UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from_ to_
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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.
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).
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:
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
There were
PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended December 31, 2023
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Page Number |
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Item 1. |
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Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1A. |
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Item 5. |
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Item 6. |
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PART I—FINANCIAL INFORMATION
PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
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December 31, |
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September 30, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Acquired intangible assets, net |
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Deferred tax assets |
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Operating right-of-use lease assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Accrued compensation and benefits |
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Accrued income taxes |
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Current portion of long-term debt |
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Deferred acquisition payments |
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Deferred revenue |
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Short-term lease obligations |
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Total current liabilities |
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Long-term debt |
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Deferred tax liabilities |
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Long-term deferred revenue |
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Long-term lease obligations |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
1
PTC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Three months ended |
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December 31, |
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December 31, |
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Revenue: |
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License |
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$ |
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$ |
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Support and cloud services |
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Total software revenue |
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Professional services |
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Total revenue |
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Cost of revenue: |
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Cost of license revenue |
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Cost of support and cloud services revenue |
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Total cost of software revenue |
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Cost of professional services revenue |
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Total cost of revenue |
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Gross margin |
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Operating expenses: |
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Sales and marketing |
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Research and development |
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General and administrative |
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Amortization of acquired intangible assets |
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Restructuring and other credits, net |
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Total operating expenses |
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Operating income |
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Interest and debt premium expense |
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Other income (expense), net |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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$ |
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$ |
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Earnings per share—Basic |
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$ |
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$ |
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Earnings per share—Diluted |
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$ |
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$ |
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Weighted-average shares outstanding—Basic |
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Weighted-average shares outstanding—Diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
2
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
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Three months ended |
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December 31, |
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December 31, |
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Net income |
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$ |
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$ |
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Other comprehensive income, net of tax: |
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Hedge loss arising during the period, net of tax of $ |
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Foreign currency translation adjustment, net of tax of $ |
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Change in defined benefit pension items, net of tax of $ |
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Other comprehensive income |
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Comprehensive income |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
3
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three months ended |
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December 31, |
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December 31, |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of right-of-use lease assets |
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Stock-based compensation |
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Other non-cash items, net |
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Changes in operating assets and liabilities, excluding the effects of acquisitions: |
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Accounts receivable |
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Accounts payable and accrued expenses |
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Accrued compensation and benefits |
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Deferred revenue |
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Accrued income taxes |
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Other current assets and prepaid expenses |
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Operating lease liabilities |
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Other noncurrent assets and liabilities |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Additions to property and equipment |
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Acquisitions of businesses, net of cash acquired |
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Settlement of net investment hedges |
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Divestitures of businesses and assets, net |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Borrowings under credit facility |
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Repayments of borrowings under credit facility and acquired debt |
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Payments of withholding taxes in connection with stock-based awards |
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Payments of principal for financing leases |
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Credit facility origination costs |
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Payment of deferred acquisition consideration |
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Net cash used in financing activities |
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Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
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Net change in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash, beginning of period |
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Cash, cash equivalents, and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash financing and investing activities: |
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Withholding taxes in connection with stock-based awards, accrued |
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$ |
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$ |
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Operating right-of-use assets obtained in exchange for operating lease liabilities |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
PTC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
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Three months ended December 31, 2023 |
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Common Stock |
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Accumulated |
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Shares |
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Amount |
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Additional |
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Retained Earnings |
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Other |
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Total |
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Balance as of September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common stock issued for employee stock-based awards |
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— |
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— |
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— |
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Shares surrendered by employees to pay taxes related to stock-based awards |
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( |
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( |
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( |
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— |
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— |
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( |
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Compensation expense from stock-based awards |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Loss on net investment hedges, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Change in defined benefit pension items, net of tax |
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— |
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— |
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— |
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— |
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( |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three months ended December 31, 2022 |
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Common Stock |
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Accumulated |
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Shares |
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Amount |
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Additional |
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Retained Earnings |
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Other |
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Total |
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Balance as of September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common stock issued for employee stock-based awards |
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( |
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— |
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— |
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— |
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Shares surrendered by employees to pay taxes related to stock-based awards |
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( |
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( |
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( |
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— |
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— |
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( |
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Compensation expense from stock-based awards |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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Loss on net investment hedges, net of tax |
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— |
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— |
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— |
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— |
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( |
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( |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Change in defined benefit pension items, net of tax |
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— |
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— |
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— |
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— |
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( |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
5
PTC Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
General
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, 2023. 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 as of the dates and for the periods indicated. The September 30, 2023 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.
Pending Accounting Pronouncements
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU will be effective for us in 2026. We expect the adoption to result in disclosure changes only.
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU will be effective for us in 2025. We expect the adoption to result in disclosure changes only.
