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 ☐ No
There were
PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2024
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Page Number |
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Item 1. |
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Consolidated Balance Sheets as of March 31, 2024 and September 30, 2023 |
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Consolidated Statements of Cash Flows for the six months ended March 31, 2024 and March 31, 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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March 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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Six months ended |
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March 31, |
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March 31, |
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March 31, |
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March 31, |
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Revenue: |
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License |
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$ |
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$ |
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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 charges (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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$ |
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$ |
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Earnings per share—Basic |
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$ |
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$ |
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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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$ |
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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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Six months ended |
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March 31, |
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March 31, |
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March 31, |
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March 31, |
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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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Other comprehensive income (loss), net of tax: |
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Hedge gain (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 (loss) |
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Comprehensive income |
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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.
3
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six months ended |
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March 31, |
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March 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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( |
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( |
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Operating lease liabilities |
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( |
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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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Purchases of investments |
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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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( |
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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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Proceeds from issuance of common stock |
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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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( |
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Net cash provided by (used in) financing activities |
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( |
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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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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 March 31, 2024 |
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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 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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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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Common stock issued for employee stock purchase plan |
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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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Gain 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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Foreign currency translation adjustment |
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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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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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Balance as of March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Six months ended March 31, 2024 |
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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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— |
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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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Common stock issued for employee stock purchase plan |
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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 March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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5
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Three months ended March 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 December 31, 2022 |
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$ |
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$ |
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$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Common stock issued for employee stock-based awards |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock issued for employee stock purchase plan |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Loss on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Change in defined benefit pension items, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
Six months ended March 31, 2023 |
|
|||||||||||||||||||||
|
|
Common Stock |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Additional |
|
|
Retained Earnings |
|
|
Other |
|
|
Total |
|
||||||
Balance as of September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Common stock issued for employee stock-based awards |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock issued for employee stock purchase plan |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Loss on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Change in defined benefit pension items, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
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) |
|
March 31, |
|
|
September 30, |
|
||
Short-term and long-term receivables |
|
$ |
|
|
$ |
|
||
Contract asset |
|
$ |
|
|
$ |
|
||
Deferred revenue |
|
$ |
|
|
$ |
|
||
During the six months ended March 31, 2024, 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 March 31, 2024 and
7
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 March 31, 2024, the transaction price amounts include performance obligations of $
Disaggregation of Revenue
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||
Recurring revenue(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Perpetual license |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Professional services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Our international revenue is presented based on the location of our customer. Revenue for the geographic regions in which we operate is presented below.
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||
Americas |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
3. Stock-based Compensation
The value of stock issued for vested restricted stock units (RSUs) is as follows:
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||
Stock issued for vested RSUs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 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 March 31, 2024 and September 30, 2023, we had liability-classified awards related to stock-based compensation based on a fixed monetary amount of $
8
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 |
|
|
Six months ended |
|
||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 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 and six months ended March 31, 2024 and March 31, 2023.
5. Acquisitions
Acquisition and transaction-related costs for the second quarter and first six months of 2024 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 following table outlines the 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
9
by expanding our application lifecycle management (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
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations for PTC and ServiceMax for the pro forma three and six months ended March 31, 2023. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022. Since the acquisition took place in fiscal 2023, the unaudited pro forma financial information was prepared as though ServiceMax was acquired at the beginning of fiscal 2022. The unaudited pro forma financial information for all periods presented includes adjustments to reflect certain business combination effects, including: amortization of acquired intangible assets, including the elimination of related ServiceMax expenses; acquisition-related costs incurred by both parties; reversal of certain costs incurred by ServiceMax which would not have been incurred had the acquisition occurred at the beginning of fiscal 2022; interest expense under the new combined capital structure; stock-based compensation charges; and the related tax effects as though ServiceMax was acquired as of the beginning of fiscal 2022.
The unaudited pro forma financial information for the three and six months ended March 31, 2023 presented below combines the historical results of PTC for those periods, the historical results of ServiceMax for the three months ended January 31, 2023, and the effects of the pro forma adjustments listed above.
