(Nasdaq: PTC) today reported results for its third fiscal quarter ended
June 28, 2014.
The Q3 non-GAAP results exclude $12.5 million of stock-based
compensation expense, $12.4 million of acquisition-related intangible
asset amortization, and $1.5 million of acquisition-related and pension
plan termination costs. The Q3 non-GAAP EPS results include a tax rate
of 19% and 120 million diluted shares outstanding.
James Heppelmann, president and chief executive officer, commented, "PTC
delivered solid operating results, with Q3 revenue at the high end of
our guidance range and non-GAAP EPS above our guidance range. License
revenue of $93 million increased 15% year over year on a constant
currency basis. From a geographic perspective, on a constant currency
basis revenue in Japan was up 20%, Europe was up 7%, the Americas were
up 1%, and the Pacific Rim was flat."
Heppelmann added, "We saw strong growth in our core CAD and PLM
businesses. CAD license revenue grew 26% year over year on a constant
currency basis driven by large deals, new seats, and sales of modules
and upgrades associated with our Creo® platform. Extended PLM
license revenue was up 7% year over year on a constant currency basis.
License revenue for our SLM business (which includes Enigma and
ThingWorx) was flat year over year on a constant currency basis. Our SLM
pipeline continues to build and we are optimistic about the growth
opportunity going forward. In addition, we continue to see bookings
growth in our ThingWorx business. We also believe that the acquisition
of Axeda, a leading provider of secure connectivity within the Internet
of Things (IoT) space, when completed, will further PTC's leadership
position in the smart, connected products arena."
Heppelmann continued, "We had 33 large deals (recognized license +
services revenue of more than $1 million) in both Q3'14 and Q3'13. The
mix of large deal revenue in Q3'14 was skewed somewhat more heavily
toward license. We had one mega deal (a transaction resulting in
recognized license revenue of over $5 million in the quarter) in Q3'14
in the Americas, compared to one mega deal in Q3'13 in Japan. During the
quarter we recognized revenue from leading organizations such as Argo
Tractors, Brother Industries, Embraer, Komatsu, Liebherr, Marks and
Spencer, Mitsubishi Electric Engineering, Raytheon, Renault, the U.S.
Department of Energy, and ZF Friedrichshafen."
Jeff Glidden, chief financial officer, commented, "From a profitability
standpoint, we delivered $0.53 non-GAAP EPS, above our guidance range,
driven by a good mix of revenue, a lower tax rate, and cost controls in
the core business, offset by investments in our Internet of Things
business. We achieved a 24.2% non-GAAP operating margin. We generated
$106 million in operating cash flow and used $60 million for stock
repurchases. We ended the quarter with $304 million cash." Q3 GAAP EPS
was $0.32 and GAAP operating margin was 16.2%.
"We are encouraged by a macroeconomic environment that appears healthier
now than it was a year ago at this time; however, we continue to see a
somewhat uncertain pace of recovery in the global manufacturing
industry, with specific concerns in China. Nevertheless, our pipeline of
opportunities continues to grow, which when combined with our expanding
solutions portfolio, and opportunity to address key customer challenges
in the IoT space, presents a compelling growth opportunity for PTC. We
remain committed to improving our non-GAAP operating margin toward our
FY'17 target range of 28% to 30%," said Heppelmann.
Glidden remarked, "For Q4'14, we are providing guidance of $340 to $355
million in revenue, which includes approximately $5 million from Atego,
which we acquired on June 30, 2014, with $95 to $110 million in license
revenue, approximately $70 million in services revenue and approximately
$175 million in support revenue. We are targeting Q4 non-GAAP EPS of
$0.59 to $0.63 and GAAP EPS of $0.39 to $0.43 (excluding the pending
acquisition of Axeda and acquisition accounting for Atego)."
The Q4 guidance assumes $1.35 USD / EURO and 101 YEN / USD, a non-GAAP
tax rate of 22%, a GAAP tax rate of 25% and 119 million diluted shares
outstanding. The Q4 non-GAAP guidance excludes $14 million of
stock-based compensation expense, $12 million of intangible asset
amortization expense, $2 million of acquisition-related expense and
pension plan termination costs, their related income tax effects, as
well as any additional discrete tax items or restructuring costs.