2. Revenue from Contracts with Customers
Receivables,
(in thousands) |
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December 31, |
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September 30, |
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Short-term and long-term receivables |
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$ |
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$ |
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Contract asset |
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$ |
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$ |
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Deferred revenue |
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$ |
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$ |
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During the three months ended December 31, 2023, we recognized $
Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the subscription with other software. As of December 31, 2023
6
and September 30, 2023, our total revenue liability was $
Remaining Performance Obligations
Our contracts with customers include transaction price amounts allocated to performance obligations that will be satisfied and recognized as revenue at a later date. As of December 31, 2023, the transaction price amounts include performance obligations of $
Disaggregation of Revenue
(in thousands) |
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Three months ended |
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December 31, 2023 |
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December 31, 2022 |
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Recurring revenue(1) |
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$ |
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$ |
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Perpetual license |
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Professional services |
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Total revenue |
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$ |
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$ |
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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) |
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Three months ended |
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December 31, |
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December 31, |
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Americas |
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$ |
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$ |
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Europe |
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Asia Pacific |
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Total revenue |
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$ |
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$ |
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3. Stock-based Compensation
The value of stock issued for restricted stock units (RSUs) vested is as follows:
(in thousands) |
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Three months ended |
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December 31, 2023 |
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December 31, 2022 |
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Stock issued for vested RSUs |
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$ |
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$ |
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Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:
(in thousands) |
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Three months ended |
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|||||
|
|
December 31, |
|
|
December 31, |
|
||
Cost of license revenue |
|
$ |
|
|
$ |
|
||
Cost of support and cloud services revenue |
|
|
|
|
|
|
||
Cost of professional services revenue |
|
|
|
|
|
|
||
Sales and marketing |
|
|
|
|
|
|
||
Research and development |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
||
As of December 31, 2023 and September 30, 2023, we had liability-classified awards related to stock-based compensation based on a fixed monetary amount of $
7
4. Earnings per Share (EPS) and Common Stock
EPS
The following table presents the calculation for both basic and diluted EPS:
(in thousands, except per share data) |
|
Three months ended |
|
|||||
|
|
December 31, |
|
|
December 31, |
|
||
Net income |
|
$ |
|
|
$ |
|
||
Weighted-average shares outstanding—Basic |
|
|
|
|
|
|
||
Dilutive effect of restricted stock units |
|
|
|
|
|
|
||
Weighted-average shares outstanding—Diluted |
|
|
|
|
|
|
||
Earnings per share—Basic |
|
$ |
|
|
$ |
|
||
Earnings per share—Diluted |
|
$ |
|
|
$ |
|
||
Anti-dilutive shares were immaterial for the three months ended December 31, 2023 and December 31, 2022.
5. Acquisitions
Acquisition and transaction-related costs in the three months ended December 31, 2023 totaled $
pure-systems
On October 4, 2023, we acquired pure-systems GmbH pursuant to a Share Purchase Agreement. Pure-systems is a leading provider of product and software variant management solutions used by manufacturing companies to efficiently manage the different versions of software and systems engineering assets. The purchase price was $
The acquisition of pure-systems has been accounted for as a business combination. Assets 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 is considered preliminary, pending finalization of the valuation of intangible assets. Additional adjustments may be recorded during the measurement period to Goodwill, intangible assets, and net tax liabilities.
The following table outlines the preliminary purchase price allocation for pure-systems:
(in thousands) |
|
|
|
Goodwill |
$ |
|
|
Customer relationships |
|
|
|
Purchased software |
|
|
|
Trademarks |
|
|
|
Net tax liability |
|
( |
) |
Acquired debt |
|
( |
) |
Other net liabilities |
|
( |
) |
Total |
$ |
|
|
The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of
8
of goodwill resulting from the purchase price allocation reflects the expected value that will be created by expanding our ALM offerings, which are included within our PLM product group.
Our results of operations for the reported periods if presented on a pro forma basis would not differ materially from our reported results.
ServiceMax
On January 3, 2023, we acquired ServiceMax, Inc. pursuant to a Share Purchase Agreement dated November 17, 2022 for $
ServiceMax develops and licenses cloud-native, product-centric field service management (FSM) software, which is included within our PLM product group. ServiceMax had approximately
6. Goodwill and Intangible Assets
Goodwill and acquired intangible assets consisted of the following:
(in thousands) |
|
December 31, 2023 |
|
|
September 30, 2023 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
|
Gross |
|
|
Accumulated |
|
|
Net Book |
|
||||||
Goodwill (not amortized) |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
Intangible assets with finite lives (amortized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Purchased software |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Capitalized software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer lists and relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trademarks and trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total intangible assets with finite lives |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total goodwill and acquired intangible assets |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
||||||
Changes in Goodwill were as follows:
(in thousands) |
|
|
|
Balance, October 1, 2023 |
$ |
|
|
Acquisitions |
|
|
|
Foreign currency translation adjustment |
|
|
|
Balance, December 31, 2023 |
$ |
|
|
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 |
|
|||||
|
|
December 31, |
|
|
December 31, |
|
||
Amortization of acquired intangible assets |
|
$ |
|
|
$ |
|
||
Cost of revenue |
|
|
|
|
|
|
||
Total amortization expense |
|
$ |
|
|
$ |
|
||
9
7. Fair Value Measurements
The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs for such valuations into three broad levels:
A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Money market funds, 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.