(in thousands) |
|
Pro forma three months ended |
|
|
Pro forma six months ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2023 |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Net income |
|
$ |
|
|
$ |
|
||
10
6. Goodwill and Intangible Assets
Goodwill and acquired intangible assets consisted of the following:
(in thousands) |
|
March 31, 2024 |
|
|
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, March 31, 2024 |
$ |
|
|
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 |
|
|
Six months ended |
|
||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
Amortization of acquired intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total amortization expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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
11
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 March 31, 2024 and September 30, 2023 were as follows:
(in thousands) |
|
March 31, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(in thousands) |
|
September 30, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Convertible note |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Level 3 Investments
Convertible Note
In the fourth quarter of 2021, we invested $
12
8. Derivative Financial Instruments
We enter into foreign currency forward contracts to manage our exposure to foreign currency exchange risk 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 |
|
||||||||||
|
|
March 31, |
|
|
September 30, |
|
|
March 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 March 31, 2024 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) |
|
March 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 |
|
|
|
|
|
|
||
Australian Dollar / U.S. Dollar |
|
|
|
|
|
|
||
Hong Kong Dollar / U.S. Dollar |
|
|
|
|
|
|
||
All other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
13
The following table shows the effect of our non-designated hedges on the Consolidated Statements of Operations for the three and six months ended March 31, 2024 and March 31, 2023:
(in thousands) |
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
Location of Gain (Loss) |
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
Net realized and unrealized loss, excluding the underlying foreign currency exposure being hedged |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
In the three months ended March 31, 2024 and March 31, 2023, foreign currency losses, net were $
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 March 31, 2024 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) |
|
March 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 and six months ended March 31, 2024 and March 31, 2023:
(in thousands) |
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
Location of Gain (Loss) |
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
Gain (loss) recognized in OCI |
|
OCI |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Gain (loss) reclassified from OCI to earnings |
|
n/a |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
, excluded portion |
|
Other income (expense), net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
14
As of March 31, 2024, 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.
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 March 31, 2024:
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
||||||||||||
As of March 31, 2024 |
|
Gross |
|
|
Gross |
|
|
Net Amounts of |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
||||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
The following table sets forth the offsetting of derivative liabilities as of March 31, 2024:
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
||||||||||||
As of March 31, 2024 |
|
Gross |
|
|
Gross |
|
|
Net Amounts of |
|
|
Financial |
|
|
Cash |
|
|
Net |
|
||||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
9. Income Taxes
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
Income before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Provision for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Effective income tax rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
The effective tax rate for the six months ended March 31, 2024 was higher than the effective tax rate for the corresponding prior-year period primarily due to changes in the geographic mix of income before taxes in the various jurisdictions in which we operate as well as 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.
15
10. Debt
As of March 31, 2024 and September 30, 2023, we had the following debt obligations:
(in thousands) |
|
March 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 March 31, 2024, 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 March 31, 2024.
Credit Agreement
Our credit facility consists of (i) a $
As of March 31, 2024, 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 March 31, 2024,
Loans under the credit facility bear interest at variable rates. As of March 31, 2024, the annual rate for borrowings outstanding was
As of March 31, 2024, we were in compliance with all financial and operating covenants of the credit facility.
16
Interest
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.
17
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 investments in our solutions may not drive expansion of those solutions and/or generate the ARR and/or cash flow we expect if customers are slower to adopt those solutions than we expect or if they adopt competing solutions; other uses of cash or our credit facility limits could limit or preclude the return of 50% of free cash flow to shareholders via share 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.
18
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 and cash flow had solid growth in Q2’24 over Q2’23, benefiting from the resilience of our subscription business model and continued operating discipline in the continuing challenging selling environment.
ARR grew 11% (12% constant currency) to $2.09 billion as of the end of Q2’24 compared to Q2’23. ARR growth was driven by growth in both the CAD and PLM product groups and across all regions.
Cash provided by operating activities grew 19% to $251 million in Q2'24 compared to Q2'23. Free cash flow grew 19% to $247 million in Q2'24 compared to Q2'23. The increases in cash provided by operating activities and free cash flow in Q2'24 over Q2'23 were driven by higher collections and lower vendor disbursements, partially offset by significantly higher interest payments due to higher debt associated with our acquisition of ServiceMax, as well as higher tax and salary-related payments.
Revenue grew 11% (11% constant currency) to $603 million in Q2'24 compared to Q2'23, driven by Software revenue growth in Creo, Windchill, and Codebeamer. Operating margin increased 720 basis points in Q2'24 compared to Q2'23, reflecting higher revenue as well as continued operating discipline and the benefit of lower acquisition- and transaction-related costs.
