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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/04/21 PTC Inc. 10-Q 3/31/21 100:14M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.33M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 34K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 34K
4: EX-32 Certification -- §906 - SOA'02 HTML 33K
11: R1 Document and Entity Information HTML 81K
12: R2 Consolidated Balance Sheets HTML 131K
13: R3 Consolidated Balance Sheets (Parentheticals) HTML 47K
14: R4 Consolidated Statements Of Operations HTML 112K
15: R5 Consolidated Statements of Comprehensive Income HTML 60K
(Loss)
16: R6 Consolidated Statements of Comprehensive Income HTML 39K
(Loss) (Parenthetical)
17: R7 Consolidated Statements Of Cash Flows HTML 113K
18: R8 Consolidated Statements of Stockholder's Equity HTML 119K
19: R9 Basis of Presentation HTML 39K
20: R10 Revenue from Contracts with Customers HTML 85K
21: R11 Restructuring and Other Charges HTML 102K
22: R12 Stock-based Compensation HTML 126K
23: R13 Earnings per Share (EPS) and Common Stock HTML 81K
24: R14 Acquisitions HTML 41K
25: R15 Goodwill and Intangible Assets HTML 192K
26: R16 Fair Value Measurements HTML 165K
27: R17 Marketable Securities HTML 88K
28: R18 Derivative Financial Instruments HTML 235K
29: R19 Segment and Geographic Information HTML 249K
30: R20 Income Taxes HTML 65K
31: R21 Debt HTML 62K
32: R22 Leases HTML 150K
33: R23 Commitments and Contingencies HTML 37K
34: R24 Revenue from Contracts with Customers (Tables) HTML 78K
35: R25 Restructuring and Other Charges (Tables) HTML 99K
36: R26 Stock-based Compensation (Tables) HTML 132K
37: R27 Earnings per Share (EPS) and Common Stock (Tables) HTML 79K
38: R28 Goodwill and Intangible Assets (Tables) HTML 192K
39: R29 Fair Value Measurements (Tables) HTML 156K
40: R30 Marketable Securities (Tables) HTML 91K
41: R31 Derivative Financial Instruments (Tables) HTML 235K
42: R32 Segment and Geographic Information (Tables) HTML 247K
43: R33 Income Taxes (Tables) HTML 57K
44: R34 Debt (Tables) HTML 56K
45: R35 Leases (Tables) HTML 149K
46: R36 Revenue from Contracts with Customers - Schedule HTML 33K
of Contract Assets and Contract Liabilities
(Details)
47: R37 Revenue from Contracts with Customers - Additional HTML 69K
Information (Details)
48: R38 Revenue from Contracts with Customers - Remaining HTML 34K
Performance Obligations - Additional Information
(Details)
49: R39 Revenue from Contracts with Customers - HTML 41K
Disaggregation of Revenue (Details)
50: R40 Restructuring and Other Charges - Additional HTML 58K
Information (Details)
51: R41 Restructuring and Other Charges - Schedule of HTML 59K
Restructuring Reserve (Details)
52: R42 Stock-based Compensation - Schedule of RSU HTML 52K
Activity (Details)
53: R43 Stock-based Compensation - Schedule of RSU HTML 32K
Activity (Parenthetical) (Details)
54: R44 Stock-based Compensation - Schedule of Number of HTML 36K
RSU Awards Granted by Award Type (Details)
55: R45 Stock-based Compensation - Schedule of Number of HTML 52K
RSU Awards Granted by Award Type (Parenthetical)
(Details)
56: R46 Stock-based Compensation - Additional Information HTML 38K
(Details)
57: R47 Stock-based Compensation - Schedule of Valuation HTML 35K
Assumptions (Details)
58: R48 Stock-based Compensation - Schedule of HTML 46K
Classification of Compensation Expense (Details)
59: R49 Earnings per Share (EPS) and Common Stock - HTML 57K
Earnings per Share Basic and Diluted (Details)
60: R50 Earnings per Share (EPS) and Common Stock - HTML 38K
Additional Information (Details)
61: R51 Acquisitions - Additional Information (Details) HTML 96K
62: R52 Goodwill and Intangible Assets - Additional HTML 37K
Information (Details)
63: R53 Goodwill and Intangible Assets - Schedule of HTML 51K
Goodwill and Acquired Intangible Assets (Details)
64: R54 Goodwill and Intangible Assets - Schedule of HTML 49K
Changes in Goodwill by Reportable Segments
(Details)
65: R55 Goodwill and Intangible Assets - Schedule of HTML 35K
Aggregate Amortization Expense for Intangible
Assets with Finite Lives (Details)
66: R56 Fair Value Measurements - Schedule of Financial HTML 64K
Assets and Liabilities Measured at Fair Value
(Details)
67: R57 Fair Value Measurements - Additional Information HTML 37K
(Details)
68: R58 Marketable Securities - Additional Information HTML 32K
(Details)
69: R59 Marketable Securities (Amortized Cost and Fair HTML 40K
Value of Marketable Securities) (Details)
70: R60 Marketable Securities (Schedule of Fair Value and HTML 46K
Gross Unrealized Losses) (Details)
71: R61 Marketable Securities (Schedule of HTML 42K
Available-for-sale Marketable Securities by
Contractual Maturity Date) (Details)
72: R62 Derivative Financial Instruments - Schedule of HTML 47K
Derivative Financial Instruments at Gross Fair
Value (Details)
73: R63 Derivative Financial Instruments - Schedule of HTML 39K
Derivative Financial Instruments at Gross Fair
Value (Parentheticals) (Details)
74: R64 Derivative Financial Instruments - Additional HTML 38K
Information (Details)
75: R65 Derivative Financial Instruments - Schedule of HTML 52K
Notional Amounts of Outstanding Forward Contracts
and Options (Details)
76: R66 Derivative Financial Instruments - Schedule of HTML 36K
Notional Amounts of Outstanding Forward Contracts
and Options (Parenthetical) (Details)
77: R67 Derivative Financial Instruments - Schedule of HTML 48K
Derivative Instruments and Hedging Activities
Disclosures (Details)
78: R68 Derivative Financial Instruments - Schedule of HTML 35K
Notional Amounts of Outstanding Forward Contracts
(Details)
79: R69 Derivative Financial Instruments - Schedule of HTML 47K
Offsetting Assets (Details)
80: R70 Derivative Financial Instruments - Schedule of HTML 47K
Offsetting Liabilities (Details)
81: R71 Segment and Geographic Information - Additional HTML 32K
Information (Details)
82: R72 Segment and Geographic Information - Summary of HTML 81K
Revenue and Profit Attributable to Our Operating
Segments (Details)
83: R73 Segment and Geographic Information - Summary of HTML 41K
Revenue for Geographic Regions (Details)
84: R74 Income Taxes - Summary of Income Taxes (Details) HTML 39K
85: R75 Income Taxes - Additional Information (Details) HTML 59K
86: R76 Debt - Schedule of Long-term Debt Obligations HTML 51K
(Details)
87: R77 Debt - Schedule of Long-term Debt Obligations HTML 33K
(Parenthetical) (Details)
88: R78 Debt - Senior Notes - Additional Information HTML 41K
(Details)
89: R79 Debt - Credit Agreement - Additional Information HTML 68K
(Details)
90: R80 Leases - Additional Information (Details) HTML 54K
91: R81 Leases - Components of Lease Cost (Details) HTML 40K
92: R82 Leases - Schedule of Supplemental Cash Flow HTML 38K
Information Related to Leases (Details)
93: R83 Leases - Schedule of Supplemental Cash Flow HTML 31K
Information Related to Leases (Parenthetical)
(Details)
94: R84 Leases - Schedule of Supplemental Balance Sheet HTML 37K
Information Related to Leases (Details)
95: R85 Leases - Schedule of Maturities of Operating Lease HTML 47K
Liabilities (Details)
96: R86 Commitments and Contingencies - Additional HTML 41K
Information (Details)
98: XML IDEA XML File -- Filing Summary XML 192K
10: XML XBRL Instance -- ptc-10q_20210331_htm XML 3.85M
97: EXCEL IDEA Workbook of Financial Reports XLSX 115K
6: EX-101.CAL XBRL Calculations -- ptc-20210331_cal XML 233K
7: EX-101.DEF XBRL Definitions -- ptc-20210331_def XML 795K
8: EX-101.LAB XBRL Labels -- ptc-20210331_lab XML 1.36M
9: EX-101.PRE XBRL Presentations -- ptc-20210331_pre XML 1.21M
5: EX-101.SCH XBRL Schema -- ptc-20210331 XSD 201K
99: JSON XBRL Instance as JSON Data -- MetaLinks 439± 684K
100: ZIP XBRL Zipped Folder -- 0001564590-21-023320-xbrl Zip 238K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
|
i ☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i March 31, i 2021 /
OR
|
i ☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from_ to_
Commission File Number: i 0-18059
i PTC Inc.
