PTC Announces Q3 Results, Initiates Q4 Guidance and Maintains FY’10 Targets
Targets 35% to 40% license revenue growth in FY’10 on strength of Windchill PLM solution
NEEDHAM, Mass.— July 27, 2010 -- PTC (Nasdaq: PMTC), The Product Development Company®, today reported results for its third fiscal quarter ended July 3, 2010.
Highlights
| Ÿ | Q3 Results: Revenue of $243.0 million and non-GAAP EPS of $0.21; GAAP EPS of $0.09 |
| | ° | Non-GAAP operating margin of 13.2%; GAAP operating margin of 4.9% |
| | ° | Relative to updated Q3 guidance ($230 - $240 million in revenue with $0.14 to $0.20 non-GAAP EPS), currency fluctuations did not meaningfully impact results |
| | | |
| Ÿ | Q4 Guidance: Revenue of $255 to $265 million and non-GAAP EPS of $0.30 to $0.32 |
| | ° | GAAP EPS of $0.20 to $0.22 |
| | ° | Assumes $1.25 USD / EURO, up from $1.20 assumption in previous guidance, a $3 million positive impact to revenue in Q4 and a $1 million negative impact to expense |
| | | |
| Ÿ | FY 2010 Targets: Maintaining revenue target of $1 billion and non-GAAP EPS of $1.00 |
| | ° | GAAP EPS of $0.50 |
| | ° | Maintaining license revenue growth target of 35% to 40% year-over-year growth |
| | ° | Non-GAAP operating margin of 16%; GAAP operating margin of 7.5% |
The Q3 non-GAAP results exclude $11.5 million of stock-based compensation expense, $8.5 million of acquisition- related intangible asset amortization and $6.1 million of income tax adjustments. The Q3 results include a non-GAAP tax rate of 22% and a GAAP tax rate of 8%.
Results Commentary
C. Richard Harrison, chairman and chief executive officer, commented, “Q3 was another solid quarter for PTC with total revenue up 7% year-over-year and license revenue up 37%. Our revenue performance was above the high-end of our expectations, driven primarily by continued strength of our PLM business.” On a constant currency basis total Q3 revenue was up 8% and license revenue was up 39% compared to the year ago period.
“Our PLM license revenue in Q3 was $36.5 million, up 63% year-over-year, continuing to highlight our leadership position in a large and growing segment of the enterprise software market,” continued Harrison. “Our pipeline for new business opportunities with new and existing customers remains strong. During the quarter we recognized revenue from leading organizations such as BAE, Compal Electronics, Continental AG, Fresenius Medical Care, Harman Becker, Kuhn, Lenovo, NASA, Samsung, and the United States Navy.”
James Heppelmann, president and chief operating officer added, “Our continued revenue momentum in the PLM market is further bolstered by an additional 2 ‘domino’ account wins during Q3. Since 2009, we have won 15 strategically important domino accounts, all of which are large multinational companies who have chosen to standardize their PLM initiatives on our Windchill platform. Dominoes represent the largest of the many competitive displacement opportunities we are pursuing, and we believe they are a clear indicator of our momentum in the PLM market. They also demonstrate that PTC is gaining share and becoming recognized as the industry leader for both our technology and product development process expertise. We are further engaged in more than 250 other opportunities world-wid e with companies that are looking to replace their existing PLM solution to help improve their competitive position in their own markets.”
“We are very optimistic about the long-term opportunity for PTC and are committed to achieving our goal of a 20% non-GAAP EPS CAGR over the next 5 years,” continued Heppelmann. “Based on the market momentum we are seeing, the strength of our pipeline and our increased sales capacity, we continue to be excited about our FY’11 growth opportunity. We will provide formal FY’11 guidance when we issue our Q4 results in October.”
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Neil Moses, chief financial officer, commented, “In addition to strong license revenue performance in Q3, our maintenance and services revenue were essentially flat on a year-over-year basis, indicating that the impact of the soft license sales in 2009 is bottoming. We also saw modest license growth in both our CAD and SMB businesses, which we view as a sign of recovery in those markets. Our balance sheet remains solid with $219 million of cash. During Q3 we repurchased $15 million worth of our stock and repaid the remaining outstanding balance on our revolving credit facility.”
