Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

There were ~~117,381,783~~116,952,189 shares of our common stock outstanding on ~~August 2, 2021.~~February 3, 2022.


	June 30, 2021			September 30, 2020			December 31, 2021			September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	365,756		$	275,458		$	296,125		$	326,532
Short-term marketable securities		0			28,129
Accounts receivable, net of allowance for doubtful accounts of $368 and $543 at June 30, 2021 and September 30, 2020, respectively		432,980			415,221
Accounts receivable, net of allowance for doubtful accounts of $295 and $304 at December 31, 2021 and September 30, 2021, respectively								478,673			541,072
Prepaid expenses		73,542			69,408			89,473			69,991
Other current assets		46,218			45,231			145,051			135,415
Total current assets		918,496			833,447			1,009,322			1,073,010
Property and equipment, net		93,659			101,499			96,848			100,237
Goodwill		2,197,313			1,625,786			2,189,880			2,191,887
Acquired intangible assets, net		394,682			237,570			363,877			378,967
Long-term marketable securities		0			30,970
Deferred tax assets		178,087			190,963			292,171			297,789
Operating right-of-use lease assets		147,431			149,933			150,261			152,337
Other assets		276,551			212,570			318,261			313,333
Total assets	$	4,206,219		$	3,382,738		$	4,420,620		$	4,507,560
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	23,446		$	24,910		$	32,922		$	33,381
Accrued expenses and other current liabilities		114,570			96,313			132,806			113,067
Accrued compensation and benefits		111,897			101,087			119,928			117,784
Accrued income taxes		10,326			7,011			2,867			5,055
Deferred revenue		460,836			416,804			464,910			482,131
Short-term lease obligations		25,124			34,635			26,545			27,864
Total current liabilities		746,199			680,760			779,978			779,282
Long-term debt		1,478,927			1,005,314			1,440,014			1,439,471
Deferred tax liabilities		11,541			12,431			4,279			4,165
Deferred revenue		12,777			9,661
Long-term deferred revenue								16,160			15,546
Long-term lease obligations		178,009			180,388			179,487			180,935
Other liabilities		53,808			55,936			46,890			49,693
Total liabilities		2,481,261			1,944,490			2,466,808			2,469,092
Commitments and contingencies (Note 15)
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; NaN issued		0			0			0			0
Common stock, $0.01 par value; 500,000 shares authorized; 117,280 and 116,125 shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively		1,173			1,161
Common stock, $0.01 par value; 500,000 shares authorized; 116,870 and 117,163 shares issued and outstanding at December 31, 2021 and September 30, 2021, respectively								1,169			1,172
Additional paid-in capital		1,694,902			1,602,728			1,590,285			1,718,504
Retained earnings (accumulated deficit)		121,713			(62,267	)
Retained earnings								460,745			414,656
Accumulated other comprehensive loss		(92,830	)		(103,374	)		(98,387	)		(95,864	)
Total stockholders’ equity		1,724,958			1,438,248			1,953,812			2,038,468
Total liabilities and stockholders’ equity	$	4,206,219		$	3,382,738		$	4,420,620		$	4,507,560

The accompanying notes are an integral part of the condensed consolidated financial statements.

	Three months ended						Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
Revenue:
License	$	163,583		$	118,248		$	538,769		$	369,285		$	169,108		$	177,175
Support and cloud services		230,851			199,146			670,853			586,555			244,485			216,245
Total software revenue		394,434			317,394			1,209,622			955,840			413,593			393,420
Professional services		41,234			34,327			116,882			111,594			44,128			35,630
Total revenue		435,668			351,721			1,326,504			1,067,434			457,721			429,050
Cost of revenue:
Cost of license revenue		15,502			13,001			42,918			40,047			9,794			13,256
Cost of support and cloud services revenue		42,392			34,788			120,706			107,980			45,885			38,342
Total cost of software revenue		57,894			47,789			163,624			148,027			55,679			51,598
Cost of professional services revenue		37,183			31,435			107,731			101,629			39,439			35,232
Total cost of revenue		95,077			79,224			271,355			249,656			95,118			86,830
Gross margin		340,591			272,497			1,055,149			817,778			362,603			342,220
Operating expenses:
Sales and marketing		134,412			104,594			388,315			319,636			125,476			124,725
Research and development		78,134			61,429			221,514			186,691			80,534			70,835
General and administrative		47,084			35,709			157,417			113,895			51,940			49,528
Amortization of acquired intangible assets		7,511			7,302			21,708			21,367			8,484			6,547
Restructuring and other charges (credits), net		(132	)		62			584			32,338
Restructuring and other charges, net														33,991			247
Total operating expenses		267,009			209,096			789,538			673,927			300,425			251,882
Operating income		73,582			63,401			265,611			143,851			62,178			90,338
Interest and debt premium expense		(13,178	)		(19,660	)		(37,622	)		(64,376	)
Interest expense														(12,986	)		(11,518	)
Other income (expense), net		(1,935	)		775			(5,756	)		(150	)		6,184			(1,413	)
Income before income taxes		58,469			44,516			222,233			79,325			55,376			77,407
Provision for income taxes		7,266			9,838			38,253			2,036			9,287			53,892
Net income	$	51,203		$	34,678		$	183,980		$	77,289		$	46,089		$	23,515
Earnings per share—Basic	$	0.44		$	0.30		$	1.58		$	0.67		$	0.39		$	0.20
Earnings per share—Diluted	$	0.43		$	0.30		$	1.56		$	0.67		$	0.39		$	0.20
Weighted-average shares outstanding—Basic		116,934			115,759			116,702			115,521			117,347			116,401
Weighted-average shares outstanding—Diluted		118,611			116,229			118,181			115,981			118,598			117,605

The accompanying notes are an integral part of the condensed consolidated financial statements.

Three months ended

Nine months ended

June 30,
2021

June 27,
2020

June 30,
2021

June 27,
2020

Net income

$
51,203

$
34,678

$
183,980

$
77,289

Other comprehensive income, net of tax:

Hedge loss arising during the period, net of tax of $0 million and $0.4 million in the third quarter of 2021 and 2020, respectively, and $0 million and $1.2 million in the first nine months of 2021 and 2020, respectively

(1,797
)

(1,148
)

(1,559
)

(3,790
)
Foreign currency translation adjustment, net of tax of $0 for each period

6,457

3,089

10,581

2,677

Unrealized gain (loss) on marketable securities, net of tax of $0 for each period

0

822

(307
)

278

Amortization of net actuarial pension loss included in net income, net of tax of $0.3 million and $0.3 million in the third quarter of 2021 and 2020, respectively, and $0.9 million and $0.8 million in the first nine months of 2021 and 2020, respectively

738

673

2,214

2,027

Change in unamortized pension loss during the period related to changes in foreign currency

(291
)

(152
)

(385
)

(693
)
Other comprehensive income

5,107

3,284

10,544

499

Comprehensive income

$
56,310

$
37,962

$
194,524

$
77,788

	Three months ended
	December 31, 2021			December 31, 2020
Net income	$	46,089		$	23,515
Other comprehensive income (loss), net of tax:
Hedge gain (loss) arising during the period, net of tax of $0.8 million and $0 million in the first quarter of 2022 and 2021, respectively		2,495			(6,779	)
Foreign currency translation adjustment, net of tax of $0 for each period		(5,668	)		19,975
Unrealized gain (loss) on marketable securities, net of tax of $0 for each period		0			(307	)
Amortization of net actuarial pension loss included in net income, net of tax of $0.1 million and $0.3 million in the first quarter of 2022 and 2021, respectively		265			732
Change in unamortized pension gain (loss) during the period related to changes in foreign currency		385			(1,112	)
Other comprehensive income (loss)		(2,523	)		12,509
Comprehensive income	$	43,566		$	36,024

The accompanying notes are an integral part of the condensed consolidated financial statements.

	Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
Cash flows from operating activities:
Net income	$	183,980		$	77,289		$	46,089		$	23,515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		62,670			60,677			22,088			18,835
Amortization of right-of-use lease assets		28,031			29,467			8,860			9,391
Stock-based compensation		133,896			73,605			45,942			46,088
Gain on investment								(9,766	)		0
Other non-cash items, net		(1,108	)		(2,786	)		(273	)		(331	)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable		(4,110	)		54,662			57,316			10,315
Accounts payable and accrued expenses		15,834			4,255			12,959			12,381
Accrued compensation and benefits		121			878			2,853			(9,252	)
Deferred revenue		30,733			3,357			(13,696	)		(851	)
Income taxes		(13,524	)		(44,445	)
Accrued income taxes								(8,328	)		44,537
Other current assets and prepaid expenses		426			15,311			(13,474	)		4,288
Operating lease liabilities		(13,106	)		(8,871	)		(2,343	)		(9,501	)
Other noncurrent assets and liabilities		(100,355	)		(63,565	)		(10,491	)		(35,653	)
Net cash provided by operating activities		323,488			199,834			137,736			113,762
Cash flows from investing activities:
Additions to property and equipment		(11,662	)		(15,412	)		(3,362	)		(2,857	)
Purchases of short- and long-term marketable securities		(7,562	)		(26,087	)		0			(7,562	)
Proceeds from sales of short- and long-term marketable securities		56,170			1,521			0			56,170
Proceeds from maturities of short- and long-term marketable securities		9,861			24,271			0			9,861
Acquisitions of businesses, net of cash acquired		(717,779	)		(468,520	)
Purchases of investments								0			(1,000	)
Purchase of intangible assets		(550	)		(11,050	)		(450	)		(550	)
Other investing activities		(3,291	)		(1,729	)
Net cash used in investing activities		(674,813	)		(497,006	)
Settlement of net investment hedges								6,473			(7,359	)
Net cash provided by investing activities								2,661			46,703
Cash flows from financing activities:
Proceeds from issuance of Senior Notes		0			1,000,000
Borrowings under credit facility		600,000			455,000
Repayments of Senior Notes		0			(500,000	)
Repayments of borrowings under credit facility		(128,000	)		(490,125	)		0			(18,000	)
Proceeds from issuance of common stock		10,484			8,980
Debt issuance costs		0			(17,083	)
Debt early redemption premium		0			(15,000	)
Repurchases of common stock								(119,739	)		0
Payments of withholding taxes in connection with stock-based awards		(42,215	)		(33,232	)		(49,165	)		(24,500	)
Payments of principal for financing leases		(279	)		0			(239	)		(279	)
Net cash provided by financing activities		439,990			408,540
Net cash used in financing activities								(169,143	)		(42,779	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		1,646			(4,127	)		(1,661	)		5,553
Net change in cash, cash equivalents, and restricted cash		90,311			107,241			(30,407	)		123,239
Cash, cash equivalents, and restricted cash, beginning of period		275,960			270,689			327,046			275,960
Cash, cash equivalents, and restricted cash, end of period	$	366,271		$	377,930		$	296,639		$	399,199
Supplemental disclosure of non-cash financing activities:
Withholding taxes in connection with stock-based awards, accrued		9,979			0		$	0		$	(931	)
Repurchases of common stock, accrued							$	(5,260	)	$	0

The accompanying notes are an integral part of the condensed consolidated financial statements.

	Three months ended June 30, 2021																	Three months ended December 31, 2021
	Common Stock											Accumulated						Common Stock											Accumulated
	Shares			Amount			Additional Paid-In Capital			Retained Earnings		Other Comprehensive Loss			Total Stockholders’ Equity			Shares			Amount			Additional Paid-In Capital			Retained Earnings		Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of March 31, 2021		116,855		$	1,169		$	1,676,791		$	70,510	$	(97,937	)	$	1,650,533
Balance as of September 30, 2021																			117,163		$	1,172		$	1,718,504		$	414,656	$	(95,864	)	$	2,038,468
Common stock issued for employee stock-based awards		608			6			(6	)		—		—			—			1,120			11			(11	)		—		—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(183	)		(2	)		(24,951	)		—		—			(24,953	)		(410	)		(4	)		(49,161	)		—		—			(49,165	)
Compensation expense from stock-based awards		—			—			43,068			—		—			43,068			—			—			45,942			—		—			45,942
Repurchases of common stock																			(1,003	)		(10	)		(124,989	)		—		—			(124,999	)
Net income		—			—			—			51,203		—			51,203			—			—			—			46,089		—			46,089
Unrealized loss on net investment hedges, net of tax		—			—			—			—		(1,797	)		(1,797	)
Unrealized gain on net investment hedges, net of tax																			—			—			—			—		2,495			2,495
Foreign currency translation adjustment		—			—			—			—		6,457			6,457			—			—			—			—		(5,668	)		(5,668	)
Change in pension benefits, net of tax		��			—			—			—		447			447			—			—			—			—		650			650
Balance as of June 30, 2021		117,280		$	1,173		$	1,694,902		$	121,713	$	(92,830	)	$	1,724,958
Balance as of December 31, 2021																			116,870		$	1,169		$	1,590,285		$	460,745	$	(98,387	)	$	1,953,812

																			Three months ended December 31, 2020
	Nine months ended June 30, 2021																		Common Stock												Accumulated
	Common Stock									Retained			Accumulated						Shares			Amount			Additional Paid-In Capital			Accumulated Deficit			Other Comprehensive Loss			Total Stockholders’ Equity
	Shares			Amount			Additional Paid-In Capital			Earnings (Accumulated Deficit)			Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of September 30, 2020		116,125		$	1,161		$	1,602,728		$	(62,267	)	$	(103,374	)	$	1,438,248			116,125			1,161			1,602,728			(62,267	)		(103,374	)		1,438,248
Common stock issued for employee stock-based awards		1,470			15			(15	)		—			—			—			802			8			(8	)		—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(459	)		(4	)		(52,190	)		—			—			(52,194	)		(263	)		(2	)		(25,429	)		—			—			(25,431	)
Common stock issued for employee stock purchase plan		144			1			10,483			—			—			10,484
Compensation expense from stock-based awards		—			—			133,896			—			—			133,896			—			—			46,088			—			—			46,088
Net income		—			—			—			183,980			—			183,980			—			—			—			23,515			—			23,515
Unrealized loss on net investment hedges, net of tax		—			—			—			—			(1,559	)		(1,559	)		—			—			—			—			(6,779	)		(6,779	)
Foreign currency translation adjustment		—			—			—			—			10,581			10,581			—			—			—			—			19,975			19,975
Unrealized loss on available-for-sale securities, net of tax		—			—			—			—			(307	)		(307	)
Unrealized loss on marketable securities, net of tax																				—			—			—			—			(307	)		(307	)
Change in pension benefits, net of tax		—			—			—			—			1,829			1,829			—			—			—			—			(380	)		(380	)
Balance as of June 30, 2021		117,280		$	1,173		$	1,694,902		$	121,713		$	(92,830	)	$	1,724,958
Balance as of December 31, 2020																				116,664		$	1,167		$	1,623,379		$	(38,752	)	$	(90,865	)	$	1,494,929