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 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 December 31, 2023 and September 30, 2023 were as follows:
(in thousands) |
|
December 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Convertible note |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(in thousands) |
|
September 30, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Convertible note |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
8. Derivative Financial Instruments
We enter into foreign currency forward contracts to manage our exposure to foreign currency exchange risk in order to reduce earnings volatility. We do not enter into derivative transactions for trading or speculative 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 |
|
||||||||||
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
||||
Derivative assets(1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Derivative liabilities(2): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Non-Designated Hedges
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
As of December 31, 2023 and September 30, 2023, we had outstanding forward contracts not designated as hedging instruments with notional amounts equivalent to the following:
Currency Hedged (in thousands) |
|
December 31, |
|
|
September 30, |
|
||
Canadian Dollar / U.S. Dollar |
|
$ |
|
|
$ |
|
||
Euro / U.S. Dollar |
|
|
|
|
|
|
||
British Pound / U.S. Dollar |
|
|
|
|
|
|
||
Israeli Shekel / U.S. Dollar |
|
|
|
|
|
|
||
Japanese Yen / U.S. Dollar |
|
|
|
|
|
|
||
Swiss Franc / U.S. Dollar |
|
|
|
|
|
|
||
Swedish Krona / U.S. Dollar |
|
|
|
|
|
|
||
Chinese Renminbi / U.S. Dollar |
|
|
|
|
|
|
||
New Taiwan Dollar / U.S. Dollar |
|
|
|
|
|
|
||
Korean Won / U.S. Dollar |
|
|
|
|
|
|
||
Danish Krone / U.S. Dollar |
|
|
|
|
|
|
||
All other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
11
The following table shows the effect of our non-designated hedges on the Consolidated Statements of Operations for the three months ended December 31, 2023 and December 31, 2022:
(in thousands) |
|
|
|
Three months ended |
|
|||||
|
|
Location of Gain (Loss) |
|
December 31, |
|
|
December 31, |
|
||
Net realized and unrealized loss, excluding the underlying foreign currency exposure being hedged |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net Investment Hedges
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 and Japanese Yen 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
Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of Euro and Japanese Yen 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 December 31, 2023 and September 30, 2023, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:
Currency Hedged (in thousands) |
|
December 31, |
|
|
September 30, |
|
||
Euro / U.S. Dollar |
|
$ |
|
|
$ |
|
||
Japanese Yen / U.S. Dollar |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three months ended December 31, 2023 and December 31, 2022:
(in thousands) |
|
|
|
Three months ended |
|
|||||
|
|
Location of Gain (Loss) |
|
December 31, |
|
|
December 31, |
|
||
Loss recognized in OCI |
|
OCI |
|
$ |
( |
) |
|
$ |
( |
) |
Gain (loss) reclassified from OCI to earnings |
|
n/a |
|
$ |
|
|
$ |
|
||
, excluded portion |
|
Other income (expense), net |
|
$ |
|
|
$ |
|
||
As of December 31, 2023, 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.
12
Offsetting Derivative Assets and Liabilities
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 December 31, 2023:
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
||||||||||||
As of December 31, 2023 |
|
Gross |
|
|
Gross |
|
|
Net Amounts of |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
||||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The following table sets forth the offsetting of derivative liabilities as of December 31, 2023:
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
||||||||||||
As of December 31, 2023 |
|
Gross |
|
|
Gross |
|
|
Net Amounts of |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
||||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
9. Income Taxes
(in thousands) |
|
Three months ended |
|
|||||
|
|
December 31, |
|
|
December 31, |
|
||
Income before income taxes |
|
$ |
|
|
$ |
|
||
Provision for income taxes |
|
$ |
|
|
$ |
|
||
Effective income tax rate |
|
|
% |
|
|
% |
||
The effective tax rate for the three months ended December 31, 2023 was higher than the effective tax rate for the corresponding prior-year period primarily due to a non-cash tax expense of $
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, transfer pricing, limitations on net operating losses and tax credits.
13
10. Debt
As of December 31, 2023 and September 30, 2023, we had the following debt obligations:
(in thousands) |
|
December 31, |
|
|
September 30, |
|
||
4.000% Senior notes due 2028 |
|
$ |
|
|
$ |
|
||
3.625% Senior notes due 2025 |
|
|
|
|
|
|
||
Credit facility revolver line(1)(2) |
|
|
|
|
|
|
||
Credit facility term loan(1)(2) |
|
|
|
|
|
|
||
Total debt |
|
|
|
|
|
|
||
Unamortized debt issuance costs for the senior notes(3) |
|
|
( |
) |
|
|
( |
) |
Total debt, net of issuance costs(4) |
|
$ |
|
|
$ |
|
||
Senior Unsecured Notes
In February 2020, we issued $
As of December 31, 2023, the total estimated fair value of the 2028 and 2025 notes was approximately $
We were in compliance with all the covenants for all our senior notes as of December 31, 2023.
Credit Agreement
Our credit facility consists of (i) a $
As of December 31, 2023, the fair value of our credit facility approximates its book value.
PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. As of the filing of this Form 10-Q, $
Loans under the credit facility bear interest at variable rates. As of December 31, 2023, the annual rate for borrowings outstanding was
As of December 31, 2023, we were in compliance with all financial and operating covenants of the credit facility.