19
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 |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Actual |
|
|
Constant |
|
||||
ARR |
|
$ |
2,088.5 |
|
|
$ |
1,882.0 |
|
|
|
11 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total recurring revenue(2) |
|
$ |
564.0 |
|
|
$ |
492.1 |
|
|
|
15 |
% |
|
|
14 |
% |
Perpetual license |
|
|
6.8 |
|
|
|
8.9 |
|
|
|
(24 |
)% |
|
|
(24 |
)% |
Professional services |
|
|
32.3 |
|
|
|
41.1 |
|
|
|
(21 |
)% |
|
|
(21 |
)% |
Total revenue |
|
|
603.1 |
|
|
|
542.2 |
|
|
|
11 |
% |
|
|
11 |
% |
Total cost of revenue |
|
|
110.1 |
|
|
|
113.5 |
|
|
|
(3 |
)% |
|
|
(3 |
)% |
Gross margin |
|
|
493.0 |
|
|
|
428.7 |
|
|
|
15 |
% |
|
|
14 |
% |
Operating expenses |
|
|
313.5 |
|
|
|
306.1 |
|
|
|
2 |
% |
|
|
2 |
% |
Operating income |
|
$ |
179.6 |
|
|
$ |
122.5 |
|
|
|
47 |
% |
|
|
45 |
% |
Non-GAAP operating income(1) |
|
$ |
254.0 |
|
|
$ |
207.2 |
|
|
|
23 |
% |
|
|
21 |
% |
Operating margin |
|
|
29.8 |
% |
|
|
22.6 |
% |
|
|
|
|
|
|
||
Non-GAAP operating margin(1) |
|
|
42.1 |
% |
|
|
38.2 |
% |
|
|
|
|
|
|
||
Diluted earnings per share |
|
$ |
0.95 |
|
|
$ |
0.53 |
|
|
|
|
|
|
|
||
Non-GAAP diluted earnings per share(1) |
|
$ |
1.46 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash provided by operating activities |
|
$ |
250.7 |
|
|
$ |
210.9 |
|
|
|
|
|
|
|
||
Capital expenditures |
|
|
(3.6 |
) |
|
|
(3.8 |
) |
|
|
|
|
|
|
||
Free cash flow |
|
$ |
247.1 |
|
|
$ |
207.2 |
|
|
|
|
|
|
|
||
(Dollar amounts in millions, except per share data) |
|
Six months ended |
|
|
Percent Change |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Actual |
|
|
Constant |
|
||||
ARR |
|
$ |
2,088.5 |
|
|
$ |
1,882.0 |
|
|
|
11 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total recurring revenue(2) |
|
$ |
1,070.0 |
|
|
$ |
909.3 |
|
|
|
18 |
% |
|
|
16 |
% |
Perpetual license |
|
|
15.2 |
|
|
|
22.2 |
|
|
|
(31 |
)% |
|
|
(31 |
)% |
Professional services |
|
|
68.1 |
|
|
|
76.7 |
|
|
|
(11 |
)% |
|
|
(12 |
)% |
Total revenue |
|
|
1,153.3 |
|
|
|
1,008.1 |
|
|
|
14 |
% |
|
|
13 |
% |
Total cost of revenue |
|
|
220.1 |
|
|
|
209.3 |
|
|
|
5 |
% |
|
|
5 |
% |
Gross margin |
|
|
933.2 |
|
|
|
798.8 |
|
|
|
17 |
% |
|
|
15 |
% |
Operating expenses |
|
|
634.9 |
|
|
|
571.4 |
|
|
|
11 |
% |
|
|
11 |
% |
Operating income |
|
$ |
298.3 |
|
|
$ |
227.4 |
|
|
|
31 |
% |
|
|
27 |
% |
Non-GAAP operating income(1) |
|
$ |
453.4 |
|
|
$ |
373.2 |
|
|
|
21 |
% |
|
|
19 |
% |
Operating margin |
|
|
25.9 |
% |
|
|
22.6 |
% |
|
|
|
|
|
|
||
Non-GAAP operating margin(1) |
|
|
39.3 |
% |
|
|
37.0 |
% |
|
|
|
|
|
|
||
Diluted earnings per share |
|
$ |
1.50 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
||
Non-GAAP diluted earnings per share(1) |
|
$ |
2.57 |
|
|
$ |
2.15 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash provided by operating activities |
|
$ |
438.1 |
|
|
$ |
391.9 |
|
|
|
|
|
|
|
||
Capital expenditures |
|
|
(8.2 |
) |
|
|
(13.0 |
) |
|
|
|
|
|
|
||
Free cash flow |
|
$ |
429.9 |
|
|
$ |
378.9 |
|
|
|
|
|
|
|
||
Impact of Foreign Currency Exchange on Results of Operations
Approximately 55% of our revenue and 35% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Our constant currency disclosures are calculated by multiplying the results in local currency for the quarterly periods for FY'24 and FY'23 by the exchange rates in effect on September 30, 2023.
20
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.