Three months ended June 27, 2020

Common Stock

Accumulated

Shares

Amount

Additional
Paid-In
Capital

Accumulated
Deficit

Other
Comprehensive
Loss

Total
Stockholders’
Equity

Balance as of March 28, 2020

115,695

$
1,157

$
1,536,770

$
(150,351
)

$
(113,495
)

$
1,274,081

Common stock issued for employee stock-based awards

412

4

(4
)

—

—

—

Shares surrendered by employees to pay taxes related to stock-based awards

(131
)

(1
)

(9,660
)

—

—

(9,661
)
Common stock issued for employee stock purchase plan

—

—

—

—

—

—

Compensation expense from stock-based awards

—

—

25,185

—

—

25,185

Net income

—

—

—

34,678

—

34,678

Unrealized loss on net investment hedges, net of tax

—

—

—

—

(1,148
)

(1,148
)
Foreign currency translation adjustment

—

—

—

—

3,089

3,089

Unrealized gain on available-for-sale securities, net of tax

—

—

—

—

822

822

Change in pension benefits, net of tax

—

—

—

—

521

521

Balance as of June 27, 2020

115,976

$
1,160

$
1,552,291

$
(115,673
)

$
(110,211
)

$
1,327,567

Nine months ended June 27, 2020

Common Stock

Accumulated

Shares

Amount

Additional
Paid-In
Capital

Accumulated
Deficit

Other
Comprehensive
Loss

Total
Stockholders’
Equity

Balance as of September 30, 2019

114,899

$
1,149

$
1,502,949

$
(191,390
)

$
(110,710
)

$
1,201,998

ASU 2016-02 (ASC 842) adoption

—

—

—

(1,572
)

—

(1,572
)
Common stock issued for employee stock-based awards

1,370

14

(14
)

—

—

—

Shares surrendered by employees to pay taxes related to stock-based awards

(449
)

(4
)

(33,228
)

—

—

(33,232
)
Common stock issued for employee stock purchase plan

156

1

8,979

—

—

8,980

Compensation expense from stock-based awards

—

—

73,605

—

—

73,605

Net income

—

—

—

77,289

—

77,289

Unrealized loss on net investment hedges, net of tax

—

—

—

—

(3,790
)

(3,790
)
Foreign currency translation adjustment

—

—

—

—

2,677

2,677

Unrealized gain on available-for-sale securities, net of tax

—

—

—

—

278

278

Change in pension benefits, net of tax

—

—

—

—

1,334

1,334

Balance as of June 27, 2020

115,976

$
1,160

$
1,552,291

$
(115,673
)

$
(110,211
)

$
1,327,567

The accompanying notes are an integral part of the condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020.~~2021. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of our financial position, results of operations and cash flows at the dates and for the periods indicated. The September 30, ~~2020~~2021 Consolidated Balance Sheet included herein is derived from our audited consolidated financial statements.

Unless otherwise indicated, all references to a year mean our fiscal year, which ends on September 30. In the first quarter of 2021, we changed our fiscal calendar from thirteen-week quarters ending on a Saturday to three-month quarters ending on the last calendar day of the third month. There was no change to our fiscal year-end. We do not expect that this change will materially impact comparability of our financial results for fiscal years 2021 and 2020. Because our fiscal year-end did not change, we were not required to file a transition report.The third quarter of 2021 ended on June 30, 2021 and the third quarter of 2020 ended on June 27, 2020. The results of operations for the nine months ended June 30, 2021 are not necessarily indicative of the results expected for the remainder of the fiscal year.

~~In December 2019, the virus that causes COVID-19 surfaced. The virus has spread worldwide, including in the United States, and has been declared a pandemic by the World Health Organization.~~ The COVID-19 pandemic that began in early 2020 continues to significantly ~~impacted~~affect global economic activity and ~~continues to cause~~create macroeconomic uncertainty.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the COVID-19 pandemic as of ~~June 30,~~December 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While our assessment did not result in a material impact to our consolidated financial statements as of and for the quarter ended ~~June 30,~~December 31, 2021, our future assessment could result in material impacts to our consolidated financial statements in future reporting periods.

In ~~August 2018,~~December 2019, the FASB issued Accounting Standards Update ~~(ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's~~ASU 2019-12, Income Taxes (Topic 740) on Simplifying the Accounting for ~~Implementation Costs Incurred~~Income Taxes. The decisions reflected in ~~a Cloud Computing Arrangement That is a Service Contract, which aligns~~ASU 2019-12 update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the ~~requirements for capitalizing implementation costs in cloud computing arrangements with~~usefulness of the ~~requirements for capitalizing implementation costs incurred~~information provided to ~~develop or obtain internal-use software. We adopted the~~users of financial statements. The new standard ~~prospectively~~became effective ~~October 1, 2020. As~~for us in this first quarter of 2022 ending December 31, 2021 and did not have a result of the adoption, we are required to capitalize certain costs related to the implementation of cloud computing arrangements. Capitalized costs related to cloud computing arrangements, which are included in other assets on the Consolidated Balance Sheets, were $1.5 million as of June 30, 2021.

~~In June 2016, the FASB issued ASU 2016-13, Financial Instruments~~—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which, along with subsequent amendments, replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. ~~We adopted the new standard effective October 1, 2020, with no~~material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. ASU 2020-04 is effective for all entities upon issuance through December 31, 2022. We are still evaluating the impact, but do not expect the standard to have a material impact on our consolidated financial statements.

In ~~December 2019,~~October 2021, the FASB issued Accounting Standards Update ASU ~~2019-12, Income Taxes~~2021-08, Business Combinations (Topic ~~740): Simplifying the~~805) on Accounting for ~~Income Taxes. The decisions reflected~~Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by

addressing diversity in practice and inconsistency related to 1) recognition of an acquired contract asset and liability, and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU ~~2019-12 update specific areas of ASC 740,~~ ~~Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. The new standard~~2021-08 will be effective for us in the first quarter of ~~2022,~~2024, though early adoption of the ~~amendments~~standard is permitted. We are currently evaluating the impact the standard will have on our consolidated financial statements, but at this time we do not expect it to be ~~material.~~material for prior acquisitions. The impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations.

(in thousands)

June 30,

2021

September 30,

2020

December 31,

2021

September 30,

2021

Contract asset

10,739

11,984

13,177

12,934

Deferred revenue

473,613

426,465

481,070

497,677

As of ~~June 30,~~December 31, 2021, ~~$5.9~~$8.4 million of our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. The remainder is included in other long-term assets and expected to be transferred within the next 24 months. Approximately ~~$6.6~~$5.1 million of the September 30, ~~2020~~2021 contract asset balance was transferred to receivables during the ~~nine~~three months ended ~~June 30,~~December 31, 2021 as a result of the right to payment becoming unconditional.Additions to contract assets of approximately ~~$5.3~~$5.4 million related to revenue recognized in the period, net of billings. The majority of the contract asset balance relates to two large professional services contracts with invoicing terms based on performance milestones. There were 0 impairments of contract assets during the ~~nine~~three months ended ~~June 30,~~December 31, 2021.

During the ~~nine~~three months ended ~~June 30,~~December 31, 2021, we recognized ~~$368.8~~$222.0 million of revenue that was included in deferred revenue as of September 30, ~~2020~~2021 and there were additional deferrals of ~~$400.4~~$205.4 million, primarily related to new billings. ~~In addition, deferred revenue increased by $15.5 million (net of a $10.4 million fair value adjustment) as a result of the acquisition of Arena.~~ For subscription contracts, we generally invoice customers annually. The balance of total short- and long-term receivables as of ~~June 30,~~December 31, 2021 was ~~$601.5~~$683.8 million, compared to ~~$511.3 million~~total short- and long-term receivables as of September 30, ~~2020.~~2021 of $744.6 million.

Our multi-year, non-cancellable ~~on-premise~~on-premises subscription contracts provide customers with an annual right to exchange software within the subscription with other software. As of ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, the total refund liability was ~~$41.5~~$40.1 million and ~~$34.5~~$40.3 million, respectively, primarily associated with the annual right to exchange ~~on-premise~~on-premises subscription software.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Effective October 1, 2020, we adopted ASC 326, Financial Instruments—Credit Losses, which replaces the incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic conditions, and accounts receivable aging trends. Our allowance for doubtful accounts on trade accounts receivable was ~~$0.4 million and $0.5~~$0.3 million as of ~~June 30,~~December 31, 2021 and September 30, ~~2020.~~2021. Uncollectible trade accounts receivable written-off and bad debt expense were immaterial in the ~~three~~first quarter ended December 31, 2021 and ~~nine months ended June 30, 2021.~~December 31, 2020.

We recognize an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred costs primarily ~~relate~~related to commissions. As of ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, deferred costs ~~to obtain a contract~~ of ~~$41.7~~$41.6 million and ~~$33.9~~$40.2 million, respectively, are included in other current assets and ~~$73.9~~$80.7 million and ~~$72.9~~$81.1 million, respectively, are included in other assets (non-current). Amortization expense related to costs to obtain a contract with a customer was ~~$11.7~~$11.6 million and ~~$33.1~~$10.4 million in the three ~~and nine~~ months ended ~~June 30, 2021, respectively, and $9.0 million and $25.2 million in the three and nine months ended June 27,~~December 31, 2021and December 31, 2020, respectively. There were 0 impairments of the contract cost ~~assets~~asset in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020.

Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of ~~June 30,~~December 31, 2021, the amounts include additional performance obligations of ~~$473.6~~$481.1 million recorded in deferred revenue and ~~$850.0~~$1,140.3 million that are not yet recorded in the Consolidated Balance Sheets. We expect to recognize approximately ~~85%~~83% of the total ~~$1,323.6~~$1,621.4 million over the next 24 months, with the remaining amount thereafter. ~~Certain~~

(in thousands)	Three months ended				Nine months ended				Three months ended
	June 30, 2021		June 27, 2020		June 30, 2021		June 27, 2020		December 31, 2021		December 31, 2020
Recurring revenue⁽¹⁾	$	387,175	$	310,621	$	1,186,978	$	931,852
Recurring revenue⁽¹⁾									$	405,125	$	384,957
Perpetual license		7,259		6,773		22,644		23,988		8,468		8,463
Professional services		41,234		34,327		116,882		111,594		44,128		35,630
Total revenue	$	435,668	$	351,721	$	1,326,504	$	1,067,434	$	457,721	$	429,050

For further disaggregation of revenue by geographic region and product group see Note 11. Segment and Geographic Information.

Restructuring and other charges, net includes restructuring charges (credits)~~, headquarters relocation charges,~~ and impairment and accretion expense charges related to the lease assets of exited facilities. Refer to Note 14. Leases for additional information about exited facilities.

~~For~~In the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021, restructuring and other charges, net totaled ~~$(0.1)million~~ ~~and $0.6~~$34.0 million, ~~respectively,~~of which $34.1 million is attributable to restructuring charges, ~~and impairment and accretion expense~~offset by $0.1 million attributable to sublease income related to exited lease facilities. We made cash payments related to restructuring charges of $9.8 million ($9.1 million related to the 2022 restructuring described below and $0.7 million in payments for facilities restructured in prior period).

~~For~~In the three months ended ~~June 27,~~December 31, 2020, restructuring and other charges, net totaled $0.2 million, of which $0.1 million ~~which~~ is attributable to restructuring charges and ~~accelerated depreciation related to the planned exit of a facility. For the nine months ended June 27, 2020, restructuring and other charges, net totaled $32.3~~$0.1 million ~~of which $26.8 million~~ is ~~attributable to restructuring charges, $4.9 million is attributable to impairment and accretion expense~~ related to exited ~~facilities, and $0.6 million is attributable to accelerated depreciation related to the planned exit of a facility.~~facilities.

~~During~~In the first quarter of 2022, we committed to a plan to restructure our workforce and consolidate select facilities to align our customer facing and product-related functions with the SaaS industry best practices and accelerate the opportunity for our on-premise customers to move to the cloud. The restructuring plan resulted in charges of $34.1 million in the first quarter of 2022 primarily associated with approximately 340 employees, in addition to the $1.7 million of professional fees recorded in the fourth quarter of 2021 in connection with the re-organization. We are anticipating total restructuring charges for this plan to be approximately $40 million to $45 million.

In the first quarter of 2020, we initiated a restructuring program as part of a realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition. The restructuring plan resulted in charges of $30.8 million through fiscal year 2020 for termination benefits associated with approximately 250 employees. During the ~~nine~~three months ended ~~June 30,~~December 31, 2021 and December 31, 2020 we incurred charges of $0.1 million and $0.2 million, respectively, in connection with this restructuring plan.

The following table summarizes restructuring accrual activity for the ~~nine~~three months ended ~~June 30,~~December 31, 2021:

(in thousands)	Employee Severance and Related Benefits			Facility Closures and Related Costs			Total			Employee Severance and Related Benefits			Facility Closures and Related Costs			Total
Accrual, October 1, 2020	$	3,992		$	5,995		$	9,987
Accrual, October 1, 2021										$	1,981		$	3,505		$	5,486
Charges to operations, net		162			183			345			34,072			72			34,144
Cash disbursements		(3,925	)		(2,303	)		(6,228	)		(9,145	)		(683	)		(9,828	)
Foreign exchange impact		33			17			50			(117	)		0			(117	)
Accrual, June 30, 2021	$	262		$	3,892		$	4,154
Accrual, December 31, 2021										$	26,791		$	2,894		$	29,685

The following table summarizes restructuring accrual activity for the ~~nine~~three months ended ~~June 27,~~December 31, 2020:

The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.

~~Of the~~The accrual for facility closures and related costs ~~as of June 30, 2021, $2.4 million~~ is included in accrued expenses and other current liabilities ~~and $1.5 million is included in other liabilities~~ in the Consolidated Balance Sheets.

Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs ~~including performance-based awards,~~ as our principal equity incentive awards.

The following table shows RSU activity for the ~~nine~~three months ended ~~June 30,~~December 31, 2021:

(in thousands, except grant date fair value data)	Number of RSUs			Weighted-Average Grant Date Fair Value Per RSU		Number of RSUs			Weighted-Average Grant Date Fair Value Per RSU
Balance of outstanding restricted stock units, October 1, 2020		3,509		$	79.13
Granted⁽¹⁾		1,472		$	111.35
Balance of outstanding restricted stock units, October 1, 2021							3,216		$	92.83
Granted⁽¹⁾							899		$	117.10
Vested		(1,470	)	$	80.63		(1,119	)	$	91.64
Forfeited or not earned		(162	)	$	86.87		(126	)	$	93.80
Balance of outstanding restricted stock units, June 30, 2021		3,349		$	92.42
Balance of outstanding restricted stock units, December 31, 2021							2,869		$	100.85

~~The following table presents the number of RSU awards granted by award type:~~

The weighted-average fair value of the TSR RSUs was ~~$124.04~~$136.43 per target RSU on the grant date. The fair value of the TSR RSUs was determined using a Monte Carlo simulation model.

