PTC Announces Third Quarter FY’15 Results

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fourth quarter and full fiscal 2015 targets 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 and/or global manufacturing climates may not improve or may deteriorate, the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility that our businesses, including our Internet of Things (IoT) business, may not expand and/or generate the revenue we expect, the possibility that new products released and planned products, including IoT enabled core products, may not generate the revenue we expect or be released as we expect, the possibility that foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that the mix of revenue between license & subscription solutions, support and professional services could be different than we expect, which could impact our EPS results, the possibility that our customers may purchase more of our solutions as subscriptions than we expect, which would adversely affect near-term revenue, operating margins, and EPS, the possibility that sales of our solutions as subscriptions may not have the longer-term effect on revenue that we expect, the possibility that our workforce realignment may adversely affect our operations, the possibility that we may be unable to generate sufficient operating cash flow to return 40% of free cash flow to shareholders or that other uses of cash could preclude share repurchases, and the possibility that we may incur additional acquisition-related and pension plan termination-related expenses and losses than we expect.

Further, our results could be materially adversely affected by the resolution of our previously announced investigation in China. In the third quarter, we recorded a liability of $13.6 million associated with pending discussions with the Securities and Exchange Commission and the Department of Justice to resolve this matter. This is the minimum amount of liability we expect to incur if we are able to reach a settlement in this matter, and does not include any amounts associated with potential fines that might be imposed by either or both of the SEC and DOJ, which amounts would increase our liability and could be significant. There can be no assurance that we will reach a settlement with these agencies or that the cost of such settlements, if reached, would not materially exceed the existing accrual.

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 most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.

PTC and the PTC logo are trademarks or registered trademarks of PTC Inc. or its subsidiaries in the United States and in other countries.

About PTC

PTC (NASDAQ: PTC) is a global provider of technology platforms and enterprise applications for smart and connected products, operations, and systems. PTC’s enterprise applications serve manufacturers and other businesses that create, operate and service products. Led by its award winning ThingWorx® application enablement platform, PTC’s platform technologies help companies deliver new value emerging from the Internet of Things. An early pioneer in Computer Aided Design (CAD) software, PTC today employs more than 6,000 professionals serving more than 28,000 businesses worldwide.

 
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
         
 
Three Months Ended Nine Months Ended
July 4,
2015
June 28,
2014
July 4,
2015
June 28,
2014
 
Revenue:
License and subscription solutions (L&SS) $ 83,926 $ 97,703 $ 248,850 $ 269,114
Support   165,687     172,021     516,042     508,412  
Total software revenue 249,613 269,724 764,892 777,526
Professional services   53,500     66,910     177,782     212,733  
Total revenue   303,113     336,634     942,674     990,259  
 
Cost of revenue:
Cost of L&SS revenue (1) 12,830 11,246 39,349 32,454
Cost of support revenue (1)   20,452     21,118     63,176     62,598  
Total cost of software revenue 33,282 32,364 102,525 95,052
Cost of professional services revenue (1)   46,094     58,712     155,847     182,777  
Total cost of revenue   79,376     91,076     258,372     277,829  
 
Gross margin   223,737     245,558     684,302     712,430  
 
Operating expenses:
Sales and marketing (1) 86,454 91,440 256,085 261,612
Research and development (1) 54,078 57,405 175,333 166,109
General and administrative (1) 48,100 33,817 119,342 98,888
Amortization of acquired intangible assets 9,105 7,998 27,691 23,772
Restructuring charges   4,393     514     42,625     1,581  
Total operating expenses   202,130     191,174     621,076     551,962  
 
Operating income 21,607 54,384 63,226 160,468
Other expense, net   (3,668 )   (2,278 )   (10,492 )   (6,724 )
Income before income taxes 17,939 52,106 52,734 153,744
Provision (benefit) for income taxes   504     14,080     (377 )   32,305  
Net income $ 17,435   $ 38,026   $ 53,111   $ 121,439  
 
Earnings per share:
Basic $ 0.15 $ 0.32 $ 0.46 $ 1.02
Weighted average shares outstanding 114,764 118,328 115,021 118,753
 
Diluted $ 0.15 $ 0.32 $ 0.46 $ 1.01
Weighted average shares outstanding 116,025 119,901 116,330 120,573
 
 
 

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

 
Three Months Ended Nine Months Ended
July 4,
2015
June 28,
2014
July 4,
2015
June 28,
2014
Cost of L&SS revenue $ 121 $ 63 $ 381 $ 210
Cost of support revenue 1,012 898 2,777 2,711
Cost of service revenue 1,317 1,549 4,510 4,435
Sales and marketing 3,430 3,065 9,383 8,583
Research and development 2,928 2,231 9,015 7,067
General and administrative   5,263     4,726     12,069     14,856  
Total stock-based compensation $ 14,071   $ 12,532   $ 38,135   $ 37,862  
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
         
Three Months Ended Nine Months Ended
July 4,
2015
June 28,
2014
July 4,
2015
June 28,
2014
 