(Exact name of registrant as specified in its charter)
|
i Massachusetts |
|
i 04-2866152 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
i 121 Seaport Boulevard, i Boston, i MA i 02210
(Address of principal executive offices, including zip code)
( i 781) i 370-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
|
i Common Stock, $.01 par value per share |
i PTC |
i NASDAQ Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
|
i Large accelerated filer |
☑ |
|
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
i ☐ |
|
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
i ☐ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☑
There were i 116,854,806 shares of our common stock outstanding on April 30, 2021.
PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended March 31, 2021
|
|
|
|
|
Page Number |
|
|
|
|||
|
Item 1. |
|
|
1 |
|
|
|
|
Consolidated Balance Sheets as of March 31, 2021 and September 30, 2020 |
|
1 |
|
|
|
|
2 |
|
|
|
|
|
3 |
|
|
|
|
Consolidated Statements of Cash Flows for the six months ended March 31, 2021 and March 28, 2020 |
|
4 |
|
|
|
|
5 |
|
|
|
|
|
7 |
|
|
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
25 |
|
Item 3. |
|
|
37 |
|
|
Item 4. |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Item 1. |
|
|
38 |
|
|
Item 1A. |
|
|
38 |
|
|
Item 6. |
|
|
38 |
|
|
|
39 |
|||
PART I—FINANCIAL INFORMATION
PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
i 326,081 |
|
|
$ |
i 275,458 |
|
|
Short-term marketable securities |
|
|
i — |
|
|
|
i 28,129 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $ i 520 and $ i 543 at March 31, 2021 and September 30, 2020, respectively |
|
|
i 434,533 |
|
|
|
i 415,221 |
|
|
Prepaid expenses |
|
|
i 86,719 |
|
|
|
i 69,408 |
|
|
Other current assets |
|
|
i 54,430 |
|
|
|
i 45,231 |
|
|
Total current assets |
|
|
i 901,763 |
|
|
|
i 833,447 |
|
|
Property and equipment, net |
|
|
i 97,260 |
|
|
|
i 101,499 |
|
|
Goodwill |
|
|
i 2,193,632 |
|
|
|
i 1,625,786 |
|
|
Acquired intangible assets, net |
|
|
i 410,310 |
|
|
|
i 237,570 |
|
|
Long-term marketable securities |
|
|
i — |
|
|
|
i 30,970 |
|
|
Deferred tax assets |
|
|
i 182,176 |
|
|
|
i 190,963 |
|
|
Operating right-of-use lease assets |
|
|
i 148,684 |
|
|
|
i 149,933 |
|
|
Other assets |
|
|
i 247,396 |
|
|
|
i 212,570 |
|
|
Total assets |
|
$ |
i 4,181,221 |
|
|
$ |
i 3,382,738 |
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
i 22,230 |
|
|
$ |
i 24,910 |
|
|
Accrued expenses and other current liabilities |
|
|
i 124,244 |
|
|
|
i 96,313 |
|
|
Accrued compensation and benefits |
|
|
i 94,641 |
|
|
|
i 101,087 |
|
|
Accrued income taxes |
|
|
i 16,707 |
|
|
|
i 7,011 |
|
|
Deferred revenue |
|
|
i 480,861 |
|
|
|
i 416,804 |
|
|
Short-term lease obligations |
|
|
i 28,137 |
|
|
|
i 34,635 |
|
|
Total current liabilities |
|
|
i 766,820 |
|
|
|
i 680,760 |
|
|
Long-term debt |
|
|
i 1,508,389 |
|
|
|
i 1,005,314 |
|
|
Deferred tax liabilities |
|
|
i 11,270 |
|
|
|
i 12,431 |
|
|
Deferred revenue |
|
|
i 11,560 |
|
|
|
i 9,661 |
|
|
Long-term lease obligations |
|
|
i 178,247 |
|
|
|
i 180,388 |
|
|
Other liabilities |
|
|
i 54,402 |
|
|
|
i 55,936 |
|
|
Total liabilities |
|
|
i 2,530,688 |
|
|
|
i 1,944,490 |
|
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Preferred stock, $ i i 0.01 / par value; i i 5,000 / shares authorized; i i none / issued |
|
|
i — |
|
|
|
i — |
|
|
Common stock, $ i i 0.01 / par value; i i 500,000 / shares authorized; i i 116,855 / and i i 116,125 / shares issued and outstanding at March 31, 2021 and September 30, 2020, respectively |
|
|
i 1,169 |
|
|
|
i 1,161 |
|
|
Additional paid-in capital |
|
|
i 1,676,791 |
|
|
|
i 1,602,728 |
|
|
Retained earnings (accumulated deficit) |
|
|
i 70,510 |
|
|
|
( i 62,267 |
) |
|
Accumulated other comprehensive loss |
|
|
( i 97,937 |
) |
|
|
( i 103,374 |
) |
|
Total stockholders’ equity |
|
|
i 1,650,533 |
|
|
|
i 1,438,248 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
i 4,181,221 |
|
|
$ |
i 3,382,738 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
PTC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License |
|
$ |
i 198,011 |
|
|
$ |
i 127,607 |
|
|
$ |
i 375,186 |
|
|
$ |
i 251,037 |
|
|
Support and cloud services |
|
|
i 223,756 |
|
|
|
i 196,473 |
|
|
|
i 440,002 |
|
|
|
i 387,409 |
|
|
Total software revenue |
|
|
i 421,767 |
|
|
|
i 324,080 |
|
|
|
i 815,188 |
|
|
|
i 638,446 |
|
|
Professional services |
|
|
i 40,018 |
|
|
|
i 35,523 |
|
|
|
i 75,648 |
|
|
|
i 77,267 |
|
|
Total revenue |
|
|
i 461,785 |
|
|
|
i 359,603 |
|
|
|
i 890,836 |
|
|
|
i 715,713 |
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license revenue |
|
|
i 14,160 |
|
|
|
i 13,873 |
|
|
|
i 27,416 |
|
|
|
i 27,046 |
|
|
Cost of support and cloud services revenue |
|
|
i 39,972 |
|
|
|
i 34,264 |
|
|
|
i 78,314 |
|
|
|
i 73,192 |
|
|
Total cost of software revenue |
|
|
i 54,132 |
|
|
|
i 48,137 |
|
|
|
i 105,730 |
|
|
|
i 100,238 |
|
|
Cost of professional services revenue |
|
|
i 35,316 |
|
|
|
i 34,890 |
|
|
|
i 70,548 |
|
|
|
i 70,194 |
|
|
Total cost of revenue |
|
|
i 89,448 |
|
|
|
i 83,027 |
|
|
|
i 176,278 |
|
|
|
i 170,432 |
|
|
Gross margin |
|
|
i 372,337 |
|
|
|
i 276,576 |
|
|
|
i 714,558 |
|
|
|
i 545,281 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
i 129,178 |
|
|
|
i 107,438 |
|
|
|
i 253,903 |
|
|
|
i 215,042 |
|
|
Research and development |
|
|
i 72,545 |
|
|
|
i 59,954 |
|
|
|
i 143,380 |
|
|
|
i 125,262 |
|
|
General and administrative |
|
|
i 60,805 |
|
|
|
i 33,629 |
|
|
|
i 110,333 |
|
|
|
i 78,186 |
|
|
Amortization of acquired intangible assets |
|
|
i 7,650 |
|
|
|
i 7,288 |
|
|
|
i 14,197 |
|
|
|
i 14,065 |
|
|
Restructuring and other charges, net |
|
|
i 469 |
|
|
|
i 18,242 |
|
|
|
i 716 |
|
|
|
i 32,276 |
|
|
Total operating expenses |
|
|
i 270,647 |
|
|
|
i 226,551 |
|
|
|
i 522,529 |
|
|
|
i 464,831 |
|
|
Operating income |
|
|
i 101,690 |
|
|
|
i 50,025 |
|
|
|
i 192,029 |
|
|
|
i 80,450 |
|
|
Interest and debt premium expense |
|
|
( i 12,925 |
) |
|
|
( i 32,618 |
) |
|
|
( i 24,444 |
) |
|
|
( i 44,716 |
) |
|
Other expense, net |
|
|
( i 2,408 |
) |
|
|
( i 1,629 |
) |
|
|
( i 3,821 |
) |
|
|
( i 925 |
) |
|
Income before income taxes |
|
|
i 86,357 |
|
|
|
i 15,778 |
|
|
|
i 163,764 |
|
|
|
i 34,809 |
|
|
Provision (benefit) for income taxes |
|
|
( i 22,905 |
) |
|
|
i 8,622 |
|
|
|
i 30,987 |
|
|
|
( i 7,802 |
) |
|
Net income |
|
$ |
i 109,262 |
|
|
$ |
i 7,156 |
|
|
$ |
i 132,777 |
|
|
$ |
i 42,611 |
|
|
Earnings per share—Basic |
|
$ |
i 0.94 |
|
|
$ |
i 0.06 |
|
|
$ |
i 1.14 |
|
|
$ |
i 0.37 |
|
|
Earnings per share—Diluted |
|
$ |
i 0.92 |
|
|
$ |
i 0.06 |
|
|
$ |
i 1.13 |
|
|
$ |
i 0.37 |
|
|
Weighted-average shares outstanding—Basic |
|
|
i 116,777 |
|
|
|
i 115,606 |
|
|
|
i 116,587 |
|
|
|
i 115,401 |
|
|
Weighted-average shares outstanding—Diluted |
|
|
i 118,331 |
|
|
|
i 116,017 |
|
|
|
i 117,966 |
|
|
|
i 115,856 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income |
|
$ |
i 109,262 |
|
|
$ |
i 7,156 |
|
|
$ |
i 132,777 |
|
|
$ |
i 42,611 |
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge gain (loss) arising during the period, net of tax of $ i 0 million and $ i 0.2 million in the second quarter of 2021 and 2020, respectively, and $ i 0 million and $ i 0.9 million in the first six months of 2021 and 2020, respectively |
|
|
i 7,017 |
|
|
|
i 701 |
|
|
|
i 238 |
|
|
|
( i 2,642 |
) |
|