Revenue by Line of Business
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
|
Six months ended |
|
|
Percent Change |
|
||||||||||||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
Actual |
|
|
Constant |
|
|
March 31, |
|
|
March 31, |
|
|
Actual |
|
|
Constant Currency |
|
||||||||
License |
|
$ |
234.3 |
|
|
$ |
197.0 |
|
|
|
19 |
% |
|
|
17 |
% |
|
$ |
418.3 |
|
|
$ |
369.7 |
|
|
|
13 |
% |
|
|
11 |
% |
Support and cloud services |
|
|
336.4 |
|
|
|
304.1 |
|
|
|
11 |
% |
|
|
10 |
% |
|
|
666.9 |
|
|
|
561.7 |
|
|
|
19 |
% |
|
|
18 |
% |
Software revenue |
|
|
570.8 |
|
|
|
501.1 |
|
|
|
14 |
% |
|
|
13 |
% |
|
|
1,085.2 |
|
|
|
931.4 |
|
|
|
17 |
% |
|
|
15 |
% |
Professional services |
|
|
32.3 |
|
|
|
41.1 |
|
|
|
(21 |
)% |
|
|
(21 |
)% |
|
|
68.1 |
|
|
|
76.7 |
|
|
|
(11 |
)% |
|
|
(12 |
)% |
Total revenue |
|
$ |
603.1 |
|
|
$ |
542.2 |
|
|
|
11 |
% |
|
|
11 |
% |
|
$ |
1,153.3 |
|
|
$ |
1,008.1 |
|
|
|
14 |
% |
|
|
13 |
% |
Software revenue growth in Q2'24 was driven by Creo, Windchill, and Codebeamer. In the first six months of FY'24, software revenue also benefited from contribution from ServiceMax, which we acquired in early Q2'23. Changes in foreign currency exchange rates were a slight tailwind to software revenue results in Q2'24 and the first six months of FY'24.
Software license revenue growth in Q2'24 reflects the timing of contract start dates as well as slightly longer average contract durations in Europe and Asia Pacific compared to Q2'23. License revenue growth for both Q2'24 and the first six months of FY'24 was driven by growth in Europe, particularly in Creo, Windchill, and Codebeamer, partially offset by license revenue decreases in the Americas, where durations of on-premises subscription contracts commencing in Q2'24 were shorter than in Q2'23.
Support and cloud services revenue growth in the first six months of FY'24 reflects contribution from ServiceMax. Support and cloud services revenue growth in Q2'24 and the first six months of FY'24 also reflects growth in Windchill, particularly in the Americas.
Professional services revenue decreased in Q2'24 and the first six months of FY'24 as we continue to 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 |
|
|
Six months ended |
|
|
Percent Change |
|
||||||||||||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
Actual |
|
|
Constant |
|
|
March 31, |
|
|
March 31, |
|
|
Actual |
|
|
Constant |
|
||||||||
PLM |
|
$ |
343.6 |
|
|
$ |
304.7 |
|
|
|
13 |
% |
|
|
12 |
% |
|
$ |
658.3 |
|
|
$ |
550.0 |
|
|
|
20 |
% |
|
|
18 |
% |
CAD |
|
|
227.2 |
|
|
|
196.4 |
|
|
|
16 |
% |
|
|
15 |
% |
|
|
426.9 |
|
|
|
381.4 |
|
|
|
12 |
% |
|
|
11 |
% |
Software revenue |
|
$ |
570.8 |
|
|
$ |
501.1 |
|
|
|
14 |
% |
|
|
13 |
% |
|
$ |
1,085.2 |
|
|
$ |
931.4 |
|
|
|
17 |
% |
|
|
15 |
% |
PLM software revenue growth in Q2'24 was driven by growth in Europe, particularly in Windchill and Codebeamer. PLM software revenue growth in the first six months of FY'24 also benefited from the
21
contribution from ServiceMax: year-over-year growth for the first six months excluding Q1'24 ServiceMax revenues would have been 12% (11% constant currency).
PLM ARR grew 12% (13% constant currency) from Q2’23 to Q2'24, driven primarily by Windchill, Codebeamer, and ServiceMax.
CAD software revenue growth in Q2'24 and the first six months of FY'24 was primarily driven by Creo revenue growth in Europe and Asia Pacific. Creo growth benefited from longer durations of on-premises subscription contracts commencing in the periods.
CAD ARR grew 9% (11% constant currency) from Q2’23 to Q2’24, driven primarily by Creo.