The significant assumptions used in the Monte Carlo simulation model were as follows:

Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:

(in thousands)	Three months ended				Nine months ended				Three months ended
	June 30, 2021		June 27, 2020		June 30, 2021		June 27, 2020		December 31, 2021		December 31, 2020
Cost of license revenue	$	26	$	11	$	66	$	22	$	38	$	20
Cost of support and cloud services revenue		2,611		1,569		7,222		4,579		3,478		2,302
Cost of professional services revenue		2,457		1,585		6,746		4,607		2,456		2,112
Sales and marketing		14,229		9,407		42,533		24,005		13,081		14,999
Research and development		8,514		5,583		24,878		17,280		10,176		8,443
General and administrative		15,231		7,030		52,451		23,112		16,713		18,212
Total stock-based compensation expense	$	43,068	$	25,185	$	133,896	$	73,605	$	45,942	$	46,088

Stock-based compensation expense includes ~~$1.8 million and $5.6~~$2.0 million in the ~~third~~first quarter of 2022 and ~~first nine months of 2021, respectively, and $1.4 million and $4.2~~$1.9 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2020, respectively,~~2021 related to our employee stock purchase ~~plan.~~plan.

(in thousands, except per share data)	Three months ended				Nine months ended				Three months ended
	June 30, 2021		June 27, 2020		June 30, 2021		June 27, 2020		December 31, 2021		December 31, 2020
Net income	$	51,203	$	34,678	$	183,980	$	77,289	$	46,089	$	23,515
Weighted-average shares outstanding—Basic		116,934		115,759		116,702		115,521		117,347		116,401
Dilutive effect of restricted stock units		1,677		470		1,479		460		1,251		1,204
Weighted-average shares outstanding—Diluted		118,611		116,229		118,181		115,981		118,598		117,605
Earnings per share—Basic	$	0.44	$	0.30	$	1.58	$	0.67	$	0.39	$	0.20
Earnings per share—Diluted	$	0.43	$	0.30	$	1.56	$	0.67	$	0.39	$	0.20

~~Anti-dilutive~~There were 0 anti-dilutive shares ~~were immaterial~~ for the three months ended ~~June 30,~~December 31, 2021. There were ~~0.1 millionanti-dilutive shares for the nine months ended June 30, 2021. There were 0.3 and~~ 0.1 million anti-dilutive shares for the three ~~and nine~~ months ended ~~June 27, 2020, respectively.~~December 31, 2020.

Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $1 billion of our common stock in the period October 1, 2020 through September 30, 2023. In the three months ended December 31, 2021, we repurchased 1,003 thousand shares for $119.7 million. We additionally entered into trades to purchase an incremental 43 thousand shares for $5.2 million, which will be settled in January 2022 and is included in accrued expenses and other current liabilities as of December 31, 2021. We did 0t repurchase any shares in the ~~third~~first quarter ~~and first nine months~~ of ~~2021 or 2020.~~2021. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.

Acquisition-related costs in the ~~third~~first quarter ~~and first nine months~~ of ~~2021~~2022 totaled ~~$0.6~~$1.0 million, ~~and $14.8 million, respectively,~~ compared to ~~$0.7~~$3.9 million ~~and $8.1 million, respectively,~~ in the ~~third~~first quarter ~~and first nine months~~ of ~~2020.~~2021. These costs are classified in general and administrative expenses in the accompanying Consolidated Statements of Operations.

Acquisition-related costs include direct costs of potential and completed acquisitions (e.g., investment banker fees and professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees and severance). In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges.

Our results of operations include the results of acquired businesses beginning on their respective acquisition date. Our results of operations for the reported periods, if presented on a pro forma basis, would not differ materially from our reported results.

On January 15, 2021, we acquired Arena Holdings, Inc. (“Arena”) pursuant to the Agreement and Plan of Merger dated as of December 12, 2020 by and among PTC, Arena, Astronauts Merger Sub, Inc.,

and the Representative named therein, the material terms of which are described in the Form 8-K filed by PTC on December 14, 2020 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $~~715~~$715 million, net of cash acquired of $~~11.1~~$11.1 million, for Arena, which amount was financed with cash on hand and $600 million borrowed under our existing credit facility. Arena had approximately 170 employees on the close date. The acquisition of Arena ~~is expected to add~~added revenue of approximately ~~$30~~$29.8 million in ~~2021,~~FY’21, which is net of approximately ~~$10~~$9.1 million in fair value adjustments related to purchase accounting for the acquisition.

The acquisition of Arena has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

The purchase price allocation resulted in $562.8 million of goodwill, $155.0 million of customer relationships, $38.3 million of purchased software, $4.2 million of trademarks, $41.3 million of deferred tax liabilities, $15.5 million of deferred revenue, $11.4 million of accounts receivable, and $0.4 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 13 years, 9 years, and 12 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by participation in expected future growth of the PLM SaaS market and expansion into the mid-market for PLM, where SaaS solutions are becoming the standard.

On November 1, 2019, we acquired Onshape Inc. pursuant to the Agreement and Plan of Merger dated as of October 23, 2019 by and among Onshape Inc., OPAL Acquisition Corporation and the Stockholder Representative named therein, the material terms of which are described in the Form 8-K filed by PTC on October 23, 2019 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $469 million, net of cash acquired of $7.5 million, for Onshape, which amount we borrowed under our existing credit facility. Onshape had approximately 110 employees on the close date.~~The acquisition of Onshape did not add material revenue in 2020.~~

The acquisition of Onshape has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

The purchase price allocation resulted in $364.9 million of goodwill, $56.8 million of customer relationships, $47.3 million of purchased software, $3.6 million of trademarks and $4.1 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 10 years, 16 years, and 15 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by the expected acceleration of CAD and PLM growth, especially in the low end of the market, and participation in expected future growth of the CAD and PLM SaaS market. In addition, over the longer term, we anticipate building products based on the Onshape SaaS technology platform, which is the basis for the PTC Atlas SaaS platform.

We have 2 operating and reportable segments: (1) Software Products and (2) Professional Services. We assess goodwill for impairment at the reporting unit level. Our reporting units are determined based on the components of our operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Our reporting units are the same as our operating segments.

As of ~~June~~December 31, 2021, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $2,508.8 million and attributable to our Professional Services segment was $45.0 million. As of September 30, 2021, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was ~~$2,546.5~~$2,525.7 million and attributable to our Professional Services segment was

~~$45.5~~ $45.2 million. ~~As of September 30, 2020, goodwill and acquired~~Acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We evaluate goodwill for impairment in the ~~aggregate attributable~~third quarter of our fiscal year, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of a reporting segment below its carrying value. Factors we consider important, on an overall company basis and segment basis, when applicable, that could trigger an impairment review include significant under-performance relative to historical or projected future operating results, significant changes in our ~~Software Products segment was $1,818.1 million~~use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period and ~~attributable~~a reduction of our market capitalization relative to ~~our Professional Services segment was $45.3 million.~~net book value.

We completed our annual goodwill impairment review as of June 30, 2021, based on a qualitative assessment.Our qualitative assessment included company-specific (e.g., financial performance and long-range plans), industry, and macroeconomic factors, as well as consideration of the fair value of each reporting unit relative to its carrying value at the last valuation ~~date.~~date (June 27, 2020). Based on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units exceed their carrying values and no further impairment testing is required. Through December 31, 2021, there were no events or changes in circumstances that indicated that the carrying values of goodwill or acquired intangible assets may not be recoverable.

(in thousands)	June 30, 2021						September 30, 2020						December 31, 2021						September 30, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Goodwill (not amortized)					$	2,197,313					$	1,625,786					$	2,189,880					$	2,191,887
Intangible assets with finite lives (amortized):
Purchased software	$	484,810	$	331,711	$	153,099	$	443,275	$	309,124	$	134,151	$	482,824	$	344,152	$	138,672	$	483,771	$	338,542	$	145,229
Capitalized software		22,877		22,877		0		22,877		22,877		0		22,877		22,877		0		22,877		22,877		0
Customer lists and relationships		576,985		345,518		231,467		418,953		322,092		96,861		573,082		357,500		215,582		574,516		350,648		223,868
Trademarks and trade names		26,990		16,874		10,116		22,687		16,129		6,558		26,864		17,241		9,623		26,906		17,036		9,870
Other		4,035		4,035		0		4,017		4,017		0		3,972		3,972		0		4,000		4,000		0
Total intangible assets with finite lives	$	1,115,697	$	721,015	$	394,682	$	911,809	$	674,239	$	237,570	$	1,109,619	$	745,742	$	363,877	$	1,112,070	$	733,103	$	378,967
Total goodwill and acquired intangible assets					$	2,591,995					$	1,863,356					$	2,553,757					$	2,570,854

The aggregate amortization expense for intangible assets with finite lives is classified in our Consolidated Statements of Operations as follows:

(in thousands)	Three months ended				Nine months ended				Three months ended
	June 30, 2021		June 27, 2020		June 30, 2021		June 27, 2020		December 31, 2021		December 31, 2020
Amortization of acquired intangible assets	$	7,511	$	7,302	$	21,708	$	21,367	$	8,484	$	6,547
Cost of license revenue		8,260		6,857		21,644		20,535		6,493		6,267
Total amortization expense	$	15,771	$	14,159	$	43,352	$	41,902	$	14,977	$	12,814

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants inat the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market ~~for~~in which we would transact and consider assumptions that market participants would use when pricing the asset or ~~liability.~~liability, such as inherent risk, transfer restrictions, and risk of nonperformance. GAAP prescribes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that ~~are~~may be used to measure fair value:

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

~~Foreign currency derivative contracts are typically classified within Level 2 of the fair value hierarchy.~~ The principal market in which we execute our foreign currency derivatives is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are ~~usually~~ large financial institutions. Our foreign currency derivatives’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of ~~June 30,~~December 31, 2021 and September 30, ~~2020~~2021 were as follows:

(in thousands)	June 30, 2021								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents(1)	$	118,396	$	0	$	0	$	118,396	$	107,320	$	0	$	0	$	107,320
Derivative instruments		0		1,119		0		1,119
Convertible note		0		0		1,000		1,000		0		0		2,000		2,000
Total financial assets	$	118,396	$	1,119	$	1,000	$	120,515
Equity securities										0		0		87,306		87,306
Forward contracts										0		1,486		0		1,486
Options										0		2,021		0		2,021
									$	107,320	$	3,507	$	89,306	$	200,133
Financial liabilities:
Stock buyback pending settlement										5,260		0		0		5,260
Forward contracts		0		1,080		0		1,080		0		3,732		0		3,732
Total financial liabilities	$	0	$	1,080	$	0	$	1,080
									$	5,260	$	3,732	$	0	$	8,992

(in thousands)	September 30, 2020								September 30, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Financial assets:
Cash equivalents(1)	$	105,299	$	0	$	0	$	105,299	$	114,375	$	0	$	0	$	114,375
Marketable securities:
Corporate notes/bonds		59,099		0		0		59,099
Derivative instruments		0		903		0		903
Total financial assets	$	164,398	$	903	$	0	$	165,301
Convertible note										0		0		2,000		2,000
Equity securities										0		0		77,500		77,500
Forward contracts										0		5,363		0		5,363
									$	114,375	$	5,363	$	79,500		199,238
Financial liabilities:
Forward contracts		0		1,073		0		1,073		0		3,318		0		3,318
Total financial liabilities	$	0	$	1,073	$	0	$	1,073
									$	0	$	3,318	$	0	$	3,318

In the ~~first~~fourth quarter of 2021, we invested ~~$1.0~~$2.0 million into a non-marketable convertible note. This debt security is classified as available-for-sale and is included in other assets on the Consolidated Balance Sheet. ~~There were 0 changes in the fair value of this level 3 investment in the three and nine months ended June 30, 2021.~~

The carrying value of our non-marketable equity investments is recorded in other assets on the Consolidated Balance Sheets and totaled ~~$9.9~~$2.2 million ~~and $8.9 million as of June 30,~~for the periods ended December 31, 2021 and September 30, ~~2020, respectively.~~2021.

As of December 31, 2021, we owned 4,316,301 common shares of Matterport, Inc., which are restricted from being able to be sold until January 2022 (six months after Matterport, Inc. became a public company). As a result of the limitations on the ability to sell, the equity securities are classified as a Level 3 financial instrument with fair value determined using the closing price of Matterport’s common stock on the Nasdaq stock market as of December 31, 2021, less a temporary discount for lack of marketability that will expire in January 2022. The discount for lack of marketability is calculated using a put-option model which includes observable and unobservable inputs. As of December 31, 2021, the investment is recorded at a fair value of $87.3 million in other current assets on the Consolidated Balance Sheets. For the three months ended December 31, 2021, we recognized a gain of $9.8 million related to the shares in other income, net on the Consolidated Statements of Operations.

The following table provides a summary of changes in the fair value of our Level 3 investment in the Matterport, Inc. shares:

(1) The restriction on our ability to sell our shares lapsed in January 2022. Refer to Note 16. Subsequent Events for discussion regarding the expirations on the restriction and our subsequent sale of the Equity Securities in January 2022.

We did 0t hold any marketable securities as of ~~June~~September 30, 2021 or December 31, 2021. In December 2020, we sold ~~all~~ our remaining marketable securities to partially fund the Arena acquisition, resulting in proceeds of $56.2 million. Neither gross realized gains nor gross realized losses related to the sale were material. ~~The amortized cost and fair value of marketable securities as of September 30, 2020 were as follows:~~

The following table summarizes the fair value and gross unrealized losses aggregated by category and the length of time that individual securities had been in a continuous unrealized loss position as of September 30, 2020:

~~The following table presents our marketable securities by contractual maturity date as of September 30, 2020:~~

We enter into derivative transactions, specifically foreign currency forward contracts and options, to manage our exposure to foreign currency exchange risk in order to reduce earnings volatility. We do not enter into ~~derivatives~~derivative transactions for trading or speculative ~~purposes.~~purposes.

The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:

(in thousands)	Fair Value of Derivatives Designated As Hedging Instruments				Fair Value of Derivatives Not Designated As Hedging Instruments				Fair Value of Derivatives Designated As Hedging Instruments				Fair Value of Derivatives Not Designated As Hedging Instruments
	June 30, 2021		September 30, 2020		June 30, 2021		September 30, 2020		December 31, 2021		September 30, 2021		December 31, 2021		September 30, 2021
Derivative assets⁽¹⁾:
Forward Contracts	$	429	$	3	$	477	$	900	$	0	$	1,641	$	1,486	$	3,722
Options	$	0	$	0	$	213	$	0	$	0	$	0	$	2,021	$	0
Derivative liabilities⁽²⁾:
Forward Contracts	$	0	$	306	$	1,080	$	767	$	1,248	$	0	$	2,484	$	3,318

We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce

the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately ~~3 months~~.three months. Generally, we do not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other income (expense), net.

We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they ~~would~~will be adversely affected by changes in Euro or Japanese Yen exchange rates. These contracts have maturities of up to approximately 10ten months. We do not designate these foreign currency options as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into options ~~only~~ as an economic hedge, ~~any loss~~currency impacts on the ~~underlying Euro-denominated~~Euro or Japanese Yen-denominated operations as compared to the forecasted plan rate ~~would~~may be partially offset by the gain on the put option. ~~Gains~~Gain on put options are included in other income (expense), net.