Foreign currency translation adjustment, net of tax of $ i i i i 0 / / / for each period |
|
|
( i 15,851 |
) |
|
|
( i 10,559 |
) |
|
|
i 4,124 |
|
|
|
( i 412 |
) |
|
Unrealized loss on marketable securities, net of tax of $ i i i i 0 / / / for each period |
|
|
i — |
|
|
|
( i 537 |
) |
|
|
( i 307 |
) |
|
|
( i 544 |
) |
|
Amortization of net actuarial pension loss included in net income, net of tax of $ i 0.3 million and $ i 0.3 million in the second quarter of 2021 and 2020, respectively, and $ i 0.6 million and $ i 0.6 million in the first six months of 2021 and 2020, respectively |
|
|
i 744 |
|
|
|
i 680 |
|
|
|
i 1,476 |
|
|
|
i 1,354 |
|
|
Change in unamortized pension loss during the period related to changes in foreign currency |
|
|
i 1,018 |
|
|
|
i 81 |
|
|
|
( i 94 |
) |
|
|
( i 541 |
) |
|
Other comprehensive income (loss) |
|
|
( i 7,072 |
) |
|
|
( i 9,634 |
) |
|
|
i 5,437 |
|
|
|
( i 2,785 |
) |
|
Comprehensive income (loss) |
|
$ |
i 102,190 |
|
|
$ |
( i 2,478 |
) |
|
$ |
i 138,214 |
|
|
$ |
i 39,826 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Six months ended |
|
|||||
|
|
|
|
|
|
||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
i 132,777 |
|
|
$ |
i 42,611 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
i 40,169 |
|
|
|
i 40,193 |
|
|
Amortization of right-of-use lease assets |
|
|
i 18,956 |
|
|
|
i 19,143 |
|
|
Stock-based compensation |
|
|
i 90,828 |
|
|
|
i 48,420 |
|
|
Other non-cash items, net |
|
|
( i 720 |
) |
|
|
( i 1,695 |
) |
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( i 9,854 |
) |
|
|
i 20,187 |
|
|
Accounts payable and accrued expenses |
|
|
i 6,142 |
|
|
|
i 6,583 |
|
|
Accrued compensation and benefits |
|
|
( i 7,038 |
) |
|
|
( i 4,629 |
) |
|
Deferred revenue |
|
|
i 52,210 |
|
|
|
i 17,393 |
|
|
Accrued income taxes |
|
|
( i 4,944 |
) |
|
|
( i 43,815 |
) |
|
Other current assets and prepaid expenses |
|
|
( i 17,049 |
) |
|
|
i 681 |
|
|
Operating lease liabilities |
|
|
( i 9,982 |
) |
|
|
( i 671 |
) |
|
Other noncurrent assets and liabilities |
|
|
( i 56,041 |
) |
|
|
( i 49,072 |
) |
|
Net cash provided by operating activities |
|
|
i 235,454 |
|
|
|
i 95,329 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
( i 8,242 |
) |
|
|
( i 10,243 |
) |
|
Purchases of short- and long-term marketable securities |
|
|
( i 7,562 |
) |
|
|
( i 10,151 |
) |
|
Proceeds from sales of short- and long-term marketable securities |
|
|
i 56,170 |
|
|
|
i — |
|
|
Proceeds from maturities of short- and long-term marketable securities |
|
|
i 9,861 |
|
|
|
i 9,971 |
|
|
Acquisitions of businesses, net of cash acquired |
|
|
( i 717,198 |
) |
|
|
( i 468,520 |
) |
|
Other investing activities |
|
|
( i 3,353 |
) |
|
|
i 2,200 |
|
|
Net cash used in investing activities |
|
|
( i 670,324 |
) |
|
|
( i 476,743 |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Senior Notes |
|
|
i — |
|
|
|
i 1,000,000 |
|
|
Borrowings under credit facility |
|
|
i 600,000 |
|
|
|
i 455,000 |
|
|
Repayments of borrowings under credit facility |
|
|
( i 98,000 |
) |
|
|
( i 480,000 |
) |
|
Proceeds from issuance of common stock |
|
|
i 10,484 |
|
|
|
i 8,980 |
|
|
Debt issuance costs |
|
|
i — |
|
|
|
( i 16,266 |
) |
|
Payments of withholding taxes in connection with stock-based awards |
|
|
( i 27,242 |
) |
|
|
( i 23,571 |
) |
|
Payments of principal for financing leases |
|
|
( i 279 |
) |
|
|
i — |
|
|
Net cash provided by financing activities |
|
|
i 484,963 |
|
|
|
i 944,143 |
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
i 543 |
|
|
|
( i 5,740 |
) |
|
Net change in cash, cash equivalents, and restricted cash |
|
|
i 50,636 |
|
|
|
i 556,989 |
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
i 275,960 |
|
|
|
i 270,689 |
|
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
i 326,596 |
|
|
$ |
i 827,678 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
PTC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
|
|
Three months ended March 31, 2021 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|||||||
|
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Earnings (Accumulated Deficit) |
|
|
Other Comprehensive Loss |
|
|
Total Stockholders’ Equity |
|
||||||
|
Balance as of December 31, 2020 |
|
|
i 116,664 |
|
|
$ |
i 1,167 |
|
|
$ |
i 1,623,379 |
|
|
$ |
( i 38,752 |
) |
|
$ |
( i 90,865 |
) |
|
$ |
i 1,494,929 |
|
|
Common stock issued for employee stock-based awards |
|
|
i 60 |
|
|
|
i 1 |
|
|
|
( i 1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( i 13 |
) |
|
|
— |
|
|
|
( i 1,810 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 1,810 |
) |
|
Common stock issued for employee stock purchase plan |
|
|
i 144 |
|
|
|
i 1 |
|
|
|
i 10,483 |
|
|
|
— |
|
|
|
— |
|
|
|
i 10,484 |
|
|
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
i 44,740 |
|
|
|
— |
|
|
|
— |
|
|
|
i 44,740 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 109,262 |
|
|
|
— |
|
|
|
i 109,262 |
|
|
Unrealized gain on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 7,017 |
|
|
|
i 7,017 |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 15,851 |
) |
|
|
( i 15,851 |
) |
|
Change in pension benefits, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,762 |
|
|
|
i 1,762 |
|
|
Balance as of March 31, 2021 |
|
|
i 116,855 |
|
|
$ |
i 1,169 |
|
|
$ |
i 1,676,791 |
|
|
$ |
i 70,510 |
|
|
$ |
( i 97,937 |
) |
|
$ |
i 1,650,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended March 31, 2021 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
|
|||||||
|
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Earnings (Accumulated Deficit) |
|
|
Other Comprehensive Loss |
|
|
Total Stockholders’ Equity |
|
||||||
|
Balance as of September 30, 2020 |
|
|
i 116,125 |
|
|
$ |
i 1,161 |
|
|
$ |
i 1,602,728 |
|
|
$ |
( i 62,267 |
) |
|
$ |
( i 103,374 |
) |
|
$ |
i 1,438,248 |
|
|
Common stock issued for employee stock-based awards |
|
|
i 862 |
|
|
|
i 9 |
|
|
|
( i 9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( i 276 |
) |
|
|
( i 2 |
) |
|
|
( i 27,239 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 27,241 |
) |
|
Common stock issued for employee stock purchase plan |
|
|
i 144 |
|
|
|
i 1 |
|
|
|
i 10,483 |
|
|
|
— |
|
|
|
— |
|
|
|
i 10,484 |
|
|
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
i 90,828 |
|
|
|
— |
|
|
|
— |
|
|
|
i 90,828 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 132,777 |
|
|
|
— |
|
|
|
i 132,777 |
|
|
Unrealized gain on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 238 |
|
|
|
i 238 |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,124 |
|
|
|
i 4,124 |
|
|
Unrealized loss on available-for-sale securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 307 |
) |
|
|
( i 307 |
) |
|
Change in pension benefits, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,382 |
|
|
|
i 1,382 |
|
|
Balance as of March 31, 2021 |
|
|
i 116,855 |
|
|
$ |
i 1,169 |
|
|
$ |
i 1,676,791 |
|
|
$ |
i 70,510 |
|
|
$ |
( i 97,937 |
) |
|
$ |
i 1,650,533 |
|
5
|
|
|
Three months ended March 28, 2020 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||
|
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Other Comprehensive Loss |
|
|
Total Stockholders’ Equity |
|
||||||
|
Balance as of December 28, 2019 |
|
|
i 115,494 |
|
|
$ |
i 1,155 |
|
|
$ |
i 1,508,030 |
|
|
$ |
( i 157,507 |
) |
|
$ |
( i 103,861 |
) |
|
$ |
i 1,247,817 |
|
|
Common stock issued for employee stock-based awards |