Glidden continued, "We are targeting FY'14 revenue of $1,330 to $1,345
million, with license revenue of $352 to $367 million, services revenue
of approximately $293 million, and support revenue of approximately $685
million. We are targeting non-GAAP EPS of $2.10 to $2.14 and GAAP EPS of
$1.40 to $1.44 (excluding the pending acquisition of Axeda and
acquisition accounting for Atego)."
The FY'14 targets assume a tax rate of 23%, and 120 million diluted
shares outstanding. The FY'14 non-GAAP guidance excludes $52 million of
stock-based compensation expense, $50 million of intangible asset
amortization expense, $2 million of restructuring charges, $9 million of
acquisition-related charges and pension plan termination costs and their
related income tax effects, as well as any additional discrete tax items
or restructuring costs.
Preliminary Directional Color on FY'15
"We are in the midst of our annual planning process, and will be
providing formal FY'15 guidance in conjunction with our Q4 earnings
release later this year. However, we wanted to provide some directional
insight into our next fiscal year. Assuming a stable macroeconomic
environment and no significant currency fluctuations, we are currently
targeting non-GAAP EPS growth in the low to mid teens, with total
revenue growth in the low to mid single digit range, including Atego and
Axeda (once acquired). We expect a favorable revenue mix shift with low
double digit license growth, flat services revenue, and low to mid
single digit growth in our support business. This is based on the size
and strength of our pipeline reflecting increasing customer interest in
our solutions, coupled with our initiatives and commitment to enhancing
profitability. Finally, we expect our non-GAAP tax rate to be
approximately 22% in FY'15 and beyond," said Glidden.
Q3 Earnings Conference Call and Webcast
Prepared remarks for the conference call have been posted to the
investor relations section of our website. The prepared remarks will not
be read live; the call will be primarily Q&A.
Thursday, July 24, 2014 at 8:30 am (ET)
To access the replay via webcast, please visit www.ptc.com/for/investors.htm.
Important Information About Non-GAAP References
PTC provides non-GAAP supplemental information to its financial results.
Non-GAAP revenue, operating expenses, margin and EPS exclude the effect
of purchase accounting on the fair value of acquired deferred revenue of
Servigistics, Inc., stock-based compensation expense, amortization of
acquired intangible assets, restructuring charges, acquisition-related
expenses, costs associated with terminating a U.S. pension plan, certain
identified non-operating gains and losses, and the related tax effects
of the preceding items and discrete tax items. We use these non-GAAP
measures, and we believe that they assist our investors, to make
period-to-period comparisons of our operational performance because they
provide a view of our operating results without items that are not, in
our view, indicative of our core operating results. We believe that
these non-GAAP measures help illustrate underlying trends in our
business, and we use the measures to establish budgets and operational
goals, communicated internally and externally, for managing our business
and evaluating our performance. We believe that providing non-GAAP
measures affords investors a view of our operating results that may be
more easily compared to the results of peer companies. In addition,
compensation of our executives is based in part on the performance of
our business based on these non-GAAP measures. However, non-GAAP
information should not be construed as an alternative to GAAP
information as the items excluded from the non-GAAP measures often have
a material impact on PTC's financial results. Management uses, and
investors should consider, non-GAAP measures in conjunction with our
GAAP results. PTC also provides results on a constant currency basis to
provide a year-over-year view of our results excluding the effect of
currency translation. Our constant currency disclosures are calculated
by multiplying the actual results for the third quarter of 2014 by the
exchange rates in effect for the comparable period in 2013.