As of ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, we had outstanding forward contracts and options with notional amounts equivalent to the following:

Currency Hedged (in thousands)	June 30, 2021		September 30, 2020		December 31, 2021		September 30, 2021
Canadian / U.S. Dollar	$	6,502	$	6,847	$	5,256	$	4,894
Euro / U.S. Dollar⁽¹⁾		588,549		390,673		586,301		387,466
British Pound / U.S. Dollar		2,349		6,328		5,300		23,141
Israeli Shekel / U.S. Dollar		10,308		9,503		13,859		10,475
Japanese Yen / U.S. Dollar(2)		10,061		50,379		43,066		46,450
Swiss Franc / U.S. Dollar		2,903		12,874		7,621		18,039
Danish Krone / U.S. Dollar		6,699		2,089
Swedish Krona / U.S. Dollar		18,736		18,871		16,683		34,196
Singapore Dollar / U.S. Dollar						3,806		3,498
Chinese Renminbi / U.S. Dollar		8,518		5,415		19,496		23,297
South Korean Won / U.S. Dollar		8,523		0
New Taiwan Dollar / U.S. Dollar						2,669		3,369
Romanian Leu/ U.S. Dollar						3,971		778
Russian Ruble/ U.S. Dollar						0		2,614
All other		12,004		9,483		7,253		5,704
Total	$	675,152	$	512,462	$	715,281	$	563,921

The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020:

(in thousands)

Three months ended

Nine months ended

Three months ended

Location of Loss

June 30,

2021

June 27,

2020

June 30,

2021

June 27,

2020

Location of Loss

December 31,

2021

December 31,

2020

Net realized and unrealized loss, excluding the underlying foreign currency exposure being hedged

Other income (expense), net

(2,508

)

(1,257

)

(7,128

)

(605

)

Other income (expense), net

(3,435

)

(1,587

)

In the three months ended December 31, 2021, foreign currency losses, net were $4.4 million. In the three months ended December 31, 2020, foreign currency losses, net were $1.8 million.

We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S. Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets. We designate certain foreign exchange forward contracts as net investment hedges against exposure on translation of balance sheet accounts of ~~Euro-functional~~Euro functional subsidiaries. Net investment hedges partially offset the impact of foreign currency translation adjustment recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of net investment hedge foreign exchange forward contracts is approximately 3three months.

Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of ~~Euro-functional~~Euro functional subsidiaries. As the forward contracts are highly effective in offsetting exchange rate exposure, we record changes in these net investment hedges in accumulated other comprehensive loss and subsequently reclassify them to foreign currency translation adjustment in accumulated other comprehensive loss at the time of forward contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in time value are excluded from the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with counterparties by trading among several counterparties and we review our counterparties’ credit at least quarterly.

As of ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:

Currency Hedged (in thousands)

June 30,

2021

September 30,

2020

December 31,

2021

September 30,

2021

Euro / U.S. Dollar

153,631

164,885

179,797

128,103

The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020:

(in thousands)		Three months ended						Nine months ended							Three months ended
	Location of Gain (Loss)	June 30, 2021			June 27, 2020			June 30, 2021			June 27, 2020			Location of Gain (Loss)	December 31, 2021			December 31, 2020
Gain (loss) recognized in OCI	OCI	$	(2,309	)	$	2,406		$	(268	)	$	(3,300	)	OCI	$	(3,156	)	$	580
Gain (loss) reclassified from OCI	OCI		4,143			(2,735	)		4,044			(9,513	)	OCI		(5,735	)		2,942
Gain recognized, excluded portion	Other income (expense), net		267			888			1,000			3,079		Other income (expense), net		267			307

As of ~~June 30,~~December 31, 2021, we estimate that all amounts reported in accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.

We have entered into master netting arrangements for our forward contracts that allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.

The following table sets forth the offsetting of derivative assets as of ~~June 30,~~December 31, 2021:

(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets							Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of June 30, 2021	Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
As of December 31, 2021														Gross Amount of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Net Amount
Forward Contracts	$	906	$	0	$	906	$	(906	)	$	0	$	0	$	1,486	$	0	$	1,486	$	(1,486	)	$	0	$	0

The following table sets forth the offsetting of derivative liabilities as of ~~June 30,~~December 31, 2021:

(in thousands)	Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets							Gross Amounts Offset in the Consolidated Balance Sheets						Gross Amounts Not Offset in the Consolidated Balance Sheets
As of June 30, 2021	Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
As of December 31, 2021														Gross Amount of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Net Amount
Forward Contracts	$	1,080	$	0	$	1,080	$	(906	)	$	0	$	174	$	3,732	$	0	$	3,732	$	(1,486	)	$	0	$	2,246

We operate within a single industry ~~segment—~~segment – computer software and related services. Operating segments as defined under GAAP are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to

allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We have 2 operating and reportable segments: (1) Software Products, which includes license, subscription ~~SaaS,~~ and related support revenue (including updates and technical support) for all our products; and (2) Professional Services, which includes consulting, implementation and training services. We do not allocate sales and marketing or general and administrative expense to our operating segments as these activities are managed on a consolidated basis. Additionally, segment profit does not include stock-based compensation, amortization of intangible assets, restructuring charges and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.

The revenue and profit attributable to our operating segments are summarized below. We do not produce asset information by reportable segment; therefore, it is not reported.

(in thousands)	Three months ended						Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
Software Products
Revenue	$	394,434		$	317,394		$	1,209,622		$	955,840		$	413,593		$	393,420
Operating costs⁽¹⁾		116,617			95,198			331,328			292,302
Operating costs⁽¹⁾														116,028			105,401
Profit		277,817			222,196			878,294			663,538			297,565			288,019

Professional Services
Revenue		41,234			34,327			116,882			111,594			44,128			35,630
Operating costs⁽²⁾		34,726			29,850			100,985			97,022
Operating costs⁽²⁾														36,983			33,120
Profit		6,508			4,477			15,897			14,572			7,145			2,510

Total segment revenue		435,668			351,721			1,326,504			1,067,434			457,721			429,050
Total segment costs		151,343			125,048			432,313			389,324			153,011			138,521
Total segment profit		284,325			226,673			894,191			678,110			304,710			290,529

Unallocated operating expenses:
Sales and marketing expenses		120,183			95,187			345,782			295,631			112,395			109,726
General and administrative expenses		31,235			28,005			90,122			82,719			34,177			27,400
Restructuring and other charges, net		(132	)		62			584			32,338			33,991			247
Intangibles amortization		15,771			14,159			43,352			41,902			14,977			12,814
Stock-based compensation		43,068			25,185			133,896			73,605			45,942			46,088
Other unallocated operating expenses⁽³⁾		618			674			14,844			8,064
Other unallocated operating expenses⁽³⁾														1,050			3,916
Total operating income		73,582			63,401			265,611			143,851			62,178			90,338

Interest and debt premium expense		(13,178	)		(19,660	)		(37,622	)		(64,376	)		(12,986	)		(11,518	)
Other income (expense), net		(1,935	)		775			(5,756	)		(150	)		6,184			(1,413	)
Income before income taxes	$	58,469		$	44,516		$	222,233		$	79,325		$	55,376		$	77,407

Our international revenue is presented based on the location of our customer. Revenue for the geographic regions in which we operate is presented below.

(in thousands)	Three months ended				Nine months ended				Three months ended
	June 30, 2021		June 27, 2020		June 30, 2021		June 27, 2020		December 31, 2021		December 31, 2020
Americas	$	180,154	$	156,221	$	562,763	$	466,188	$	212,881	$	202,279
Europe		159,558		121,317		524,354		404,260		162,308		162,319
Asia Pacific		95,956		74,183		239,387		196,986		82,532		64,452
Total revenue	$	435,668	$	351,721	$	1,326,504	$	1,067,434	$	457,721	$	429,050

In the ~~third~~first quarter of 2022 and ~~first nine months of~~ 2021, ~~and 2020,~~ our effective tax rate differed from the statutory federal income tax rate of 21% due to ~~U.S. tax reform,~~ our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. ~~rate,a benefit for the revaluation of UK deferred taxes as a result of a tax rate change, and the excess tax benefit related to stock-based compensation.~~rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in ~~Ireland.~~Ireland and the Cayman Islands. In ~~2021~~2022 and ~~2020,~~2021, the foreign rate differential predominantly relates to these ~~Irish~~ earnings.

In 2022 and 2021, in addition to the foreign rate differential, the effective tax rate was impacted by the ~~matters described below.~~net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.

~~Our~~In the first quarter of 2021, our results ~~for the nine months ended June 30, 2021~~also include a charge of ~~$37.3~~$35.3 million related to the effects of aan unrecognized tax ~~matter~~benefit in the Republic of Korea (South Korea) ~~of $34.4 million, and the resulting impact on U.S. income taxes of $2.9 million. The charge relates~~, primarily related to ~~an assessment with respect to various tax issues, primarily~~ foreign withholding taxes, as well as the effects of the full valuation allowance which was maintained against our U.S. net deferred tax assets at that ~~was under appeal in South Korea.~~ time.

We ~~received an~~reassess our valuation allowance requirements each financial reporting period. We assess available positive and negative evidence to estimate whether sufficient future taxable income will be generated to use our existing deferred tax assets. In the assessment ~~of approximately $12 million from the tax authorities in South Korea in the fourth quarter of 2016~~ for the ~~years 2011 to 2015 and paid the assessment in the first quarter of 2017. We appealed that assessment and believed that upon completion of the multi-level appeal process~~period ended September 30, 2021, we concluded it was more likely than not that our ~~positions~~deferred tax assets related to United States federal and state income would be ~~sustained. However, in December 2020, our appeal to~~realizable, and therefore, the ~~Seoul High Court (an intermediate appellate court) was rejected. We appealed this decision to~~United States federal and the ~~Supreme Court~~majority of the Republic of Korea. In May 2021, the Supreme Court denied our request for a review of the case. Therefore, the decision of the Seoul High Court is deemed to be final. We made additional payments of approximately $20 million to the tax authorities in South Koreastate valuation allowances were released in the ~~third~~fourth quarter of ~~2021 for the years 2016 to 2021 in settlement of the amounts previously accrued.~~

2021. In the first ~~nine months~~quarter of ~~2021 and 2020,~~2022, we ~~reduced our previously established U.S. valuation allowance by $42.3 million and by $21.2 million as a result of the Arena and Onshape acquisitions, respectively.~~

We have concluded, based on the weight of available evidence, that a full valuation allowance continues to be required against our U.S. net deferred tax assets as they are not more likely than not to be realized in the future. However, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of any valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. We will continue to ~~reassess our valuation allowance requirements each financial reporting period.~~maintain this conclusion.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits.

As of ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, we had unrecognized tax benefits of ~~$20.5~~$21.8 million and ~~$16.1~~$21.2 million, respectively. If all our unrecognized tax benefits as of ~~June 30,~~December 31, 2021 were to become recognizable in the future, we would record a benefit to the income tax provision of ~~$20.5~~$21.8 million, which would be partially offset by an increase in the U.S. valuation allowance of ~~$10.0~~$4.7 million.

Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $1$1 million.

At ~~June 30,~~December 31, 2021 and September 30, ~~2020,~~2021, we had the following long-term debt obligations:

(in thousands)	June 30, 2021			September 30, 2020			December 31, 2021			September 30, 2021
4.000% Senior notes due 2028	$	500,000		$	500,000		$	500,000		$	500,000
3.625% Senior notes due 2025		500,000			500,000			500,000			500,000
Credit facility revolver⁽¹⁾		490,000			18,000
Credit facility revolver⁽¹⁾								450,000			450,000
Total debt		1,490,000			1,018,000			1,450,000			1,450,000
Unamortized debt issuance costs for the senior notes⁽²⁾		(11,073	)		(12,686	)
Unamortized debt issuance costs for the senior notes⁽²⁾								(9,986	)		(10,529	)
Total debt, net of issuance costs	$	1,478,927		$	1,005,314		$	1,440,014		$	1,439,471

In February 2020, we issued $500 million in aggregate principal amount of 4.0% senior, unsecured long-term debt at par value, due in 2028 (the 2028 notes) and $500 million in aggregate principal amount of 3.625% senior, unsecured long-term debt at par value, due in 2025 (the 2025 notes).

As of ~~June 30,~~December 31, 2021, the total estimated fair value of the 2028 and 2025 notes was approximately ~~$518.3~~$513.0 million and ~~$515.0~~$508.0 million, respectively, based on quoted prices for the notes on that date.

We were in compliance with all the covenants for all of our senior notes as of ~~June 30,~~December 31, 2021.

Interest on the 2028 and 2025 notes is payable semi-annually on February 15 and August 15. The debt indenture for the 2028 and 2025 notes includes covenants that limit our ability to, among other things, incur additional debt, grant liens on our properties or capital stock, enter into sale and leaseback transactions or asset sales, and make capital distributions.

We may, on one or more occasions, redeem the 2028 and 2025 notes in whole or in part at specified redemption prices. In certain circumstances constituting a change of control, we will be required to make an offer to repurchase the notes at a purchase price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest. Our ability to repurchase the notes upon such event may be limited by law, by the indenture associated with the notes, by our then-available financial resources or by the terms of other agreements to which we may be party at such time. If we fail to repurchase the notes as required by the indenture, it would constitute an event of default under the indenture which, in turn, may also constitute an event of default under other obligations.

In February 2020, we entered into a Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, for a new secured multi-currency bank credit facility with a syndicate of banks. We expect to use the new credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and working capital requirements.

The credit facility consists of a $1 billion revolving credit facility, which may be increased by up to an additional $500 million in the aggregate if the existing or additional lenders are willing to make such increased commitments. The maturity date of the credit facility is February 13, 2025, when all remaining amounts outstanding will be due and payable. The revolving loan commitment does not require amortization of principal and may be repaid in whole or in part prior to the scheduled maturity date at our option without penalty or premium. As of ~~June 30,~~December 31, 2021, the fair value of our credit facility approximates its book value.

PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. Any borrowings by PTC Inc. under the credit facility would be guaranteed by PTC Inc.’s material domestic subsidiaries that become parties to the subsidiary guaranty, if any. As of the filing of this Form 10-Q, there are no subsidiary guarantors of the obligations under the credit facility. Any borrowings by eligible foreign subsidiary borrowers would be guaranteed by PTC Inc. and any subsidiary guarantors. As of the filing of this Form 10-Q, 0 funds were borrowed by an eligible foreign subsidiary borrower. In addition, owned property (including equity interests) of PTC and certain of its material domestic subsidiaries' owned property is subject to first priority perfected liens in favor of the lenders under this credit facility. 100% of the voting equity interests of certain of PTC’s domestic subsidiaries and 65% of its material first-tier foreign subsidiaries are pledged as collateral for the obligations under the credit facility.

Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by PTC as described below. As of ~~June 30,~~December 31, 2021, the annual rate for ~~borrowings~~borrowing outstanding was 1.69%. Interest rates on borrowings outstanding under the credit facility range from 1.25% to 1.75% above an adjusted LIBO rate (or an agreed successor rate) for Euro currency borrowings or range from 0.25% to 0.75% above the defined base rate (the greater of the Prime Rate, the NYFRB rate plus 0.5%, or an adjusted LIBO rate plus 1%) for base rate borrowings, in each case based upon PTC’s total leverage ratio. Additionally, PTC may borrow certain foreign currencies at rates set in the same range above the respective LIBO rates (or agreed successor rates) for those currencies, based on PTC’s total leverage ratio. A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from 0.175% to 0.30% per annum based upon PTC’s total leverage ratio.

The credit facility limits PTC’s and its subsidiaries’ ability to, among other things: incur additional indebtedness, incur liens or guarantee obligations; pay dividends (other than to PTC) and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic subsidiaries may not invest cash or property in, or loan to, PTC’s foreign subsidiaries in aggregate amounts exceeding $100 million for any purpose and an additional $200 million for acquisitions of businesses. In addition, under the credit facility, PTC and its subsidiaries must maintain the following financial ratios:

As of ~~June 30,~~December 31, 2021, our total leverage ratio was 2.23 to 1.00, our senior secured leverage ratio was 0.71 to 1.00 and our interest coverage ratio was 14.02 to 1.00 and we were in compliance with all financial and operating covenants of the credit facility.

~~We made~~Any failure to comply with the financial or operating covenants of the credit facility would prevent PTC from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest ~~payments~~and unpaid fees, under the credit facility and to terminate the credit facility. A change in control of PTC, as defined in the agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness and terminate the credit facility.

In the first quarter of 2022 and 2021, we paid $2.4 million and $0.7 million of interest on our debt, ~~of $3.2 million and $23.7 million in the third quarter and first nine months of 2021, respectively, and $16.4 million and $40.0 million in the third quarter and first nine months of 2020,~~ respectively. ~~In the third quarter of 2020, we also paid $15 million in penalties for the early redemption of the 6.000% Senior Notes due in 2024.~~ The average interest rate on borrowings outstanding during the first quarter of 2022 and 2021 was approximately ~~3.1%~~3.2% and ~~3.4% during the third quarter and first nine months of 2021, respectively, and 4.0% and 4.5% during the third quarter and first nine months of 2020,~~3.8%, respectively.

Our operating leases expire at various dates through 2037 and are primarily for office space, cars, servers, and office equipment.

Our headquarters are located at 121 Seaport Boulevard, Boston, Massachusetts. In February 2019, we subleased a portion of our headquarters through June 30, 2022. We will receive approximately $9.1 million in sublease income over the term of the sublease.

The components of lease cost reflected in the Consolidated Statement of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020 were as follows:

(in thousands)	Three months ended						Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
Operating lease cost	$	9,075		$	10,324		$	28,031		$	29,467		$	8,860		$	9,391
Short-term lease cost		627			864			1,785			3,754			540			548
Variable lease cost		2,443			535			7,306			3,025			2,490			2,387
Sublease income		(1,114	)		(996	)		(3,329	)		(3,021	)		(1,117	)		(1,084	)
Total lease cost	$	11,031		$	10,727		$	33,793		$	33,225		$	10,773		$	11,242

Supplemental cash flow and right-of-use assets information ~~related to leases~~ for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and December 31, 2020 was as follows:

Supplemental balance sheet information related to the leases as of ~~June 30,~~December 31, 2021 was as follows:

Maturities of ~~operating~~ lease liabilities as of ~~June 30,~~December 31, 2021 ~~were~~are as follows:

(in thousands)
Remainder of 2021	$	8,098
2022		35,444
Remainder of 2022				$	28,792
2023		26,658			29,469
2024		23,546			26,191
2025		20,667			22,652
2026					18,681
Thereafter		172,131			159,162
Total future lease payments	$	286,544		$	284,947
Less: imputed interest		(83,411	)		(78,915	)
Total lease liability	$	203,133		$	206,032

As of June 30, 2021, we had operating leases that had not yet commenced. These leases will commence in 2021 and 2022 with lease terms between 2 to 13 years and approximate future lease payments of $5.7 million.

As of ~~June 30,~~December 31, 2021, we ~~had~~have net liabilities of ~~$4.0~~$2.7 million related to excess facilities (compared to ~~$11.3~~$3.6 million at September 30, ~~2020)~~2021), representing ~~$1.5~~$0.9 million of right-of-use assets and ~~$5.5~~$3.6 million of lease obligations, of which ~~$4.0~~$3.0 million is classified as short term and ~~$1.5~~$0.6 million is classified as long term. Variable costs related to these exited facilities are included in our restructuring accrual. All expenses and income associated with exited facilities are included in restructuring and other charges, net (refer to Note 3. Restructuring and Other Charges).

In determining the amount of right-of-use assets for restructured facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. Updates to these estimates may result in revisions to the value of right-of-use assets recorded. The amounts recorded are based on the net present value of estimated sublease income. As of ~~June 30,~~December 31, 2021, the right-of-use assets for exited facilities reflects discounted committed sublease income of approximately ~~$1.5~~$0.9 million.

In the ~~three~~first quarter of 2022 and ~~nine months ended June 30,~~ 2021, we made net payments of ~~$1.2~~$0.7 million and ~~$7.5~~$3.8 million, respectively, related to lease costs for exited facilities. ~~In the three and nine months ended June 30, 2021 and June 27, 2020, we made payments of $4.6 million and $9.1 million, respectively.~~

As December 31, 2021 and December 31, 2020, we had letters of credit and bank guarantees outstanding of $15.3 million (of which $0.5 million was collateralized) and $16.5 million (of which $0.5 million was collateralized), respectively, primarily related to our corporate headquarters lease.

With respect to legal proceedings and claims, we record an accrual for a contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

On September 17, 2020, 3 individual plaintiffs filed a putative class action lawsuit against PTC, the Investment Committee for the PTC Inc. 401(k) Plan (“Plan”), and the Board of Directors ~~(the~~(collectively, the “PTC Defendants”) in the U.S. District Court for the District of Massachusetts alleging claims regarding the Plan. Plaintiffs allege that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in the oversight of the Plan, principally by allegedly selecting and retaining certain investment options despite their higher fees and costs than other available investment options, causing participants in the Plan to pay excessive recordkeeping fees and suffer lower returns on their investments, and by allegedly failing to monitor other fiduciaries. The plaintiffs seek unspecified damages on behalf of a class of Plan participants from September 17, 2014 through the date of any judgment. ~~After our motions~~The plaintiffs and the PTC Defendants reached an agreement in principle to ~~dismiss~~settle the ~~complaint were denied, we~~lawsuit on September 22, 2021 and filed ~~an answer to the complaint~~a motion for preliminary approval on ~~May 4,~~December 17, 2021. ~~We are currently unable to reasonably estimate what effect the~~The ultimate outcome ~~might have, if any, on~~by judgment or settlement is not expected to be material to our financial position, results of operations or cash flows.

In addition to the matters listed above, we are subject to legal proceedings and claims against us in the ordinary course of business. As of ~~June 30,~~December 31, 2021, we estimate that the range of possible outcomes for such matters is immaterial and we do not believe that resolving them will have a material adverse impact on our financial condition, results of operations or cash flows. However, the results of legal proceedings cannot be predicted with certainty. Should any of these legal proceedings and claims be resolved against us, the operating results for a reporting period could be adversely affected.

We enter into standard indemnification agreements with our customers and business partners in the ordinary course of our business. Under such agreements, we typically indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to our products. Indemnification may also cover other types of claims, including claims relating to certain data breaches. Except for intellectual property infringement indemnification, the liability for which is uncapped, these agreements typically limit our liability with respect to other indemnification claims. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and, accordingly, we believe the estimated fair value of liabilities under these agreements is immaterial.

We warrant that our software products will perform in all material respects in accordance with our standard published specifications during the term of the license/subscription. Additionally, we generally warrant that our consulting services will be performed consistent with generally accepted industry standards and, in the case of fixed price services, the agreed-upon specifications. In most cases, liability for these warranties is capped. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, we have not incurred significant cost under our product or services warranties. As a result, we believe the estimated fair value of these liabilities is immaterial.

On ~~July 22, 2021, a company in which~~February 2, 2022, we ~~were a preferred equity investor—~~paid $40 million of outstanding balance on our revolving credit facility.

Sale of Matterport Inc.—completed a business combination with a public company. The carrying value of our investment, which was classified as a non-marketable equity investment, was approximately $8.7 million as of June 30, 2021. Our preferred shares were converted intoEquity Securities

In January 2022, we sold 4,316,301 common shares of ~~the public company upon completion~~Matterport for an aggregate price of the business combination. The common shares will be measured at fair value with unrealized gains and losses recorded to other income (expense), net. As of the date of the business combination, the unrealized gain on the investment was approximately $54$39.1 million. The ~~impact~~sale will result in a loss to be recorded in Q2’22 of $48.2 million due to the ~~investment on our results will vary~~reduction in value as of December 31, 2021 compared to the ~~share~~ price ~~fluctuates.~~when sold.

In January 2022, we settled the trades we entered to purchase an incremental 43 thousand shares for an aggregate price of $5.3 million.

PTC is a global software and services company that ~~delivers~~enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to ~~power our industrial customers' digital transformations, enabling them to better~~transform how physical products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans the computer-aided design ~~manufacture, operate, and service their products. Our~~(CAD), product lifecycle management (PLM), Industrial Internet of Things ~~(IoT)~~(IIoT), and Augmented Reality (AR) markets.

Our customer base includes some of the world’s most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries. Our solutions enable industrial companies to ~~connect factories and plants, smart products, and enterprise systems to transform~~create a closed loop of information shared across their ~~businesses. These products, along with our Onshape and Arena SaaS solutions, are considered our~~ ~~Growth Products. The primary products~~organization’s entire value chain. This “digital thread” can drive excellence in ~~our~~ ~~Core Products~~ ~~portfolio are innovative Computer-Aided Design (CAD) and Product Lifecycle Management (PLM) solutions that enable manufacturers to create, innovate,~~engineering, efficiency in manufacturing operations and service ~~products. Our~~ ~~Focused Solutions Group (FSG)~~ ~~is a family~~delivery, and innovation across product offerings and business models. With our solutions, digital transforms physical.

We generate revenue through the sale of software ~~products that target specific vertical industries where we can deliver unique domain expertise~~subscriptions, which include license access and support (technical support and software updates); support for existing perpetual licenses; professional services (consulting, implementation, and training); and cloud services (hosting for our software and Software as a ~~competitive advantage with Application Lifecycle Management (ALM) products,~~ Service ~~Lifecycle Management (SLM) products, and other niche tailored solutions. Together, these technologies power the digital thread across industrial enterprises.~~(SaaS)).

Statements in this document that are not historic facts, including statements about our future financial and growth expectations and targets, ~~debt repayment~~ and potential stock repurchases, 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 when or as we expect, or may deteriorate, due to, among other factors, the COVID-19 pandemic, which could cause customers to delay or reduce purchases of new software, reduce the number of subscriptions they carry, or delay payments to us, all of which would adversely affect ARR ~~and~~and/or our financial results, including cash flow; our businesses, including our SaaS businesses, may not expand and/or generate the revenue or ARR we expect if customers are slower to adopt our technologies than we expect or if they adopt competing technologies; our strategic initiatives and investments, including our restructuring and our accelerated investments in our transition to SaaS, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to repay amounts under our ~~outstanding debt when or as we expect~~credit facility or to ~~repurchase shares when or as we expect,~~return 50% of free cash flow to shareholders, and other uses of cash or our credit facility limits or other matters could preclude such repayment and/or repurchases; and foreign exchange rates may differ materially from those we expect; and orders associated with minimum purchase commitments under our Strategic Alliance Agreement with Rockwell Automation may not result in subscription contracts sold through to end-user customers, which could cause the ARR associated with those orders to churn.expect. 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~~profits, as well as other risks and uncertainties ~~that could cause actual results to differ materially from those projected are~~ described below throughout or referenced in Part II, Item 1A. Risk Factors of this report.

Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures.

ARR of ~~$1.42~~$1.50 billion at the end of Q1’22 represents ~~18%~~12% growth ~~(15%~~(16% on a constant currency basis) compared to ~~Q3’20,reflecting strong performance~~Q1’21 driven by strength in ~~our Core and Growth businesses as well as contribution from Arena.~~new bookings. Organic constant currency ARR growth year over year was ~~14% (11%~~11%. Q1’22 revenue of $458 million was up 7% (8% constant currency)~~. Third quarter revenue was up 24% year~~ over ~~year (19% constant currency),~~Q1’21, driven by ~~strong execution as well as~~increased revenue from our recurring revenue business lines, including the ~~impact~~revenue contribution from the Arena acquisition, and an increase in professional services revenues. Q1’22 operating margin was 14% compared to 21% in Q1’21, primarily due to $34 million of restructuring charges recorded in Q1’22. Q1’22 non-GAAP operating margin was 35% compared to 36% in Q1’21 due to lower up-front license revenue ~~recognition under ASC 606~~recognized in the quarter as a result of the mix of contract types and ~~the contribution from Arena. Organic revenue growth year over year was 21% (16% constant currency).~~

~~Our Q3’21 operating margin decreased approximately 100 bps~~contract durations in Q1’22 compared to ~~Q3’20, primarily driven by higher stock compensation expense. Our Q3’21 diluted~~Q1’21, which also impacted Q1’22 EPS ~~of $0.43 increased significantly~~ compared to ~~$0.30 in Q3’20, which reflects strong revenue growth as well as continued financial discipline.~~Q1’21 EPS.

Q1’22 EPS reflects a lower tax rate compared to the prior year as Q1’21 included a charge of $35.3 million related to a South Korean tax matter, primarily related to foreign withholding taxes.

We generated ~~$88~~a first quarter record of $138 million of cash from operations in ~~Q3'21~~Q1’22 compared to ~~$105~~$114 million in ~~Q3'20, primarily reflecting a one-time $17~~Q1’21, with the increase driven by strong operational execution. Cash from operations in Q1’22 included $11 million ~~tax payment~~of payments related to ~~the prior period tax exposure from a non-U.S. tax dispute~~restructuring, compared to $7 million of restructuring payments made in Q1’21. We repurchased $120 million of our common stock in Q1’22 and ~~higher compensation costs. We~~ ended ~~Q3’21~~Q1’22 with ~~$366 million of~~ cash and cash equivalents of $296 million. In addition, we held an equity investment in Matterport, Inc., which was valued at $87 million and ~~$1.5 billion~~subject to trading restrictions as of ~~debt outstanding with a weighted average cost~~the end of ~~debt~~Q1’22. We sold our investment in Matterport near the end of ~~3.1%.~~

~~Our results have been impacted, and we expect will continue to be impacted, by our ability to close large transactions. Additionally, under the subscription license model, particularly sales~~January 2022 (in Q2’22) for an aggregate of products in our growth business, customers may place smaller initial orders than under a perpetual license model. Sales of our products may have long lead times as they often follow a lengthy product selection and evaluation process and, for existing customers, are influenced by contract duration and expiration cycles. Accordingly, the amount of revenue attributable to large transactions, and the number of such transactions, may vary significantly from quarter to quarter based on customer purchasing decisions and macroeconomic conditions. This may cause volatility in our results.