Gross Margin
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
||||||
License gross margin |
|
$ |
223.7 |
|
|
$ |
180.0 |
|
|
|
24 |
% |
|
$ |
397.4 |
|
|
$ |
339.9 |
|
|
|
17 |
% |
License gross margin percentage |
|
|
95 |
% |
|
|
91 |
% |
|
|
|
|
|
95 |
% |
|
|
92 |
% |
|
|
|
||
Support and cloud services gross margin |
|
$ |
269.0 |
|
|
$ |
244.9 |
|
|
|
10 |
% |
|
$ |
532.5 |
|
|
$ |
452.4 |
|
|
|
18 |
% |
Support and cloud services gross margin percentage |
|
|
80 |
% |
|
|
81 |
% |
|
|
|
|
|
80 |
% |
|
|
81 |
% |
|
|
|
||
Professional services gross margin |
|
$ |
0.3 |
|
|
$ |
3.8 |
|
|
|
(93 |
)% |
|
$ |
3.3 |
|
|
$ |
6.5 |
|
|
|
(49 |
)% |
Professional services gross margin percentage |
|
|
1 |
% |
|
|
9 |
% |
|
|
|
|
|
5 |
% |
|
|
9 |
% |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total gross margin |
|
$ |
493.0 |
|
|
$ |
428.7 |
|
|
|
15 |
% |
|
$ |
933.2 |
|
|
$ |
798.8 |
|
|
|
17 |
% |
Total gross margin percentage |
|
|
82 |
% |
|
|
79 |
% |
|
|
|
|
|
81 |
% |
|
|
79 |
% |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Non-GAAP gross margin(1) |
|
$ |
507.6 |
|
|
$ |
444.3 |
|
|
|
14 |
% |
|
$ |
962.5 |
|
|
$ |
824.6 |
|
|
|
17 |
% |
Non-GAAP gross margin percentage(1) |
|
|
84 |
% |
|
|
82 |
% |
|
|
|
|
|
83 |
% |
|
|
82 |
% |
|
|
|
||
License gross margin grew at a higher rate than license revenue in Q2'24 and the first six months of FY'24 compared to the corresponding FY'23 periods due mainly to lower intangible amortization expense.
Support and cloud services gross margin growth in Q2'24 and the first six months of FY'24 compared to the corresponding FY'23 periods 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 intangible amortization expense, royalty expenses, and compensation costs.
Professional services gross margin decreased at a higher rate than professional services revenue in Q2'24 and the first six months of FY'24 compared to the corresponding FY'23 periods, primarily due to lower margins on business subcontracted to partners. The decreases in professional services revenue are due to our continued execution on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves.
22
Operating Expenses
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
||||||
Sales and marketing |
|
$ |
134.5 |
|
|
$ |
129.2 |
|
|
|
4 |
% |
|
$ |
271.4 |
|
|
$ |
247.6 |
|
|
|
10 |
% |
% of total revenue |
|
|
22 |
% |
|
|
24 |
% |
|
|
|
|
|
24 |
% |
|
|
25 |
% |
|
|
|
||
Research and development |
|
$ |
107.0 |
|
|
$ |
100.3 |
|
|
|
7 |
% |
|
$ |
212.8 |
|
|
$ |
188.5 |
|
|
|
13 |
% |
% of total revenue |
|
|
18 |
% |
|
|
19 |
% |
|
|
|
|
|
18 |
% |
|
|
19 |
% |
|
|
|
||
General and administrative |
|
$ |
61.5 |
|
|
$ |
65.9 |
|
|
|
(7 |
)% |
|
$ |
130.7 |
|
|
$ |
116.9 |
|
|
|
12 |
% |
% of total revenue |
|
|
10 |
% |
|
|
12 |
% |
|
|
|
|
|
11 |
% |
|
|
12 |
% |
|
|
|
||
Amortization of acquired intangible assets |
|
$ |
10.4 |
|
|
$ |
10.7 |
|
|
|
(2 |
)% |
|
$ |
20.8 |
|
|
$ |
18.7 |
|
|
|
11 |
% |
% of total revenue |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
2 |
% |
|
|
2 |
% |
|
|
|
||
Restructuring and other charges (credits), net |
|
$ |
(0.0 |
) |
|
$ |
0.0 |
|
|
|
(800 |
)% |
|
$ |
(0.8 |
) |
|
$ |
(0.3 |
) |
|
|
138 |
% |
% of total revenue |
|
|
(0 |
)% |
|
|
0 |
% |
|
|
|
|
|
(0 |
)% |
|
|
(0 |
)% |
|
|
|
||
Total operating expenses |
|
$ |
313.5 |
|
|
$ |
306.1 |
|
|
|
2 |
% |
|
$ |
634.9 |
|
|
$ |
571.4 |
|
|
|
11 |
% |
Total headcount increased 5% between Q2’23 and Q2’24.
