| Investor Contact: | | | Media Contact: | |
| Meredith Mendola | | | Nicole Rowe | |
| 781-370-6151 | | | 781-370-6369 | |
| mmendola@ptc.com | | | nrowe@ptc.com | |
PTC Reports Third Quarter Fiscal Year 2007 Results
NEEDHAM, Mass., July 25, 2007 – PTC (Nasdaq: PMTC), the Product Development Company®, today reported revenue of $225.1 million for the third quarter ended June 30, 2007, up 4% from the same period last year. Total license revenue for the third quarter of 2007 was $62.1 million, a decline of 5% from the same period last year. Results for the third quarter of 2007 reflected year-over-year revenue growth in Europe and the Pacific Rim, offset by declines in North America and Japan. Additionally, PTC delivered continued growth in its Enterprise Solutions product category, but Desktop Solutions revenue declined year over year. In the third quarter of 2007, PTC achieved the highest level of quarterly maintenance revenue in the company’s history.
“Our third quarter license revenue shortfall reflects two major factors: several large transactions that we expected but did not close and a reduction in add-on sales of Desktop Solutions in North America and Japan,” said C. Richard Harrison, president and chief executive officer. “Though our third quarter results did not meet our expectations, we continue to have confidence in the strength of the PLM market and in PTC’s competitive position. As evidenced by our record maintenance revenue in the third quarter and our revenue growth year to date, we have a large and loyal customer base that continues to benefit from the use of PTC’s differentiated solutions.”
GAAP operating income for the third quarter of 2007 was $19.8 million, compared with $13.5 million in the year-ago period. GAAP net income for the third quarter of 2007 was $87.2 million, or $0.74 per diluted share, and includes the impact of the reversal of our valuation allowance against U.S. deferred tax assets as described below, as well as a one-time tax benefit of $5.3 million due to the favorable resolution of a tax refund claim. This compares with GAAP net income of $16.9 million, or $0.15 per diluted share, in the year-ago period. Non-GAAP operating income, which excludes stock-based compensation cost, restructuring charges, acquisition-related in-process research and development expenses and amortization of acquisition-related intangible assets, was $28.9 million for the third quarter of 2007, compared with $34.4 million in the year-ago period. Non-GAAP net income, which excludes the items excluded from non-GAAP operating income and the related tax effect of those items, as well as one-time tax items, was $18.7 million for the third quarter of 2007, or $0.16 per diluted share, compared to $29.5 million in the year-ago period, or $0.26 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.
Reversal of Valuation Allowance Against U.S. Deferred Tax Assets
After concluding that its U.S. operations have achieved sustainable profitability, in the third quarter, PTC reversed its valuation allowance against deferred tax assets in the U.S. and in a foreign jurisdiction, which resulted in a $65.5 million GAAP tax benefit, as well as balance sheet adjustments to goodwill and stockholders’ equity. Non-GAAP earnings results have been fully taxed at a rate of 40% for the third quarter of 2007, versus a tax rate of about 20% applied in prior periods. PTC would have reported GAAP earnings per share of $0.19 and non-GAAP earnings per share of $0.21 had we not reversed the valuation allowance in the third quarter of 2007. Since the valuation allowance release is a non-cash adjustment, there has been no change to PTC’s cash tax rate due to the utilization of net operating loss carryforwards. We have provided more information about the impact of this change in the attached financial tables.
Cash and cash equivalents were $260 million at the end of the third fiscal quarter of 2007, up from $238 million at the end of the second fiscal quarter of 2007, in line with expectations. Cash flow from
PTC Reports Third Quarter 2007 Results
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operations was $38.9 million and $115.1 million for the third quarter and first nine months of 2007 respectively.
