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EX-99.2 - PREPARED REMARKS - PTC INC.premarks.htm
8-K - FORM 8-K - PTC INC.form8k.htm
 
PTC Announces Third Quarter FY’16 Results
 
Bookings Exceed High End of Guidance; Business Model Transition Accelerates with 58% Subscription Bookings Mix
 
NEEDHAM, MA, July 20, 2016 - PTC (NASDAQ: PTC) today reported financial results for the third quarter ended July 2, 2016.
 
Q3 Fiscal 2016 Overview
Third quarter FY’16 GAAP revenue was $289 million; non-GAAP revenue was $290 million. GAAP net income was $3 million or $0.03 per share; non-GAAP net income was $30 million or $0.26 per share.
 
“We are very pleased with our third quarter performance,” said James Heppelmann, President and CEO, PTC. “Customers are rapidly adopting our subscription offering, accelerating our business model transition, and our improved execution led to a strong bookings performance, beating the high end of our guidance for the quarter.” Heppelmann added, “While a higher subscription mix negatively impacts near-term reported revenue and earnings, we are creating significant long-term value for our customers and shareholders by transitioning to a subscription model. Importantly, we remain committed to our track record of financial discipline and margin expansion.”
 
Operational Overview
Q3 FY’16 operational highlights are set forth 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 ptc.com. Information about our bookings and other reporting measures is provided on
page 4.
 
o
License and subscription bookings were $105 million; above the guidance range of $90 million to $100 million.
 
o
Subscription bookings were approximately 58% of total bookings, above our guidance assumption of 48% and up from 16% a year ago. We estimate that this higher than guidance mix of subscription in the quarter, while positive in the long-term, reduced revenue by approximately $11 million, and reduced non-GAAP EPS by approximately $0.09 as compared to our guidance, and by approximately $0.35 as compared to Q3’15 mix.
 
o
Total subscription annualized contract value (ACV) was $30 million; above our guidance of $22 to $24 million.
 
o
Software revenue, which reflects a higher mix of subscription than last year, was down approximately $11 million, or 5%, on a year-over-year, constant currency basis. We estimate that the higher mix of subscription than last year lowered Q3’16 software revenue by approximately $38 million.
 
o
Annualized recurring revenue (ARR) was approximately $780 million at the end of the third quarter of fiscal 2016.
 
o
GAAP operating expenses were approximately $199 million; non-GAAP operating expenses were approximately $175 million. These results were above the GAAP and non-GAAP guidance ranges primarily due to incremental sales incentive expense incurred related to the accelerated subscription transition, as well as the achievement of bookings performance above expectations.
 
 
 
 
o
Q3’16 GAAP operating margin was 3% and non-GAAP operating margin was 14%. Q3’15 GAAP operating margin was 7% and non-GAAP operating margin was 24%. We estimate that the higher mix of subscription in Q3’16 reduced GAAP and non-GAAP operating margin by approximately 300 basis points as compared to guidance, and by 1,150 basis points as compared to Q3’15 mix.
 
o
For Q3’16, we recorded a GAAP income tax benefit of $4 million, or $0.03 per share, and a non-GAAP income tax expense of $2 million, or $0.02 per share. The GAAP tax rate for the quarter was 537% and the non-GAAP tax rate for the quarter was 7%.
 
o
Cash flow from operations was $59 million, and free cash flow was $52 million, both of which include cash payments for restructuring of $8 million.
 
o
We ended the quarter with total cash, cash equivalents, and marketable securities of $339 million and total debt of $778 million.
 
Workforce Realignment
In October 2015, reflecting a realignment of resources toward higher growth opportunities and our commitment to operating margin improvement, we announced a plan to repurpose or eliminate approximately 8% of worldwide positions and to consolidate select facilities. This is expected to result in a restructuring charge of up to $50 million; of which $37 million was recorded in Q1’16, $5 million was recorded in Q2’16, and $3 million recorded in Q3’16. The remainder is expected to be recorded in Q4 of FY’16. Substantially all of the charges are attributable to termination benefits, most of which will be paid in FY’16.
 
