Jul 29 - PTC Q3 Revenue Down 17% to $226M, Profit Drops to $3.8M

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PTC Q3 Revenue Down 17% to $226M, Profit Drops to $3.8M

FARNBOROUGH, UK, Jul 29, 2009 - PTC (Nasdaq: PMTC), The Product Development Company, today reported results for its third fiscal quarter ended July 4, 2009.

Highlights

Q3 Results:

Revenue of $226.2 million and non-GAAP EPS of $0.20 Non-GAAP operating margin of 13.0%; GAAP operating margin of 0.9%
GAAP EPS of $0.03, including $6.6 million restructuring charge to reduce operating expenses
Relative to Q3 guidance, currency was favorable to revenue by approximately $3 million and unfavorable to expenses by approximately $2 million

Q4 Guidance:

Revenue of $235 to $245 million and non-GAAP EPS of $0.25 to $0.30 GAAP EPS of $0.09 to $0.13
Assumes $1.40 EURO / USD, up from $1.30 EURO / USD in prior guidance

FY 2009 Targets:

Revenue of approximately $931 million and non-GAAP EPS of approximately $0.77 Non-GAAP operating margin of approximately 13%; GAAP operating margin of approximately 1%
GAAP EPS of approximately $0.24
Approximately 15% non-GAAP and 2% GAAP operating margin for H2’09
The Q3 non-GAAP results exclude a $6.6 million restructuring charge, $11.5 million of stock-based compensation expense, $9.4 million of acquisition-related intangible asset amortization and in-process research and development expenses and $8.3 million of income tax adjustments. The Q3 results include a non-GAAP tax rate of 21% and a GAAP tax benefit rate of 153%.

Q3 Results Commentary & Outlook

C. Richard Harrison, chairman and chief executive officer, commented, “On a constant currency and non-GAAP basis, our total Q3 revenue was down 11% compared to last year, which in this challenging economy highlights the stability provided by our maintenance and services businesses. Importantly, on a sequential basis we are seeing a number of positive data points: 1) total revenue is stabilizing, 2) we delivered license revenue growth in all of our major geographies except Japan, 3) active maintenance paying seats are up, driven by Windchill seat growth, and 4) we won three additional strategically important “domino” accounts during Q3.”

“Our pipeline for new business opportunities remains strong and lead times to close enterprise deals seem to be shortening,” continued Harrison. “We received major orders from leading organizations such as BAE Systems, Caterpillar, EDF Group, Knorr Bremse, Komatsu America Corporation, NASA, Otis Elevator, Raytheon, RWTH Aachen University, and the US Army.”

James Heppelmann, president and chief operating officer added, “We believe that our technology leadership position in the industry is becoming increasingly clear. In addition to competitive displacement wins in the market, PTC continues to be on the forefront of innovation with our social product development initiative and partnership with Microsoft, our growing product analytics platform, and our Arbortext product information delivery solutions. We are very optimistic about the long-term opportunity for PTC and will continue to make strategic investments that we believe are critical to delivering value to our customers and gaining market share, while remaining mindful of our goal of 20% non-GAAP EPS growth for 2010 and beyond.”

Neil Moses, chief financial officer, commented, “Our Q3 operating margins and EPS were stronger than expected primarily due to stronger than expected license revenue, favorable currency impact as well as a lower than anticipated tax rate. Our balance sheet remains strong with $231 million of cash, down from $268 million in Q2 primarily due to our acquisition of Relex, which we acquired in June to further expand our product analytics platform. We also have an additional $175 million available on our revolving credit facility.”

“Looking forward to Q4, we are initiating guidance of $235 to $245 million in revenue with non-GAAP EPS of $0.25 to $0.30,” continued Moses. “Consequently, we are now targeting FY’09 revenue of approximately $931 million, 13% non-GAAP operating margins, and non-GAAP EPS of approximately $0.77.”

The Q4 guidance assumes a non-GAAP tax rate of 20%, a GAAP tax benefit rate in excess of 40% and 119 million diluted shares outstanding. The Q4 non-GAAP guidance excludes approximately $14 million of stock-based compensation expense, $9 million of acquisition-related intangible asset amortization expense, $10 million of restructuring related expense and the related income tax effects.