14
Interest
In the three months ended December 31, 2023 and 2022, we incurred interest expense on our debt of $
11. Commitments and Contingencies
Guarantees and Indemnification Obligations
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. These agreements typically limit our liability with respect to indemnification claims other than intellectual property infringement 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. 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.
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
PTC is a global software company that provides a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced.
Our software portfolio includes award-winning offerings that enable companies to author product data (our computer-aided design (CAD) portfolio solutions) and to manage product data and orchestrate processes (our product lifecycle management (PLM) portfolio solutions).
Our software can be delivered on premises, in the cloud, or in a hybrid model. Our customers include some of the world's most innovative companies in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, retail and consumer products industries.
We generate revenue through the sale of subscriptions, which include term-based on-premises software licenses and related support, Software-as-a-Service (SaaS), and hosting services; perpetual licenses; support for perpetual licenses; and professional services (consulting, implementation, and training).
Forward-Looking Statements
Statements in this document that are not historic facts, including statements about our future financial and growth expectations 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, high interest rates or increases in interest rates and inflation, volatile foreign exchange rates and the relative strength of the U.S. dollar, tightening of credit standards and availability, the effects of the conflicts between Russia and Ukraine and in the Middle East, and growing tensions with China, any of which could cause customers to delay or reduce purchases of new software, reduce the number of subscriptions they carry, or delay payments to us, which would adversely affect ARR and/or our financial results, including cash flow; our businesses, including our ServiceMax, Codebeamer, and SaaS businesses, may not expand and/or generate the ARR and/or cash flow we expect if customers are slower to adopt those technologies than we expect or if they adopt competing technologies; our strategic initiatives and investments, including our accelerated investments in our transition to SaaS and in our ALM business, and the acquisition of ServiceMax, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to return 50% of free cash flow to shareholders via share repurchases, and other uses of cash or our credit facility limits could preclude such repurchases; and foreign exchange rates may differ materially from those 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 changes to tax laws in the U.S. and other countries and the geographic mix of our revenue, expenses, and profits. 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.
16
Operating and Non-GAAP Financial Measures
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.
Executive Overview
ARR grew 24% to $2.06 billion as of the end of Q1’24 compared to Q1’23. Organic ARR grew 13% year over year to $1.88 billion. ARR growth was driven by the contribution from the ServiceMax business acquired in Q2'23 and organic growth across all regions and in both the CAD and PLM product groups. In CAD, we delivered 11% ARR growth in Q1’24 (10% in constant currency), with the growth primarily driven by Creo. In PLM, our ARR growth was 34% (33% constant currency), with 19 points of the growth attributable to ServiceMax. Our PLM organic growth in Q1’24 was 15% (14% in constant currency), primarily driven by Windchill and supported by strong percentage growth in ALM due to Codebeamer.
Cash provided by operating activities was $187 million in Q1'24, an increase of $6 million compared to Q1'23. The increase was driven by higher collections (including contributions from ServiceMax) and lower tax payments, partially offset by higher vendor disbursements, interest payments, and salary-related payments. Q1'24 cash from operations includes $45 million of interest payments, compared to $5 million in the prior-year period. Interest payments in Q1'24 included the payment of $30 million imputed interest on the ServiceMax deferred acquisition payment. Free cash flow of $183 million in Q1'24 increased 6% from $172 million in Q1'23.
Revenue growth of 18% (16% constant currency) in Q1'24 compared to Q1'23 was driven by the contribution from ServiceMax as well as organic growth in Creo and Windchill. Interest expense was higher in Q1'24 than in Q1'23 due to higher debt balances and higher interest rates, which adversely affected our net income and earnings per share results.
In October 2023, we made a payment of $650 million to settle the ServiceMax deferred acquisition payment liability, of which $620 million was purchase consideration and $30 million was imputed interest. We financed this payment with borrowings under our revolving credit facility. We also borrowed €85 million under the revolving credit facility to fund the acquisition of pure-systems in October 2023.
17
Results of Operations
The following table shows the operating and financial measures that we consider the most significant indicators of our business performance.
