PTC INC

Previous wording

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 businesses, including our ServiceMax, Codebeamer, and SaaS businesses, may not expand and/or generate the ARR and/or cash flow we expect if customers are slower to adopt those technologies than we expect or if they adopt competing technologies; our strategic initiatives and investments, including our accelerated investments in our transition to SaaS and in our ALM business, and the acquisition of ServiceMax, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to return 50% of free cash flow to shareholders via share repurchases, and other uses of cash or our credit facility limits could preclude such 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 Factorsof this report.

Current wording

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 Factorsof this report.

Previous wording

ARR grew 24% to $2.06 billion as of the end of Q1’24 compared to Q1’23. Organic ARR grew 13% year over year to $1.88 billion. ARR growth was driven by the contribution from the ServiceMax business acquired in Q2'23 and organic growth across all regions and in both the CAD and PLM product groups. In CAD, we delivered 11% ARR growth in Q1’24 (10% in constant currency), with the growth primarily driven by Creo. In PLM, our ARR growth was 34% (33% constant currency), with 19 points of the growth attributable to ServiceMax. Our PLM organic growth in Q1’24 was 15% (14% in constant currency), primarily driven by Windchill and supported by strong percentage growth in ALM due to Codebeamer.

Current wording

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.

Previous wording

Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and cloud revenue.

Current wording

Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and hosting services revenue.

Previous wording

Approximately 50% of our revenue and 30% 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.

Current wording

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.

Previous wording

Software revenue in Q1'24 benefited from contributions from ServiceMax, which was acquired in early Q2'23, and from organic growth. Changes in foreign currency exchange rates were a slight tailwind to revenue results in the period.

Current wording

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.

Previous wording

Professional services revenue was flat in Q1'24 compared to Q1'23, despite the addition of ServiceMax professional services revenue. Our expectation is that professional services revenue will continue to trend down over time as we 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.

Current wording

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.

Previous wording

PLMsoftware revenue growth in Q1'24 benefited from the contribution from ServiceMax. Excluding ServiceMax revenue, constant currency revenue growth was driven by Windchill, particularly in the Americas, and Codebeamer.

Current wording

PLMsoftware 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 contribution from ServiceMax: year-over-year growth for the first six months excluding Q1'24 ServiceMax revenues would have been 12% (11% constant currency).

Previous wording

PLM ARR grew 34% (33% constant currency) from Q1’23 to Q1'24, driven primarily by ServiceMax, Windchill, and Codebeamer.

Current wording

PLM ARR grew 12% (13% constant currency) from Q2’23 to Q2'24, driven primarily by Windchill, Codebeamer, and ServiceMax.

Previous wording

CADsoftware revenue growth was primarily driven by Creo revenue growth in Europe and Asia Pacific. Growth in Europe was driven in part by longer durations of on-premises subscription contracts.

Current wording

CADsoftware 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.

Previous wording

CAD ARR grew 11% (10% constant currency) from Q1’23 to Q1’24, driven primarily by Creo.

Current wording

CAD ARR grew 9% (11% constant currency) from Q2’23 to Q2’24, driven primarily by Creo.

Previous wording

License gross margin increased in Q1’24 compared to Q1’23 at a slightly higher rate than license revenue due to a decrease in Cost of license revenue, which was driven by lower intangible amortization expense.

Current wording

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.

Previous wording

Support and cloud services gross margin growth in Q1'24 compared to Q1'23 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 royalty expenses, intangible amortization expense, and compensation costs.

Current wording

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.

Previous wording

Total headcount increased 11% between Q1’23 and Q1’24, primarily driven by our acquisition of ServiceMax.

Current wording

Total headcount increased 5% between Q2’23 and Q2’24.

Previous wording

a $29 million increase in compensation expense (excluding stock-based compensation expense), mainly driven by our acquisition of ServiceMax and annual merit increases; and

Current wording

a $40 million increase in compensation expense, driven by our Q2'23 acquisition of ServiceMax, higher headcount, and annual salary increases; and

Previous wording

a $16 million increase in stock-based compensation expense, driven in part by the acceleration of expense related to the CEO succession (which is included in General and administrative), as well as more grants related mainly to the ServiceMax acquisition.

Current wording

a $19 million increase in stock-based compensation expense, driven in part by awards held by our former CEO (which expense is included in General and administrative), as well as more grants related mainly to the ServiceMax acquisition;

Previous wording

Interest expense includes interest on our revolving credit facility, term loan, and our senior notes due 2025 and 2028. The increase in interest expense was driven by higher total debt and higher interest rates in Q1’24 compared to Q1’23.

Current wording

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.

Previous wording

The effective tax rate for Q1'24 was higher than the effective tax rate for Q1'23 primarily due to a non-cash tax expense of $3.6 million related to a tax reserve in a foreign jurisdiction as well as a decrease in the excess tax benefits related to stock-based compensation.

Current wording

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.

Previous wording

A significant portion of our cash is generated and held outside the U.S. As of December 31, 2023, we had cash and cash equivalents of $23.5 million in the U.S., $91.5 million in Europe, $129.1 million in Asia Pacific (including India) and $20.9 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.

Current wording

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.

Previous wording

Cash provided by operating activities increased $6.4 million in Q1'24 compared to Q1'23. The increase was driven by higher collections (including contribution from ServiceMax) and lower tax payments, partially offset by higher vendor disbursements, interest payments, and salary-related payments. Q1'24 cash from operations includes $44.8 million of interest payments, compared to $4.8 million in the prior-year period. Interest payments in Q1'24 included the payment of $30 million of imputed interest on the ServiceMax deferred acquisition payment.

Current wording

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.

Previous wording

Cash used in investing activities in Q1’24 was driven by the acquisition of pure-systems for $93.5 million, net of cash acquired.

Current wording

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.

Previous wording

Cash Used In Financing Activities

Current wording

Cash Provided by (Used in) Financing Activities

Previous wording

Cash used in financing activities in Q1’24 includes $620.0 million paid to settle the portion of the ServiceMax deferred acquisition payment related to purchase consideration, partially offset by net borrowings of $558.4 million ($739.8 million borrowed under the revolving line of our existing credit facility, less payments of $181.4 million) to fund the ServiceMax deferred acquisition payment and pure-systems acquisition.

Current wording

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.

Previous wording

As of December 31, 2023, we were in compliance with all financial and operating covenants of the credit facility and the note indentures. As of December 31, 2023, the annual rate for borrowings outstanding under the credit facility was 7.2%.

Current wording

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%.

Previous wording

Our credit facility and our senior notes are described in Note 10. Debtto the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Current wording

Our credit facility and our senior notes are described in Note 10. Debtto 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.

Previous wording

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 $20 million in FY'24) through at least the next twelve months and to meet our known long-term capital requirements.

Current wording

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.

Previous wording

ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. We calculate ARR as follows:

Current wording

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:

Previous wording

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.

Current wording

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 Operationsin our Annual Report on Form 10-K for the year ended September 30, 2023.

Previous wording

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), net; and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Current wording

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.

Previous wording

Income tax adjustments 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. Additionally, in Q1'24, adjustments exclude a non-cash tax expense of $3.6 million for a tax reserve related to prior years in a foreign jurisdiction.

Current wording

Income tax adjustments 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. Additionally, in the first six months of FY'24, adjustments exclude a non-cash tax expense of $3.6 million for a tax reserve related to prior years in a foreign jurisdiction.