The FY’09 target assumes a non-GAAP tax rate of 21%, a GAAP tax benefit rate in excess of 130% and 117 million diluted shares outstanding. The FY’09 non-GAAP guidance excludes approximately $43 million of stock-based compensation expense, $36 million of acquisition-related intangible asset amortization and in-process research and development expense, $26 million of restructuring related expense and the related income tax effects.

Q3 Earnings Conference Call and Webcast

Supplemental financial and operating metric information and prepared remarks for the conference call will be posted to the investor relations section of our website simultaneously with this press release. The prepared remarks will not be read live; the call will be primarily Q&A.

When: Wednesday, July 29, 2009 at 8:30 a.m. Eastern Time
Dial-in: 1-888-566-8560 or 1-517-623-4768, Call Leader: Richard Harrison with Passcode: PTC
Webcast: http://www.ptc.com/for/investors.htm.
Replay: The audio replay of this event will be archived for public replay until 4:00 p.m. on August 3, 2009 at 1-800-925-5415 or 1-402-530-8074. To access the replay via webcast, please visit http://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 excludes the effect of purchase accounting on the fair value of the acquired deferred revenue of CoCreate Software GmbH. Non-GAAP operating expenses, margin and EPS exclude stock-based compensation expense, amortization of acquired intangible assets, acquired in-process research and development expense, restructuring charges, non-cash effects of liquidating subsidiaries, and the related tax effects of the preceding items and any one-time tax items, such as valuation allowance reversals. PTC provides this non-GAAP information to facilitate period-to-period comparisons of its operational performance by adjusting for certain non-cash and certain episodic expenses. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies. PTC management also uses this and other non-GAAP financial information to evaluate, manage and plan our business because the information provides additional insight into ongoing financial performance. 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 use, non-GAAP measures in conjunction with our GAAP results.

About PTC

PTC (Nasdaq: PMTC) provides leading product lifecycle management (PLM), content management and dynamic publishing solutions to more than 50,000 companies worldwide. PTC customers include the world's most innovative companies in manufacturing, publishing, services, government and life sciences industries. PTC is included in the S&P Midcap 400 and Russell 2000 indices.

For more information, visit http://www.ptc.com.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

                                Three Months Ended     Nine Months Ended
                                                         July 4,   June 28,     July 4,   June 28,
                                      2009      2008         2009      2008 Revenue:
License                       $49,450   $79,911      $142,022   $228,748
Service                       176,709   191,837       549,820    542,035
Total revenue                   226,159   271,748       691,842    770,783

Costs and expenses:
Cost of license revenue(1)        7,644     8,980        22,204     20,563
Cost of service revenue(1)       66,162    76,582       214,205    221,437
Sales and marketing(1)           73,823    78,762       225,072    223,149
Research and development(1)      46,562    47,374       139,675    134,656
General and administrative(1)    19,245    20,294        58,375     64,653
Amortization of acquired
intangible assets                 3,827     4,044        11,510     11,252
In-process research and
development                         300      --             300      1,887
Restructuring charges             6,609     3,790        16,397     15,367
Total costs and expenses        224,172   239,826       687,738    692,964

Operating income                  1,987    31,922         4,104     77,819
Other expense, net                 (491)   (7,110)       (1,812)   (5,859)
Income before income taxes        1,496    24,812         2,292    71,960
Provision for (benefit from)
income taxes                     (2,292)   10,342        (13,330)   28,762
Net income                       $3,788   $14,470        $15,622   $43,198
Earnings per share:
Basic                          $0.03     $0.13          $0.14     $0.38
    Weighted average shares
    outstanding                  115,194   113,491       114,843   113,661
Diluted                        $0.03     $0.12          $0.13     $0.37
Weighted average shares outstanding 117,074 117,363 116,691 117,565

(1) The amounts in the tables above include stock-based compensation as follows:

                                 Three Months Ended     Nine Months Ended
                                 July 4,    June 28,    July 4,   June 28,
                                  2009        2008       2009      2008
Cost of license revenue            $11         $12        $28       $26
Cost of service revenue          2,055       2,298      5,601     6,867
Sales and marketing              3,491       3,130      8,592     8,933
Research and development         1,986       2,322      5,810     6,929
General and administrative       3,969       3,387      8,742     9,926
Total stock-based compensation $11,512     $11,149    $28,773   $32,681