(Dollar amounts in millions, except per share data) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Actual |
|
|
Constant |
|
||||
ARR |
|
$ |
2,057.2 |
|
|
$ |
1,662.6 |
|
|
|
24 |
% |
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total recurring revenue(2) |
|
$ |
506.0 |
|
|
$ |
417.1 |
|
|
|
21 |
% |
|
|
19 |
% |
Perpetual license |
|
|
8.4 |
|
|
|
13.2 |
|
|
|
(36 |
)% |
|
|
(37 |
)% |
Professional services |
|
|
35.7 |
|
|
|
35.6 |
|
|
|
1 |
% |
|
|
(1 |
)% |
Total revenue |
|
|
550.2 |
|
|
|
465.9 |
|
|
|
18 |
% |
|
|
16 |
% |
Total cost of revenue |
|
|
110.0 |
|
|
|
95.8 |
|
|
|
15 |
% |
|
|
14 |
% |
Gross margin |
|
|
440.2 |
|
|
|
370.1 |
|
|
|
19 |
% |
|
|
17 |
% |
Operating expenses |
|
|
321.5 |
|
|
|
265.2 |
|
|
|
21 |
% |
|
|
21 |
% |
Operating income |
|
$ |
118.7 |
|
|
$ |
104.9 |
|
|
|
13 |
% |
|
|
7 |
% |
Non-GAAP operating income(1) |
|
$ |
199.4 |
|
|
$ |
166.0 |
|
|
|
20 |
% |
|
|
16 |
% |
Operating margin |
|
|
21.6 |
% |
|
|
22.5 |
% |
|
|
|
|
|
|
||
Non-GAAP operating margin(1) |
|
|
36.2 |
% |
|
|
35.6 |
% |
|
|
|
|
|
|
||
Diluted earnings per share |
|
$ |
0.55 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
||
Non-GAAP diluted earnings per share(1) |
|
$ |
1.11 |
|
|
$ |
0.99 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash flow from operations |
|
$ |
187.3 |
|
|
$ |
180.9 |
|
|
|
|
|
|
|
||
Capital expenditures |
|
|
(4.6 |
) |
|
|
(9.2 |
) |
|
|
|
|
|
|
||
Free cash flow |
|
$ |
182.8 |
|
|
$ |
171.7 |
|
|
|
|
|
|
|
||
Impact of Foreign Currency Exchange on Results of Operations
Approximately 50% of our revenue and 30% 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 periods for FY'24 and FY'23 by the exchange rates in effect on September 30, 2023.
Revenue
Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, on-premises subscription) starting or renewing in any given period can have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period over period. We recognize revenue for the license portion of on-premises subscription contracts up front when we deliver the licenses to the customer, typically on the start date, and we recognize revenue on the support portion of on-premises subscription contracts and stand-alone support contracts ratably over the term. We continue to convert existing support contracts to on-premises subscriptions, resulting in a shift to up-front recognition of on-premises subscription license revenue in the period converted compared to ratable recognition for a perpetual support contract. Revenue from our cloud services (primarily SaaS) contracts is recognized ratably. We expect that over time a higher portion of our revenue will be recognized ratably as we expand our SaaS offerings, release additional cloud functionality into our products, and customers migrate from on-premises subscriptions to SaaS. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue can vary significantly.
18
Revenue by Line of Business
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
Actual |
|
|
Constant |
|
||||
License |
|
$ |
184.0 |
|
|
$ |
172.7 |
|
|
|
7 |
% |
|
|
5 |
% |
Support and cloud services |
|
|
330.5 |
|
|
|
257.7 |
|
|
|
28 |
% |
|
|
26 |
% |
Software revenue |
|
|
514.5 |
|
|
|
430.4 |
|
|
|
20 |
% |
|
|
18 |
% |
Professional services |
|
|
35.7 |
|
|
|
35.6 |
|
|
|
1 |
% |
|
|
(1 |
)% |
Total revenue |
|
$ |
550.2 |
|
|
$ |
465.9 |
|
|
|
18 |
% |
|
|
16 |
% |
Software revenue in Q1'24 benefited from contributions from ServiceMax, which was acquired in early Q2'23, and from organic growth. Changes in foreign currency exchange rates were a slight tailwind to revenue results in the period.
Within software revenue, license revenue growth was driven by growth in Asia, particularly in Creo and Windchill. Support and cloud services revenue growth was driven by the contribution from ServiceMax, as well as growth in Windchill, particularly in the Americas.
Professional services revenue was flat in Q1'24 compared to Q1'23, despite the addition of ServiceMax professional services revenue. Our expectation is that professional services revenue will continue to trend down over time as we execute on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves and as we deliver products that require fewer consulting and training services.
Software Revenue by Product Group
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
|
Actual |
|
|
Constant |
|
||||
PLM |
|
$ |
314.7 |
|
|
$ |
245.4 |
|
|
|
28 |
% |
|
|
26 |
% |
CAD |
|
|
199.8 |
|
|
|
185.0 |
|
|
|
8 |
% |
|
|
6 |
% |
Software revenue |
|
$ |
514.5 |
|
|
$ |
430.4 |
|
|
|
20 |
% |
|
|
18 |
% |
PLM software revenue growth in Q1'24 benefited from the contribution from ServiceMax. Excluding ServiceMax revenue, constant currency revenue growth was driven by Windchill, particularly in the Americas, and Codebeamer.
PLM ARR grew 34% (33% constant currency) from Q1’23 to Q1'24, driven primarily by ServiceMax, Windchill, and Codebeamer.
CAD software revenue growth was primarily driven by Creo revenue growth in Europe and Asia Pacific. Growth in Europe was driven in part by longer durations of on-premises subscription contracts.
CAD ARR grew 11% (10% constant currency) from Q1’23 to Q1’24, driven primarily by Creo.