 
 
 
FY’16 Business Outlook
For the quarter and fiscal year ending September 30, 2016, the company expects:
 
In millions except per share amounts
 
 
 
 
 
 
 
 
 
 
 
 
Operating Measures(1)
 
Q4’16
Low
 
 
Q4’16
High
 
 
FY’16
Low
 
 
FY’16
High
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Subscription ACV
  $25 
  $28 
  $90 
  $92 
License and Subscription Bookings
  $111 
  $121 
  $370 
  $380 
Subscription % of Bookings
    46%
    46%
    48%
    48%
(1)An explanation of the metrics included in this table is provided below.
 
Financial Measures
 
Q4’16 Low
 
 
Q4’16 High
 
 
FY’16 Low
 
 
FY’16 High
 
Subscription Revenue
  $40 
  $40 
  $120 
  $120 
Support Revenue
    155 
    155 
    649 
    649 
Perpetual License Revenue
    61 
    66 
    193 
    198 
Total Software Revenue(2)
    256 
    261 
    962 
    967 
Professional Services Revenue
    49 
    49 
    198 
    198 
Total Revenue(2)
  $305 
  $310 
  $1,160 
  $1,165 
 
       
       
       
       
Operating Expense (GAAP)
  $196 
  $198 
  $809 
  $811 
Operating Expense (Non-GAAP)
    170 
    172 
    667 
    669 
Operating Margin (GAAP)
    8%
    9%
    2%
    2%
Operating Margin (Non-GAAP)
    19%
    20%
    17%
    17%
Tax Rate (GAAP)
    (13%)
    (13%)
    (5%)
    (5%)
Tax Rate (Non-GAAP)
    10%
    8%
    8%
    7%
Shares Outstanding
    116 
    116 
    115 
    115 
EPS (GAAP)
  $0.11 
  $0.16 
  $( 0.11)
  $( 0.07)
EPS (Non-GAAP) (2)
  $0.36 
  $0.41 
  $1.36 
  $1.41 
Free Cash Flow
       
       
  $153 
  $153 
Adjusted Free Cash Flow(3)
       
       
  $236 
  $239 
(2) As a rule of thumb, our model indicates that, on an annual basis, every 1% change in subscription mix will impact annual revenue by $3 million, and annual non-GAAP EPS by $0.02.
(3) Adjusted Free Cash Flow guidance is net cash provided by (used in) operating activities less capital expenditures, and excludes restructuring payments of approximately $55 million to $58 million and a $28 million legal settlement with the SEC and DOJ regarding a China FCPA investigation.
 
The Q4’16 and full year FY’16 non-GAAP operating margin and non-GAAP EPS guidance exclude the estimated items outlined in the table below, as well as any discrete tax items (which are not known or reflected).
 
In millions
    Q4’16 
 
FY’16
 
 
       
 
 
 
Effect of acquisition accounting on fair value of acquired deferred revenue
  $1 
    3 
Stock-based compensation expense
    14 
    66 
Intangible asset amortization expense
    15 
    58 
Acquisition-related charges
    0 
    3 
Restructuring charges
    5 
    50 
Non-operating credit facility refinancing costs
    0 
    2 
Total Estimated Pre-Tax GAAP adjustments
  $35 
  $182 
 
 
 
PTC’s Third Quarter FY’16 Results Conference Call, Prepared Remarks and Financial Data Tables
Prepared remarks for the conference call 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 20, 2016. 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 800-857-5592 or 773-799-3757 and provide the passcode PTC. The call will be recorded and a replay will be available for 10 days following the call by dialing 866-513-9969 and entering the pass code 5830. 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 (revenue is recognized at the time of sale) and a subscription (revenue is deferred and recognized ratably over the subscription term), we use bookings for internal planning, forecasting and reporting of new license and cloud services transactions. In order to normalize between perpetual and subscription licenses, we define subscription bookings as the subscription annualized contract value (subscription ACV) of new subscription bookings 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 booking divided by the term of the contract (in days) multiplied by 365. If the term of the subscription contract is less than a year, the ACV is equal to the total contract value.
 