PARAMETRIC TECHNOLOGY CORPORATION
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)
(in thousands, except per share data)

                                   Three Months Ended    Nine Months Ended
                                   July 4,   June 28,   July 4, June 28,
                                    2009       2008      2009      2008
GAAP revenue                      $226,159   $271,748   $691,842 $770,783
Fair value adjustment of
acquired CoCreate deferred
maintenance revenue                   --        978         --      3,920
Non-GAAP revenue                  $226,159   $272,726   $691,842 $774,703

GAAP operating income              $1,987     $31,922     $4,104 $77,819
Fair value adjustment of
acquired CoCreate deferred
maintenance revenue                --           978       --      3,920
Stock-based compensation         11,512      11,149     28,773   32,681
     Amortization of acquired
     intangible assets included
     in cost of license revenue     5,221       6,289     14,592   13,850
Amortization of acquired
intangible assets included
in cost of service revenue           --           17         8         51
Amortization of acquired
intangible assets                  3,827       4,044     11,510    11,252
In-process research and
development                          300         --         300     1,887
Restructuring charges               6,609       3,790     16,397    15,367
Non-GAAP operating income         $29,456     $58,189    $75,684 $156,827

GAAP net income $3,788 $14,470 $15,622 $43,198
Fair value adjustment of
acquired CoCreate deferred
maintenance revenue -- 978 -- 3,920

Stock-based compensation           11,512      11,149     28,773   32,681
Amortization of acquired
intangible assets included
in cost of license revenue         5,221       6,289     14,592   13,850
Amortization of acquired
intangible assets included
in cost of service revenue          --          17          8        51
Amortization of acquired
intangible assets                  3,827       4,044     11,510   11,252
In-process research and
development                          300         --        300     1,887
Restructuring charges              6,609       3,790     16,397   15,367
One-time non-cash loss
included in other expense, net (2)   --        6,206       --      6,206
Income tax adjustments (3)        (8,325)     (7,724)   (29,244) (22,371) Non-GAAP net income               $22,932     $39,219    $57,958 $106,041

GAAP diluted earnings
per share                          $0.03      $0.12      $0.13     $0.37
Stock-based compensation            0.10       0.09       0.25      0.28
All other items identified above    0.07       0.12       0.12      0.25
Non-GAAP diluted earnings
per share                          $0.20      $0.33      $0.50     $0.90

Weighted average shares outstanding – diluted
Non-GAAP diluted earnings
per share 117,074 117,363 116,691 117,565

(2) Reflects a one-time non-cash loss from the liquidation of certain legal entities related to previous acquisitions.

(3) Reflects the tax effect of non-GAAP adjustments above, as well as the effect of a $7.6 million one-time tax benefit recorded in the second quarter of 2009 due to the recognition of deferred tax assets in a foreign jurisdiction.

PARAMETRIC TECHNOLOGY CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

July 4, September 30,
2009 2008

ASSETS

Cash and cash equivalents                       $231,345        $256,941
Accounts receivable, net                         149,198         201,509
Property and equipment, net                       58,560          55,253
Goodwill and acquired intangibles, net           593,280         587,537
Other assets                                     264,139         248,333

Total assets $1,296,522 $1,349,573

LIABILITIES AND STOCKHOLDERS' EQUITY

Deferred revenue                                $255,206        $258,295
Borrowings under revolving credit facility        55,286          88,505
Other liabilities                                240,995         300,248
Stockholders' equity                             745,035         702,525

Total liabilities and stockholders' equity $1,296,522 $1,349,573

(4) Includes accounts payable, accrued expenses, and accrued compensation and benefits.

(5) Acquisitions of businesses:

The third quarter of 2009 includes $24 million for our acquisition of Relex, net of cash acquired.
The first quarter of 2009 includes $7 million for our acquisition of Synapsis and $1 million for a contingent purchase price earned during the quarter related to a prior acquisition.
The first quarter of 2008 includes $248 million for our acquisition of CoCreate and $14 million for two other acquisitions, net of cash acquired.

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