19
Gross Margin
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Percent Change |
|
|||
License gross margin |
|
$ |
173.7 |
|
|
$ |
159.9 |
|
|
|
9 |
% |
License gross margin percentage |
|
|
94 |
% |
|
|
93 |
% |
|
|
|
|
Support and cloud services gross margin |
|
$ |
263.4 |
|
|
$ |
207.4 |
|
|
|
27 |
% |
Support and cloud services gross margin percentage |
|
|
80 |
% |
|
|
81 |
% |
|
|
|
|
Professional services gross margin |
|
$ |
3.1 |
|
|
$ |
2.7 |
|
|
|
12 |
% |
Professional services gross margin percentage |
|
|
9 |
% |
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total gross margin |
|
$ |
440.2 |
|
|
$ |
370.1 |
|
|
|
19 |
% |
Total gross margin percentage |
|
|
80 |
% |
|
|
79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Non-GAAP gross margin(1) |
|
$ |
454.8 |
|
|
$ |
380.3 |
|
|
|
20 |
% |
Non-GAAP gross margin percentage(1) |
|
|
83 |
% |
|
|
82 |
% |
|
|
|
|
License gross margin increased in Q1’24 compared to Q1’23 at a slightly higher rate than license revenue due to a decrease in Cost of license revenue, which was driven by lower intangible amortization expense.
Support and cloud services gross margin growth in Q1'24 compared to Q1'23 was in line with support and cloud services revenue growth, with costs growing at a similar rate to revenue. The main drivers of the increase to Cost of support and cloud services revenue were royalty expenses, intangible amortization expense, and compensation costs.
Professional services gross margin, like professional services revenue, was relatively flat in Q1'24 compared to Q1'23.
Operating Expenses
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Percent Change |
|
|||
Sales and marketing |
|
$ |
136.9 |
|
|
$ |
118.4 |
|
|
|
16 |
% |
% of total revenue |
|
|
25 |
% |
|
|
25 |
% |
|
|
|
|
Research and development |
|
$ |
105.8 |
|
|
$ |
88.2 |
|
|
|
20 |
% |
% of total revenue |
|
|
19 |
% |
|
|
19 |
% |
|
|
|
|
General and administrative |
|
$ |
69.2 |
|
|
$ |
51.0 |
|
|
|
36 |
% |
% of total revenue |
|
|
13 |
% |
|
|
11 |
% |
|
|
|
|
Amortization of acquired intangible assets |
|
$ |
10.4 |
|
|
$ |
8.0 |
|
|
|
29 |
% |
% of total revenue |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
Restructuring and other credits, net |
|
$ |
(0.8 |
) |
|
$ |
(0.3 |
) |
|
|
135 |
% |
% of total revenue |
|
|
(0 |
)% |
|
|
(0 |
)% |
|
|
|
|
Total operating expenses |
|
$ |
321.5 |
|
|
$ |
265.2 |
|
|
|
21 |
% |
Total headcount increased 11% between Q1’23 and Q1’24, primarily driven by our acquisition of ServiceMax.
Operating expenses in Q1'24 increased compared to Q1'23, primarily due to the following:
20
Interest Expense
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Percent Change |
|
|||
Interest and debt premium expense |
|
$ |
(35.3 |
) |
|
$ |
(16.4 |
) |
|
|
116 |
% |
Interest expense includes interest on our revolving credit facility, term loan, and our senior notes due 2025 and 2028. The increase in interest expense was driven by higher total debt and higher interest rates in Q1’24 compared to Q1’23.
Other Income (Expense)
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Percent Change |
|
|||
Interest income |
|
$ |
1.3 |
|
|
$ |
1.0 |
|
|
|
25 |
% |
Other income (expense), net |
|
|
0.9 |
|
|
|
(3.1 |
) |
|
|
130 |
% |
Other income (expense), net |
|
$ |
2.2 |
|
|
$ |
(2.1 |
) |
|
|
205 |
% |
The increase in Other income (expense), net, was driven by $1.0 million in foreign currency exchange gains in Q1'24 compared to $3.2 million in foreign currency exchange losses in Q1'23 primarily related to our foreign currency forward contracts.
Income Taxes
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
||||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
|
Percent Change |
|
|||
Income before income taxes |
|
$ |
85.6 |
|
|
$ |
86.4 |
|
|
|
(1 |
)% |
Provision for income taxes |
|
$ |
19.2 |
|
|
$ |
11.4 |
|
|
|
69 |
% |
Effective income tax rate |
|
|
22 |
% |
|
|
13 |
% |
|
|
|
|
The effective tax rate for Q1'24 was higher than the effective tax rate for Q1'23 primarily due to a non-cash tax expense of $3.6 million related to a tax reserve in a foreign jurisdiction as well as a decrease in the excess tax benefits related to stock-based compensation.
Critical Accounting Policies and Estimates
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 2023 Annual Report on Form 10-K.
Recent Accounting Pronouncements
As discussed in Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, there have been no accounting pronouncements or changes in accounting pronouncements that are expected to have a material effect on our financial statements or results.