Third Quarter 2007 Revenue Metrics
PTC delivered the following results for the third quarter of fiscal 2007 compared to the same period last year:
| • | Total revenue growth of 4%, driven by maintenance revenue growth of 9% and training and consulting service revenue growth of 6%, partially offset by a license revenue decline of 5%; |
| • | Desktop Solutions total revenue decline of 3% to $139.0 million. License revenue declined 12% and training and consulting service revenue declined 22%. Maintenance revenue grew 7%. The license revenue decline is attributable to lower revenue from Pro/ENGINEER new seats, modules and upgrades; |
| • | Enterprise Solutions total revenue growth of 18% to $86.1 million, driven by training and consulting service revenue growth of 26%, maintenance revenue growth of 17%, and license revenue growth of 8%. Growth in license revenue was primarily attributable to sales of Windchill® PDMLink® and Windchill ProjectLink® as more customers adopt our content and process management solutions both within engineering and the enterprise; |
| • | Total reseller channel revenue growth of 3% to $47.6 million, reflecting significant growth in North America and Europe partially offset by a decline in Asia Pacific; |
| • | Revenue growth of 20% in Europe, partially offset by declines of 4% in North America and 3% in Asia Pacific. Asia-Pacific revenue reflects 9% growth in the Pacific Rim offset by an 18% decline in Japan. |
In the third quarter, PTC received orders from leading organizations, including Airbus S.A.S.; Boeing Company; China Shipbuilding Industry Corporation; Flextronics International Ltd.; HARMAN/BECKER Automotive Systems GmbH; HOERBIGER Group AG; ITT Corporation; Lenovo Group Ltd.; Lockheed Martin Corporation; Motorola, Inc.; Samsung Electronics Co., Ltd.; Schneider Electric S.A.; and Toyota Motor Corporation.
First Nine Months 2007 Revenue Metrics
PTC delivered the following results for the first nine months of fiscal 2007 compared to the same period last year:
| • | Total revenue growth of 11%, driven by license revenue growth of 12%, maintenance revenue growth of 11%, and training and consulting service revenue growth of 10%; |
| • | Desktop Solutions total revenue growth of 7%, driven by license revenue growth of 14% and maintenance revenue growth of 9%, partially offset by a training and consulting service revenue decline of 13%; |
| • | Enterprise Solutions total revenue growth of 18%, driven by training and consulting service revenue growth of 25%, maintenance revenue growth of 18%, and license revenue growth of 8%; |
| • | Total reseller channel revenue growth of 15%; |
| • | Revenue growth of 7% in North America, 18% in Europe, and 6% in Asia-Pacific. Asia-Pacific revenue growth reflects 14% growth in the Pacific Rim and a 3% decline in Japan. |
“We continue to believe we have a significant growth opportunity ahead of us, along with the industry’s best solutions to help our customers solve key product development challenges,” continued Harrison. “However, we believe it is prudent to reduce our guidance for the fourth quarter. Additionally, we remain focused on delivering operating margin and earnings growth in FY 2007 and beyond. Therefore, we are taking actions to reduce our expenses in the fourth quarter. We believe these actions will enable us to fulfill our shareholder and customer commitments to deliver non-GAAP operating margins of 20% in fiscal 2008.”
PTC Reports Third Quarter 2007 Results
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Fourth Quarter and Fiscal Year 2007 Financial Outlook
PTC’s revenue forecast for the fourth quarter of fiscal 2007 is between $240 million and $250 million. On a GAAP basis, earnings per share are expected to be between $0.15 and $0.20. The Company expects non-GAAP fourth quarter earnings per share to be between $0.23 and $0.28. These non-GAAP earnings expectations reflect the change (increase) in tax rate as a result of the reversal of the valuation allowance. The non-GAAP earnings expectations also exclude the following fourth quarter estimated expenses and their tax effects:
| • | Approximately $8.5 million of expense related to stock-based compensation |
| • | Approximately $3.5 million of acquisition-related amortization expense |
| • | Approximately $10 million of restructuring expenses related to the fourth quarter cost reduction program |
PTC expects its cash balance to be approximately $250 million at the end of the fourth quarter.
