PTC : Announces Q2 Results; Provides Q3 and Updated FY’14 Outlook

PTC (Nasdaq: PTC) today reported results for its second fiscal quarter ended March 29, 2014.

Highlights

• Q2 Results:
  • Revenue of $329 million, up 4% over Q2’13 non-GAAP revenue and up 5% on a constant currency basis
  • Non-GAAP EPS of $0.48, up 17% year over year and up 18% on a constant currency basis
  • Non-GAAP operating margin of 24.4%, up 440 basis points year over year on both a reported and constant currency basis
  • GAAP operating margin of 15.6% and GAAP EPS of $0.36
  • Q2 revenue contribution from acquired businesses Enigma (acquired on July 11, 2013), NetIDEAS (acquired on September 5, 2013), and ThingWorx (acquired on December 30, 2013) was $4 million
• Q3 Guidance:
  • Revenue of $325 to $340 million and non-GAAP EPS of $0.48 to $0.52
  • License revenue of $80 to $95 million
  • GAAP EPS of $0.31 to $0.35
  • Assumes $1.38 USD / EURO and 103 YEN / USD
• FY’14 Guidance (Revenue increase of $5 million and EPS increase of $0.02):
  • Revenue of $1,335 to $1,350 million and non-GAAP EPS of $2.05 to $2.15
  • License revenue of $355 to $370 million
  • Non-GAAP operating margin of approximately 25%
  • GAAP EPS of $1.40 to $1.50 and GAAP operating margin of approximately 18%
  • Assumes $1.38 USD / EURO and 103 YEN / USD

The Q2 non-GAAP results exclude $12.6 million of stock-based compensation expense, $12.4 million of acquisition-related intangible asset amortization, and $3.9 million of acquisition-related expense. The Q2 non-GAAP EPS results include a tax rate of 25% and 121 million diluted shares outstanding.

Results Commentary

James Heppelmann, president and chief executive officer, commented, “PTC delivered solid operating results, with Q2 revenue and non-GAAP EPS at the high end of our guidance range. License revenue of $85 million increased 8% year over year on a constant currency basis. From a geographic perspective, we saw strength in the Americas and Europe, with 14% and 6% year-over-year constant currency revenue growth, respectively, partially offset by revenue declines in Japan and the Pac Rim, down 10% and 6% on a constant currency basis, respectively.” Reported revenue in the Americas and Europe was up 13% and 8%, respectively, and down 21% and 7% in Japan and the Pacific Rim, respectively.

Heppelmann added, “We saw revenue growth across our solution areas, led by our extended PLM and SLM businesses. Extended PLM license revenue grew 12% year over year on a constant currency. Our SLM license revenue (which includes Enigma and ThingWorx revenue) increased 11% year over year on a constant currency basis. We experienced continued recovery in our CAD business, with license revenue up 3% year over year on a constant currency basis.” On a reported basis license revenue was up 12% year over year in our extended PLM business, 11% year over year in our SLM business, and 2% year over year in our CAD business.

Heppelmann continued, “We had 35 large deals (recognized license + services revenue of more than $1 million) in Q2’14, up from 24 in Q2’13. We had three mega deals (transactions resulting in recognized license revenue of over $5 million in the quarter) in Q2’14, two in the Americas and one in Europe, compared to one mega deal in Q2’13 in Japan. The mix of large deal revenue in Q2’14 was skewed somewhat more heavily toward license. During the quarter we recognized revenue from leading organizations such as Caleffi, Daktronics, Diebold, Gildan Activewear, Kuhn, NASA, Nissan, and TRW.”

Jeff Glidden, chief financial officer, commented, “From a profitability standpoint, we delivered $0.48 non-GAAP EPS, at the high end of our guidance range, driven by a good mix of revenue, improved services margins, and solid cost control. We achieved a 24.4% non-GAAP operating margin, Q2 GAAP EPS of $0.36 and GAAP operating margin of 15.6%. We generated $111 million in operating cash flow and used $112 million for the acquisition of ThingWorx, $40 million for stock repurchases, $50 million to partially repay outstanding amounts under our credit facility, and $5 million for capital expenditures, resulting in an ending cash balance of $270 million.”

Outlook Commentary

“While we remain mindful of the uncertain macroeconomic environment, particularly in Asia, we are encouraged by a strengthening pipeline, particularly in the Americas and Europe. When combined with our expanding solutions portfolio, and opportunity to address key customer challenges in the Internet of Things space through our ThingWorx business, we see an exciting growth opportunity for PTC in the future. We also remain committed to expanding non-GAAP operating margin toward our FY’17 target range of 28% to 30%,” said Heppelmann.

Glidden added, “For Q3’14, we are providing guidance of $325 to $340 million in revenue with $80 to $95 million in license revenue, approximately $75 million in services revenue and approximately $170 million in support revenue. We are targeting Q3 non-GAAP EPS of $0.48 to $0.52 and GAAP EPS of $0.31 to $0.35.”

The Q3 guidance assumes $1.38 USD / EURO and 103 YEN / USD, a non-GAAP tax rate of 25%, a GAAP tax rate of 25% and 121 million diluted shares outstanding. The Q3 non-GAAP guidance excludes $13 million of stock-based compensation expense, $12 million of intangible asset amortization expense, $1 million of acquisition-related expense, their related income tax effects, as well as any additional discrete tax items or restructuring costs.

Glidden continued, “Given our H1 performance and outlook for H2, we are now targeting FY’14 revenue of $1,335 to $1,350 million, up from our prior guidance of $1,330 to $1,345 million, with license revenue of $355 to $370 million, services revenue of approximately $300 million and support revenue of approximately $680 million, up from our prior guidance of approximately $675 million. We are targeting non-GAAP EPS of $2.05 to $2.15 and GAAP EPS of $1.40 to $1.50, up from our prior guidance of $2.03 to $2.13 non-GAAP EPS and $1.38 to $1.48 GAAP EPS, respectively.”

The FY’14 targets assume $1.38 USD / EURO and 103 YEN / USD, a non-GAAP tax rate of 25%, a GAAP tax rate of 23% and 121 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, $1 million of restructuring charges, $7 million of acquisition-related charges and their related income tax effects, as well as any additional discrete tax items or restructuring costs.

Q2 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.

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 and gains, 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 second quarter of 2014 by the exchange rates in effect for the comparable period in 2013.

Forward-Looking Statements

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 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 ThingWorx business, may not expand and/or generate the revenue 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 Form 10-Q.

PTC, the PTC logo, ThingWorx, 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.

About PTC

PTC (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.