21
Liquidity and Capital Resources
(in millions) |
|
December 31, 2023 |
|
|
September 30, 2023 |
|
||
Cash and cash equivalents |
|
$ |
265.0 |
|
|
$ |
288.1 |
|
Restricted cash |
|
|
0.5 |
|
|
|
0.7 |
|
Total |
|
$ |
265.5 |
|
|
$ |
288.8 |
|
|
|
|
|
|
|
|
||
(in millions) |
|
Three months ended |
|
|||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
Net cash provided by operating activities |
|
$ |
187.3 |
|
|
$ |
180.9 |
|
Net cash used in investing activities |
|
$ |
(105.4 |
) |
|
$ |
(20.1 |
) |
Net cash used in financing activities |
|
$ |
(112.0 |
) |
|
$ |
(54.0 |
) |
Cash, Cash Equivalents and Restricted Cash
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.
A significant portion of our cash is generated and held outside the U.S. As of December 31, 2023, we had cash and cash equivalents of $23.5 million in the U.S., $91.5 million in Europe, $129.1 million in Asia Pacific (including India) and $20.9 million in other countries. We have substantial cash requirements in the U.S. but believe that the combination of our existing U.S. cash and cash equivalents, our ability to repatriate cash to the U.S., future U.S. operating cash flows, and cash available under our revolving credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.
Cash Provided by Operating Activities
Cash provided by operating activities increased $6.4 million in Q1'24 compared to Q1'23. The increase was driven by higher collections (including contribution from ServiceMax) and lower tax payments, partially offset by higher vendor disbursements, interest payments, and salary-related payments. Q1'24 cash from operations includes $44.8 million of interest payments, compared to $4.8 million in the prior-year period. Interest payments in Q1'24 included the payment of $30 million of imputed interest on the ServiceMax deferred acquisition payment.
Cash Used In Investing Activities
Cash used in investing activities in Q1’24 was driven by the acquisition of pure-systems for $93.5 million, net of cash acquired.
Cash Used In Financing Activities
Cash used in financing activities in Q1’24 includes $620.0 million paid to settle the portion of the ServiceMax deferred acquisition payment related to purchase consideration, partially offset by net borrowings of $558.4 million ($739.8 million borrowed under the revolving line of our existing credit facility, less payments of $181.4 million) to fund the ServiceMax deferred acquisition payment and pure-systems acquisition.
22
Outstanding Debt
(in millions) |
|
December 31, 2023 |
|
|
September 30, 2023 |
|
||
4.000% Senior notes due 2028 |
|
$ |
500.0 |
|
|
$ |
500.0 |
|
3.625% Senior notes due 2025 |
|
|
500.0 |
|
|
|
500.0 |
|
Credit facility revolver line |
|
|
766.5 |
|
|
|
202.0 |
|
Credit facility term loan |
|
|
500.0 |
|
|
|
500.0 |
|
Total debt |
|
$ |
2,266.5 |
|
|
$ |
1,702.0 |
|
Unamortized debt issuance costs for the senior notes |
|
|
(5.7 |
) |
|
|
(6.2 |
) |
Total debt, net of issuance costs |
|
$ |
2,260.9 |
|
|
$ |
1,695.8 |
|
|
|
|
|
|
|
|
||
Undrawn under credit facility revolver |
|
$ |
483.5 |
|
|
$ |
1,048.0 |
|
Undrawn under credit facility revolver available to borrow |
|
$ |
470.3 |
|
|
$ |
384.6 |
|
As of December 31, 2023, we were in compliance with all financial and operating covenants of the credit facility and the note indentures. As of December 31, 2023, the annual rate for borrowings outstanding under the credit facility was 7.2%.
Our credit facility and our senior notes are described in Note 10. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Future Expectations
We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $20 million in FY'24) through at least the next twelve months and to meet our known long-term capital requirements.
For the remainder of FY'24, we expect to use substantially all our cash generated from operating activities to repay debt outstanding under our revolving credit facility.
Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we retire other 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.
Operating Measure
ARR
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. We calculate ARR as follows:
23
We believe ARR is a valuable operating measure to assess the health of a subscription business because it is aligned with the amount that we invoice the customer on an annual basis. We generally invoice customers annually for the current year of the contract. A customer with a one-year contract will typically be invoiced for the total value of the contract at the beginning of the contractual term, while a customer with a multi-year contract will be invoiced for each annual period at the beginning of each year of the contract.
ARR increases by the annualized value of active contracts that commence in a reporting period and decreases by the annualized value of contracts that expire in the reporting period.
As ARR is not annualized recurring revenue, it is not calculated based on recognized or unearned revenue and is not affected by variability in the timing of revenue under ASC 606, particularly for on-premises license subscriptions where a substantial portion of the total value of the contract is recognized as revenue at a point in time upon the later of when the software is made available, or the subscription term commences.
ARR should be viewed independently of recognized and unearned revenue and is not intended to be combined with, or to replace, either of those items. Investors should consider our ARR operating measure only in conjunction with our GAAP financial results.
Non-GAAP Financial Measures
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, 2023.