For the fiscal year ending September 30, 2007, PTC expects revenue to be between $915 million and $925 million. On a GAAP basis, earnings per share are expected to be between $1.17 and $1.22. These GAAP earnings expectations include actual tax benefits recorded in the third quarter resulting from the reversal of the valuation allowance against U.S. deferred tax assets as well as the one-time tax benefit due to the favorable resolution of a tax refund claim. The Company expects non-GAAP earnings per share to be between $0.86 and $0.91 for the fiscal year. PTC had previously expected non-GAAP earnings per share of $1.17 to $1.22. The new reduced guidance reflects the third quarter earnings shortfall and reduced fourth quarter guidance, as well as the change (increase) in tax rate as a result of the reversal of the valuation allowance for the third and fourth quarters of fiscal 2007. This tax change represents a reduction to our previous guidance of approximately $0.14. The non-GAAP earnings expectations also exclude the following full-year estimated expenses and their tax effects:
| • | Approximately $31 million of expense related to stock-based compensation |
| • | Approximately $14 million of acquisition-related amortization expense |
| • | $0.5 million of in-process research and development expenses related to the acquisition of NC Graphics |
| • | Approximately $10 million of restructuring expenses related to the fourth quarter cost reduction program |
Important Information about Non-GAAP References
References by PTC to non-GAAP operating costs and expenses, non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share refer to costs and expenses, operating income, net income or earnings per share, respectively, excluding stock-based compensation cost, amortization of acquisition-related intangible assets, and their related tax effects, as well one-time tax items, if any. GAAP requires that these costs and charges be included in costs and expenses and, accordingly, used to determine operating income and earnings per share. PTC’s management uses non-GAAP operating costs and associated non-GAAP net income (which is the basis for non-GAAP earnings per share) to make operational and investment decisions, and PTC believes that they are among several useful measures for an enhanced understanding of our operating results for a number of reasons.
First, although PTC undertakes analyses to ensure that its stock-based compensation grants are in line with peer companies and do not unduly dilute shareholders, PTC allocates these grants and measures them at the corporate level. Management excludes their financial statement effect when planning or measuring the periodic financial performance of PTC’s functional organizations since they are unrelated to our core operating metrics. Likewise, we believe that excluding amortization of intangible assets associated with acquisitions provides investors with information that helps to compare period-over-period operating
PTC Reports Third Quarter 2007 Results
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performance by highlighting the effect of acquisitions on our results of operations. In addition, PTC’s management excludes the financial statement effect of these items in creating operating budgets for PTC’s functional business units and in evaluating and compensating employees due to the fact that it is difficult to forecast these expenses. Lastly, we believe that providing non-GAAP earnings per share affords investors a view of earnings that may be more easily compared to peer companies and enables investors to consider PTC’s earnings on both a GAAP and non-GAAP basis in periods when PTC is engaged in acquisition activities or undertaking non-recurring activities.
PTC believes these non-GAAP measures aid investors’ overall understanding of PTC’s results by providing a higher degree of transparency for certain expenses, and providing a level of disclosure that helps investors understand how PTC plans and measures its own business. However, non-GAAP net income should be construed neither as an alternative to GAAP net income or earnings per share, as an indicator of our operating performance nor as a substitute for cash flow from operations as a measure of liquidity because the items excluded from the non-GAAP measures often have a material impact on PTC’s results of operations. Therefore, management uses, and investors should use, non-GAAP measures in conjunction with our reported GAAP results.
Earnings Call Webcast
PTC will provide detailed financial information and an outlook update on its third quarter fiscal year 2007 results conference call and live webcast on July 25, 2007 at 10 a.m. ET. This earnings press release and accompanying financial and operating statistics will be accessible prior to the conference call and webcast on PTC’s web site at www.ptc.com/for/investors.htm. In addition, the live webcast may be accessed at the same web address. To access the live call, please dial 888-566-8560 (in the U.S.) or +1-517-623-4768 (international). Please use passcode PTC. A replay of the call will be available until 5:00 p.m. ET on July 30, 2007. To access the replay via webcast, please visit www.ptc.com/for/investors.htm. To access the replay by phone, please dial 402-344-6812.
PTC’s unaudited consolidated statements of operations, the unaudited condensed consolidated balance sheets, and the unaudited condensed consolidated statements of cash flows for the third fiscal quarter 2007 are attached.
