PTC Announces Fiscal Third Quarter 2020 Results

PTC’s Fiscal Third Quarter 2020 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 conference call to discuss results at 5:00 pm ET on Wednesday, July 29, 2020.

To access the live webcast, we recommend you visit PTC’s Investor Relations website at investor.ptc.com 15 minutes before the scheduled start time to download any necessary audio or plug-in software.

To participate in the live conference call, dial 866-987-6881 or 270-215-9571 and provide the conference ID: 5586726. The call will be recorded, and replay will be available via webcast on PTC’s Investor Relations website.


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


			Three Months Ended						Nine Months Ended
			June 27,			June 29,			June 27,			June 29,
				2020			2019			2020			2019

Revenue:
	Recurring revenue		$	310,621		$	244,192		$	931,852		$	734,815
	Perpetual license			6,773			9,213			23,988			61,354
	Professional services			34,327			42,081			111,594			124,457
Total revenue⁽¹⁾				351,721			295,486			1,067,434			920,626

Cost of revenue ⁽²⁾				79,224			82,705			249,656			239,961

Gross margin				272,497			212,781			817,778			680,665

Operating expenses:
	Sales and marketing ⁽²⁾			104,594			108,202			319,636			316,142
	Research and development ⁽²⁾			61,429			60,590			186,691			182,774
	General and administrative ⁽²⁾			35,709			28,773			113,895			102,008
	Amortization of acquired intangible assets			7,302			5,920			21,367			17,786
	Restructuring and other charges, net			62			(9	)		32,338			45,464
Total operating expenses				209,096			203,476			673,927			664,174

Operating income				63,401			9,305			143,851			16,491
	Other expense, net			(18,885	)		(9,790	)		(64,526	)		(29,974	)
Income (loss) before income taxes				44,516			(485	)		79,325			(13,483	)
	Provision for income taxes			9,838			14,273			2,036			23,803
Net income (loss)			$	34,678		$	(14,758	)	$	77,289		$	(37,286	)

Earnings (loss) per share:
	Basic		$	0.30		$	(0.13	)	$	0.67		$	(0.32	)
		Weighted average shares outstanding		115,759			116,133			115,521			117,636

	Diluted		$	0.30		$	(0.13	)	$	0.67		$	(0.32	)
		Weighted average shares outstanding		116,229			116,133			115,981			117,636

	(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.


PTC Inc.
SUPPLEMENTAL FINANCIAL DATA FOR REVENUE AND STOCK-BASED COMPENSATION
(in thousands, except per share data)


Revenue by license, support and services is as follows:
		Three Months Ended				Nine Months Ended
		June 27,		June 29,		June 27,		June 29,
		2020		2019		2020		2019
License revenue ⁽¹⁾		$	118,248	$	62,918	$	369,285	$	230,116
Support and cloud services revenue			199,146		190,487		586,555		566,053
Professional services revenue			34,327		42,081		111,594		124,457
	Total revenue	$	351,721	$	295,486	$	1,067,434	$	920,626

	(1) License revenue includes the portion of subscription revenue allocated to license.

The amounts in the income statement include stock-based compensation as follows:

		Three Months Ended				Nine Months Ended
		June 27,		June 29,		June 27,		June 29,
		2020		2019		2020		2019
Cost of revenue		$	3,165	$	2,564	$	9,208	$	8,787
Sales and marketing			9,407		5,870		24,005		25,114
Research and development			5,583		4,761		17,280		14,851
General and administrative			7,030		2,039		23,112		22,856
	Total stock-based compensation	$	25,185	$	15,234	$	73,605	$	71,608

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

			Three Months Ended						Nine Months Ended
			June 27,			June 29,			June 27,			June 29,
				2020			2019			2020			2019

GAAP revenue			$	351,721		$	295,486		$	1,067,434		$	920,626
	Fair value adjustment of acquired deferred revenue			-			124			-			595
Non-GAAP revenue			$	351,721		$	295,610		$	1,067,434		$	921,221