License and subscription bookings equal subscription bookings (as described above) plus perpetual license bookings plus any monthly software rental bookings during the period. Total ACV equals subscription ACV (as described above) plus the annualized value of incremental monthly software rental bookings during the period.
 
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.
 
Annualized Recurring Revenue (ARR)
We currently offer our solutions on premise, as a cloud service, and as SaaS offerings. Our on-premise solutions can be licensed either as perpetual with annual support contracts or through a subscription, which is a combination of license and support. Beginning in FY’16, we launched a number of initiatives designed to incentivize more of our customers to purchase our solutions on a subscription basis. If successful, these initiatives will cause an increasing percentage of our revenue to come from subscriptions, which is expected to grow our recurring software revenue.
 
To help investors understand and assess the success of this expected revenue transition, we are providing 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. 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, and (3) multiple other contractual factors with the customer including other elements sold with the subscription or support contract, and these elements can result in variability in disclosed ARR.
 
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 PTC’s 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 expenses, 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 is a purchase accounting adjustment recorded to reduce acquired deferred revenue to the fair value of the remaining obligation, so our GAAP revenue for the one year period after an acquisition does not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. We believe excluding these adjustments to revenue from these contracts (and associated costs in fair value adjustment to deferred services cost) is useful to investors as an additional means to assess revenue trends of our business.
Stock-based compensation is a non-cash expense relating to stock-based awards issued to executive officers, employees and outside directors, consisting of restricted stock, stock options and restricted stock units. We exclude this expense as it is a non-cash expense and we assess our internal operations excluding this expense and believe it facilitates comparisons to the performance of other companies in our industry.
Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Acquisition-related charges included in general and administrative costs are direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges. These costs are not
 
 
 
 
 
considered part of our normal operations as the occurrence and amount will vary depending on the timing and size of acquisitions.
U.S. pension plan termination-related costs include charges related to our plan that we began terminating in the second quarter of 2014. Costs associated with the termination are not considered part of our regular operations.
Legal settlement accrual is the amount accrued to settle our SEC and DOJ FCPA investigation in China, which was ultimately settled and paid in the second quarter of 2016 for $28.2 million. We view this as a non-ordinary course event and exclude it when reviewing our operating performance and believe it assists comparisons to the performance of other companies in our industry.
Restructuring charges include excess facility restructuring charges and severance costs resulting from reductions of personnel driven by modifications to our business strategy and not considered part of our normal operations. These costs may vary in size based on our restructuring plan.
Non-operating credit facility refinancing costs are non-operating charges we record as a result of the refinancing of our credit facility. We assess our internal operations excluding these costs and believe it facilitates comparisons to the performance of other companies in our industry.
Income tax adjustments include the tax impact of the items above and assumes that we are profitable on a non-GAAP basis in the U.S. and one foreign jurisdiction, and eliminates the effect of the valuation allowance recorded against our net deferred tax assets in those jurisdictions.  Additionally, we exclude other material tax items that we view as non-ordinary course.
 
PTC also provides information on “free cash flow” and “free cash flow return” 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, and free-cash flow return is the value of shares repurchased divided by free cash flow. Free Cash Flow is not a measure of cash available for discretionary expenditures.
Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our fourth quarter and full fiscal 2016 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 macroeconomic and/or global manufacturing climates may not improve or may deteriorate; customers may not purchase our solutions when or at the rates we expect; our businesses, including our Internet of Things (IoT) business, may not expand and/or generate the revenue we expect; foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense; the mix of revenue between license & subscription solutions, support and professional services could be different than we expect, which could impact our EPS results; our customers may purchase more of our solutions as subscriptions than we expect, which would adversely affect near-term revenue, operating margins, and EPS; customers may not purchase subscriptions at the rate we expect; sales of our solutions as subscriptions may not have the longer-term effect on revenue that we expect; our workforce realignment may not achieve the expense savings we expect and may adversely affect our operations; 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 could preclude share repurchases; and a significant portion of our cash is held overseas and could be subject to significant taxes if repatriated. 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 solutions that transform how companies create, operate, and service the “things” in the Internet of Things (IoT). The company’s next-generation ThingWorx® technology platform gives developers the tools they need to capture, analyze, and capitalize on the vast amounts of data being generated by smart, connected products and systems. The company’s field-proven solutions are deployed in more than 26,000 businesses worldwide to generate a product or service advantage. PTC’s award-winning CEO, considered an industry thought leader, co-authored the definitive guides to the impact of the IoT on business in the Harvard Business Review.
 