About PTC
PTC (Nasdaq: PMTC) provides leading product lifecycle management (PLM), content management and dynamic publishing solutions to more than 50,000 companies worldwide. PTC customers include the world's most innovative companies in manufacturing, publishing, services, government and life sciences industries. PTC is included in the S&P Midcap 400 and Russell 2000 indices. For more information on PTC, please visit http://www.ptc.com.
Statements in this news release that are not historical facts, including statements about our confidence and strategies and our expectations about revenue, profitability, results of operations, market growth and market acceptance of our products, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: (i) our conclusion that we are more likely than not to continue to achieve continued profitability in the U.S. may prove to be incorrect, in which case we may be required to again record a valuation allowance against U.S. deferred tax assets; (ii) we may be unable simultaneously to achieve our revenue goals and to implement our cost-reduction activities that are intended to improve our profitability, which could impact our fourth quarter and fiscal year earnings results and our ability to achieve 20 percent operating margins in 2008; and (iii) the other risks and uncertainties detailed from time to time in reports we file with the Securities and Exchange Commission, including our most recent reports on Forms 10-K and 10-Q.
PTC, The Product Development Company, Pro/ENGINEER, Windchill, Windchill PDMLink, Windchill ProjectLink, and all other PTC product names and logos are trademarks or registered trademarks of Parametric Technology Corporation or its subsidiaries in the United States and in other countries. All other companies referenced herein have trademarks or registered trademarks of their respective holders.
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PTC Reports Third Quarter 2007 Results
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PARAMETRIC TECHNOLOGY CORPORATION | |
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | |
(in thousands, except per share data) | |
| | | | | | |
| Three Months Ended | | Nine Months Ended | |
| June 30, | | July 1, | | June 30, | | July 1, | |
| 2007 | | 2006 | | 2007 | | 2006 | |
Revenue: | | | | | | | | |
License | $ 62,098 | | $ 65,711 | | $ 200,022 | | $ 178,852 | |
Service | 162,998 | | 150,993 | | 474,837 | | 430,564 | |
Total revenue | 225,096 | | 216,704 | | 674,859 | | 609,416 | |
| | | | | | | | |
Costs and expenses: | | | | | | | | |
Cost of license revenue(2) | 4,084 | | 2,995 | | 11,855 | | 8,187 | |
Cost of service revenue(2) | 67,673 | | 65,579 | | 204,855 | | 187,942 | |
Sales and marketing(2) | 74,573 | | 70,033 | | 215,694 | | 197,938 | |
Research and development(2) | 39,798 | | 36,905 | | 117,935 | | 107,477 | |
General and administrative(2) | 16,855 | | 18,038 | | 56,489 | | 55,706 | |
Amortization of acquired intangible assets | 1,764 | | 1,646 | | 5,440 | | 4,292 | |
In-process research and development | 544 | | 2,100 | | 544 | | 2,100 | |
Restructuring charge, net | -- | | 5,947 | | -- | | 5,947 | |
Total costs and expenses | 205,291 | | 203,243 | | 612,812 | | 569,589 | |
| | | | | | | | |
Operating income | 19,805 | | 13,461 | | 62,047 | | 39,827 | |
Other income, net | 2,268 | | 840 | | 4,396 | | 2,743 | |
Income before income taxes | 22,073 | | 14,301 | | 66,443 | | 42,570 | |
Provision for income taxes | (65,155 | ) | (2,575 | ) | (53,337 | ) | 7,427 | |
Net income | $ 87,228 | | $ 16,876 | | $ 119,780 | | $ 35,143 | |
Earnings per share:(1) | | | | | | | | |