Despite the continuing challenges associated with the COVID-19 pandemic, we currently anticipate ARR, revenue, and operating margin growth in FY’21. We expect organic churn to improve slightly compared to FY’20.$39 million.

The following table shows the financial measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude the items described in Non-GAAP Financial Measures below. Investors should use these non-GAAP financial measures only in conjunction with our GAAP results.

(Dollar amounts in millions, except per share data)

Three months ended

Percent Change

June 30, 2021

June 27, 2020

Actual

Constant
Currency⁽¹⁾

Recurring revenue⁽¹⁾

$
387.2

$
310.6

25
%

20
%
Perpetual license

7.3

6.8

7
%

4
%
Professional services

41.2

34.3

20
%

14
%
Total revenue

435.7

351.7

24
%

19
%
Total cost of revenue

95.1

79.2

20
%

17
%
Gross margin

340.6

272.5

25
%

20
%
Operating expenses

267.0

209.1

28
%

25
%
Total costs and expenses

362.1

288.3

26
%

22
%
Operating income

$
73.6

$
63.4

16
%

6
%
Non-GAAP operating income⁽²⁾

$
132.9

$
103.5

28
%

22
%
Operating margin

16.9
%

18.0
%

Non-GAAP operating margin⁽²⁾

30.5
%

29.4
%

Diluted earnings per share

$
0.43

$
0.30

Non-GAAP diluted earnings per share⁽²⁾⁽³⁾

$
0.83

$
0.62

Cash flow from operations⁽⁴⁾

$
88.0

$
104.5

Free cash flow⁽⁵⁾

$
84.6

$
99.3

(Dollar amounts in millions, except per share data)	Nine months ended						Percent Change						Three months ended						Percent Change
	June 30, 2021			June 27, 2020			Actual			Constant Currency⁽¹⁾			December 31, 2021			December 31, 2020			Actual			Constant Currency⁽¹⁾
Recurring revenue⁽¹⁾	$	1,187.0		$	931.9			27	%		23	%
ARR⁽¹⁾													$	1,496.3		$	1,336.1			12	%		16	%

Total recurring revenue⁽²⁾													$	405.1		$	385.0			5	%		6	%
Perpetual license		22.6			24.0			(6	)%		(8	)%		8.5			8.5			0	%		0	%
Professional services		116.9			111.6			5	%		0	%		44.1			35.6			24	%		26	%
Total revenue		1,326.5			1,067.4			24	%		20	%		457.7			429.1			7	%		8	%
Total cost of revenue		271.4			249.7			9	%		6	%		95.1			86.8			10	%		10	%
Gross margin		1,055.1			817.8			29	%		24	%		362.6			342.2			6	%		7	%
Operating expenses		789.5			673.9			17	%		15	%		300.4			251.9			19	%		19	%
Total costs and expenses		1,060.9			923.6			15	%		12	%		395.5			338.7			17	%		17	%
Operating income	$	265.6		$	143.9			85	%		61	%	$	62.2		$	90.3			(31	)%		(29	)%
Non-GAAP operating income⁽²⁾	$	458.3		$	299.8			53	%		42	%
Non-GAAP operating income⁽³⁾													$	158.1		$	153.4			3	%		6	%
Operating margin		20.0	%		13.5	%								13.6	%		21.1	%
Non-GAAP operating margin⁽²⁾		34.5	%		28.1	%
Non-GAAP operating margin⁽³⁾														34.5	%		35.8	%
Diluted earnings per share	$	1.56		$	0.67								$	0.39		$	0.20
Non-GAAP diluted earnings per share⁽²⁾⁽³⁾	$	2.87		$	1.78
Cash flow from operations⁽⁴⁾	$	323.5		$	199.8
Free cash flow⁽⁵⁾	$	311.8		$	184.4
Non-GAAP diluted earnings per share⁽³⁾⁽⁴⁾													$	0.95		$	0.97
Cash flow from operations⁽⁵⁾													$	137.7		$	113.8
Free cash flow⁽⁶⁾													$	134.4		$	110.9

Approximately ~~60%~~55% of our revenue and 35% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Our constant currency disclosures are calculated by multiplying the results in local currency for the quarterly ~~and year-to-date~~ periods for ~~FY’21~~FY’22 and ~~FY’20~~FY’21 by the exchange rates in effect on September 30, ~~2020.~~ 2021. We anticipate foreign currency exchange rates will be a headwind for FY’22.

The results of operations in the table above and revenue by line of business, product group, and geographic region in the tables that follow present both actual percentage changes year over year and percentage changes on a constant currency basis.

~~Our~~Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, subscription) starting or renewing in any given period may have a material impact on revenue ~~results quarter~~in the period. Subscription contracts have up-front recognition of subscription license revenue, with the support element of the contract recognized ratably over the term. Perpetual support contracts are recognized ratably over the term of the contract, however we continue to ~~quarter are impacted by contract terms, including the duration and start dates of our~~convert to subscription contracts ~~due~~resulting in a shift to up-front recognition of subscription license ~~revenue.~~revenue in the period converted compared to ratable recognition for a perpetual support renewal. Revenue from our SaaS contracts is recognized ratably. We are expanding our SaaS offerings and are releasing additional cloud functionality into our products and customers are migrating from subscription to SaaS products. As a result, over time a higher portion of our revenue will be ~~impacted over time as a higher portion~~recognized ratably. Given the different mix, duration and volume of ~~it will be recognized ratably.~~

(Dollar amounts in millions)	Three months ended				Percent Change						Nine months ended				Percent Change						Three months ended				Percent Change
	June 30, 2021		June 27, 2020		Actual			Constant Currency			June 30, 2021		June 27, 2020		Actual			Constant Currency			December 31, 2021		December 31, 2020		Actual			Constant Currency
License	$	163.6	$	118.2		38	%		34	%	$	538.8	$	369.3		46	%		40	%	$	169.1	$	177.2		(5	)%		(4	)%
Support and cloud services		230.9		199.1		16	%		11	%		670.9		586.6		14	%		10	%		244.5		216.2		13	%		14	%
Software revenue		394.4		317.4		24	%		20	%		1,209.6		955.8		27	%		22	%		413.6		393.4		5	%		6	%
Professional services		41.2		34.3		20	%		14	%		116.9		111.6		5	%		0	%		44.1		35.6		24	%		26	%
Total revenue	$	435.7	$	351.7		24	%		19	%	$	1,326.5	$	1,067.4		24	%		20	%	$	457.7	$	429.1		7	%		8	%

Software revenue in ~~the third quarter and first nine months of FY’21~~Q1’22 increased ~~compared to the year-ago periods~~over Q1’21 primarily due to contribution from the acquisition of Arena, as well as subscription ~~revenue~~support growth ~~partially~~in Digital Thread – Core, offset by a decline in perpetual support revenue due to conversions of support contracts to subscriptions. ~~License~~Subscription license revenue ~~growth was primarily driven by~~decreased in Q1’22 compared to Q1’21 due to the duration and mix of contract types for new and renewal contracts ~~with longer durations. Subscription support and cloud services revenue~~started in the ~~third~~ quarter ~~and first nine months of FY’21 grew 39% (25% constant currency) and 39% (28% constant currency), respectively, compared to~~. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the year-ago periods, while perpetual support revenue decreased 18% (21% constant currency) and 17% (20% constant currency), primarily due to conversions of perpetual support contracts to subscriptions. Arena contributed approximately $10 million and $18 million of software revenue in the third quarter and first nine months of FY’21, respectively.annualized values are consistent.

Professional services revenue increased in Q1’22 over Q1’21 by 24% (26% constant currency) as Q1’21 revenue was negatively impacted by challenges with project scoping and implementation activities and performance due to social distancing measures and facility closures implemented to address the COVID-19 pandemic. Q1’22 saw an increase in revenue associated with large PLM consulting engagements, ~~typically result from sales of new licenses;~~particularly with automotive, aerospace and defense customers. Q1’21 professional services revenue was also lower due to a prior-year extension to complete work on a large fixed-price contract.

We expect that professional services revenue will be higher in FY'22 than FY’21 or FY’20 as we expect demand for services will increase to a level that is ~~recognized over the term of the engagement.~~ more consistent with pre-pandemic levels. Our longer-term expectation is that professional services revenue will trend flat-to-down over time due to our strategy to expand margins by migrating more services engagements to our partners and delivering products that require less consulting and training services.

Professional services revenue growth in Q3’21 compared to Q3’20 is due to the impact of the COVID-19 pandemic on revenue in FY’20, as well as the start of a number of new large contracts in FY’21. Growth in the first nine months of FY’21 was negatively impacted by challenges with project scoping and implementation activities and performance due to social distancing measures and facility closures implemented to address the COVID-19 pandemic.

(Dollar amounts in millions)

Three months ended

Percent Change

Nine months ended

Percent Change

June 30,
2021

June 27,
2020

Actual

Constant
Currency

June 30,
2021

June 27,
2020

Actual

Constant
Currency

Core (CAD and PLM)

$
271.2

$
230.4

18
%

13
%

$
859.5

$
690.9

24
%

20
%
Growth (IoT, AR, Onshape, Arena)

67.5

40.3

68
%

63
%

195.7

126.7

54
%

50
%
FSG (Focused Solutions Group)

55.7

46.7

19
%

15
%

154.4

138.2

12
%

8
%
Software revenue

$
394.4

$
317.4

24
%

20
%

$
1,209.6

$
955.8

27
%

22
%

(Dollar amounts in millions)	Three months ended				Percent Change
	December 31, 2021		December 31, 2020		Actual			Constant Currency
Digital Thread - Core	$	282.1	$	289.5		(3	)%		(2	)%
Digital Thread - Growth		62.0		55.3		12	%		13	%
Digital Thread - FSG		51.6		46.2		12	%		12	%
Digital Thread (Total)		395.7		391.0		1	%		2	%
Velocity		17.9		2.4		646	%		646	%
Software revenue	$	413.6	$	393.4		5	%		6	%

~~Core Product~~ software revenue growth in the third quarter and first nine months of FY’21 compared to the year-ago periods was driven by subscription revenue growth of 31% (27% constant currency) and 41% (36% constant currency), respectively, due in part to ongoing support contract conversions to subscription, which also result in a decline in perpetual support revenue. ARR (Annual Run Rate) increased 14% (11% constant currency) for Q3’21 compared to Q3’20, reflecting 16% (13% constant currency) ARR growth in PLM and 12% (9% constant currency) growth in CAD as customers pursue their digital transformation initiatives.

Core Product software revenue declined in Q1’22 compared to Q1’21, driven by a decline in subscription license revenue due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annualized values are consistent. Subscription support revenues increased 19% in Q1’22 compared to Q1’22 (21% constant currency), offset by a decrease in perpetual support revenue as customers have continued to convert from perpetual support to subscriptions.

ARR increased 7% (11% constant currency) for Q1’22 compared to Q1’21, reflecting double-digit constant currency growth in both CAD and PLM driven by higher than anticipated new bookings and a low rate of churn.

Growth Product software revenue increased in ~~the third quarter and first nine months of FY’21 compared to the year-ago periods~~Q1’22 over Q1’21 due to subscription revenue growth of ~~86% (81% constant currency) and 73% (68%~~16% (17% constant currency), ~~respectively, driven primarily by IoT and contribution from Arena.~~ resulting in recurring revenue growth of 15% (16% constant currency).

Growth Product ARR increased ~~60% (57%~~11% (14% constant currency) for ~~Q3’21~~Q1’22 compared to ~~Q3’20, due in part to a $57 million contribution from Arena. Organic ARR growth was 25% (22% constant currency),~~Q1’21, reflecting ~~17% (15% constant currency)~~double-digit growth in AR and IoT, primarily from expansion deals with existing customers. We anticipate continued improvement in IoT market conditions and ~~57% (54% constant currency) growth in AR.~~the introduction of our new Digital Performance Management offering will continue to drive demand for our Growth Products.

FSG Product software revenue growth in ~~the third quarter and first nine months of FY’21 compared to the year-ago periods~~Q1’22 reflects subscription revenue growth of ~~41% (36%~~26% (actual and constant currency) over Q1’21 due to a few large contracts with longer durations, offset by a 17% (actual and ~~29% (25%~~ constant currency)~~, due in part to ongoing support contract conversions to subscription, which also result in a~~ decline in perpetual support ~~revenue.~~revenue due to conversions of support contracts to subscriptions.

FSG product ARR ~~grew~~increased by 4% ~~(1%~~(6% constant currency) ~~year over year,~~for Q1’22 compared to Q1’21 driven primarily by new bookings.

VelocityProduct software revenue and ARR growth in ~~line with our expectations.~~Q1’22 compared to Q1’21 are due to the acquisition and subsequent growth of the Arena business purchased in January 2021, as well as growth in Onshape.

A significant portion of our software revenue is generated outside the U.S. In the first ~~nine~~three months of ~~FY’21,~~FY'22 and FY'21 approximately 45% to 50% of software revenue was generated in the Americas, ~~40%~~30% to 35% in Europe, and 15% ~~in Asia Pacific. In FY’20, approximately 45% of software revenue was generated in the Americas, 35% in Europe, and~~to 20% in Asia Pacific.

(Dollar amounts in millions)	Three months ended				Percent Change						Nine months ended				Percent Change						Three months ended				Percent Change
	June 30, 2021		June 27, 2020		Actual			Constant Currency			June 30, 2021		June 27, 2020		Actual			Constant Currency			December 31, 2021		December 31, 2020		Actual			Constant Currency
Americas	$	164.9	$	142.5		16	%		16	%	$	522.2	$	423.0		23	%		24	%	$	196.8	$	191.0		3	%		3	%
Europe		139.9		106.6		31	%		20	%		467.4		354.4		32	%		22	%		140.8		144.8		(3	)%		(1	)%
Asia Pacific		89.6		68.3		31	%		29	%		220.0		178.4		23	%		19	%		76.0		57.6		32	%		35	%
Software revenue	$	394.4	$	317.4		24	%		20	%	$	1,209.6	$	955.8		27	%		22	%	$	413.6	$	393.4		5	%		6	%

Americassoftware revenue growth in Q1’22 was primarily driven by the contribution of the Arena acquisition, offset by a decline in Digital Thread – Core subscription license revenue due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annualized values are consistent.

Q1’22 Americas ARR was up 19% over Q1’21, led by Arena’s contribution and the Velocity business overall, as well as strength in our Core products.

Europe software revenue ~~growth~~declined in Q1’22 primarily due to the decrease in Digital Thread – Core subscription license revenue due to the duration and mix of contract types for new and renewal contracts started in the ~~third~~ quarter, partially offset by an increase in Digital Thread – Growth cloud services revenue.

