30,005)
Other (1)
  14,452 
  (4,344)
  55,489 
  (5,419)
Net cash provided by operating activities (3)
  67,585 
  49,194 
  229,929 
  185,792 
 
    
    
    
    
Capital expenditures
  (8,311)
  (7,527)
  (59,579)
  (18,666)
Acquisition of businesses, net of cash acquired (2)
  (17,284)
  - 
  (86,737)
  (3,000)
Purchase of intangible asset
  - 
  - 
  - 
  (3,000)
Borrowings (payments) on debt, net
  (40,000)
  50,000 
  55,000 
  (20,000)
Net proceeds associated with issuance of common stock
  - 
  - 
  4,158 
  7,472 
Repurchases of common stock
  (25,001)
  (100,000)
  (89,995)
  (100,000)
Payments of withholding taxes in connection with
    
    
    
    
 vesting of stock-based awards
  (9,700)
  (10,855)
  (44,191)
  (44,797)
Proceeds from (purchase of) investments
  - 
  (1,000)
  (7,500)
  (1,000)
Contingent consideration
  - 
  (4,574)
  (1,575)
  (7,750)
Purchases of marketable securities, net
  1,960 
  1,131 
  1,727 
  (4,423)
Other financing & investing activities
  4,395 
  - 
  4,509 
  - 
Foreign exchange impact on cash
  (94)
  (9,446)
  2,143 
  (3,609)
 
    
    
    
    
Net change in cash, cash equivalents, and restricted cash (1)
  (26,450)
  (33,077)
  7,889 
  (12,981)
Cash, cash equivalents, and restricted cash, beginning of period
  295,432 
  301,305 
  261,093 
  281,209 
Cash, cash equivalents, and restricted cash, end of period
 $268,982 
 $268,228 
 $268,982 
 $268,228 
                 
(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 increase and $0.5 million increase related to the change in restricted cash from the change in other current assets for the three months and nine months ended June 30, 2018, respectively.
(2) On December 29, 2018, we acquired Frustum for $70 million, net of cash acquired.
(3) Our consolidated cash flows as of June 29, 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 third quarter of 2019.
 
 
14
Blueprint
  Exhibit 99.2
 
 
 
PTC PREPARED REMARKS
THIRD QUARTER FISCAL 2019
July 24, 2019
 
Please refer to the “Important Disclosures” section of these prepared remarks for important information about our operating metrics (including Subscription ACV, License and Subscription Bookings, and Subscription % of Bookings), GAAP and non-GAAP definitions, and other important disclosures. Additional financial information is provided in the PTC Financial Data Tables posted with these prepared remarks to PTC’s Investor Relations website at investor.ptc.com.
 
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.
 
We adopted ASC 606 on October 1, 2018, which impacts 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.
 
Q3’19 ASC 605 Results vs. April 24, 2019 Guidance
 
Operating Measures
Guidance
Results
In millions
Q3’19Low
Q3’19High
Actual
License and Subscription Bookings
$110
$120
$109
Subscription ACV
$51
$55
$49
Subscription % of Bookings
92%
92%
91%
 
 
Financial Measures
GAAP Guidance
GAAP Results
Non-GAAP Guidance
Non-GAAP Results
In millions, except per share amounts
Q3’19 Low
Q3’19 High
Q3’19 Low
Q3’19 High
Subscription Revenue
$166
$170
$172
$166
$170
$172
Perpetual Support Revenue
$105
$105
$100
$105
$105
$100
Total Recurring Revenue
$271
$275
$271
$271
$275
$271
Perpetual License Revenue
$9
$10
$11
$9
$10
$11
Total Software Revenue
$280
$285
$282
$280
$285
$282
Professional Services Revenue
$40
$40
$40
$40
$40
$41
Total Revenue
$320
$325
$322
$320
$325
$323
Operating Expense
$221
$223
$209
$190
$192
$190
Operating Margin
5%
7%
10%
18%
19%
19%
Tax Rate
30%
30%
47%
19%
18%
18%
EPS
$0.03
$0.07
$0.10
$0.31
$0.36
$0.36
 
Totals may not tie due to rounding
 
 
1
 
Key Highlights of Operating Measures
Operating Measures remain the same under ASC 605 and 605.
 
In millions
Q3’19
YoY
YoY CC
Q3 YTD
YoY
YoY CC
Management Comments
License and Subscription Bookings
$109
-3%
-1%
$323
2%
6%
 Q3’19 bookings of $109M was impacted by approximately $1M due to Fx. Bookings at guidance Fx rates were at the low end of guidance due primarily to weaker channel performance following the end of perpetual license sales in certain regions.
 We saw continued strength in IoT, surpassing bookings for each of CAD and PLM for the second consecutive quarter.
 Core PLM had solid growth YoY and sequentially, driven by expansions in the direct side of the business.
 Geographically, we saw strength across all our product lines in Americas regions.
Subscription ACV
$49
13%
16%
$129
11%
15%
 Q3’19 new subscription ACV of $49M was $2M below the low end of the guidance range due to the reasons described above.
Subscription % of Bookings
91%
 
 
80%
 
 
 Q3’19 subscription mix was slightly below the guidance of 92% due to a slight increase in perpetual license bookings within the Productivity Zone where we offer perpetual licensing on certain legacy products.
 
 
 
2
 
 
 Q3’19 ASC 606 and ASC 605 Results Bridge
 
All references are to GAAP revenue, unless otherwise noted.
We adopted ASC 606 on October 1, 2018, which impacts our reported financial results, including the timing and classification of revenue.
 
In millions, except per share amounts
ASC 606
ASC 605
Variance
Management Comments
Subscription Revenue
$144
$172
($28)
 $51M of in-quarter revenue acceleration associated with the license portion of subscriptions, offset by $78M of acceleration of the license portion of subscriptions from prior periods (~$50M of which impacted retained earnings upon the adoption of ASC 606) and revenue reallocations.
Perpetual Support Revenue
$100
$100
-
 No variance
Perpetual License Revenue
$9
$11
($2)
 Revenue reallocations
Total Software Revenue
$253
$282
($29)
 $51M of in-quarter revenue acceleration associated with the license portion of subscriptions, offset by $78M of acceleration of the license portion of subscriptions from prior periods (~$50M of which impacted retained earnings upon the adoption of ASC 606) and revenue reallocations.
Professional Services Revenue
$42
$40
$2
 ~$2M re-allocation of transaction price based on the stand-alone selling price of performance obligations.
Total Revenue
$295
$322
($27)
 $51M of in-quarter revenue acceleration associated with the license portion of subscriptions, offset by $78M of acceleration of the license portion of subscriptions from prior periods (~$50M of which impacted retained earnings upon the adoption of ASC 606) and revenue reallocations.
Cost of Revenue:
GAAP
Non-GAAP
 
$83
$73
 
$81
$72
 
$2
$1
 Related primarily to 606 professional services deferred costs.
Gross Margin:
GAAP
Non-GAAP
 
72%
75%
 
75%
78%
 
(300 bps)
(300 bps)
 Reflects the above differences.
Operating Expense:
GAAP
Non-GAAP
 
$203
$184
 
$209
$190
 
($6)
($6)
 Reflects the effect of commission amortization under 606, offset by deferral of current commission payments under 606.
Operating Margin:
GAAP
Non-GAAP
 
3%
13%
 
10%
19%
 
(700 bps)
  (600 bps)
 Reflects the above differences.
Tax Rate:
GAAP