Basic | $ 0.77 | | $ 0.15 | | $ 1.06 | | $ 0.32 | |
Weighted average shares outstanding | 113,154 | | 109,947 | | 112,610 | | 109,672 | |
Diluted | $ 0.74 | | $ 0.15 | | $ 1.02 | | $ 0.31 | |
Weighted average shares outstanding | 117,500 | | 112,871 | | 117,423 | | 112,930 | |
| | | | | | | | | | | | |
(1) | A two-for-five reverse stock split of our common stock became effective on February 28, 2006. All earnings per share and weighted-average share amounts are presented on a post-split basis. |
(2) | For each of the three and nine months ended July 1, 2006 and June 30, 2007, stock-based compensation was accounted for under SFAS 123(R), “Share-Based Payment”. The amounts in the tables above include stock-based compensation as follows: |
| Three Months Ended | | Nine Months Ended |
| June 30, | July 1, | | June 30, | July 1, |
| 2007 | 2006 | | 2007 | 2006 |
Cost of license revenue | $ 60 | $ 29 | | $ 100 | $ 96 |
Cost of service revenue | 993 | 1,969 | | 4,671 | 5,830 |
Sales and marketing | 2,035 | 2,547 | | 5,926 | 7,241 |
Research and development | 1,058 | 2,336 | | 4,529 | 6,653 |
General and administrative | 884 | 3,188 | | 7,281 | 9,453 |
Total stock-based compensation | $ 5,030 | $ 10,069 | | $ 22,507 | $ 29,273 |
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PARAMETRIC TECHNOLOGY CORPORATION | |
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) | |
(in thousands, except per share data) | |
| |
| Three Months Ended | | Nine Months Ended | |
| June 30, | | July 1, | | June 30, | | July 1, | |
| 2007 | | 2006 | | 2007 | | 2006 | |
GAAP operating income | $ 19,805 | | $ 13,461 | | $ 62,047 | | $ 39,827 | |
Stock-based compensation | 5,030 | | 10,069 | | 22,507 | | 29,273 | |
Amortization of acquired intangible assets included in cost of license revenue | 1,728 | | 1,105 | | 4,895 | | 2,649 | |
Amortization of acquired intangible assets included in cost of service revenue | 17 | | 65 | | 66 | | 169 | |
Amortization of acquired intangible assets | 1,764 | | 1,646 | | 5,440 | | 4,292 | |
In-process research and development | 544 | | 2,100 | | 544 | | 2,100 | |
Restructuring charge, net | -- | | 5,947 | | -- | | 5,947 | |
Non-GAAP operating income | $ 28,888 | | $ 34,393 | | $ 95,499 | | $ 84,257 | |
| | | | | | | | |
GAAP net income | $ 87,228 | | $ 16,876 | | $ 119,780 | | $ 35,143 | |
Stock-based compensation | 5,030 | | 10,069 | | 22,507 | | 29,273 | |
Amortization of acquired intangible assets included in cost of license revenue | 1,728 | | 1,105 | | 4,895 | | 2,649 | |
Amortization of acquired intangible assets included in cost of service revenue | 17 | | 65 | | 66 | | 169 | |
Amortization of acquired intangible assets | 1,764 | | 1,646 | | 5,440 | | 4,292 | |
In-process research and development | 544 | | 2,100 | | 544 | | 2,100 | |
Restructuring charge, net | -- | | 5,947 | | -- | | 5,947 | |
Income tax adjustments (3) | (77,638 | ) | (8,279 | ) | (79,513 | ) | (8,744 | ) |
Non-GAAP net income | $ 18,673 | | $ 29,529 | | $ 73,719 | | $ 70,829 | |
| | | | | | | | |
GAAP diluted earnings per share | $ 0.74 | | $ 0.15 | | $ 1.02 | | $ 0.31 | |
Stock-based compensation | 0.04 | | 0.09 | | 0.19 | | 0.26 | |
All other items identified above | (0.62 | ) | 0.02 | | (0.58 | ) | 0.05 | |
Non-GAAP diluted earnings per share | $ 0.16 | | $ 0.26 | | $ 0.63 | | $ 0.62 | |
| | | | | | | | |
Weighted average shares used in calculating | | | | | | | | |
Non-GAAP diluted earnings per share (4) | 117,500 | | 113,210 | | 117,423 | | 113,654 | |
| | | | | | | | | |
