PTC Announces Q1 Results; Provides Q2 and Updated FY’14 Outlook

Important Information About Non-GAAP References

PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue, operating expenses, margin and EPS exclude the effect of purchase accounting on the fair value of acquired deferred revenue of Servigistics, Inc., stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, acquisition-related expenses and gains, and the related tax effects of the preceding items and discrete tax items. We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals, communicated internally and externally, for managing our business and evaluating our performance. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to the results of peer companies. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. However, non-GAAP information should not be construed as an alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTC’s financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results. PTC also provides results on a constant currency basis to provide a year-over-year view of our results excluding the effect of currency translation. Our constant currency disclosures are calculated by multiplying the actual results for the first quarter of 2014 by the exchange rates in effect for the comparable period in 2013.

Forward-Looking Statements

Statements in this press release that are not historic facts, including statements about our fiscal 2014 and other future financial and growth expectations and anticipated tax rates, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that the macroeconomic climate may not improve or may deteriorate, the possibility that customers may not purchase or adopt our solutions when or at the rates we expect and that our pipeline deals may not convert as we expect, the possibility foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that we may not achieve the license, services or support growth rates that we expect, which could result in a different mix of revenue between license, service and support and could impact our EPS results, the possibility that we may be unable to improve services margins as we expect, the possibility that we may be unable to improve sales productivity as we expect, the possibility that our CAD and SLM businesses and the ThingWorx business may not expand and/or generate the revenue we expect, the possibility that resource constraints and personnel reductions could adversely affect our revenue, and the possibility that remedial actions relating to our previously announced investigation in China will have a material impact on our operations in China and that fines and penalties may be assessed against us in connection with this matter. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q.

PTC, the PTC logo, and all other PTC product names and logos are trademarks or registered trademarks of PTC Inc. or its subsidiaries in the United States and in other countries. All other companies referenced herein are trademarks or registered trademarks of their respective holders.

About PTC

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


PTC Inc.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)


			Three Months Ended
			December 28,			December 29,
			2013			2012

Revenue:
	License		$	79,192		$	79,185
	Service			75,591			76,760
	Support			170,142			163,806
Total revenue				324,925			319,751

Cost of revenue:
	Cost of license revenue ⁽¹⁾			7,545			8,012
	Cost of service revenue ⁽¹⁾			65,495			68,592
	Cost of support revenue ⁽¹⁾			19,916			20,468
Total cost of revenue				92,956			97,072

Gross margin				231,969			222,679

Operating expenses:
	Sales and marketing ⁽¹⁾			84,238			93,549
	Research and development ⁽¹⁾			53,073			57,429
	General and administrative ⁽¹⁾			30,931			35,817
	Amortization of acquired intangible assets			7,789			6,623
	Restructuring charges			1,067			15,402
Total operating expenses				177,098			208,820

Operating income				54,871			13,859
	Other expense, net			(1,753	)		(1,805	)
Income before income taxes				53,118			12,054
	Provision (benefit) for income taxes			13,461			(23,757	)
Net income			$	39,657		$	35,811

Earnings per share:
	Basic		$	0.33		$	0.30
		Weighted average shares outstanding		118,933			119,927

	Diluted		$	0.33		$	0.29
		Weighted average shares outstanding		121,100			121,805



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

			Three Months Ended
			December 28,			December 29,
			2013			2012
	Cost of license revenue		$	4		$	5
	Cost of service revenue			1,598			1,612
	Cost of support revenue			924			826
	Sales and marketing			2,499			2,458
	Research and development			2,689			2,512
	General and administrative			5,050			4,480
		Total stock-based compensation	$	12,764		$	11,893

PTC Inc.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)

			Three Months Ended
			December 28,			December 29,
			2013			2012

GAAP revenue			$	324,925		$	319,751
	Fair value of acquired company's deferred support revenue			-			1,554
Non-GAAP revenue			$	324,925		$	321,305

GAAP gross margin			$	231,969		$	222,679
	Fair value of acquired company's deferred support revenue			-			1,554
	Stock-based compensation			2,526			2,443
	Amortization of acquired intangible assets included in cost of license revenue			4,405			4,639
	Amortization of acquired intangible assets included in cost of service revenue			92			-
Non-GAAP gross margin			$	238,992		$	231,315

GAAP operating income			$	54,871		$	13,859
	Fair value of acquired company's deferred support revenue			-			1,554
	Stock-based compensation			12,764			11,893
	Amortization of acquired intangible assets included in cost of license revenue			4,405			4,639
	Amortization of acquired intangible assets included in cost of service revenue			92			-
	Amortization of acquired intangible assets			7,789			6,623
	Acquisition-related charges included in general and administrative expenses			1,305			4,599
	Restructuring charges			1,067			15,402
Non-GAAP operating income ⁽²⁾			$	82,293		$	58,569