GAAP gross margin			$	272,497		$	212,781		$	817,778		$	680,665
	Fair value adjustment of acquired deferred revenue			-			124			-			595
	Fair value adjustment to deferred services cost			-			(58	)		-			(220	)
	Stock-based compensation			3,165			2,564			9,208			8,787
	Amortization of acquired intangible assets included in cost of revenue			6,857			6,873			20,535			20,432
Non-GAAP gross margin			$	282,519		$	222,284		$	847,521		$	710,259

GAAP operating income			$	63,401		$	9,305		$	143,851		$	16,491
	Fair value adjustment of acquired deferred revenue			-			124			-			595
	Fair value adjustment to deferred services cost			-			(58	)		-			(220	)
	Stock-based compensation			25,185			15,234			73,605			71,608
	Amortization of acquired intangible assets included in cost of revenue			6,857			6,873			20,535			20,432
	Amortization of acquired intangible assets			7,302			5,920			21,367			17,786
	Acquisition-related and other transactional charges included in general and administrative costs			674			424			8,064			1,215
	Restructuring and other charges, net			62			(9	)		32,338			45,464
Non-GAAP operating income ⁽¹⁾			$	103,481		$	37,813		$	299,760		$	173,371

GAAP net income (loss)			$	34,678		$	(14,758	)	$	77,289		$	(37,286	)
	Fair value adjustment of acquired deferred revenue			-			124			-			595
	Fair value adjustment to deferred services cost			-			(58	)		-			(220	)
	Stock-based compensation			25,185			15,234			73,605			71,608
	Amortization of acquired intangible assets included in cost of revenue			6,857			6,873			20,535			20,432
	Amortization of acquired intangible assets			7,302			5,920			21,367			17,786
	Acquisition-related and other transactional charges included in general and administrative costs			674			424			8,064			1,215
	Restructuring and other charges, net			62			(9	)		32,338			45,464
	Non-operating charges ⁽³⁾			3,451			-			18,451			-
	Income tax adjustments ⁽²⁾			(6,167	)		13,121			(44,988	)		403
Non-GAAP net income			$	72,042		$	26,871		$	206,661		$	119,997

GAAP diluted earnings (loss) per share			$	0.30		$	(0.13	)	$	0.67		$	(0.32	)
	Fair value adjustment of acquired deferred revenue			-			-			-			0.01
	Stock-based compensation			0.22			0.13			0.63			0.60
	Amortization of acquired intangibles			0.12			0.11			0.36			0.32
	Acquisition-related and other transactional charges			0.01			-			0.07			0.01
	Restructuring and other charges, net			-			-			0.28			0.38
	Non-operating charges			0.03			-			0.16			-
	Income tax adjustments			(0.05	)		0.11			(0.39	)		-
Non-GAAP diluted earnings per share			$	0.62		$	0.23		$	1.78		$	1.01

GAAP diluted weighted average shares outstanding				116,229			116,133			115,981			117,636
	Dilutive effect of stock-based compensation plans			-			886			-			1,028
Non-GAAP diluted weighted average shares outstanding				116,229			117,019			115,981			118,664

	(1)	Operating margin impact of non-GAAP adjustments:
			Three Months Ended						Nine Months Ended
			June 27,			June 29,			June 27,			June 29,
				2020			2019			2020			2019
	GAAP operating margin			18.0	%		3.1	%		13.5	%		1.8	%
		Fair value adjustment of acquired deferred revenue		0.0	%		0.0	%		0.0	%		0.1	%
		Fair value adjustment to deferred services cost		0.0	%		0.0	%		0.0	%		0.0	%
		Stock-based compensation		7.2	%		5.2	%		6.9	%		7.8	%
		Amortization of acquired intangibles		4.0	%		4.3	%		3.9	%		4.2	%
		Acquisition-related and other transactional charges		0.2	%		0.1	%		0.8	%		0.1	%
		Restructuring and other charges, net		0.0	%		0.0	%		3.0	%		4.9	%
	Non-GAAP operating margin			29.4	%		12.8	%		28.1	%		18.8	%

	(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 2020 and 2019 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.
	(3)	We recognized $15 million of expense in the nine months ended June 27, 2020 related to penalties for the early redemption of the 6.000% Senior Notes due in 2024 and wrote off approximately $3 million of related debt issuance costs in the third quarter of 2020.