|
|
i 55 |
|
|
|
i 1 |
|
|
|
( i 1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( i 10 |
) |
|
|
— |
|
|
|
( i 722 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 722 |
) |
|
Common stock issued for employee stock purchase plan |
|
|
i 156 |
|
|
|
i 1 |
|
|
|
i 8,979 |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,980 |
|
|
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
i 20,484 |
|
|
|
— |
|
|
|
— |
|
|
|
i 20,484 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 7,156 |
|
|
|
— |
|
|
|
i 7,156 |
|
|
Unrealized gain on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 701 |
|
|
|
i 701 |
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 10,559 |
) |
|
|
( i 10,559 |
) |
|
Unrealized loss on available-for-sale securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 537 |
) |
|
|
( i 537 |
) |
|
Change in pension benefits, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 761 |
|
|
|
i 761 |
|
|
Balance as of March 28, 2020 |
|
|
i 115,695 |
|
|
$ |
i 1,157 |
|
|
$ |
i 1,536,770 |
|
|
$ |
( i 150,351 |
) |
|
$ |
( i 113,495 |
) |
|
$ |
i 1,274,081 |
|
|
|
|
Six months ended March 28, 2020 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||
|
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Other Comprehensive Loss |
|
|
Total Stockholders’ Equity |
|
||||||
|
Balance as of September 30, 2019 |
|
|
i 114,899 |
|
|
$ |
i 1,149 |
|
|
$ |
i 1,502,949 |
|
|
$ |
( i 191,390 |
) |
|
$ |
( i 110,710 |
) |
|
$ |
i 1,201,998 |
|
|
ASU 2016-02 (ASC 842) adoption |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1,572 |
) |
|
|
— |
|
|
|
( i 1,572 |
) |
|
Common stock issued for employee stock-based awards |
|
|
i 958 |
|
|
|
i 10 |
|
|
|
( i 10 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( i 318 |
) |
|
|
( i 3 |
) |
|
|
( i 23,568 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 23,571 |
) |
|
Common stock issued for employee stock purchase plan |
|
|
i 156 |
|
|
|
i 1 |
|
|
|
i 8,979 |
|
|
|
— |
|
|
|
— |
|
|
|
i 8,980 |
|
|
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
i 48,420 |
|
|
|
— |
|
|
|
— |
|
|
|
i 48,420 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 42,611 |
|
|
|
— |
|
|
|
i 42,611 |
|
|
Unrealized loss on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2,642 |
) |
|
|
( i 2,642 |
) |
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 412 |
) |
|
|
( i 412 |
) |
|
Unrealized loss on available-for-sale securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 544 |
) |
|
|
( i 544 |
) |
|
Change in pension benefits, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 813 |
|
|
|
i 813 |
|
|
Balance as of March 28, 2020 |
|
|
i 115,695 |
|
|
$ |
i 1,157 |
|
|
$ |
i 1,536,770 |
|
|
$ |
( i 150,351 |
) |
|
$ |
( i 113,495 |
) |
|
$ |
i 1,274,081 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
6
PTC Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
i1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of our financial position, results of operations and cash flows at the dates and for the periods indicated. The September 30, 2020 Consolidated Balance Sheet included herein is derived from our audited consolidated financial statements.
Unless otherwise indicated, all references to a year mean our fiscal year, which ends on September 30. In the first quarter of 2021, we changed our fiscal calendar from thirteen-week quarters ending on a Saturday to three-month quarters ending on the last calendar day of the third month. There was no change to our fiscal year-end. We do not expect that this change will materially impact comparability of our financial results for fiscal years 2021 and 2020. Because our fiscal year-end did not change, we were not required to file a transition report. The second quarter of 2021 ended on March 31, 2021 and the second quarter of 2020 ended on March 28, 2020. The results of operations for the six months ended March 31, 2021 are not necessarily indicative of the results expected for the remainder of the fiscal year.
Risks and Uncertainties - COVID-19 Pandemic
In December 2019, the virus that causes COVID-19 surfaced. The virus has spread worldwide, including in the United States, and has been declared a pandemic by the World Health Organization. The COVID-19 pandemic has significantly impacted global economic activity and has created macroeconomic uncertainty.
We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the COVID-19 pandemic as of March 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While our assessment did not result in a material impact to our consolidated financial statements as of and for the quarter ended March 31, 2021, our future assessment could result in material impacts to our consolidated financial statements in future reporting periods.
7
Recently Adopted Accounting Pronouncements
Intangibles—Goodwill and Other—Internal-Use Software
In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted the new standard prospectively effective October 1, 2020. As a result of the adoption, we are required to capitalize certain costs related to the implementation of cloud computing arrangements. Capitalized costs related to cloud computing arrangements, which are included in other assets on the Consolidated Balance Sheets, were not material as of March 31, 2020.
Financial Instruments—Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which, along with subsequent amendments, replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. We adopted the new standard effective October 1, 2020, with no impact on our consolidated financial statements.
Pending Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. ASU 2020-04 is effective for all entities upon issuance through December 31, 2022. We are still evaluating the impact, but do not expect the standard to have a material impact on our consolidated financial statements.
Income Taxes
In December 2019, the FASB issued Accounting Standards Update ASU 2019-12, Income Taxes (Topic 740) on Simplifying the Accounting for Income Taxes. The decisions reflected in ASU 2019-12 update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. The new standard will be effective for us in the first quarter of 2022, though early adoption of the amendments is permitted. We are currently evaluating the impact the standard will have on our consolidated financial statements, but at this time we do not expect it to be material.
i2. Revenue from Contracts with Customers
iContract Assets and Contract Liabilities
|
(in thousands) |
|
|
|
|
||||
|
Contract asset |
|
$ |
i 10,328 |
|
|
$ |
i 11,984 |
|
|
Deferred revenue |
|
$ |
i 492,421 |
|
|
$ |
i 426,465 |
|
/
As of March 31, 2021, $ i 7.6 million of our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. The remainder is included in other long-term assets and expected to be transferred within the next 24 months. Approximately $ i 6.3 million of the September 30, 2020 contract asset balance was transferred to receivables during the six months ended March 31, 2021 as a result of the right to payment becoming unconditional. Additions to contract assets of approximately $ i 4.6 million related to revenue recognized in the period, net of billings. The majority of the contract asset balance relates to two large professional services contracts with invoicing terms based on performance milestones. There were i no impairments of contract assets during the six months ended March 31, 2021.