 
PTC Investor Relations Contacts
Tim Fox, 781-370-5961
tifox@ptc.com
 
Jason Howard, 781-370-5087
jahoward@ptc.com

 
 
 
PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
July 2,
 
 
July 4,
 
 
July 2,
 
 
July 4,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Subscription
  $31,822 
  $17,155 
  $77,657 
  $47,143 
Support
    161,881 
    165,687 
    494,262 
    516,042 
Total recurring software
    193,703 
    182,842 
    571,919 
    563,185 
Perpetual license
    44,648 
    66,771 
    132,100 
    201,707 
Total software
    238,351 
    249,613 
    704,019 
    764,892 
Professional services
    50,301 
    53,500 
    148,277 
    177,782 
Total revenue
    288,652 
    303,113 
    852,296 
    942,674 
 
       
       
       
       
Cost of revenue:
       
       
       
       
Cost of software revenue (1)
    38,864 
    33,282 
    114,291 
    102,525 
Cost of professional services revenue(1)
    43,606 
    46,094 
    128,518 
    155,847 
Total cost of revenue
    82,470 
    79,376 
    242,809 
    258,372 
 
       
       
       
       
Gross margin
    206,182 
    223,737 
    609,487 
    684,302 
 
       
       
       
       
Operating expenses:
       
       
       
       
Sales and marketing (1)
    94,874 
    88,353 
    264,480 
    261,702 
Research and development (1)
    57,118 
    54,078 
    171,397 
    175,333 
General and administrative (1)
    35,485 
    46,201 
    107,968 
    113,725 
Amortization of acquired intangible assets
    8,294 
    9,105 
    25,040 
    27,691 
Restructuring charges
    2,815 
    4,393 
    44,541 
    42,625 
Total operating expenses
    198,586 
    202,130 
    613,426 
    621,076 
 
       
       
       
       
Operating income (loss)
    7,596 
    21,607 
    (3,939)
    63,226 
Other expense, net
    (8,300)
    (3,668)
    (19,880)
    (10,492)
Income (loss) before income taxes
    (704)
    17,939 
    (23,819)
    52,734 
Provision (benefit) for income taxes
    (3,777)
    504 
    2,173 
    (377)
Net income (loss)
  $3,073 
  $17,435 
  $(25,992)
  $53,111 
 
       
       
       
       
Earnings (loss) per share:
       
       
       
       
Basic
  $0.03 
  $0.15 
  $(0.23)
  $0.46 
Weighted average shares outstanding
    114,795 
    114,764 
    114,499 
    115,021 
 
       
       
       
       
Diluted
  $0.03 
  $0.15 
  $(0.23)
  $0.46 
Weighted average shares outstanding
    115,698 
    116,025 
    114,499 
    116,330 
 
       
       
       
       
 
       
       
       
       
 
       
       
       
       
 
(1) The amounts in the tables above include stock-based compensation as follows:
 
 
 
 
 
 
 
 
  Three Months Ended      
 
 
  Nine Months Ended      
 
 
 