Outlook Commentary
“Looking forward to the remainder of FY’10, our Q3 results give us increased confidence in our ability to meet our
full-year revenue target of $1 billion and non-GAAP EPS target of $1.00,” continued Moses. “We have raised our currency assumption from $1.20 USD/EURO to $1.25 USD/EURO, which positively impacts revenue by approximately $3 million and negatively impacts expense by approximately $1 million for Q4’10. We are maintaining our full year license revenue growth expectations of 35% to 40% year over year, with our combined maintenance and services businesses expected to be down modestly on a year-over-year basis.”
“We are maintaining our non-GAAP operating margin target of 16%,” continued Moses, “as we intend to continue to invest in our business to leverage our technology leadership position and capitalize on our long-term growth opportunity.” For FY’10 the GAAP operating margin target is 7.5% and the GAAP EPS target is $0.50.
The FY’10 targets assume a non-GAAP tax rate of 25%, a GAAP tax rate of 16% and 120 million diluted shares outstanding. The FY’10 non-GAAP guidance excludes approximately $49 million of stock-based compensation expense, $34 million of acquisition-related intangible asset amortization and $27 million of related income tax effects.
“For Q4 we are initiating guidance of $255 to $265 million in revenue with non-GAAP EPS of $0.30 to $0.32,” Moses added. “We are expecting approximately 20% year-over-year growth in our license revenue in Q4, with our combined services and maintenance businesses essentially flat resulting in 5% year-over-year growth in total revenue.” The Q4 GAAP EPS target is $0.20 - $0.22.
The Q4 guidance assumes a non-GAAP tax rate of 25%, a GAAP tax rate of 17% and 120 million diluted shares outstanding. The Q4 non-GAAP guidance excludes approximately $11 million of stock-based compensation expense, $8 million of acquisition-related intangible asset amortization expense and $6 million of related income tax effects.
Q3 Earnings Conference Call and Webcast
Prepared remarks for the conference call have been posted to the investor relations section of our website. The prepared remarks will not be read live; the call will be primarily Q&A.
| What: | PTC Fiscal Q3 Conference Call and Webcast |
| When: | Wednesday, July 28th, 2010 at 8:30 am (ET) |
| Dial-in: | 1-888-566-8560 or 1-517-623-4768 Call Leader: Richard Harrison Passcode: PTC |
| Webcast: | www.ptc.com/for/investors.htm |
| Replay: | The audio replay of this event will be archived for public replay until 4:00 pm (CT) on August 2, 2010 |
at 1-866-515-1617 or 203-369-2026. To access the replay via webcast, please visit www.ptc.com/for/investors.htm. |
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Important Information About Non-GAAP References
PTC provides non-GAAP supplemental information to its financial results. Non-GAAP operating expenses, margin and EPS exclude stock-based compensation expense, amortization of acquired intangible assets, acquired in-process research and development expense, restructuring charges, and the related tax effects of the preceding items and any one-time tax items. We use these non-GAAP measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals, communicated internally and externall y, for managing our business and evaluating our performance. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to the results of peer companies. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. However, non-GAAP information should not be construed as an alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTC’s financial results. Management uses, and investors should consider, non-GAAP measures in conjunction with our GAAP results.
Forward-Looking Statements
Statements in this press release that are not historic facts, including statements about our fiscal 2010 and other future financial and growth expectations, anticipated tax rates, the expected impact of our planned strategic investments on our future growth, and the long-term prospects for the PLM segment of the enterprise software market are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that customers may not purchase our solutions when or at the rates we expect, the possibility the foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense, the possibility that we may not achieve the license growth rates that we expect, which cou ld result in a different mix of revenue between license, service and maintenance and could impact our EPS results, the possibility that strategic customer wins may not generate the revenue we expect, the possibility that we will experience a shortfall in revenue that causes us to decrease or eliminate planned strategic investments in our business or planned share repurchases, and the possibility that any strategic investments that we do make may not have the effects that we 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 (including restructuring charges) and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our A nnual Report on Form 10-K and our Quarterly Reports on Form 10-Q.
PTC, The Product Development Company, 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 are trademarks or registered trademarks of their respective holders.