/8
During the six months ended March 31, 2021, we recognized $ i 302.9 million of revenue that was included in deferred revenue as of September 30, 2020 and there were additional deferrals of $ i 353.3 million, primarily related to new billings. In addition, deferred revenue increased by $ i 15.5 million as a result of the acquisition of Arena. For subscription contracts, we generally invoice customers annually. The balance of total short- and long-term receivables as of September 30, 2020 was $ i 511.3 million, compared to total short- and long-term receivables as of March 31, 2021 of $ i 578.1 million.
Our multi-year, non-cancellable on-premise subscription contracts provide customers with an annual right to exchange software within the subscription with other software. As of March 31, 2021 and September 30, 2020, the total refund liability was $ i 39.6 million and $ i 34.5 million, respectively, primarily associated with the annual right to exchange on-premise subscription software.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Effective October 1, 2020, we adopted ASC 326, Financial Instruments—Credit Losses, which replaces the incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic conditions, and accounts receivable aging trends. Our allowance for doubtful accounts on trade accounts receivable was $ i i 0.5 / million as of March 31, 2021 and September 30, 2020. Uncollectible trade accounts receivable written-off and bad debt expense were immaterial in the three and six months ended March 31, 2021.
Costs to Obtain a Contract
We recognize an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred costs primarily relate to commissions. As of March 31, 2021 and September 30, 2020, deferred costs to obtain a contract of $ i 41.0 million and $ i 33.9 million, respectively, are included in other current assets and $ i 73.4 million and $ i 72.9 million, respectively, are included in other assets (non-current). Amortization expense related to costs to obtain a contract with a customer was $ i 11.0 million and $ i 21.4 million in the three and six months ended March 31, 2021, respectively, and $ i 8.5 million and $ i 16.2 million in the three and six months ended March 28, 2020, respectively. There were i i i i no / / / impairments of the contract cost asset in the three and six months ended March 31, 2021 and March 28, 2020.
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of March 31, 2021, the amounts include performance obligations of $ i 492.4 million recorded in deferred revenue and $ i 894.5 million that are not yet recorded in the Consolidated Balance Sheets. We expect to recognize approximately i 85% of the total $ i 1,386.9 million over the next i 24 months, with the remaining amount thereafter. Certain of our multi-year subscription contracts with start dates on or after October 1, 2018 contain a limited annual cancellation right. For such cancellable subscription contracts, we consider each annual period a discrete contract. Early in the fourth quarter of 2019, we discontinued offering this cancellation right for substantially all new contracts. Remaining performance obligations do not include the cancellable value for subscriptions which contain this cancellation right.
iDisaggregation of Revenue
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Recurring revenue(1) |
|
$ |
i 414,845 |
|
|
$ |
i 315,862 |
|
|
$ |
i 799,803 |
|
|
$ |
i 621,230 |
|
|
Perpetual license |
|
|
i 6,922 |
|
|
|
i 8,218 |
|
|
|
i 15,385 |
|
|
|
i 17,216 |
|
|
Professional services |
|
|
i 40,018 |
|
|
|
i 35,523 |
|
|
|
i 75,648 |
|
|
|
i 77,267 |
|
|
Total revenue |
|
$ |
i 461,785 |
|
|
$ |
i 359,603 |
|
|
$ |
i 890,836 |
|
|
$ |
i 715,713 |
|
|
(1) |
Recurring revenue is comprised of subscription, perpetual support, SaaS, and cloud revenue. |
/
9
For further disaggregation of revenue by geographic region and product group see Note 11. Segment and Geographic Information.
i3. Restructuring and Other Charges
Restructuring and other charges, net includes restructuring charges (credits), headquarters relocation charges, and impairment and accretion expense charges related to the lease assets of exited facilities. Refer to Note 14. Leases for additional information about exited facilities.
For the three and six months ended March 31, 2021, restructuring and other charges, net totaled $ i 0.5 million and $ i 0.7 million, respectively, of which $ i 0.2 million and $ i 0.4 million is attributable to restructuring charges, respectively, and $ i 0.3 million and $ i 0.3 million is attributable to impairment and accretion expense related to exited facilities, respectively.
For the three and six months ended March 28, 2020, restructuring and other charges, net totaled $ i 18.2 million and $ i 32.3 million, respectively, of which $ i 13.2 million and $ i 27.0 million is attributable to restructuring charges, respectively, and $ i 4.7 million and $ i 5.0 million is attributable to impairment and accretion expense related to exited lease facilities, respectively. The restructuring and other charges for the second quarter and first six months of 2020 also include $ i i 0.3 / million of accelerated depreciation related to the planned exit of a facility.
Restructuring Charges
During the first quarter of 2020, we initiated a restructuring program as part of a realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition. The restructuring plan resulted in charges of $ i 30.8 million through fiscal year 2020 for termination benefits associated with approximately i 250 employees. During the six months ended March 31, 2021, we incurred charges of $ i 0.2 million in connection with this restructuring plan.
iThe following table summarizes restructuring accrual activity for the six months ended March 31, 2021:
|
(in thousands) |
|
Employee Severance and Related Benefits |
|
|
Facility Closures and Related Costs |
|
|
Total |
|
|||
|
Accrual, October 1, 2020 |
|
$ |
i 3,992 |
|
|
$ |
i 5,995 |
|
|
$ |
i 9,987 |
|
|
Charges to operations, net |
|
|
i 163 |
|
|
|
i 199 |
|
|
|
i 362 |
|
|
Cash disbursements |
|
|
( i 3,924 |
) |
|
|
( i 1,497 |
) |
|
|
( i 5,421 |
) |
|
Foreign exchange impact |
|
|
i 31 |
|
|
|
i 14 |
|
|
|
i 45 |
|
|
Accrual, March 31, 2021 |
|
$ |
i 262 |
|
|
$ |
i 4,711 |
|
|
$ |
i 4,973 |
|
/
The following table summarizes restructuring accrual activity for the six months ended March 28, 2020:
|
(in thousands) |
|
Employee Severance and Related Benefits |
|
|
Facility Closures and Related Costs |
|
|
Total |
|
|||
|
Accrual, October 1, 2019 |
|
$ |
i 298 |
|
|
$ |
i 30,788 |
|
|
$ |
i 31,086 |
|
|
ASC 842 adoption |
|
|
i — |
|
|
|
( i 16,462 |
) |
|
|
( i 16,462 |
) |
|
Charges to operations, net |
|
|
i 31,358 |
|
|
|
( i 4,362 |
) |
|
|
i 26,996 |
|
|
Cash disbursements |
|
|
( i 14,324 |
) |
|
|
( i 2,495 |
) |
|
|
( i 16,819 |
) |
|
Other non-cash |
|
|
i — |
|
|
|
( i 281 |
) |
|
|
( i 281 |
) |
|
Foreign exchange impact |
|
|
i 153 |
|
|
|
( i 5 |
) |
|
|
i 148 |
|
|
Accrual, March 28, 2020 |
|
$ |
i 17,485 |
|
|
$ |
i 7,183 |
|
|
$ |
i 24,668 |
|
The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.