July 2,
 
 
July 4,
 
 
July 2,
 
 
July 4,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
Cost of software revenue
  $1,158 
  $1,133 
  $4,163 
  $3,158 
Cost of professional services revenue
    1,342 
    1,317 
    4,072 
    4,510 
Sales and marketing
    3,195 
    4,075 
    11,254 
    10,821 
Research and development
    2,531 
    2,928 
    7,578 
    9,015 
General and administrative
    5,570 
    4,618 
    24,754 
    10,631 
Total stock-based compensation
  $13,796 
  $14,071 
  $51,821 
  $38,135 
 
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)
 
     
  Three Months Ended 
  Nine Months Ended 
     
  July 2, 
  July 4, 
  July 2, 
  July 4, 
     
  2016 
  2015 
  2016 
  2015 
     
     
     
     
     
  GAAP revenue 
  $288,652 
  $303,113 
  $852,296 
  $942,674 
  Fair value adjustment of acquired deferred subscription revenue 
    746 
    352 
    1,711 
    1,624 
  Fair value adjustment of acquired deferred support revenue 
    - 
    125 
    - 
    855 
  Fair value adjustment of acquired deferred services revenue 
                277 
    309 
    873 
    844 
  Non-GAAP revenue 
  $289,675 
  $303,899 
  $854,880 
  $945,997 
 
 
 
       
       
       
       
  GAAP gross margin 
  $206,182 
  $223,737 
  $609,487 
  $684,302 
  Fair value adjustment of acquired deferred revenue 
    1,023 
    786 
    2,584 
    3,323 
  Fair value adjustment to deferred services cost 
    (121)
    (135)
    (378)
    (392)
  Stock-based compensation 
    2,500 
    2,450 
    8,235 
    7,668 
  Amortization of acquired intangible assets included in cost of software revenue 
    6,383 
    4,957 
    18,235 
    14,438 
  Non-GAAP gross margin 
  $215,967 
  $231,795 
  $638,163 
  $709,339 
 
 
 
       
       
       
       
  GAAP operating income (loss) 
  $7,596 
  $21,607 
  $(3,939)
  $63,226 
  Fair value adjustment of acquired deferred revenue 
    1,023 
    786 
    2,584 
    3,323 
  Fair value adjustment to deferred services cost 
    (121)
    (135)
    (378)
    (392)
  Stock-based compensation 
    13,796 
    14,071 
    51,821 
    38,135 
  Amortization of acquired intangible assets included in cost of software revenue 
    6,383 
    4,957 
    18,235 
    14,438 
  Amortization of acquired intangible assets 
    8,294 
    9,105 
    25,040 
    27,691 
  Acquisition-related charges included in general and administrative costs 
    937 
    2,778 
    3,215 
    8,703 
  US pension plan termination-related costs 
    - 
    1,995 
    - 
    5,392 
  Legal settlement accrual 
    - 
    13,622 
    - 
    13,622 
  Restructuring charges 
    2,815 
    4,393 
    44,541 
    42,625 
  Non-GAAP operating income (2) 
  $40,723 
  $73,179 
  $141,119 
  $216,763 
 
 
 
       
       
       
       
  GAAP net income (loss) 
  $3,073 
  $17,435 
  $(25,992)
  $53,111 
  Fair value adjustment of acquired deferred revenue 
    1,023 
    786 
    2,584 
    3,323 
  Fair value adjustment to deferred services cost 
    (121)
    (135)
    (378)
    (392)
  Stock-based compensation 
    13,796 
    14,071 
    51,821 
    38,135 
  Amortization of acquired intangible assets included in cost of software revenue 
    6,383 
    4,957 
    18,235 
    14,438 
  Amortization of acquired intangible assets 
    8,294 
    9,105 
    25,040 
    27,691 
  Acquisition-related charges included in general and administrative costs 
    937 
    2,778 
    3,215 
    8,703 
  US pension plan termination-related costs 
    - 
    1,995 
    - 
    5,392 
  Legal settlement accrual 
    - 
    13,622 
    - 
    13,622 
  Restructuring charges 
    2,815 
    4,393 
    44,541 
    42,625 
  Non-operating credit facility refinancing costs 
    - 
    - 
    2,359 
    - 
  Income tax adjustments (3) 
    (6,202)
    (7,309)
    (6,481)
    (24,551)
  Non-GAAP net income 
  $29,998 
  $61,698 
  $114,944 
  $182,097 
 