Q1’22 ARR in Europe was up 6% (13% constant currency) over Q1’21, led by mid-30s growth in our Digital Thread Growth products and ~~first nine months~~strength in our Core products.

Asia Pacific ~~compared to the year-ago periods~~software revenue growth in Q1’22 was driven by subscription revenue growth of ~~29% (actual and~~51% (54% constant currency) ~~and 41% (actual and~~over Q1’21 due to a few large multi-year renewal transactions resulting in higher up-front subscription license revenue under ASC 606.

Q1’22 ARR in Asia Pacific was up 8% (14% constant currency)~~, respectively,partially offset~~ over Q1’21, led by ~~a decline in perpetual support revenue.Software revenue~~mid-teens growth ~~reflects consistent double-digit growth in Growth products.Americas ARR growth of 21% (actual and constant currency) was driven by the contribution from Arena and solid performance~~ in Core products.

~~Europe~~ ~~software revenue growth~~ ~~in the third quarter and first nine months of FY’21 compared to the year-ago periods was driven by growth in subscription revenue of~~ ~~54% (41% constant currency) and 52% (40% constant currency), respectively,~~partially offset by a decline in perpetual support revenue. Software revenue growth reflects strong performance across product groups. Europe ARR growth of 15% (9% constant currency) is consistent with the past several quarters on a constant currency basis and reflects strength in Core products and IoT.

~~Asia Pacific~~ ~~software revenue growth~~ ~~in the third quarter and first nine months of FY’21~~ compared to the year-ago periods was driven by growth in subscription revenue of 43% (37% constant currency) and 41% (32% constant currency), respectively. Software revenue growth reflects strong growth in Core products. ~~Asia Pacific ARR growth of 19% (17%constant currency)~~ ~~was the fourth quarter in a row of mid-teens~~ ~~constant currency~~ ~~growth,~~ ~~with strong performance in the Core and Growth businesses.~~

(Dollar amounts in millions)	Three months ended									Nine months ended									Three months ended
	June 30, 2021			June 27, 2020			Percent Change			June 30, 2021			June 27, 2020			Percent Change			December 31, 2021			December 31, 2020			Percent Change
License gross margin	$	148.0		$	105.2			41	%	$	495.8		$	329.2			51	%	$	159.3		$	163.9			(3	)%
License gross margin percentage		91	%		89	%					92	%		89	%					94	%		93	%
Support and cloud services gross margin	$	188.5		$	164.4			15	%	$	550.1		$	478.6			15	%	$	198.6		$	177.9			12	%
Support and cloud services gross margin percentage		82	%		83	%					82	%		82	%					81	%		82	%
Professional services gross margin	$	4.1		$	2.9			40	%	$	9.2		$	10.0			(8	)%	$	4.7		$	0.4			1078	%
Professional services gross margin percentage		10	%		8	%					8	%		9	%					11	%		1	%

Total gross margin	$	340.6		$	272.5			25	%	$	1,055.1		$	817.8			29	%	$	362.6		$	342.2			6	%
Total gross margin percentage		78	%		77	%					80	%		77	%					79	%		80	%

Non-GAAP gross margin⁽¹⁾	$	353.9		$	282.5			25	%	$	1,090.8		$	847.5			29	%
Non-GAAP gross margin percentage⁽¹⁾		81	%		80	%					82	%		79	%
Non-GAAP gross margin⁽¹⁾																			$	375.1		$	352.9			6	%
Non-GAAP gross margin percentage⁽¹⁾																				82	%		82	%

License gross margin ~~increased~~decreased in ~~the third quarter and first nine months of FY’21~~Q1’22 compared to ~~the FY’20 periods~~Q1’21 due to ~~increases~~an $8.1 million decrease in license revenue, ~~slightly~~partially offset by ~~increased royalty expense resulting from higher sales and higher intangible amortization due to the Arena acquisition.~~a $3.5 million decrease in cost of license revenue.

Support and cloud services gross margin increased in ~~the third quarter and first nine months of FY’21~~Q1’22 compared to ~~the year-ago periods, reflecting an increase~~Q1’21 due to increases in subscription support and cloud revenue, partially offset by a decrease in perpetual support revenue, ~~higher compensation costs,~~for a $28.2 million overall increase in support and cloud services revenue. This was partially offset by an increase of $7.5 million in ~~costs associated with our~~cost of support and cloud services ~~business due~~in Q1’22 compared to ~~greater demand for those services.~~Q1’21.

Professional services gross margin increased in ~~Q3’21~~Q1’22 compared to Q3’20 due to an increase in revenue, partially offset by higher compensation and outside services costs. Professional services gross margin decreased in the first nine months of FY’21 compared to the year-ago periodQ1’21, primarily due to ~~higher compensation costs and~~ the impact of the COVID-19 pandemic on Q1’21 revenue, ~~partially offset by lower travel costs.~~as well as a large fixed-price contract requiring a prior-year extension that impacted Q1’21 margins.

(Dollar amounts in millions)	Three months ended									Nine months ended									Three months ended
	June 30, 2021			June 27, 2020			Percent Change			June 30, 2021			June 27, 2020			Percent Change			December 31, 2021			December 31, 2020			Percent Change
Sales and marketing	$	134.4		$	104.6			29	%	$	388.3		$	319.6			21	%	$	125.5		$	124.7			1	%
% of total revenue		31	%		30	%					29	%		30	%					27	%		29	%
Research and development	$	78.1		$	61.4			27	%	$	221.5		$	186.7			19	%	$	80.5		$	70.8			14	%
% of total revenue		18	%		17	%					17	%		17	%					18	%		17	%
General and administrative	$	47.1		$	35.7			32	%	$	157.4		$	113.9			38	%	$	51.9		$	49.5			5	%
% of total revenue		11	%		10	%					12	%		11	%					11	%		12	%
Amortization of acquired intangible assets	$	7.5		$	7.3			3	%	$	21.7		$	21.4			2	%	$	8.5		$	6.6			30	%
% of total revenue		2	%		2	%					2	%		2	%					2	%		2	%
Restructuring and other charges, net	$	(0.1	)	$	0.1			(313	)%	$	0.6		$	32.3			(98	)%	$	34.0		$	0.2			13662	%
% of total revenue		(0	)%		0	%					0	%		3	%					7	%		0	%
Total operating expenses	$	267.0		$	209.1			28	%	$	789.5		$	673.9			17	%	$	300.4		$	251.9			19	%

Headcount increased 9%1% between ~~Q3’20~~Q1’22 and ~~Q3’21, including approximately 170 employees added as a result of the acquisition of Arena in Q2’21 .~~Q1’21.

Operating expenses in ~~Q3’21~~Q1'22 compared to operating expenses in ~~Q3’20 increased primarily due to the following:~~

~~Operating expenses in the first nine months of FY’21 compared to operating expenses in the first nine months of FY’20~~Q1'21 increased primarily due to the following:

Stock-based compensation was higher in FY’21 compared to FY’20 primarily due to higher estimated attainment under performance-based incentive compensation and more time-based awards outstanding in FY’21. Cash bonus expense was also higher in FY’21 compared to FY’20 due higher estimated attainment under the FY’21 bonus plan.

(Dollar amounts in millions)	Three months ended									Nine months ended									Three months ended
	June 30, 2021			June 27, 2020			Percent Change			June 30, 2021			June 27, 2020			Percent Change			December 31, 2021			December 31, 2020			Percent Change
Interest and debt premium expense	$	(13.2	)	$	(19.7	)		(33	)%	$	(37.6	)	$	(64.4	)		(42	)%	$	(13.0	)	$	(11.5	)		13	%

Interest expense includes interest ~~under~~on our credit facility and senior ~~notes, as well as $15 million of expense recognized in Q2’20 related to penalties for the early redemption of debt and a $3 million write-off of related debt issuance costs in Q3’20.~~notes. We had $1.5 billion of total debt at ~~June 30, 2021,~~the end of Q1’22, compared to $1.0 billion at ~~June 27, 2020. T~~hethe end of Q1’21. We borrowed $600 million under our credit facility to acquire Arena in Q2’21, $450 million of which remains outstanding. The average interest rate on borrowings outstanding was ~~approximately 3.1% and 3.4%~~3.2% during ~~the third quarter and first nine months of FY’21, respectively, and 4.0% and 4.5%~~Q1’22, compared to 3.8% during ~~the third quarter and first nine months of FY’20, respectively.~~Q1’21.

(Dollar amounts in millions)	Three months ended								Nine months ended									Three months ended
	June 30, 2021			June 27, 2020		Percent Change			June 30, 2021			June 27, 2020			Percent Change			December 31, 2021		December 31, 2020			Percent Change
Interest income	$	0.4		$	0.7		(43	)%	$	1.3		$	3.2			(59	)%	$	0.5	$	0.6			(15	)%
Other income (expense), net		(2.3	)		0.1		(2400	)%		(7.1	)		(3.4	)		109	%		5.7		(2.0	)		(386	)%
Other income (expense), net	$	(1.9	)	$	0.8		(338	)%	$	(5.8	)	$	(0.2	)		2800	%	$	6.2	$	(1.4	)		(538	)%

~~Other~~The $7.6 million increase in other income (expense), net, ~~primarily consists~~for Q1’22 compared to Q1’21 is driven by a $9.8 million unrealized gain related to an equity investment in Matterport, Inc., calculated and recorded at the end of ~~foreign currency gains and losses. In the third quarter and first nine months of FY’21,~~Q1’22, offset by foreign currency losses ~~net were $2.0~~in the quarter. We sold our investment in Matterport near the end of January 2022 (in Q2’22) for an aggregate of $39.1 million and ~~$6.1 million, respectively. In Q3’20, foreign currency gains, net were $0.2 million and in the first nine months~~recognized a loss of ~~FY’20 foreign currency losses, net were $2.3~~$48.2 million.

(Dollar amounts in millions)	Three months ended									Nine months ended									Three months ended
	June 30, 2021			June 27, 2020			Percent Change			June 30, 2021			June 27, 2020			Percent Change			December 31, 2021			December 31, 2020			Percent Change
Income before income taxes	$	58.5		$	44.5			31	%	$	222.2		$	79.3			180	%	$	55.4		$	77.4			(28	)%
Provision for income taxes	$	7.3		$	9.8			(26	)%	$	38.3		$	2.0			1779	%	$	9.3		$	53.9			(83	)%
Effective income tax rate		12	%		22	%					17	%		3	%					17	%		70	%

In ~~the third quarter~~Q1’22 and ~~first nine months of FY’21 and FY’20,~~Q1’21, our effective tax rate differed from the statutory federal income tax rate of 21% due to U.S. tax reform, our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate ~~a benefit for the revaluation of UK deferred taxes as a result of a tax rate change,~~ and the excess tax benefit related to stock-based compensation. A significant amount of our foreign earnings is generated by our subsidiaries organized in ~~Ireland.~~Ireland and the Cayman Islands. In ~~FY’21~~Q1’22 and ~~FY’20,~~Q1’21, the foreign rate differential predominantly relates to these ~~Irish~~ earnings.

In Q1’22 and Q1’21, in addition to the foreign rate differential, the effective tax rate was impacted by the ~~matters described below.~~net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.

~~Our~~In Q1’21, our results ~~for the nine months ended June 30, 2021~~also include a charge of ~~$37.3~~$35.3 million related to the effects of aan unrecognized tax ~~matter~~benefit in ~~a non-U.S. jurisdiction. See~~ ~~Note 12. Income Taxes~~the Republic of Korea (South Korea), primarily related to foreign withholding taxes, as well as the ~~Condensed Consolidated Financial Statements~~effects of ~~this Quarterly Report on Form 10-Q for additional information about this charge.~~

In the ~~first nine months of FY’21 and FY’20, we reduced our previously established U.S.~~full valuation allowance ~~by $42.3 million and $21.2 million as a result of the Arena and Onshape acquisitions, respectively.~~which was maintained against our U.S. net deferred tax assets at that time.

ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR includes orders placed under our Strategic Alliance Agreement with Rockwell Automation, including orders placed to satisfy contractual minimum commitments.

We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers. Because this measure represents the annualized value of customer contracts as of a point in time, it does not represent revenue for any particular period or remaining revenue that will be recognized in future periods.

Our non-GAAP financial measures and the reasons we use them and the reasons we exclude the items identified below are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, ~~2020.~~2021.

The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:

Free cash flow is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations.

The non-GAAP financial measures other than free cash flow exclude, as ~~applicable:~~applicable, stock-based ~~compensation;~~compensation expense; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; ~~certain~~ non-operating charges ~~described below;~~(credits); 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~~adjustments as defined in~~Non-GAAP Financial Measures~~ ~~on page 25 of~~ our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020.~~2021. In Q2’20, we incurred an early redemption interest penalty and in Q3’20, we wrote off debt issuance costs, both of which were related to the settlement of the 6.000% Senior Notes due 2024 and which are also excluded from our non-GAAP financial measures as they are non-ordinary course in nature and not included in management’s review of our results. In the first nine months of FY’21,Q1’21, we incurred tax expense related to a reserve for a South Korean tax exposure established in the quarter which is excluded from our non-GAAP financial measures as it iswas related to prior periods and not included in management’s view of Q1’21 results for comparative purposes.

We also incurred a tax benefit related to the release of a valuation allowance as a result of the Arena acquisition. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, this benefit has been excluded from our non-GAAP financial measures.

~~The items excluded from~~use these non-GAAP financial 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 ~~normally included~~not, in ~~the comparable measures calculated and presented in accordance with GAAP. Our management excludes~~our view, indicative of our core operating results. We believe that these ~~items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses~~ non-GAAP financial measures help illustrate underlying trends in ~~conjunction with~~ 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 financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP ~~results, as should investors.~~results.

The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.