/10
Of the accrual for facility closures and related costs, as of March 31, 2021, $ i 2.6 million is included in accrued expenses and other current liabilities and $ i 2.1 million is included in other liabilities in the Consolidated Balance Sheets.
i4. Stock-based Compensation
Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs, including performance-based awards, as our principal equity incentive awards.
iThe following table shows RSU activity for the six months ended March 31, 2021:
|
(in thousands, except grant date fair value data) |
|
Number of RSUs |
|
|
Weighted-Average Grant Date Fair Value Per RSU |
|
||
|
Balance of outstanding restricted stock units, October 1, 2020 |
|
|
i 3,509 |
|
|
$ |
i 79.13 |
|
|
Granted(1) |
|
|
i 1,004 |
|
|
$ |
i 103.64 |
|
|
Vested |
|
|
( i 861 |
) |
|
$ |
i 79.86 |
|
|
Forfeited or not earned |
|
|
( i 67 |
) |
|
$ |
i 80.39 |
|
|
Balance of outstanding restricted stock units, March 31, 2021 |
|
|
i 3,585 |
|
|
$ |
i 85.91 |
|
|
(1) |
Restricted stock granted includes i 33,000 shares from prior period TSR awards that were earned upon achievement of the performance criteria and vested in November 2020. |
The following table presents the number of RSU awards granted by award type:
|
(in thousands) |
|
Six months ended |
|
|
|
Performance-based RSUs(1) |
|
|
i 90 |
|
|
Service-based RSUs(2) |
|
|
i 791 |
|
|
Total Shareholder Return RSUs(3) |
|
|
i 90 |
|
|
(1) |
The performance-based RSUs were granted to our executives and are eligible to vest based upon annual performance measures over a three-year period. To the extent earned, those performance-based RSUs will vest in i three substantially equal installments on November 15, 2021, 2022 and 2023, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period. Up to a maximum of i two times the number of RSUs can be earned (a maximum aggregate of i 179,000 RSUs). |
|
(2) |
The service-based RSUs were granted to employees, including our executive officers. Substantially all service-based RSUs will vest in i three substantially equal annual installments on or about the anniversary of the date of grant. |
|
(3) |
The Total Shareholder Return RSUs (TSR RSUs) were granted to our executives and are eligible to vest based on the performance of PTC stock relative to the stock performance of an index of PTC peer companies established as of the grant date, as determined at the end of three measurement periods ending on September 30, 2021, 2022 and 2023, respectively. The RSUs earned for each period will vest on November 15, 2021, 2022, and 2023. Up to a maximum of i two times the number of TSR RSUs eligible to be earned for the period (up to a maximum aggregate of i 179,000 RSUs) may vest. If the return to PTC shareholders is negative for a period but still meets or exceeds the peer group indexed return, a maximum of i 100% of the eligible TSR RSUs may vest for the measurement period. |
The weighted-average fair value of the TSR RSUs was $ i 124.04 per target RSU on the grant date. The fair value of the TSR RSUs was determined using a Monte Carlo simulation model.
iThe significant assumptions used in the Monte Carlo simulation model were as follows:
|
Average volatility of peer group |
|
|
i 41.5 |
% |
|
Risk free interest rate |
|
|
i 0.21 |
% |
|
Dividend yield |
|
|
i — |
% |
/
11
Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Cost of license revenue |
|
$ |
i 20 |
|
|
$ |
i 11 |
|
|
$ |
i 40 |
|
|
$ |
i 11 |
|
|
Cost of support and cloud services revenue |
|
|
i 2,309 |
|
|
|
i 1,524 |
|
|
|
i 4,611 |
|
|
|
i 3,010 |
|
|
Cost of professional services revenue |
|
|
i 2,177 |
|
|
|
i 1,465 |
|
|
|
i 4,289 |
|
|
|
i 3,022 |
|
|
Sales and marketing |
|
|
i 13,305 |
|
|
|
i 7,146 |
|
|
|
i 28,304 |
|
|
|
i 14,598 |
|
|
Research and development |
|
|
i 7,921 |
|
|
|
i 4,765 |
|
|
|
i 16,364 |
|
|
|
i 11,697 |
|
|
General and administrative |
|
|
i 19,008 |
|
|
|
i 5,573 |
|
|
|
i 37,220 |
|
|
|
i 16,082 |
|
|
Total stock-based compensation expense |
|
$ |
i 44,740 |
|
|
$ |
i 20,484 |
|
|
$ |
i 90,828 |
|
|
$ |
i 48,420 |
|
Stock-based compensation expense includes $ i 1.8 million and $ i 3.8 million in the second quarter and first six months of 2021, respectively, and $ i 1.3 million and $ i 2.8 million in the second quarter and first six months of 2020, respectively, related to our employee stock purchase plan.
i5. Earnings per Share (EPS) and Common Stock
EPS
iThe following table presents the calculation for both basic and diluted EPS:
|
(in thousands, except per share data) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income |
|
$ |
i 109,262 |
|
|
$ |
i 7,156 |
|
|
$ |
i 132,777 |
|
|
$ |
i 42,611 |
|
|
Weighted-average shares outstanding—Basic |
|
|
i 116,777 |
|
|
|
i 115,606 |
|
|
|
i 116,587 |
|
|
|
i 115,401 |
|
|
Dilutive effect of restricted stock units |
|
|
i 1,554 |
|
|
|
i 411 |
|
|
|
i 1,379 |
|
|
|
i 455 |
|
|
Weighted-average shares outstanding—Diluted |
|
|
i 118,331 |
|
|
|
i 116,017 |
|
|
|
i 117,966 |
|
|
|
i 115,856 |
|
|
Earnings per share—Basic |
|
$ |
i 0.94 |
|
|
$ |
i 0.06 |
|
|
$ |
i 1.14 |
|
|
$ |
i 0.37 |
|
|
Earnings per share—Diluted |
|
$ |
i 0.92 |
|
|
$ |
i 0.06 |
|
|
$ |
i 1.13 |
|
|
$ |
i 0.37 |
|
Anti-dilutive shares were immaterial for the three and six months ended March 31, 2021, respectively, and there were i 0.3 and i 0.1 million anti-dilutive shares for the three and six months ended March 28, 2020, respectively.
Common Stock Repurchases
Our Articles of Organization authorize us to issue up to i 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $ i 1 billion of our common stock in the period October 1, 2020 through September 30, 2023. We did i i i i no / / / t repurchase any shares in the second quarter and first six months of 2021 or 2020. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.
/ i6. Acquisitions
Acquisition-related costs in the second quarter and first six months of 2021 totaled $ i 10.3 million and $ i 14.2 million, respectively, compared to $ i 0.3 million and $ i 7.4 million, respectively, in the second quarter and first six months of 2020. These costs are classified in general and administrative expenses in the accompanying Consolidated Statements of Operations.
Our results of operations include the results of acquired businesses beginning on their respective acquisition date. Our results of operations for the reported periods if presented on a pro forma basis would not differ materially from our reported results.
Arena
On January 15, 2021, we acquired Arena Holdings, Inc. (“Arena”) pursuant to the Agreement and Plan of Merger dated as of December 12, 2020 by and among PTC, Arena, Astronauts Merger Sub, Inc.,
/12
and the Representative named therein, the material terms of which are described in the Form 8-K filed by PTC on December 14, 2020 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $ i 715 million, net of cash acquired of $ i 11.3 million, for Arena, which amount was financed with cash on hand and $ i 600 million borrowed under our existing credit facility. Arena had approximately i 170 employees on the close date. The acquisition of Arena is expected to add revenue of approximately $ i 40 million in 2021.
The acquisition of Arena has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.
The purchase price allocation resulted in $ i 562.7 million of goodwill, $ i 155.0 million of customer relationships, $ i 38.3 million of purchased software, $ i 4.2 million of trademarks, $ i 41.3 million of deferred tax liabilities, $ i 15.5 million of deferred revenue, $ i 11.4 million of accounts receivable, and $ i 0.4 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of i 13 years, i 9 years, and i 12 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by participation in expected future growth of the PLM SaaS market and expansion into the mid-market for PLM, where SaaS solutions are becoming the standard.
Onshape
On November 1, 2019, we acquired Onshape Inc. pursuant to the Agreement and Plan of Merger dated as of October 23, 2019 by and among Onshape Inc., OPAL Acquisition Corporation and the Stockholder Representative named therein, the material terms of which are described in the Form 8-K filed by PTC on October 23, 2019 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $ i 469 million, net of cash acquired of $ i 7.5 million, for Onshape, which amount we borrowed under our existing credit facility. Onshape had approximately i 110 employees on the close date. The acquisition of Onshape did not add material revenue in 2020.
The acquisition of Onshape has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.
The purchase price allocation resulted in $ i 364.9 million of goodwill, $ i 56.8 million of customer relationships, $ i 47.3 million of purchased software, $ i 3.6 million of trademarks and $ i 4.1 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of i 10 years, i 16 years, and i 15 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by the expected acceleration of CAD and PLM growth, especially in the low end of the market, and participation in expected future growth of the CAD and PLM SaaS market. In addition, over the longer term, we anticipate building products based on the Onshape SaaS technology platform, which is the basis for Atlas.
i7. Goodwill and Intangible Assets
We have i i two / operating and reportable segments: (1) Software Products and (2) Professional Services.
As of March 31, 2021, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $ i 2,558.7 million and attributable to our Professional Services segment was $ i 45.2 million. As of September 30, 2020, goodwill and acquired intangible assets in the aggregate
/13
attributable to our Software Products segment was $ i 1,818.1 million and attributable to our Professional Services segment was $ i 45.3 million.