 
 
       
       
       
       
  GAAP diluted earnings (loss) per share 
  $0.03 
  $0.15 
  $(0.23)
  $0.46 
  Fair value of acquired deferred revenue 
    0.01 
    0.01 
    0.02 
    0.03 
  Stock-based compensation 
    0.12 
    0.12 
    0.45 
    0.33 
  Amortization of acquired intangibles 
    0.13 
    0.12 
    0.38 
    0.36 
  Acquisition-related charges 
    0.01 
    0.02 
    0.03 
    0.07 
  US pension plan termination-related costs 
    - 
    0.02 
    - 
    0.05 
  Legal settlement accrual 
    - 
    0.12 
    - 
    0.12 
  Restructuring charges 
    0.02 
    0.04 
    0.39 
    0.37 
  Non-operating credit facility refinancing costs 
    - 
    - 
    0.02 
    - 
  Income tax adjustments 
    (0.05)
    (0.06)
    (0.06)
    (0.21)
  Non-GAAP diluted earnings per share 
  $0.26 
  $0.53 
  $1.00 
  $1.57 
 
 
 
       
       
       
       
  GAAP diluted weighted average shares outstanding 
    115,698 
    116,025 
    114,499 
    116,330 
  Dilutive effect of stock based compensation plans 
    - 
    - 
    807 
    - 
  Non-GAAP diluted weighted average shares outstanding 
    115,698 
    116,025 
    115,306 
    116,330 
 
 
 
       
       
       
       
(2) Operating margin impact of non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
 
 
PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) Cont'd.
(in thousands, except per share data)
 
 
 
 
  Three Months Ended      
 
 
  Nine Months Ended      
 
 
 
July 2,
 
 
July 4,
 
 
July 2,
 
 
July 4,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
GAAP operating margin
    2.6%
    7.1%
    -0.5%
    6.7%
Fair value of acquired deferred revenue
    0.4%
    0.3%
    0.3%
    0.4%
Fair value adjustment to deferred services cost
    0.0%
    0.0%
    0.0%
    0.0%
Stock-based compensation
    4.8%
    4.6%
    6.1%
    4.0%
Amortization of acquired intangibles
    5.1%
    4.6%
    5.1%
    4.5%
Acquisition-related charges
    0.3%
    0.9%
    0.4%
    0.9%
US pension plan termination-related costs
    0.0%
    0.7%
    0.0%
    0.6%
Legal settlement accrual
    0.0%
    4.5%
    0.0%
    1.4%
Restructuring charges
    1.0%
    1.4%
    5.2%
    4.5%
Non-GAAP operating margin
    14.1%
    24.1%
    16.5%
    22.9%
 
 
 
 
 
 
 
 
 
 
 
(3) We have recorded a full valuation allowance against our U.S. net deferred tax assets and a valuation allowance against net deferred tax assets in certain foreign jurisdictions. As we are profitable on a non-GAAP basis, the 2016 and 2015 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. Income tax adjustments for the three and nine months ended July 4, 2015 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. However, for the nine months ended July 2, 2016, because of low expected full year GAAP earnings combined with the relatively large year-to-date GAAP loss, the non-GAAP provision for the third quarter and first nine months of 2016 calculated based on our historical methodology is not reflective of our full year expected non-GAAP tax rate. As a result, in the second quarter we changed our methodology for calculating our non-GAAP tax provision. For the nine months ended July 2, 2016, our non-GAAP tax provision is based on our annual expected non-GAAP tax rate applied to our year-to-date non-GAAP earnings.
 