Statements in this press release that are not historic facts, including
statements about our fiscal 2014 and other future financial and growth
expectations and anticipated tax rates, are forward-looking statements
that involve risks and uncertainties that could cause actual results to
differ materially from those projected. These risks include the
possibility that the macroeconomic climate may not improve or may
deteriorate, the possibility that customers may not purchase or adopt
our solutions when or at the rates we expect and that our pipeline deals
may not convert as we expect, the possibility that foreign currency
exchange rates may vary from our expectations and thereby affect our
reported revenue and expense, the possibility that we may not achieve
the license, services or support growth rates that we expect, which
could result in a different mix of revenue between license, service and
support and could impact our EPS results, the possibility that we may be
unable to improve services margins as we expect, the possibility that we
may be unable to improve sales productivity as we expect, the
possibility that our businesses, including the SLM business and the
ThingWorx/Internet of Things/Smart, Connected Products business, may not
expand and/or generate the revenue we expect, the possibility that we
may not complete the acquisition of Axeda Corporation when or as we
expect, the possibility that resource constraints and personnel
reductions could adversely affect our revenue, the possibility that
remedial actions relating to our previously announced investigation in
China will have a material impact on our operations in China and that
fines and penalties may be assessed against us in connection with this
matter. In addition, our assumptions concerning our future GAAP and
non-GAAP effective income tax rates are based on estimates and other
factors that could change, including the geographic mix of our revenue,
expenses and profits and loans and cash repatriations from foreign
subsidiaries. Other risks and uncertainties that could cause actual
results to differ materially from those projected are detailed from time
to time in reports we file with the Securities and Exchange Commission,
including our Annual Report on Form 10-K and our Quarterly Reports on
PTC, the PTC logo, ThingWorx, Creo, Servigistics, and all other PTC
product names and logos are trademarks or registered trademarks of PTC
Inc. or its subsidiaries in the United States and in other countries.
All other companies referenced herein are trademarks or registered
trademarks of their respective holders.
(Nasdaq: PTC) enables manufacturers to achieve sustained product and
service advantage. PTC's technology solutions help customers transform
the way they create, operate and service products for a smart,
connected, world. Founded in 1985, PTC employs approximately 6,000
professionals serving more than 28,000 businesses in rapidly-evolving,
globally distributed manufacturing industries worldwide. Get more
information at www.ptc.com.
(3) Represents acquisition-related charges and costs related to
terminating a U.S. pension plan of $0.2 million in Q3'14 and $0.1
million in Q2'14.
(4) The third quarter of 2013 includes a legal settlement gain of $5.1
million, which is excluded from non-GAAP net income.
(5) Income tax adjustments for the three and nine months ended June 28,
2014 and June 29, 2013 reflect the tax effects of non-GAAP adjustments
which are calculated by applying the applicable tax rate by jurisdiction
to the non-GAAP adjustments listed above, and also include any
identified tax items. In Q4'12, a valuation allowance was established
against our U.S. net deferred tax assets. As the U.S. is profitable on a
non-GAAP basis, the 2014 and 2013 non-GAAP tax provision is being
calculated assuming there is no U.S. valuation allowance. The following
identified tax items have been excluded from the non-GAAP tax results.
Q2'14 includes a non-cash tax benefit of $8.9 million related to the
release of a portion of the valuation allowance as a result of deferred
tax liabilities established for the acquisition of ThingWorx. Q2'13
includes tax benefits of $3.2 million relating to final resolution of
long-standing tax litigation and completion of an international
jurisdiction tax audit. Q1'13 includes a non-cash tax benefit of $32.6
million related to the release of a portion of the valuation allowance
as a result of deferred tax liabilities established for the acquisition
Net cash provided by operating activities (6)
Payments of withholding taxes in connection with vesting of
(6) The three and nine months ended June 29, 2014 include $2 million and
$19 million in restructuring payments, respectively. The three and nine
months ended June 29, 2013 include $8 million and $31 million in
restructuring payments, respectively.
(7) We acquired ThingWorx on December 30, 2013 for $112 million (net of
cash acquired) which was funded with $110 million borrowed under our
revolving credit facility. We borrowed the funds in Q1'14 in
contemplation of the acquisition closing. We acquired Servigistics on
October 2, 2012 for $221 million (net of cash acquired) which was funded
with $230 million borrowed under our revolving credit facility. We
borrowed the funds in Q4'12 in contemplation of the acquisition closing.
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