Operating expenses in Q2'24 increased compared to Q2'23, primarily due to the following:
partially offset by:
Operating expenses in the first six months of FY'24 increased compared to the first six months of FY'23, due to the following:
partially offset by:
23
Interest Expense
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
||||||
Interest and debt premium expense |
|
$ |
(31.6 |
) |
|
$ |
(41.5 |
) |
|
|
(24 |
)% |
|
$ |
(66.9 |
) |
|
$ |
(57.9 |
) |
|
|
16 |
% |
Interest expense includes interest on our revolving credit facility, term loan, and our senior notes due 2025 and 2028. Interest expense decreased in Q2'24 compared to Q2'23 primarily due to lower combined debt and Deferred acquisition payments. The increase in interest expense in the first six months of FY'24 compared to the first six months of FY'23 was driven by higher total debt and higher interest rates.
Other Income (Expense)
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
||||||
Interest income |
|
$ |
1.1 |
|
|
$ |
1.5 |
|
|
|
(25 |
)% |
|
$ |
2.4 |
|
|
$ |
2.5 |
|
|
|
(4 |
)% |
Other expense, net |
|
|
(3.3 |
) |
|
|
(1.4 |
) |
|
|
(136 |
)% |
|
|
(2.4 |
) |
|
|
(4.6 |
) |
|
|
48 |
% |
Other income (expense), net |
|
$ |
(2.2 |
) |
|
$ |
0.1 |
|
|
|
(4144 |
)% |
|
$ |
(0.0 |
) |
|
$ |
(2.1 |
) |
|
|
100 |
% |
Other income (expense), net decreased in Q2'24 compared to Q1'24 driven by a $2.0 million impairment loss related to an available-for-sale debt security classified as a Level 3 investment. Other income (expense), net increased in the first six months of FY'24 compared to the first six months of FY'23 driven by a $3.8 million decrease in foreign currency exchange losses primarily related to foreign currency derivatives, partially offset by the $2.0 million impairment loss.
Income Taxes
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
Six months ended |
|
|
|
|
||||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
Percent Change |
|
||||||
Income before income taxes |
|
$ |
145.7 |
|
|
$ |
81.1 |
|
|
|
80 |
% |
|
$ |
231.3 |
|
|
$ |
167.5 |
|
|
|
38 |
% |
Provision for income taxes |
|
$ |
31.3 |
|
|
$ |
17.6 |
|
|
|
78 |
% |
|
$ |
50.5 |
|
|
$ |
29.0 |
|
|
|
74 |
% |
Effective income tax rate |
|
|
21 |
% |
|
|
22 |
% |
|
|
|
|
|
22 |
% |
|
|
17 |
% |
|
|
|
||
The effective tax rate for the first six months of FY'24 was higher than the effective tax rate for the corresponding prior-year period primarily due to changes in the geographic mix of income before taxes in the various jurisdictions in which we operate as well as a non-cash tax expense of $3.6 million related to a tax reserve in a foreign jurisdiction.
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
In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accounting pronouncements, none of which are expected to have a material effect.
24
Liquidity and Capital Resources
(in millions) |
|
March 31, 2024 |
|
|
September 30, 2023 |
|
||
Cash and cash equivalents |
|
$ |
249.0 |
|
|
$ |
288.1 |
|
Restricted cash |
|
|
0.5 |
|
|
|
0.7 |
|
Total |
|
$ |
249.5 |
|
|
$ |
288.8 |
|
|
|
|
|
|
|
|
||
(in millions) |
|
Six months ended |
|
|||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
Net cash provided by operating activities |
|
$ |
438.1 |
|
|
$ |
391.9 |
|
Net cash used in investing activities |
|
$ |
(103.9 |
) |
|
$ |
(859.7 |
) |
Net cash provided by (used in) financing activities |
|
$ |
(374.3 |
) |
|
$ |
507.0 |
|
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.
Due to the stability of our subscription model and consistency of annual, up-front billing, we aim to maintain a low cash balance. A significant portion of our cash is generated and held outside the U.S. As of March 31, 2024, we had cash and cash equivalents of $33.0 million in the U.S., $77.5 million in Europe, $120.0 million in Asia Pacific (including India) and $18.5 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 $46.2 million in the first six months of FY'24 compared to the same period in FY'23. The increase was driven by higher collections (including contribution from ServiceMax), which were partially offset by higher interest payments, salary-related payments, and vendor disbursements. Interest payments in the first six months of FY'24 were approximately $65 million higher than in the prior-year period and include the payment of $30.0 million of imputed interest on the ServiceMax deferred acquisition payment.