About PTC (www.ptc.com)
PTC (Nasdaq: PMTC) provides discrete manufacturers with software and services to meet the globalization, time-to-market and operational efficiency objectives of product development. Using the company’s PLM and CAD and related solutions, organizations in the Industrial, High-Tech, Aerospace/Defense, Automotive, Retail/Consumer and Life Sciences industries are able to support key business objectives such as reducing costs and shortening lead times while creating innovative products that meet customer needs and comply with industry regulations.
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| PARAMETRIC TECHNOLOGY CORPORATION |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
| (in thousands, except per share data) |
| |
| | | Three Months Ended | | Nine Months Ended |
| | | July 3, | | | July 4, | | | July 3, | | | July 4, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| Revenue: | | | | | | | | | | | | |
| License | $ | 67,498 | | $ | 49,450 | | $ | 206,958 | | $ | 142,022 | |
| Service | | 175,500 | | | 176,709 | | | 535,025 | | | 549,820 | |
| Total revenue | | 242,998 | | | 226,159 | | | 741,983 | | | 691,842 | |
| | | | | | | | | | | | | |
| Costs and expenses: | | | | | | | | | | | | |
Cost of license revenue(1) | | 7,621 | | | 7,644 | | | 24,000 | | | 22,204 | |
Cost of service revenue(1) | | 67,090 | | | 66,162 | | | 206,548 | | | 214,205 | |
Sales and marketing(1) | | 79,121 | | | 73,823 | | | 232,856 | | | 225,072 | |
Research and development(1) | | 50,597 | | | 46,562 | | | 151,247 | | | 139,675 | |
General and administrative(1) | | 22,755 | | | 19,245 | | | 69,633 | | | 58,375 | |
| Amortization of acquired intangible assets | | 3,836 | | | 3,827 | | | 11,869 | | | 11,510 | |
| In-process research and development | | -- | | | 300 | | | -- | | | 300 | |
| Restructuring charges | | -- | | | 6,609 | | | -- | | | 16,397 | |
| Total costs and expenses | | 231,020 | | | 224,172 | | | 696,153 | | | 687,738 | |
| | | | | | | | | | | | | |
| Operating income | | 11,978 | | | 1,987 | | | 45,830 | | | 4,104 | |
| Other expense, net | | (320 | ) | | (491 | ) | | (1,449 | ) | | (1,812 | ) |
| Income before income taxes | | 11,658 | | | 1,496 | | | 44,381 | | | 2,292 | |
| Provision for (benefit from) income taxes | | 940 | | | (2,292 | ) | | 6,798 | | | (13,330 | ) |
| Net income | $ | 10,718 | | $ | 3,788 | | $ | 37,583 | | $ | 15,622 | |
| Earnings per share: | | | | | | | | | | | | |
| Basic | $ | 0.09 | | $ | 0.03 | | $ | 0.32 | | $ | 0.14 | |
| Weighted average shares outstanding | | 115,188 | | | 115,194 | | | 115,802 | | | 114,843 | |
| Diluted | $ | 0.09 | | $ | 0.03 | | $ | 0.31 | | $ | 0.13 | |
| Weighted average shares outstanding | | 119,003 | | | 117,074 | | | 119,996 | | | 116,691 | |
| | | | | | | | | | | | | |
| (1) | The amounts in the tables above include stock-based compensation as follows: |
| | | Three Months Ended | | | Nine Months Ended |
| | | July 3, | | July 4, | | | July 3, | | July 4, |
| | | 2010 | | 2009 | | | 2010 | | 2009 |
| | | | | | | | | | |
| Cost of license revenue | $ | 2 | $ | 11 | | $ | 21 | $ | 28 |
| Cost of service revenue | | 2,186 | | 2,055 | | | 7,007 | | 5,601 |
| Sales and marketing | | 3,471 | | 3,491 | | | 10,065 | | 8,592 |
| Research and development | | 2,252 | | 1,986 | | | 7,294 | | 5,810 |
| General and administrative | | 3,599 | | 3,969 | | | 13,270 | | 8,742 |
| Total stock-based compensation | $ | 11,510 | $ | 11,512 | | $ | 37,657 | $ | 28,773 |
| PARAMETRIC TECHNOLOGY CORPORATION |
| NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) |
| (in thousands, except per share data) |
| |
| | | Three Months Ended | | | Nine Months Ended |
| | | July 3, | | | July 4, | | | | July 3, | | | July 4, | |
| | | 2010 | | | 2009 | | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | | |
| GAAP operating income | $ | 11,978 | | $ | 1,987 | | | $ | 45,830 | | $ | 4,104 | |
| Stock-based compensation | | 11,510 | | | 11,512 | | | | 37,657 | | | 28,773 | |
Amortization of acquired intangible assets included in cost of license revenue | | 4,659 | | | 5,221 | | | | 14,485 | | | 14,592 | |
Amortization of acquired intangible assets included in cost of service revenue | | -- | | | -- | | | | -- | | | 8 | |
| Amortization of acquired intangible assets | | 3,836 | | | 3,827 | | | | 11,869 | | | 11,510 | |
| In-process research and development | | -- | | | 300 | | | | -- | | | 300 | |
| Restructuring charges | | -- | | | 6,609 | | | | -- | | | 16,397 | |
Non-GAAP operating income (2) | $ | 31,983 | | $ | 29,456 | | | $ | 109,841 | | $ | 75,684 | |
| | | | | | | | | | | | | | |
| GAAP net income | $ | 10,718 | | $ | 3,788 | | | $ | 37,583 | | $ | 15,622 | |
| Stock-based compensation | | 11,510 | | | 11,512 | | | | 37,657 | | | 28,773 | |
| Amortization of acquired intangible assets included in cost of license revenue | | 4,659 | | | 5,221 | | | | 14,485 | | | 14,592 | |
| Amortization of acquired intangible assets included in cost of service revenue | | -- | | | -- | | | | -- | | | 8 | |
| Amortization of acquired intangible assets | | 3,836 | | | 3,827 | | | | 11,869 | | | 11,510 | |
| In-process research and development | | -- | | | 300 | | | | -- | | | 300 | |
| Restructuring charges | | -- | | | 6,609 | | | | -- | | | 16,397 | |
Income tax adjustments (3) | | (6,134 | ) | | (8,325 | ) | | | (20,207 | ) | | (29,244 | ) |
| Non-GAAP net income | $ | 24,589 | | $ | 22,932 | | | $ | 81,387 | | $ | 57,958 | |
| | | | | | | | | | | | | | |
| GAAP diluted earnings per share | $ | 0.09 | | $ | 0.03 | | | $ | 0.31 | | $ | 0.13 | |
| Stock-based compensation | | 0.10 | | | 0.10 | | | | 0.31 | | | 0.25 | |
| All other items identified above | | 0.02 | | | 0.07 | | | | 0.06 | | | 0.12 | |
| Non-GAAP diluted earnings per share | $ | 0.21 | | $ | 0.20 | | | $ | 0.68 | | $ | 0.50 | |
| | | | | | | | | | | | | | |
| (2) | Operating margin impact of non-GAAP adjustments: |
| | | Three Months Ended | | | Nine Months Ended |
| | | July 3, | | July 4, | | | July 3, | | July 4, |
| | | 2010 | | 2009 | | | 2010 | | 2009 |
| | | | | | | | | | |
| GAAP operating margin | | 4.9% | | 0.9% | | | 6.2% | | 0.6% |
| Stock-based compensation | | 4.8% | | 5.1% | | | 5.0% | | 4.1% |
| Amortization of acquired intangibles | | 3.5% | | 4.0% | | | 3.6% | | 3.8% |
| In-process research and development | | --% | | 0.1% | | | --% | | --% |
| Restructuring charges | | --% | | 2.9% | | | --% | | 2.4% |
| Non-GAAP operating margin | | 13.2% | | 13.0% | | | 14.8% | | 10.9% |
| (3) | Reflects the tax effects of non-GAAP adjustments for the third quarter and first nine months of 2010 and 2009, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above, as well as the effect of a $7.6 million one-time tax benefit recorded in the second quarter of 2009 due to the recognition of deferred tax assets in a foreign jurisdiction. |
| PARAMETRIC TECHNOLOGY CORPORATION |
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS |
| (in thousands) |
| |
| | | July 3, | | September 30, |
| | | 2010 | | 2009 |