(in millions, except per share amounts)	Three months ended						Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
GAAP gross margin	$	340.6		$	272.5		$	1,055.1		$	817.8		$	362.6		$	342.2
Stock-based compensation		5.1			3.2			14.0			9.2			6.0			4.4
Amortization of acquired intangible assets included in cost of revenue		8.3			6.9			21.6			20.5			6.5			6.3
Non-GAAP gross margin	$	353.9		$	282.5		$	1,090.8		$	847.5		$	375.1		$	352.9
GAAP operating income	$	73.6		$	63.4		$	265.6		$	143.9		$	62.2		$	90.3
Stock-based compensation		43.1			25.2			133.9			73.6			45.9			46.1
Amortization of acquired intangible assets		15.8			14.2			43.4			41.9			15.0			12.8
Acquisition-related and other transactional charges included in general and administrative expenses		0.6			0.7			14.8			8.1			1.1			3.9
Restructuring and other charges, net		(0.1	)		0.1			0.6			32.3			34.0			0.2
Non-GAAP operating income	$	132.9		$	103.5		$	458.3		$	299.8		$	158.1		$	153.4
GAAP net income	$	51.2		$	34.7		$	184.0		$	77.3		$	46.1		$	23.5
Stock-based compensation		43.1			25.2			133.9			73.6			45.9			46.1
Amortization of acquired intangible assets		15.8			14.2			43.4			41.9			15.0			12.8
Acquisition-related and other transactional charges included in general and administrative expenses		0.6			0.7			14.8			8.1			1.1			3.9
Restructuring and other charges, net		(0.1	)		0.1			0.6			32.3			34.0			0.2
Non-operating charges⁽¹⁾		—			3.5			—			18.5
Non-operating charges (credits) ⁽¹⁾														(9.8	)		0.0
Income tax adjustments⁽²⁾		(12.5	)		(6.2	)		(37.1	)		(45.0	)		(19.2	)		27.2
Non-GAAP net income	$	98.0		$	72.0		$	339.6		$	206.7		$	113.1		$	113.7
GAAP diluted earnings per share	$	0.43		$	0.30		$	1.56		$	0.67		$	0.39		$	0.20
Stock-based compensation		0.36			0.22			1.13			0.63			0.39			0.39
Amortization of acquired intangible assets		0.13			0.12			0.37			0.36			0.13			0.11
Acquisition-related and other transactional charges included in general and administrative expenses		0.01			0.01			0.13			0.07			0.01			0.03
Restructuring and other charges, net		—			—			—			0.28			0.29			—
Non-operating charges⁽¹⁾		—			0.03			—			0.16
Non-operating charges (credits) ⁽¹⁾														(0.08	)		0.00
Income tax adjustments⁽²⁾		(0.11	)		(0.05	)		(0.31	)		(0.39	)		(0.16	)		0.23
Non-GAAP diluted earnings per share	$	0.83		$	0.62		$	2.87		$	1.78		$	0.95		$	0.97

	Three months ended						Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
GAAP operating margin		16.9	%		18.0	%		20.0	%		13.5	%		13.6	%		21.1	%
Stock-based compensation		9.9	%		7.2	%		10.1	%		6.9	%		10.0	%		10.7	%
Amortization of acquired intangible assets		3.6	%		4.0	%		3.3	%		3.9	%		3.3	%		3.0	%
Acquisition-related and other transactional charges included in general and administrative expenses		0.1	%		0.2	%		1.1	%		0.8	%		0.2	%		0.9	%
Restructuring and other charges, net		0.0	%		0.0	%		0.0	%		3.0	%		7.4	%		0.1	%
Non-GAAP operating margin		30.5	%		29.4	%		34.5	%		28.1	%		34.5	%		35.8	%

The financial information included in Item 1 reflects no material changes in our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimates in Part II,

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2020~~2021 Annual Report on Form 10-K.

In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accounting pronouncements.

(in millions)	June 30, 2021			September 30, 2020			December 31, 2021			September 30, 2021
Cash and cash equivalents	$	365.8		$	275.5		$	296.1		$	326.5
Restricted cash		0.5			0.5			0.5			0.5
Short- and long-term marketable securities		—			59.1
Total	$	366.3		$	335.1		$	296.6		$	327.0

(in millions)	Nine months ended						Three months ended
	June 30, 2021			June 27, 2020			December 31, 2021			December 31, 2020
Net cash provided by operating activities	$	323.5		$	199.8		$	137.7		$	113.8
Net cash used in investing activities	$	(674.8	)	$	(497.0	)
Net cash provided by financing activities	$	440.0		$	408.5
Net cash provided by investing activities							$	2.7		$	46.7
Net cash used in financing activities							$	(169.1	)	$	(42.8	)

We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. ~~In December 2020, we sold all our marketable securities. At June 30, 2021, cash and cash equivalents totaled $366 million, compared to $275 million at September 30, 2020~~.

A significant portion of our cash is generated and held outside the U.S. As of ~~June 30,~~December 31, 2021, we had cash and cash equivalents of ~~$37~~$55 million in the U.S., ~~$122~~$75 million in Europe, ~~$168~~$139 million in Asia Pacific (including India) and ~~$39~~$27 million in other non-U.S. countries. We have substantial cash requirements in the U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, our ability to repatriate cash to the U.S. more cost effectively with the recent U.S. tax law changes, future U.S. operating cash flows and cash available under our credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.

Cash provided by operating activities was ~~$323~~$138 million in ~~the first nine months of FY’21,~~Q1’22, compared to ~~$200~~$114 million in ~~the first nine months of FY’20.Cash from operations for the first nine months of FY’21 includes $13.7 million of restructuring payments and $14.8 million of acquisition-related paymentscompared to $33.8 million of restructuring payments and $8.8 million of acquisition-related payments in the prior-year period.~~Q1’21. The increase in cash from operations in ~~the first nine months of FY’21~~Q1’22 compared to ~~the same period in FY’20~~Q1’21 was primarily driven by ~~increased~~an increase in collections, ~~and the contribution from Arena,~~ offset by ~~a one-time $17.9~~higher salary and salary-related payments. Cash from operations for Q1’22 includes $11 million ~~tax payment~~of restructuring payments, compared to $7 million of restructuring payments in the year-ago period. Q1’21 cash from operations also included $3 million of acquisition-related payments.

Cash provided by investing activities in Q1’22 reflects settlement of net investment hedges of $6.5 million. Cash provided in investing activities in Q1’21 reflects proceeds from the sale of marketable securities of $56 million.

Net cash outflows related to financing activities in Q1’22 include the ~~prior period tax exposure from a non-U.S. tax dispute, and higher compensation payments.~~repurchase of $120 million of common stock. We were committed to repurchasing an additional $5 million of common stock as of December 31, 2021, which settled in early January 2022 (Q2’22).

~~Cash used in investing activities in the first nine months of FY’21 reflects approximately $715 million used for the Arena acquisition and~~ ~~$56 million in proceeds from the sale of marketable securities. Cash used in investing activities in the first nine months of FY’20 reflects $469 million used for the Onshape acquisition.~~

Cash provided by financing activities in the first nine months of FY’21 reflects net borrowings of $472 million under our credit facility, compared to net borrowings of $465 million in the first nine months of FY’20, primarily related to the issuance of the 4.000% Senior Notes due 2028 and 3.625% Senior Notes due 2025 in Q2’20 and repayment of the 6.000% Senior Notes due 2024 in Q3’20.

As of ~~June 30,~~December 31, 2021, we were in compliance with all financial and operating covenants of the credit facility and the note indentures. Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.

Our credit facility and our senior notes ~~are~~ described in Note 13. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under ~~our~~the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $30 million in FY’22) through at least the next twelve months and to meet our known long-term

capital requirements. WeIn FY’22 we expect ~~additional capital expenditures of approximately $13 million for the remainder of FY’21.~~

~~We plan to continue to use available cash from operations~~ to pay ~~down borrowings under~~approximately $45 million to $50 million in restructuring cash payments related to our ~~credit facility and to resume repurchasing our shares in Q4’21.~~recently announced restructuring charge as well as previous restructuring charges.

Our expected uses and sources of cash could change, ~~payments due to us may be delayed due to the COVID-19 pandemic,~~ our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.

There have been no significant changes in our market risk exposure as described in Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our ~~2020~~2021 Annual Report on Form 10-K.

Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.

We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~June 30,~~December 31, 2021.

There was no change in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a or 15(d) of the Exchange Act that occurred during the period ended ~~June 30,~~December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Information on legal proceedings can be found in Note 15. Commitments and Contingencies – Legal ~~Proceedings~~and Regulatory Matters – 401(k) Plan of Notes to Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.

In addition to other information set forth in this report, you should carefully consider the risk factors described in Part I. Item 1A. Risk Factors in our ~~2020~~2021 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

The table below shows the shares of our common stock we repurchased in the first quarter of 2022.

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.


Massachusetts		04-2866152
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	PTC	NASDAQ Global Select Market

		Page Number
Part I—FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements:	1
	Consolidated Balance Sheets as of ~~June 30,~~December 31, 2021 and September 30, ~~2020~~2021	1
	Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~ 2020	2
	Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~ 2020	3
	Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~ 2020	4
	Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~ 2020	5
	Notes to Condensed Consolidated Financial Statements	76
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3733
Item 4.	Controls and Procedures	3733


Part II—OTHER INFORMATION
Item 1.	Legal Proceedings	3834
Item 1A.	Risk Factors	3834
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	3835
Signature		3936

(in thousands)	Employee Severance and Related Benefits			Facility Closures and Related Costs			Total
Accrual, October 1, 2019	$	298		$	30,788		$	31,086
ASC 842 adoption		0			(16,462	)		(16,462	)
Charges to operations, net		31,155			(4,391	)		26,764
Cash disbursements		(21,890	)		(3,746	)		(25,636	)
Other non-cash		0			164			164
Foreign exchange impact		165			3			168
Accrual, June 27, 2020	$	9,728		$	6,356		$	16,084

(in thousands)	~~Nine~~Three months ended ~~June 30,~~December 31, 2021
Performance-based RSUs⁽¹⁾⁽¹⁾		90163
Service-based RSUs⁽²⁾⁽²⁾		~~1,259~~623
Total Shareholder Return RSUs⁽³⁾⁽³⁾		9076


Large accelerated filer	☑	Accelerated filer	☐	Non-accelerated filer	☐	Smaller reporting company	☐
						Emerging growth company	☐

	Three months ended June 27, 2020
	Common Stock												Accumulated
	Shares			Amount			Additional Paid-In Capital			Accumulated Deficit			Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of March 28, 2020		115,695		$	1,157		$	1,536,770		$	(150,351	)	$	(113,495	)	$	1,274,081
Common stock issued for employee stock-based awards		412			4			(4	)		—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(131	)		(1	)		(9,660	)		—			—			(9,661	)
Common stock issued for employee stock purchase plan		—			—			—			—			—			—
Compensation expense from stock-based awards		—			—			25,185			—			—			25,185
Net income		—			—			—			34,678			—			34,678
Unrealized loss on net investment hedges, net of tax		—			—			—			—			(1,148	)		(1,148	)
Foreign currency translation adjustment		—			—			—			—			3,089			3,089
Unrealized gain on available-for-sale securities, net of tax		—			—			—			—			822			822
Change in pension benefits, net of tax		—			—			—			—			521			521
Balance as of June 27, 2020		115,976		$	1,160		$	1,552,291		$	(115,673	)	$	(110,211	)	$	1,327,567

	Nine months ended June 27, 2020
	Common Stock												Accumulated
	Shares			Amount			Additional Paid-In Capital			Accumulated Deficit			Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of September 30, 2019		114,899		$	1,149		$	1,502,949		$	(191,390	)	$	(110,710	)	$	1,201,998
ASU 2016-02 (ASC 842) adoption		—			—			—			(1,572	)		—			(1,572	)
Common stock issued for employee stock-based awards		1,370			14			(14	)		—			—			—
Shares surrendered by employees to pay taxes related to stock-based awards		(449	)		(4	)		(33,228	)		—			—			(33,232	)
Common stock issued for employee stock purchase plan		156			1			8,979			—			—			8,980
Compensation expense from stock-based awards		—			—			73,605			—			—			73,605
Net income		—			—			—			77,289			—			77,289
Unrealized loss on net investment hedges, net of tax		—			—			—			—			(3,790	)		(3,790	)
Foreign currency translation adjustment		—			—			—			—			2,677			2,677
Unrealized gain on available-for-sale securities, net of tax		—			—			—			—			278			278
Change in pension benefits, net of tax		—			—			—			—			1,334			1,334
Balance as of June 27, 2020		115,976		$	1,160		$	1,552,291		$	(115,673	)	$	(110,211	)	$	1,327,567

Average volatility of peer group	~~41.5~~34.67	%
Risk free interest rate	~~0.21~~0.81	%
Dividend yield	0	%

(in thousands)	Software Products		Professional Services		Total
Balance, October 1, 2020	$	1,583,316	$	42,470	$	1,625,786
Arena acquisition		562,838		0		562,838
Other acquisitions		963		400		1,363
Foreign currency translation adjustment		7,135		191		7,326
Balance, June 30, 2021	$	2,154,252	$	43,061	$	2,197,313

(in thousands)	December 31, 2021
	Fair Values
Balance, October 1, 2021	$	77,540
Unrealized gains		7,467
Reduction in discount due to lack of marketability⁽¹⁾		2,299
Balance, December 31, 2021	$	87,306

(in thousands)	September 30, 2020
	Less than twelve months					Greater than twelve months				Total
	Fair Value		Gross unrealized loss			Fair Value		Gross unrealized loss		Fair Value		Gross unrealized loss
Corporate notes/bonds	$	9,841	$	(17	)	$	0	$	0	$	9,841	$	(17	)

(in thousands)	September 30, 2020
	Amortized cost		Fair value
Due in one year or less	$	27,727	$	27,899
Due after one year through three years		31,066		31,200
Total	$	58,793	$	59,099

Weighted-average remaining lease term - operating leases	~~12.2~~11.8 years
Weighted-average remaining lease term - financing leases	~~4.3~~4.0 years
Weighted-average discount rate - operating leases		~~5.5~~5.4	%
Weighted-average discount rate - financing leases		3.0	%

Period	Total Number of Shares (or Units) Purchased		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
October 1, 2021 - October 31, 2021		—		—		—	$	970,000,047
November 1, 2021 - November 30, 2021		—		—		—	$	970,000,047
December 1, 2021- December 31, 2021		1,003,420	$	119.33		1,003,420	$	850,260,561
Total		1,003,420	$	119.33		1,003,420	$	850,260,561


3.1		Restated Articles of Organization of PTC Inc. adopted August 4, 2015 (filed as Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (File No. 0-18059) and incorporated herein by reference).

~~3.2~~3.2.1		By-Laws, as amended and restated, of PTC Inc. (filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 (File No. 0-18059) and incorporated herein by reference).

~~3.3~~3.2.2		Amendment to PTC By-Laws dated June 24, 2021 (filed as Exhibit 3.1 to our Current Report on Form 8-K filed on June 25, 2021 (File No. 0-18059) and incorporated herein by reference).

4.1		Indenture, dated as of February 13, 2020, between PTC Inc. and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

4.2		Form of 3.625% senior unsecured notes due 2025 (filed as Exhibit 4.2 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

4.3		Form of 4.000% senior unsecured notes due 2028 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).

10		Amendment No. 1 to Securities Purchase Agreement dated as of May 11, 2021 between PTC Inc. and Rockwell Automation, Inc. filed as Exhibit 10.1 to our Current Report on Form 8-K filed on May 13, 2021 (File No. 0-18059) and incorporated herein by reference).

31.1		Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

31.2		Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).

32*		Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350.

101		The following materials from PTC Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2021 ("Q3Q1 Form 10-Q") formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of ~~June 30,~~December 31, 2021 and September 30, ~~2020;~~2021; (ii) Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020; (iii) Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020; (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020; (v) Consolidated Statements of Stockholders’ Equity for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~June 27,~~December 31, 2020; and (vi) Notes to Condensed Consolidated Financial Statements.

104		The cover page of ~~the Q3~~this Q1'22 Form 10-Q formatted in Inline XBRL (included in Exhibit 101).

	PTC Inc.

	By:		/S/ KRISTIAN TALVITIE
			Kristian Talvitie Executive Vice President and Chief Financial Officer (Principal Financial Officer)