Cash Used in Investing Activities
Cash used in investing activities in the first six months of FY'24 was driven by the acquisition of pure-systems for $93.5 million in Q1'24. Cash used in investing activities in the first six months of FY'23 was driven by a payment of $828.2 million in Q2'23 related to the acquisition of ServiceMax.
Cash Provided by (Used in) Financing Activities
Cash used in financing activities in the first six months of FY'24 included $620.0 million paid to settle the ServiceMax deferred acquisition payment, partially offset by net borrowings of $304.1 million ($739.8 million borrowed under the revolving line of our existing credit facility, less payments of $435.7 million) to fund the ServiceMax deferred acquisition payment and the pure-systems acquisition. In the first six months of FY'24, payments of withholding taxes in connection with vesting of stock-based awards were higher than in FY'23, primarily driven by vesting of awards held by our former CEO in connection with the CEO succession in Q2'24.
Cash provided by financing activities in the first six months of FY'23 included net new borrowings of $771.0 million (a $500.0 million term loan and a $271.0 million incremental revolving line) to fund the ServiceMax acquisition and repayments of $205.0 million on the new revolving facility. Activity also included $13.4 million of credit facility origination costs.
25
Outstanding Debt
(in millions) |
|
March 31, 2024 |
|
|
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 |
|
|
514.0 |
|
|
|
202.0 |
|
Credit facility term loan |
|
|
496.9 |
|
|
|
500.0 |
|
Total debt |
|
$ |
2,010.9 |
|
|
$ |
1,702.0 |
|
Unamortized debt issuance costs for the senior notes |
|
|
(5.1 |
) |
|
|
(6.2 |
) |
Total debt, net of issuance costs |
|
$ |
2,005.7 |
|
|
$ |
1,695.8 |
|
|
|
|
|
|
|
|
||
Undrawn under credit facility revolver |
|
$ |
736.0 |
|
|
$ |
1,048.0 |
|
Undrawn under credit facility revolver available to borrow |
|
$ |
719.7 |
|
|
$ |
384.6 |
|
As of March 31, 2024, we were in compliance with all financial and operating covenants of the credit facility and the note indenture. As of March 31, 2024, the annual rate for borrowings outstanding under the credit facility was 6.9%.
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. As of March 31, 2024, $514.7 million of our debt was classified as current, including $499.1 million associated with the 2025 senior notes and related debt issuance costs which will become due in February 2025.
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 $12 million in the second half of 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, SaaS, hosting, and support contracts as of the end of the reporting period. We calculate ARR as follows:
26
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); and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 and as reflected in the reconciliation tables.
27
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 |
|
|
Six months ended |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||
GAAP gross margin |
|
$ |
493.0 |
|
|
$ |
428.7 |
|
|
$ |
933.2 |
|
|
$ |
798.8 |
|
Stock-based compensation |
|
|
5.0 |
|
|
|
5.7 |
|
|
|
10.1 |
|
|
|
9.8 |
|
Amortization of acquired intangible assets included in cost of revenue |
|
|
9.6 |
|
|
|
9.8 |
|
|
|
19.2 |
|
|
|
16.0 |
|
Non-GAAP gross margin |
|
$ |
507.6 |
|
|
$ |
444.3 |
|
|
$ |
962.5 |
|
|
$ |
824.6 |
|
GAAP operating income |
|
$ |
179.6 |
|
|
$ |
122.5 |
|
|
$ |
298.3 |
|
|
$ |
227.4 |
|
Stock-based compensation |
|
|
54.2 |
|
|
|
52.2 |
|
|
|
113.2 |
|
|
|
93.8 |
|
Amortization of acquired intangible assets |
|
|
20.0 |
|
|
|
20.5 |
|
|
|
39.9 |
|
|
|
34.7 |
|
Acquisition and transaction-related charges |
|
|
0.3 |
|
|
|
11.9 |
|
|
|
2.8 |
|
|
|
17.7 |
|
Restructuring and other charges (credits), net |
|
|
(0.0 |
) |
|
|
0.0 |
|
|
|
(0.8 |
) |
|
|
(0.3 |
) |
Non-GAAP operating income |
|
$ |
254.0 |
|
|
$ |
207.2 |
|
|
$ |
453.4 |
|
|
$ |
373.2 |
|
