PTC Announces Fiscal Second Quarter 2020 Results

Solid Q2’20 ARR, Revenue, Operating Margin and EPS Performance; Revises FY’20 Outlook

BOSTON–(BUSINESS WIRE)–PTC (NASDAQ: PTC) today reported financial results for its fiscal second quarter ended March 28, 2020.

“Our performance in the second quarter was solid, with ARR growing 11% on a constant currency basis despite the increasingly challenging macro environment towards the end of the quarter. Revenue, operating margin and EPS results exceeded our expectations, reflecting the strength of our recurring revenue model. Given the durable nature of our business, we remain committed to delivering solid results for the remainder of FY’20 while navigating the current backdrop of macroeconomic uncertainty,” said James Heppelmann, President and CEO, PTC.

“We continue to work closely with our customers to address the ever-changing demands this crisis is having on their businesses. We are providing white-glove support to our many medical device and health-tech customers to ramp up production of critical medical equipment, and we announced free use of our Vuforia Chalk augmented reality remote support and collaboration technology during the crisis,” continued Heppelmann.

“The disruptive nature of the crisis is reinforcing the mission-critical nature of our broad technology portfolio – from the data access and collaboration capabilities of Windchill PLM, to the remote management enabled by our ThingWorx IoT solutions, to the remote collaboration and training of front-line workers enabled by our Vuforia AR suite, to our pure SaaS Onshape platform that enables engineers to work from anywhere and on any device. We will continue to drive innovation to further enhance our already robust product portfolio and we believe we will emerge even better positioned following this crisis,” concluded Heppelmann.

Second quarter 2020 highlights¹

Key operating and financial highlights are set forth below. For additional details, please refer to the prepared remarks and financial data tables that have been posted to the Investor Relations section of our website at investor.ptc.com.

• ARR was $1.18 billion. Growth of 10%, or 11% in constant currency, compared to Q2’19 reflects solid performance in our Core and Growth businesses, and in our global channel.

• Revenue was $360 million in Q2’20. Growth of 24% compared to Q2’19 was driven by strength across our Core and Growth businesses.

• Cash from operations was $88 million in Q2’20, compared to $141 million in Q2’19. Free cash flow was $82 million, compared to $120 million in Q2’19. Cash flow from operations and free cash flow included $18 million in restructuring payments and $2 million of acquisition-related payments.

• Operating margin was 14% in Q2’20 on a GAAP basis compared to (8)% in Q2’19; non-GAAP operating margin was 29%, compared to 15% in Q2’19.

• Total cash, cash equivalents, and marketable securities as of the end of Q2’20 was $884 million; total debt, net of deferred issuance costs, was $1.6 billion. We will redeem all $500 million of our 6% Senior Notes due 2024 on May 15, 2020.

Fiscal 2020 Outlook

“Our actions over the past few years to migrate the business to a more predictable recurring revenue model has made PTC more resilient than ever. Our revised fiscal 2020 guidance demonstrates our expectation that even in this challenging environment PTC will remain financially healthy and still post solid growth,” said Kristian Talvitie, EVP and CFO, PTC.

Revised Fiscal 2020 Guidance

Our revised fiscal 2020 financial outlook includes the following assumptions:

• Impact of weakening of macroeconomic conditions related to the COVID-19 crisis.
• A severe disruption in new bookings growth, down 30% YoY at the midpoint for the second half of the year.
  • The low end of the range assumes ~50% decline in new bookings for Q3’20 and Q4’20.
  • The high end of the range assumes a ~30% decline in new bookings for Q3’20 and a ~20% decline in Q4.
• Churn deteriorates approximately 100 bps to 8%, rather than a modest improvement over FY’19.
• Operating expense growth of roughly 2% YoY compared to our previous projection of 9% YoY due primarily to restructuring activity conducted in H1’20 as well as increased cost discipline related to headcount additions, variable compensation expense, travel and marketing expense.
• GAAP tax rate is expected to be 20%, Non-GAAP tax rate is expected to be 19%.

PTC’s Fiscal Second Quarter 2020 Results Conference Call, Prepared Remarks and Data Tables

Prepared remarks and financial data tables have been posted to the Investor Relations section of our website at ptc.com. The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, April 29, 2020.