GAAP net income			$	39,657		$	35,811
	Fair value of acquired company's deferred support revenue			-			1,554
	Stock-based compensation			12,764			11,893
	Amortization of acquired intangible assets included in cost of license revenue			4,405			4,639
	Amortization of acquired intangible assets included in cost of service revenue			92			-
	Amortization of acquired intangible assets			7,789			6,623
	Acquisition-related charges included in general and administrative expenses			1,305			4,599
	Restructuring charges			1,067			15,402
	Income tax adjustments ⁽³⁾			(6,858	)		(36,400	)
Non-GAAP net income			$	60,221		$	44,121

GAAP diluted earnings per share			$	0.33		$	0.29
	Fair value of deferred support revenue			-			0.01
	Stock-based compensation			0.11			0.10
	Amortization of acquired intangibles			0.10			0.09
	Acquisition-related charges			0.01			0.04
	Restructuring charges and other			0.01			0.13
	Income tax adjustments			(0.06	)		(0.30	)
Non-GAAP diluted earnings per share			$	0.50		$	0.36

	(2)	Operating margin impact of non-GAAP adjustments:
			Three Months Ended
			December 28,			December 29,
			2013			2012
	GAAP operating margin			16.9	%		4.3	%
		Fair value of deferred support revenue		0.0	%		0.5	%
		Stock-based compensation		3.9	%		3.7	%
		Amortization of acquired intangibles		3.8	%		3.5	%
		Acquisition-related charges		0.4	%		1.4	%
		Restructuring charges		0.3	%		4.8	%
	Non-GAAP operating margin			25.3	%		18.2	%

	(3)	Income tax adjustments for the first quarter of 2014 and 2013 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, and also include any identified tax items. In the fourth quarter of 2012, a valuation allowance was established against our U.S. net deferred tax assets. As the U.S. is profitable on a non-GAAP basis, the 2014 and 2013 non-GAAP tax provision is being calculated assuming there is no U.S. valuation allowance. The first quarter of 2013 also includes a non-cash tax benefit of $32.6 million related to the release of a portion of the valuation allowance as a result of deferred tax liabilities established for the acquisition of Servigistics.

PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


	December 28,		September 30,
	2013		2013

ASSETS

Cash and cash equivalents	$	371,377	$	241,913
Accounts receivable, net		212,570		229,106
Property and equipment, net		63,152		64,652
Goodwill and acquired intangible assets, net		1,029,422		1,042,216
Other assets		228,221		251,019

Total assets	$	1,904,742	$	1,828,906

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue	$	301,488	$	336,913
Borrowings under credit facility		368,125		258,125
Other liabilities		266,481		307,388
Stockholders' equity		968,648		926,480

Total liabilities and stockholders' equity	$	1,904,742	$	1,828,906

PTC Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)



		Three Months Ended
		December 28,			December 29,
		2013			2012

Cash flows from operating activities:
	Net income	$	39,657		$	35,811
	Stock-based compensation		12,764			11,893
	Depreciation and amortization		19,100			19,477
	Accounts receivable		19,273			16,142
	Accounts payable and accruals		(42,862	)		(27,958	)
	Deferred revenue		(10,827	)		(3,534	)
	Income taxes		7,393			(33,779	)
	Excess tax benefits from stock-based awards		(6,802	)		(28	)
	Other		(1,454	)		(4,388	)
Net cash provided by operating activities ⁽⁴⁾			36,242			13,636

Capital expenditures			(5,774	)		(7,393	)
Acquisitions of businesses, net of cash acquired ⁽⁵⁾			-			(222,423	)
Proceeds (payments) on debt, net acquired ⁽⁶⁾			110,000			(1,875	)
Proceeds from issuance of common stock			351			645
Payments of withholding taxes in connection with
	vesting of stock-based awards		(19,363	)		(9,348	)
Repurchases of common stock			-			(15,792	)
Excess tax benefits from stock-based awards			6,802			28
Foreign exchange impact on cash			1,206			1,371

Net change in cash and cash equivalents			129,464			(241,151	)
Cash and cash equivalents, beginning of period			241,913			489,543
Cash and cash equivalents, end of period		$	371,377		$	248,392


(4)	The first quarter of 2014 includes $12 million in restructuring payments and $1 million of restructuring charges. The first quarter of 2013 includes $10 million in restructuring payments and $15 million of restructuring charges.

(5)	We acquired Servigistics on October 2, 2012, for $222.4 million (net of cash acquired).

(6)	We borrowed $110 million under our revolving credit facility in the first quarter of 2014 in anticipation of acquiring ThingWorx on December 30, 2013.

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