GAAP net income |
|
$ |
114.4 |
|
|
$ |
63.5 |
|
|
$ |
180.8 |
|
|
$ |
138.5 |
|
Stock-based compensation |
|
|
54.2 |
|
|
|
52.2 |
|
|
|
113.2 |
|
|
|
93.8 |
|
Amortization of acquired intangible assets |
|
|
20.0 |
|
|
|
20.5 |
|
|
|
39.9 |
|
|
|
34.7 |
|
Acquisition and transaction-related charges |
|
|
0.3 |
|
|
|
11.9 |
|
|
|
2.8 |
|
|
|
17.7 |
|
Restructuring and other charges (credits), net |
|
|
(0.0 |
) |
|
|
0.0 |
|
|
|
(0.8 |
) |
|
|
(0.3 |
) |
Non-operating charges(1) |
|
|
2.0 |
|
|
|
4.6 |
|
|
|
2.0 |
|
|
|
5.1 |
|
Income tax adjustments(2) |
|
|
(14.6 |
) |
|
|
(14.9 |
) |
|
|
(28.6 |
) |
|
|
(33.7 |
) |
Non-GAAP net income |
|
$ |
176.4 |
|
|
$ |
137.8 |
|
|
$ |
309.4 |
|
|
$ |
255.8 |
|
GAAP diluted earnings per share |
|
$ |
0.95 |
|
|
$ |
0.53 |
|
|
$ |
1.50 |
|
|
$ |
1.17 |
|
Stock-based compensation |
|
|
0.45 |
|
|
|
0.44 |
|
|
|
0.94 |
|
|
|
0.79 |
|
Amortization of acquired intangible assets |
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.33 |
|
|
|
0.29 |
|
Acquisition and transaction-related charges |
|
|
0.00 |
|
|
|
0.10 |
|
|
|
0.02 |
|
|
|
0.15 |
|
Restructuring and other charges (credits), net |
|
|
(0.00 |
) |
|
|
0.00 |
|
|
|
(0.01 |
) |
|
|
(0.00 |
) |
Non-operating charges(1) |
|
|
0.02 |
|
|
|
0.04 |
|
|
|
0.02 |
|
|
|
0.04 |
|
Income tax adjustments(2) |
|
|
(0.12 |
) |
|
|
(0.13 |
) |
|
|
(0.24 |
) |
|
|
(0.28 |
) |
Non-GAAP diluted earnings per share |
|
$ |
1.46 |
|
|
$ |
1.16 |
|
|
$ |
2.57 |
|
|
$ |
2.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash provided by operating activities |
|
$ |
250.7 |
|
|
$ |
210.9 |
|
|
$ |
438.1 |
|
|
$ |
391.9 |
|
Capital expenditures |
|
|
(3.6 |
) |
|
|
(3.8 |
) |
|
|
(8.2 |
) |
|
|
(13.0 |
) |
Free cash flow |
|
$ |
247.1 |
|
|
$ |
207.2 |
|
|
$ |
429.9 |
|
|
$ |
378.9 |
|
Operating margin impact of non-GAAP adjustments:
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||
GAAP operating margin |
|
|
29.8 |
% |
|
|
22.6 |
% |
|
|
25.9 |
% |
|
|
22.6 |
% |
Stock-based compensation |
|
|
9.0 |
% |
|
|
9.6 |
% |
|
|
9.8 |
% |
|
|
9.3 |
% |
Amortization of acquired intangible assets |
|
|
3.3 |
% |
|
|
3.8 |
% |
|
|
3.5 |
% |
|
|
3.4 |
% |
Acquisition and transaction-related charges |
|
|
0.1 |
% |
|
|
2.2 |
% |
|
|
0.2 |
% |
|
|
1.8 |
% |
Restructuring and other charges (credits), net |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
(0.1 |
)% |
|
|
0.0 |
% |
Non-GAAP operating margin |
|
|
42.1 |
% |
|
|
38.2 |
% |
|
|
39.3 |
% |
|
|
37.0 |
% |
28
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 March 31, 2024.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2024, we completed the first phase of the implementation of a new enterprise resource planning (“ERP”) system for our corporate operations, which included financial accounting and reporting, procurement, and payment functions. As part of the implementation, we designed new internal controls and modified and/or enhanced existing internal controls to align with the new ERP system and business processes. We do not believe this implementation has had or will have a material adverse effect on our internal control over financial reporting. There were no additional changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act that occurred during the period ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
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
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 March 31, 2024, the below Section 16 officers and directors
Name and Title of Director or Section 16 Officer |
|
Date of Adoption, Modification, or Termination |
|
of the Plan |
|
Aggregate Number of Shares of Common Stock that may be Sold under the Plan |
|
Adopted |
|
Ends |
|
|
30
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 Q2 Form 10-Q formatted in Inline XBRL (included in Exhibit 101). |
* Indicates that the exhibit is being furnished, not filed, with this report.
31
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: May 3, 2024
32