To access the live webcast, we recommend you visit PTC’s Investor Relations website at investor.ptc.com 15 minutes before the scheduled start time to download any necessary audio or plug-in software.

To participate in the live conference call, dial 866-987-6881 or 270-215-9571 and provide the conference ID: 1299773. The call will be recorded, and replay will be available via webcast on PTC’s Investor Relations website.

Important Disclosures

Important Information About Our Non-GAAP Financial Measures

PTC provides non-GAAP supplemental financial information to its financial results. We use these non-GAAP financial 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 operating results. These, non-GAAP financial measures should not be construed as an alternative to GAAP results as the items excluded from the non-GAAP measures often have a material impact on our financial results and such items often recur. Management uses, and investors should consider, non-GAAP financial measures in conjunction with our GAAP results.

Non-GAAP revenue, non-GAAP operating expense, non-GAAP operating margin, non-GAAP gross profit, non-GAAP gross margin, non-GAAP net income and non-GAAP EPS exclude the effect of the following items: fair value of acquired deferred revenue, fair value adjustment to deferred services cost, stock-based compensation, amortization of acquired intangible assets, acquisition-related and other transactional charges included in general and administrative costs, restructuring and other charges, debt early redemption premium and income tax adjustments. Additional information about the items we exclude from our non-GAAP financial measures and the reasons we exclude them can be found in “Non-GAAP Financial Measures” of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

Free Cash Flow – PTC also provides information on “free cash flow” to enable investors to assess our ability to generate cash without incurring additional external financings and to evaluate our performance against our announced long-term goals and intent to return approximately 50% of our free cash flow to shareholders via stock repurchases. As a reminder, we suspended the share repurchase program for FY’20. Free cash flow is net cash provided by (used in) operating activities less capital expenditures. Free cash flow is not a measure of cash available for discretionary expenditures.

Constant Currency Change Metric – We present CC information for revenue, EPS, and ARR to provide a framework for assessing how our underlying business performed excluding the effects of foreign currency rate fluctuations. To present CC revenue, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars using the foreign exchange rate as of September 30, 2019, excluding the effect of any hedging, rather than the actual exchange rates in effect during that period.

Operating Measure

ARR – To help investors understand and assess the success of our subscription transition, we provide an ARR operating measure. On September 5, 2019, we revised the ARR definition. ARR represents the annualized value of our portfolio of recurring customer arrangements as of the end of the reporting period, including subscription software, cloud, and support contracts. We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from new customers, existing customer expansions and includes the impact of churn (gross churn net of pricing). Because this measure represents the annualized value of recurring customer contracts as of the end of a reporting period, ARR does not represent revenue or billings for any particular period or remaining revenue that will be recognized in future periods.

Forward-Looking Statements

Statements in this document that are not historic facts, including statements about our future financial and growth expectations and targets, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the COVID-19 pandemic impact on the global macroeconomic environment and our business could be more severe and prolonged than we expect; the macroeconomic and/or global manufacturing climates may deteriorate further due to, among other factors, the geopolitical environment, including the focus on technology transactions with non-U.S. entities and potential expanded prohibitions, and ongoing trade tensions and tariffs; customers may continue to delay or reduce purchases of new software, to reduce the number of subscriptions they carry, or delay payments to us due to the COVID-19 pandemic, all of which would adversely affect ARR and our financial results, including cash flow; our businesses, including our Internet of Things (IoT), Augmented Reality and Onshape businesses, may not expand and/or generate the revenue we expect if customers are slower to adopt those technologies than we expect or adopt competing technologies; bookings associated with minimum purchase commitments under our Strategic Alliance Agreement with Rockwell Automation may not result in subscription contracts sold through to end-user customers; our strategic initiatives and investments may not generate the revenue we expect; we may be unable to expand our partner ecosystem as we expect and our partners may not generate the revenue we expect; we may be unable to generate sufficient operating cash flow to repay our outstanding debt when or as we expect or to return 50% of free cash flow to shareholders under our long-term capital plan, and other uses of cash or our credit facility limits or other matters could preclude such repayments or share repurchases; we may be unable to expand our partner ecosystem as we expect; and our partners may not generate the revenue we expect.

Contacts

PTC Investor Relations
Tim Fox

tifox@ptc.com

Noelle Faris

nfaris@ptc.com

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