(3) | Reflects the tax effect of non-GAAP adjustments above, as well as the effect of one-time tax benefits due to (a) the reversal of the valuation allowance recorded in the United States and a foreign jurisdiction of $65.1 million and $0.4 million, respectively, and the favorable resolution of a tax claim of $5.3 million in the three and nine months ended June 30, 2007 and (b) the favorable resolution of tax audits in the amount of $6.1 million in the three and nine months ended July 1, 2006. |
(4) | Weighted average shares used in calculating non-GAAP diluted earnings per share for the third quarter and first nine months of 2006 include 0.3 million and 0.7 million additional shares, respectively, related to outstanding stock options assumed to be repurchased under SFAS 123(R) that would not be assumed to be repurchased under APB No. 25. |
PTC Reports Third Quarter 2007 Results
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PARAMETRIC TECHNOLOGY CORPORATION |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
(in thousands) |
| | | |
| | | |
| June 30, | | September 30, |
| 2007 | | 2006 |
| | | |
ASSETS | | | |
| | | |
Cash and cash equivalents | $ 259,956 | | $ 183,448 |
Accounts receivable, net | 171,764 | | 181,008 |
Property and equipment, net | 55,358 | | 51,603 |
Goodwill and acquired intangibles, net | 327,123 | | 327,122 |
Other assets | 239,036 | | 152,263 |
| | | |
Total assets | $ 1,053,237 | | $ 895,444 |
| | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| | | |
Deferred revenue | $ 231,376 | | $ 210,997 |
Other liabilities | 234,208 | | 246,348 |
Stockholders' equity | 587,653 | | 438,099 |
| | | |
Total liabilities and stockholders' equity | $ 1,053,237 | | $ 895,444 |
PTC Reports Third Quarter 2007 Results
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PARAMETRIC TECHNOLOGY CORPORATION |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
| | | | | | | |
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
| June 30, | | July 1, | | June 30, | | July 1, |
| 2007 | | 2006 | | 2007 | | 2006 |
| | | | | | | |
Cash flows from operating activities: | | | | | | | |
Net income | $ 87,228 | | $ 16,876 | | $ 119,780 | | $ 35,143 |
Stock-based compensation | 5,030 | | 10,069 | | 22,507 | | 29,273 |
Depreciation and amortization | 9,659 | | 8,685 | | 28,882 | | 24,809 |
Accounts receivable | 25,281 | | (5,084) | | 33,483 | | 637 |
Accounts payable and accruals(5) | (4,946) | | 3,894 | | (25,999) | | (24,942) |
Deferred revenue | 450 | | 368 | | 21,454 | | 21,679 |
In-process research and development | 544 | | 2,100 | | 544 | | 2,100 |
Income taxes (6) | (71,969) | | (19,503) | | (68,839) | | (24,572) |
Other | (12,328) | | (3,416) | | (16,740) | | (10,766) |
Net cash provided by operating activities | 38,949 | | 13,989 | | 115,072 | | 53,361 |
| | | | | | | |
Capital expenditures | (4,746) | | (4,911) | | (17,139) | | (13,065) |
Acquisitions of businesses, net of cash acquired | (10,879) | | (64,409) | | (28,518) | | (75,084) |
Financing activities | 1,140 | | 1,031 | | 5,493 | | 2,832 |
Foreign exchange impact on cash | (2,535) | | 4,028 | | 1,600 | | 1,426 |
| | | | | | | |
Net change in cash and cash equivalents | 21,929 | | (50,272) | | 76,508 | | (30,530) |
Cash and cash equivalents, beginning of period | 238,027 | | 224,165 | | 183,448 | | 204,423 |
Cash and cash equivalents, end of period | $ 259,956 | | $ 173,983 | | $ 259,956 | | $ 173,893 |
(5) | Includes accounts payable, accrued expenses, and accrued compensation and benefits. |
(6) | Net cash provided by operating activities for the three and nine months ended July 1, 2006 includes a tax payment of $9.5 million in relation to the settlement of IRS tax audits. |