The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:
The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based compensation expense; amortization of acquired intangible assets; acquisition and transaction-related charges included in General and administrative expenses; restructuring and other charges (credits), net; non-operating charges (credits), net; and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
24
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 |
|
|||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
GAAP gross margin |
|
$ |
440.2 |
|
|
$ |
370.1 |
|
Stock-based compensation |
|
|
5.1 |
|
|
|
4.1 |
|
Amortization of acquired intangible assets included in cost of revenue |
|
|
9.6 |
|
|
|
6.1 |
|
Non-GAAP gross margin |
|
$ |
454.8 |
|
|
$ |
380.3 |
|
GAAP operating income |
|
$ |
118.7 |
|
|
$ |
104.9 |
|
Stock-based compensation |
|
|
59.0 |
|
|
|
41.5 |
|
Amortization of acquired intangible assets |
|
|
19.9 |
|
|
|
14.2 |
|
Acquisition and transaction-related charges |
|
|
2.5 |
|
|
|
5.8 |
|
Restructuring and other credits, net |
|
|
(0.8 |
) |
|
|
(0.3 |
) |
Non-GAAP operating income |
|
$ |
199.4 |
|
|
$ |
166.0 |
|
GAAP net income |
|
$ |
66.4 |
|
|
$ |
75.0 |
|
Stock-based compensation |
|
|
59.0 |
|
|
|
41.5 |
|
Amortization of acquired intangible assets |
|
|
19.9 |
|
|
|
14.2 |
|
Acquisition and transaction-related charges |
|
|
2.5 |
|
|
|
5.8 |
|
Restructuring and other credits, net |
|
|
(0.8 |
) |
|
|
(0.3 |
) |
Non-operating charges, net |
|
|
— |
|
|
|
0.5 |
|
Income tax adjustments(1) |
|
|
(14.0 |
) |
|
|
(18.7 |
) |
Non-GAAP net income |
|
$ |
133.0 |
|
|
$ |
118.0 |
|
GAAP diluted earnings per share |
|
$ |
0.55 |
|
|
$ |
0.63 |
|
Stock-based compensation |
|
|
0.49 |
|
|
|
0.35 |
|
Amortization of acquired intangible assets |
|
|
0.17 |
|
|
|
0.12 |
|
Acquisition and transaction-related charges |
|
|
0.02 |
|
|
|
0.05 |
|
Restructuring and other credits, net |
|
|
(0.01 |
) |
|
|
— |
|
Non-operating charges, net |
|
|
— |
|
|
|
— |
|
Income tax adjustments(1) |
|
|
(0.12 |
) |
|
|
(0.16 |
) |
Non-GAAP diluted earnings per share |
|
$ |
1.11 |
|
|
$ |
0.99 |
|
|
|
|
|
|
|
|
||
Cash provided by operating activities |
|
$ |
187.3 |
|
|
$ |
180.9 |
|
Capital expenditures |
|
|
(4.6 |
) |
|
|
(9.2 |
) |
Free cash flow |
|
$ |
182.8 |
|
|
$ |
171.7 |
|
Operating margin impact of non-GAAP adjustments:
|
|
Three months ended |
|
|||||
|
|
December 31, 2023 |
|
|
December 31, 2022 |
|
||
GAAP operating margin |
|
|
21.6 |
% |
|
|
22.5 |
% |
Stock-based compensation |
|
|
10.7 |
% |
|
|
8.9 |
% |
Amortization of acquired intangible assets |
|
|
3.6 |
% |
|
|
3.0 |
% |
Acquisition and transaction-related charges |
|
|
0.5 |
% |
|
|
1.2 |
% |
Restructuring and other credits, net |
|
|
(0.1 |
)% |
|
|
(0.1 |
)% |
Non-GAAP operating margin |
|
|
36.2 |
% |
|
|
35.6 |
% |
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 2023 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Effectiveness of Disclosure Controls and Procedures
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 December 31, 2023.
Changes in Internal Control over Financial Reporting
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 December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
26
PART II—OTHER INFORMATION
ITEM 1A. RISK FACTORS
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 2023 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.
ITEM 5. OTHER INFORMATION
Director and Executive Officer Adoption, Modification or Termination of 10b5-1 Plans in Q1’24
Our section 16 officers and directors may enter into plans or arrangements for the purchase or sale of our securities that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act. Such plans and arrangements must comply in all respects with our insider trading policies, including our policy governing entry into and operation of 10b5-1 plans and arrangements.
During the quarter ended December 31, 2023, the following Section 16 officers and directors
Name and Title of Director or Section 16 Officer |
|
Date of Adoption, Modification, or Termination |
|
Duration of the Plan |
|
Aggregate Number of Shares of Common Stock that may be Sold under the Plan |
|
Adopted |
|
Ends |
|
|
27
ITEM 6. EXHIBITS
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
4.2 |
|
|
|
|
|
4.3 |
|
|
|
|
|
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.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents. |
|
|
|
104 |
|
The cover page of the Q1 Form 10-Q formatted in Inline XBRL (included in Exhibit 101). |
* Indicates that the exhibit is being furnished, not filed, with this report.
28
SIGNATURE
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.
|
PTC Inc. |
|||
|
|
|
|
|
|
By: |
|
/S/ KRISTIAN TALVITIE |
|
|
|
|
Kristian Talvitie Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
Date: February 2, 2024
29