 
 
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
 
July 2
 
 
September 30,
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents (4)
  $294,626 
  $273,417 
Marketable securities (4)
    44,606 
    - 
Accounts receivable, net
    151,718 
    197,275 
Property and equipment, net
    62,909 
    65,162 
Goodwill and acquired intangible assets, net
    1,493,042 
    1,360,342 
Other assets
    292,245 
    313,717 
 
       
       
Total assets
  $2,339,146 
  $2,209,913 
 
       
       
LIABILITIES AND STOCKHOLDERS' EQUITY
       
       
 
       
       
Deferred revenue
  $425,432 
  $386,850 
Debt
    778,125 
    668,125 
Other liabilities
    272,928 
    294,767 
Stockholders' equity
    862,661 
    860,171 
 
       
       
Total liabilities and stockholders' equity
  $2,339,146 
  $2,209,913 
 
       
       
 
(4)  In the third quarter of 2016, we began a fixed income investment plan for a portion of our offshore cash. In connection with the plan, we invested $50 million in investment grade securities with a weighted average maturity of less than 18 months.
 
 
 
 
PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
   Three Months Ended      
 
 
   Nine Months Ended      
 
 
 
July 2,
 
 
July 4,
 
 
July 2,
 
 
July 4,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
  $3,073 
  $17,435 
  $(25,992)
  $53,111 
Stock-based compensation
    13,796 
    14,071 
    51,821 
    38,135 
Depreciation and amortization
    21,817 
    21,250 
    64,721 
    63,455 
Accounts receivable
    (5,118)
    22,195 
    58,499 
    44,906 
Accounts payable and accruals
    7,831 
    7,169 
    (9,861)
    (10,029)
Deferred revenue
    20,573 
    19,193 
    44,592 
    51,393 
Income taxes
    (8,644)
    (9,043)
    (17,470)
    (25,608)
Excess tax benefits from stock-based awards
    (38)
    234 
    (94)
    71 
Other
    6,167 
    (5,665)
    3,380 
    (22,971)
Net cash provided by operating activities (5)
    59,457 
    86,839 
    169,596 
    192,463 
 
       
       
       
       
Capital expenditures
    (7,766)
    (6,530)
    (16,632)
    (20,637)
Acquisitions of businesses, net of cash acquired (6)
    - 
    (98,591)
    (164,191)
    (98,411)
Proceeds (payments) on debt, net
    (60,000)
    93,750 
    110,000 
    12,500 
Proceeds from issuance of common stock
    18 
    32 
    19 
    38 
Payments of withholding taxes in connection with
       
       
       
       
 vesting of stock-based awards
    (5,165)
    (7,253)
    (20,636)
    (29,117)
Repurchases of common stock
    - 
    (49,962)
    - 
    (49,962)
Excess tax benefits from stock-based awards
    38 
    (234)
    94 
    (71)
Purchase of investments
    (44,605)
    (10,000)
    (44,605)
    (11,000)
Contingent consideration
    (9,371)
    - 
    (10,621)
    - 
Other financing & investing activities
    (5,709)
    - 
    (6,759)
    - 
Foreign exchange impact on cash
    (727)
    (806)
    4,944 
    (14,397)
 
       
       
       
       
Net change in cash and cash equivalents
    (73,830)
    7,245 
    21,209 
    (18,594)
Cash and cash equivalents, beginning of period
    368,456 
    267,815 
    273,417 
    293,654 
Cash and cash equivalents, end of period
  $294,626 
  $275,060 
  $294,626 
  $275,060 
 
       
       
       
       
 
(5)
The nine months ended July 2, 2016 include a $28 million legal settlement payment. The three and nine months ended July 2, 2016 include $8 million and $50 million in restructuring payments, respectively. The three and nine months ended July 4, 2015 include $25 million and $48 million in restructuring payments, respectively. The three and nine months ended July 4, 2015 includes $5 million and $20 million of voluntary contribution funding payments to a non-U.S. pension plan, respectively.
 
 
 
 
 
 
 
 
 
(6)
We aquired Kepware, Inc. on January 11, 2016 for $99 million (net of cash acquired) and Vuforia on November 3, 2015 for $65 million (net of cash acquired). We acquired ColdLight on May 7, 2015 for $99 million (net of cash acquired).