We completed our annual goodwill impairment review as of June 27, 2020 based on a quantitative assessment. To conduct these tests of goodwill, the fair value of a reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, we record an impairment loss equal to the difference between the carrying value of goodwill and its estimated fair value. We estimate the fair values of our reporting units using discounted cash flow valuation models. Those models require estimates of future revenues, profits, capital expenditures, working capital, terminal values based on revenue multiples, and discount rates for each reporting unit. We estimate these amounts by evaluating historical trends; current budgets and operating plans, including consideration of the impact of the COVID-19 pandemic on our future results; and industry data. The estimated fair value of each reporting unit exceeded its carrying value as of June 27, 2020. Through March 31, 2021, there were no events or changes in circumstances that indicated that the carrying values of goodwill or acquired intangible assets may not be recoverable.
iGoodwill and acquired intangible assets consisted of the following:
|
(in thousands) |
|
|
|
|
||||||||||||||||||||
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
||||||
|
Goodwill (not amortized) |
|
|
|
|
|
|
|
|
|
$ |
i 2,193,632 |
|
|
|
|
|
|
|
|
|
|
$ |
i 1,625,786 |
|
|
Intangible assets with finite lives (amortized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software |
|
$ |
i 484,190 |
|
|
$ |
i 322,869 |
|
|
$ |
i 161,321 |
|
|
$ |
i 443,275 |
|
|
$ |
i 309,124 |
|
|
$ |
i 134,151 |
|
|
Capitalized software |
|
|
i 22,877 |
|
|
|
i 22,877 |
|
|
|
i — |
|
|
|
i 22,877 |
|
|
|
i 22,877 |
|
|
|
i — |
|
|
Customer lists and relationships |
|
|
i 575,836 |
|
|
|
i 337,194 |
|
|
|
i 238,642 |
|
|
|
i 418,953 |
|
|
|
i 322,092 |
|
|
|
i 96,861 |
|
|
Trademarks and trade names |
|
|
i 26,959 |
|
|
|
i 16,612 |
|
|
|
i 10,347 |
|
|
|
i 22,687 |
|
|
|
i 16,129 |
|
|
|
i 6,558 |
|
|
Other |
|
|
i 4,019 |
|
|
|
i 4,019 |
|
|
|
i — |
|
|
|
i 4,017 |
|
|
|
i 4,017 |
|
|
|
i — |
|
|
Total intangible assets with finite lives |
|
$ |
i 1,113,881 |
|
|
$ |
i 703,571 |
|
|
$ |
i 410,310 |
|
|
$ |
i 911,809 |
|
|
$ |
i 674,239 |
|
|
$ |
i 237,570 |
|
|
Total goodwill and acquired intangible assets |
|
|
|
|
|
|
|
|
|
$ |
i 2,603,942 |
|
|
|
|
|
|
|
|
|
|
$ |
i 1,863,356 |
|
Goodwill
iChanges in goodwill presented by reportable segments were as follows:
|
(in thousands) |
|
Software Products |
|
|
Professional Services |
|
|
Total |
|
|||
|
Balance, October 1, 2020 |
|
$ |
i 1,583,316 |
|
|
$ |
i 42,470 |
|
|
$ |
i 1,625,786 |
|
|
Arena acquisition |
|
|
i 562,657 |
|
|
|
i — |
|
|
|
i 562,657 |
|
|
Other acquisitions |
|
|
i 963 |
|
|
|
i — |
|
|
|
i 963 |
|
|
Foreign currency translation adjustment |
|
|
i 4,116 |
|
|
|
i 110 |
|
|
|
i 4,226 |
|
|
Balance, March 31, 2021 |
|
$ |
i 2,151,052 |
|
|
$ |
i 42,580 |
|
|
$ |
i 2,193,632 |
|
Amortization of Intangible Assets
iThe aggregate amortization expense for intangible assets with finite lives is classified in our Consolidated Statements of Operations as follows:
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Amortization of acquired intangible assets |
|
$ |
i 7,650 |
|
|
$ |
i 7,288 |
|
|
$ |
i 14,197 |
|
|
$ |
i 14,065 |
|
|
Cost of license revenue |
|
|
i 7,117 |
|
|
|
i 6,879 |
|
|
|
i 13,384 |
|
|
|
i 13,678 |
|
|
Total amortization expense |
|
$ |
i 14,767 |
|
|
$ |
i 14,167 |
|
|
$ |
i 27,581 |
|
|
$ |
i 27,743 |
|
i
8. Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. There are three levels of inputs that are used to measure fair value:
14
|
|
• |
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; |
|
|
• |
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or |
|
|
• |
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.
Foreign currency derivative contracts are typically classified within Level 2 of the fair value hierarchy. The principal market in which we execute our foreign currency derivatives is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants are usually large financial institutions. Our foreign currency derivatives’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment.
iOur significant financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and September 30, 2020 were as follows:
|
(in thousands) |
|
|
||||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
i 115,533 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 115,533 |
|
|
Derivative instruments |
|
|
i — |
|
|
|
i 6,846 |
|
|
|
i — |
|
|
|
i 6,846 |
|
|
Convertible note |
|
|
i — |
|
|
|
i — |
|
|
|
i 1,000 |
|
|
|
i 1,000 |
|
|
Total financial assets |
|
$ |
i 115,533 |
|
|
$ |
i 6,846 |
|
|
$ |
i 1,000 |
|
|
$ |
i 123,379 |
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
i — |
|
|
|
i 4,259 |
|
|
|
i — |
|
|
|
i 4,259 |
|
|
Total financial liabilities |
|
$ |
i — |
|
|
$ |
i 4,259 |
|
|
$ |
i — |
|
|
$ |
i 4,259 |
|
|
(in thousands) |
|
|
||||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
i 105,299 |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 105,299 |
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate notes/bonds |
|
|
i 59,099 |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 59,099 |
|
|
Derivative instruments |
|
|
i — |
|
|
|
i 903 |
|
|
|
i — |
|
|
|
i 903 |
|
|
Total financial assets |
|
$ |
i 164,398 |
|
|
$ |
i 903 |
|
|
$ |
i — |
|
|
$ |
i 165,301 |
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
i — |
|
|
|
i 1,073 |
|
|
|
i — |
|
|
|
i 1,073 |
|
|
Total financial liabilities |
|
$ |
i — |
|
|
$ |
i 1,073 |
|
|
$ |
i — |
|
|
$ |
i 1,073 |
|
Level 3 Debt Investments
In the first quarter of 2021, we invested $ i 1.0 million into a non-marketable convertible note. This debt security is classified as available-for-sale and is included in other assets on the Consolidated Balance Sheet. There were i i no / t any changes in the fair value of this level 3 investment in the three and six months ended March 31, 2021.
Non-Marketable Equity Investments
The carrying value of our non-marketable equity investments is recorded in other assets on the Consolidated Balance Sheets and totaled $ i i 8.9 / million as of both March 31, 2021 and September 30, 2020.
15
9. Marketable Securities
We did i not hold any marketable securities as of March 31, 2021. In December 2020, we sold all our marketable securities to partially fund the Arena acquisition, resulting in proceeds of $ i 56.2 million. Neither gross realized gains nor gross realized losses related to the sale were material. i The amortized cost and fair value of marketable securities as of September 30, 2020 were as follows:
|
(in thousands) |
|
|
||||||||||||||
|
|
|
Amortized cost |
|
|
Gross unrealized gains |
|
|
Gross unrealized losses |
|
|
Fair value |
|
||||
|
Corporate notes/bonds |
|
$ |
i 58,793 |
|
|
$ |
i 323 |
|
|
$ |
( i 17 |
) |
|
$ |
i 59,099 |
|
i
The following table summarizes the fair value and gross unrealized losses aggregated by category and the length of time that individual securities had been in a continuous unrealized loss position as of September 30, 2020:
|
(in thousands) |
|
|
||||||||||||||||||||||
|
|
|
Less than twelve months |
|
|
Greater than twelve months |
|
|
Total |
|
|||||||||||||||
|
|
|
Fair Value |
|
|
Gross unrealized loss |
|
|
Fair Value |
|
|
Gross unrealized loss |
|
|
Fair Value |
|
|
Gross unrealized loss |
|
||||||
|
Corporate notes/bonds |
|
$ |
i 9,841 |
|
|
$ |
( i 17 |
) |
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 9,841 |
|
|
$ |
( i 17 |
) |
/ i
The following table presents our marketable securities by contractual maturity date as of September 30, 2020:
|
(in thousands) |
|
|
||||||
|
|
|
Amortized cost |
|
|
Fair value |
|
||
|
Due in one year or less |
|
$ |
i 27,727 |
|
|
$ |
i 27,899 |
|
|
Due after one year through three years |
|
|
i 31,066 |
|
|
|
i 31,200 |
|
|
Total |
|
$ |
i 58,793 |
|
|
$ |
i 59,099 |
|
/ / i
10. Derivative Financial Instruments
We enter into derivative transactions, specifically foreign currency forward contracts and options, to manage our exposure to foreign currency exchange risk in order to reduce earnings volatility. We do not enter into derivatives transactions for trading or speculative purposes.