GAAP revenue $ 303,113 $ 336,634 $ 942,674 $ 990,259
Fair value adjustment of acquired deferred L&SS revenue 352 - 1,624 -
Fair value adjustment of acquired deferred support revenue 125 - 855 -
Fair value adjustment of acquired deferred service revenue   309     -     844     -  
Non-GAAP revenue $ 303,899   $ 336,634   $ 945,997   $ 990,259  
 
GAAP gross margin $ 223,737 $ 245,558 $ 684,302 $ 712,430
Fair value adjustment of acquired deferred L&SS revenue 352 - 1,624 -
Fair value adjustment of acquired deferred support revenue 125 - 855 -
Fair value adjustment of acquired deferred service revenue 309 - 844 -
Fair value adjustment to deferred services cost (135 ) - (392 ) -
Stock-based compensation 2,450 2,510 7,668 7,356
Amortization of acquired intangible assets
included in cost of L&SS revenue
4,957 4,415 14,438 13,319
Non-GAAP gross margin $ 231,795   $ 252,483   $ 709,339   $ 733,105  
 
GAAP operating income $ 21,607 $ 54,384 $ 63,226 $ 160,468
Fair value adjustment of acquired deferred L&SS revenue 352 - 1,624 -
Fair value adjustment of acquired deferred support revenue 125 - 855 -
Fair value adjustment of acquired deferred service revenue 309 - 844 -
Fair value adjustment to deferred services cost (135 ) - (392 ) -
Stock-based compensation 14,071 12,532 38,135 37,862
Amortization of acquired intangible assets
included in cost of L&SS revenue
4,957 4,415 14,438 13,319
Amortization of acquired intangible assets 9,105 7,998 27,691 23,772
Acquisition-related charges included in
general and administrative expenses
2,778 1,528 8,703 6,768
US pension plan termination-related costs 1,995 - 5,392 -
Pending legal settlement accrual 13,622 - 13,622 -
Restructuring charges   4,393     514     42,625     1,581  
Non-GAAP operating income (2) $ 73,179   $ 81,371   $ 216,763   $ 243,770  
 
GAAP net income $ 17,435 $ 38,026 $ 53,111 $ 121,439
Fair value adjustment of acquired deferred L&SS revenue 352 - 1,624 -
Fair value adjustment of acquired deferred support revenue 125 - 855 -
Fair value adjustment of acquired deferred service revenue 309 - 844 -
Fair value adjustment to deferred services cost (135 ) - (392 ) -
Stock-based compensation 14,071 12,532 38,135 37,862
Amortization of acquired intangible assets
included in cost of L&SS revenue
4,957 4,415 14,438 13,319
Amortization of acquired intangible assets 9,105 7,998 27,691 23,772
Acquisition-related charges included in
general and administrative expenses
2,778 1,528 8,703 6,768
US pension plan termination-related costs 1,995 - 5,392 -
Pending legal settlement accrual 13,622 - 13,622 -
Restructuring charges 4,393 514 42,625 1,581
Income tax adjustments (3)   (7,309 )   (1,275 )   (24,551 )   (23,088 )
Non-GAAP net income $ 61,698   $ 63,738   $ 182,097   $ 181,653  
 
GAAP diluted earnings per share $ 0.15 $ 0.32 $ 0.46 $ 1.01
Fair value of acquired deferred revenue 0.01 - 0.03 -
Fair value adjustment to deferred services cost - - - -
Stock-based compensation 0.12 0.10 0.33 0.31
Amortization of acquired intangibles 0.12 0.10 0.36 0.31
Acquisition-related charges 0.02 0.01 0.07 0.06
US pension plan termination-related costs 0.02 - 0.05 -
Pending legal settlement accrual 0.12 - 0.12 -
Restructuring charges 0.04 - 0.37 0.01
Income tax adjustments   (0.06 )   (0.01 )   (0.21 )   (0.19 )
Non-GAAP diluted earnings per share $ 0.53   $ 0.53   $ 1.57   $ 1.51  
 
(2)Operating margin impact of non-GAAP adjustments:
 
Three Months Ended Nine Months Ended
July 4,
2015
June 28,
2014
July 4,
2015
June 28,
2014
GAAP operating margin 7.1 % 16.2 % 6.7 % 16.2 %
Fair value of acquired deferred revenue 0.3 % 0.0 % 0.4 % 0.0 %
Fair value adjustment to deferred services cost 0.0 % 0.0 % 0.0 % 0.0 %
Stock-based compensation 4.6 % 3.7 % 4.0 % 3.8 %
Amortization of acquired intangibles 4.6 % 3.7 % 4.5 % 3.7 %
Acquisition-related charges 0.9 % 0.5 % 0.9 % 0.7 %
US pension plan termination-related costs 0.7 % 0.0 % 0.6 % 0.0 %
Pending legal settlement accrual 4.5 % 0.0 % 1.4 % 0.0 %
Restructuring charges   1.4 %   0.2 %   4.5 %   0.2 %
Non-GAAP operating margin   24.1 %   24.2 %   22.9 %   24.6 %
 

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