| | | | | |
| ASSETS | | | | |
| | | | | |
| Cash and cash equivalents | $ | 219,019 | $ | 235,122 |
| Accounts receivable, net | | 149,034 | | 166,591 |
| Property and equipment, net | | 59,473 | | 58,105 |
| Goodwill and acquired intangibles, net | | 534,009 | | 596,517 |
| Other assets | | 307,505 | | 293,877 |
| | | | | |
| Total assets | $ | 1,269,040 | $ | 1,350,212 |
| | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
| | | | | |
| Deferred revenue | $ | 258,557 | $ | 234,270 |
| Borrowings under revolving credit facility | | -- | | 57,880 |
| Other liabilities | | 275,888 | | 296,481 |
| Stockholders' equity | | 734,595 | | 761,581 |
| | | | | |
| Total liabilities and stockholders' equity | $ | 1,269,040 | $ | 1,350,212 |
| PARAMETRIC TECHNOLOGY CORPORATION | |
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| (in thousands) | |
| | |
| | |
| | | Three Months Ended | | Nine Months Ended | |
| | | July 3, | | | July 4, | | | July 3, | | | July 4, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | | | | |
Net income | $ | 10,718 | | $ | 3,788 | | $ | 37,583 | | $ | 15,622 | |
Stock-based compensation | | 11,510 | | | 11,512 | | | 37,657 | | | 28,773 | |
Depreciation and amortization | | 15,639 | | | 15,601 | | | 47,538 | | | 45,558 | |
Accounts receivable | | 2,467 | | | (9,560 | ) | | 11,228 | | | 67,455 | |
Accounts payable and accruals (4) | | 7,485 | | | 963 | | | (5,248 | ) | | (29,986 | ) |
Deferred revenue | | 16,111 | | | (9,559 | ) | | 32,564 | | | (2,700 | ) |
| In-process research and development | | -- | | | 300 | | | -- | | | 300 | |
Income taxes | | (16,551 | ) | | (18,584 | ) | | (23,049 | ) | | (53,371 | ) |
| Excess tax benefits from stock-based awards | | (4 | ) | | (13,094 | ) | | (226 | ) | | (13,094 | ) |
Other | | 2,993 | | | (5,814 | ) | | 3,029 | | | 5,646 | |
| Net cash provided (used) by operating activities | | 50,368 | | | (24,447 | ) | | 141,076 | | | 64,203 | |
| | | | | | | | | | | | | |
| Capital expenditures | | (4,582 | ) | | (8,543 | ) | | (21,684 | ) | | (23,809 | ) |
| Acquisitions of businesses, net of cash acquired | | -- | | | (24,315 | ) | | (2,087 | ) | | (32,790 | ) |
| Proceeds from (payments on) debt, net | | (31,112 | ) | | -- | | | (50,832 | ) | | (31,951 | ) |
| Repurchases of common stock | | (14,974 | ) | | -- | | | (60,046 | ) | | (9,581 | ) |
| Excess tax benefits from stock-based awards | | 4 | | | 13,094 | | | 226 | | | 13,094 | |
Other investing and financing activities (5) | | 1,397 | | | 716 | | | (11,726 | ) | | (1,694 | ) |
| Foreign exchange impact on cash | | (4,774 | ) | | 7,122 | | | (11,030 | ) | | (3,068 | ) |
| | | | | | | | | | | | | |
| Net change in cash and cash equivalents | | (3,673 | ) | | (36,373 | ) | | (16,103 | ) | | (25,596 | ) |
| Cash and cash equivalents, beginning of period | | 222,692 | | | 267,718 | | | 235,122 | | | 256,941 | |
| Cash and cash equivalents, end of period | $ | 219,019 | | $ | 231,345 | | $ | 219,019 | | $ | 231,345 | |
| (4) | Includes accounts payable, accrued expenses, and accrued compensation and benefits. |
| (5) | The three months ended July 3, 2010 and July 4, 2009 include $0.1 million and $0.1 million, respectively, for payments of withholding taxes in connection with vesting of restricted stock units and restricted stock. The nine months ended July 3, 2010 and July 4, 2009 include $20.3 million and $4.4 million, respectively, for payments of withholding taxes in connection with vesting of restricted stock units and restricted stock. |