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

	June 27,		September 30,
	2020		2019

ASSETS

Cash and cash equivalents	$	377,428	$	269,579
Marketable securities		57,788		57,435
Accounts receivable, net		319,244		372,743
Property and equipment, net		101,617		105,531
Goodwill and acquired intangible assets, net		1,852,377		1,408,128
Lease assets, net ⁽¹⁾		151,044		-
Other assets		516,671		451,172

Total assets	$	3,376,169	$	2,664,588

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue	$	404,682	$	396,632
Debt, net of deferred issuance costs		1,124,702		669,134
Lease obligations ⁽¹⁾		216,079		-
Other liabilities		303,139		396,824
Stockholders' equity		1,327,567		1,201,998

Total liabilities and stockholders' equity	$	3,376,169	$	2,664,588

(1) In the first quarter of 2020, we adopted Accounting Standards Update 2016-02, Leases (Topic 842).


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

		Three Months Ended						Nine Months Ended
		June 27,			June 29,			June 27,			June 29,
			2020			2019			2020			2019

Cash flows from operating activities:
	Net income (loss)	$	34,678		$	(14,758	)	$	77,289		$	(37,286	)
	Stock-based compensation		25,185			15,234			73,605			71,608
	Depreciation and amortization		20,484			19,076			60,677			58,634
	Amortization of right-of-use lease assets		10,324			-			29,467			-
	Accounts receivable		34,475			33,753			54,662			88,254
	Accounts payable and accruals		3,179			8,550			5,133			(19,318	)
	Deferred revenue		(14,036	)		(11,622	)		3,357			25,325
	Income taxes		(630	)		2,900			(44,445	)		(12,777	)
	Other		(9,154	)		14,452			(59,911	)		55,489
Net cash provided by operating activities			104,505			67,585			199,834			229,929

Capital expenditures			(5,169	)		(8,311	)		(15,412	)		(59,579	)
Acquisition of businesses, net of cash acquired ⁽¹⁾			-			(17,284	)		(468,520	)		(86,737	)
Purchase of intangible assets			(11,050	)		-			(11,050	)		-
Borrowings (payments) on debt, net			(510,125	)		(40,000	)		464,875			55,000
Net proceeds associated with issuance of common stock			-			-			8,980			4,158
Repurchases of common stock			-			(25,001	)		-			(89,995	)
Payments of withholding taxes in connection with
	vesting of stock-based awards		(9,661	)		(9,700	)		(33,232	)		(44,191	)
Purchase of investment			-			-			-			(7,500	)
Debt issuance costs			(817	)		-			(17,083	)		-
Debt early redemption premium			(15,000	)		-			(15,000	)		-
Other financing & investing activities			(4,044	)		6,355			(2,024	)		4,661
Foreign exchange impact on cash			1,613			(94	)		(4,127	)		2,143

Net change in cash, cash equivalents, and restricted cash			(449,748	)		(26,450	)		107,241			7,889
Cash, cash equivalents, and restricted cash, beginning of period			827,678			295,432			270,689			261,093
Cash, cash equivalents, and restricted cash, end of period		$	377,930		$	268,982		$	377,930		$	268,982


		Three Months Ended						Nine Months Ended
		June 27,			June 29,			June 27,			June 29,
			2020			2019			2020			2019
Cash provided by operating activities			104,505			67,585			199,834			229,929
Capital expenditures			(5,169	)		(8,311	)		(15,412	)		(59,579	)
	Free cash flow ⁽²⁾		99,336			59,274			184,422			170,350

(1)	In the first quarter of 2020 and the first quarter of 2019, we acquired Onshape for $469 million, net of cash acquired and Frustum for $70 million, net of cash acquired, respectively.
(2)	Free cash flow includes $13.4 million and $34.7 million of restructuring and other related payments in the three and nine months ended June 27, 2020, respectively, compared with $3.5 million and $21.4 million in the three and nine months ended June 29, 2019. Free cash flow includes $0.2 million and $8.8 million of acquisition-related payments for the three and nine months ended June 27, 2020, respectively.

Important Disclosures

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