iThe following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:
|
(in thousands) |
|
Fair Value of Derivatives Designated As Hedging Instruments |
|
|
Fair Value of Derivatives Not Designated As Hedging Instruments |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Derivative assets(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
$ |
i 2,470 |
|
|
$ |
i 3 |
|
|
$ |
i 3,414 |
|
|
$ |
i 900 |
|
|
Options |
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 962 |
|
|
$ |
i — |
|
|
Derivative liabilities(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
$ |
i — |
|
|
$ |
i 306 |
|
|
$ |
i 4,259 |
|
|
$ |
i 767 |
|
|
(1) |
As of March 31, 2021 and September 30, 2020, current derivative assets of $ i 6.8 million and $ i 0.9 million, respectively, are recorded in other current assets in the Consolidated Balance Sheets. |
|
(2) |
As of March 31, 2021 and September 30, 2020, current derivative liabilities of $ i 4.3 million and $ i 1.1 million, respectively, are recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets. |
Non-Designated Hedges
We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce
/16
the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately three months. Generally, we do not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in other expense, net.
We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they would be adversely affected by changes in Euro exchange rates. These contracts have maturities of up to approximately ten months. We do not designate these foreign currency options as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into options only as an economic hedge, any loss on the underlying Euro-denominated forecasted plan rate would be offset by the gain on the put option. Gains on put options are included in other expense, net.
iAs of March 31, 2021 and September 30, 2020, we had outstanding forward contracts and options with notional amounts equivalent to the following:
|
Currency Hedged (in thousands) |
|
|
|
|
||||
|
Canadian / U.S. Dollar |
|
$ |
i 5,824 |
|
|
$ |
i 6,847 |
|
|
Euro / U.S. Dollar(1) |
|
|
i 532,906 |
|
|
|
i 390,673 |
|
|
British Pound / U.S. Dollar |
|
|
i 1,459 |
|
|
|
i 6,328 |
|
|
Israeli Shekel / U.S. Dollar |
|
|
i 10,115 |
|
|
|
i 9,503 |
|
|
Japanese Yen / U.S. Dollar |
|
|
i 10,186 |
|
|
|
i 50,379 |
|
|
Swiss Franc / U.S. Dollar |
|
|
i 2,327 |
|
|
|
i 12,874 |
|
|
Swedish Krona / U.S. Dollar |
|
|
i 25,564 |
|
|
|
i 18,871 |
|
|
Chinese Renminbi / U.S. Dollar |
|
|
i 12,523 |
|
|
|
i 5,415 |
|
|
Taiwanese Dollar / U.S. Dollar |
|
|
i 7,876 |
|
|
|
i 1,482 |
|
|
All other |
|
|
i 13,506 |
|
|
|
i 10,090 |
|
|
Total |
|
$ |
i 622,286 |
|
|
$ |
i 512,462 |
|
|
(1) |
As of March 31, 2021, $ i 456.7 million of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts and $ i 76.2 million relates to options. As of September 30, 2020, all of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts. |
i
The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2021 and March 28, 2020:
|
(in thousands) |
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
Location of Gain (Loss) |
|
|
|
|
|
|
|
|
||||||||
|
Net realized and unrealized gain (loss), excluding the underlying foreign currency exposure being hedged |
|
Other expense, net |
|
$ |
( i 3,033 |
) |
|
$ |
i 1,189 |
|
|
$ |
( i 4,620 |
) |
|
$ |
i 652 |
|
Net Investment Hedges
We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S. Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets. We designate certain foreign exchange forward contracts as net investment hedges against exposure on translation of balance sheet accounts of Euro functional subsidiaries. Net investment hedges partially offset the impact of foreign currency translation adjustment recorded in accumulated other comprehensive loss on the Consolidated Balance Sheets. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of net investment hedge foreign exchange forward contracts is approximately three months.
17
Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of Euro functional subsidiaries. As the forward contracts are highly effective in offsetting exchange rate exposure, we record changes in these net investment hedges in accumulated other comprehensive loss and subsequently reclassify them to foreign currency translation adjustment in accumulated other comprehensive loss at the time of forward contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in time value are excluded from the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with counterparties by trading among several counterparties and we review our counterparties’ credit at least quarterly.
As of March 31, 2021 and September 30, 2020, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:
|
Currency Hedged (in thousands) |
|
|
|
|
||||
|
Euro / U.S. Dollar |
|
$ |
i 165,784 |
|
|
$ |
i 164,885 |
|
The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2021 and March 28, 2020:
|
(in thousands) |
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
Location of Gain (Loss) |
|
|
|
|
|
|
|
|
||||||||
|
Gain (loss) recognized in OCI |
|
OCI |
|
$ |
i 1,462 |
|
|
$ |
( i 2,140 |
) |
|
$ |
i 2,041 |
|
|
$ |
( i 5,706 |
) |
|
Loss reclassified from OCI |
|
OCI |
|
|
( i 3,041 |
) |
|
|
( i 6,016 |
) |
|
|
( i 99 |
) |
|
|
( i 6,778 |
) |
|
Gain recognized, excluded portion |
|
Other expense, net |
|
|
i 426 |
|
|
|
i 962 |
|
|
|
i 733 |
|
|
|
i 2,191 |
|
As of March 31, 2021, we estimate that all amounts reported in accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.
Offsetting Derivative Assets and Liabilities
We have entered into master netting arrangements for our forward contracts that allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.
iThe following table sets forth the offsetting of derivative assets as of March 31, 2021:
|
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
|
||||||||||
|
As of March 31, 2021 |
|
Gross Amount of Recognized Assets |
|
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
Net Amounts of Assets Presented in the Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Received |
|
|
Net Amount |
|
||||||
|
Forward Contracts |
|
$ |
i 5,884 |
|
|
$ |
i — |
|
|
$ |
i 5,884 |
|
|
$ |
( i 4,259 |
) |
|
$ |
i — |
|
|
$ |
i 1,625 |
|
i
The following table sets forth the offsetting of derivative liabilities as of March 31, 2021:
|
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
|
||||||||||
|
As of March 31, 2021 |
|
Gross Amount of Recognized Liabilities |
|
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
Net Amounts of Liabilities Presented in the Consolidated Balance Sheets |
|
|
Financial Instruments |
|
|
Cash Collateral Pledged |
|
|
Net Amount |
|
||||||
|
Forward Contracts |
|
$ |
i 4,259 |
|
|
$ |
i — |
|
|
$ |
i 4,259 |
|
|
$ |
( i 4,259 |
) |
|
$ |
i — |
|
|
$ |
i — |
|
18
11. Segment and Geographic Information
We operate within a single industry segment – computer software and related services. We have i i two / operating and reportable segments: (1) Software Products, which includes license, subscription, SaaS, and related support revenue (including updates and technical support) for all our products; and (2) Professional Services, which includes consulting, implementation and training services. We do not allocate sales and marketing or general and administrative expense to our operating segments as these activities are managed on a consolidated basis. Additionally, segment profit does not include stock-based compensation, amortization of intangible assets, restructuring charges and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.
iThe revenue and profit attributable to our operating segments are summarized below. We do not produce asset information by reportable segment; therefore, it is not reported.
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Software Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
i 421,767 |
|
|
$ |
i 324,080 |
|
|
$ |
i 815,188 |
|
|
$ |
i 638,446 |
|
|
Operating costs(1) |
|
|
i 109,310 |
|
|
|
i 94,912 |
|
|
|
i 214,711 |
|
|
|
i 197,104 |
|
|
Profit |
|
|
i 312,457 |
|
|
|
i 229,168 |
|
|
|
i 600,477 |
|
|
|
i 441,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
i 40,018 |
|
|
|
i 35,523 |
|
|
|
i 75,648 |
|
|
|
i 77,267 |
|
|
Operating costs(2) |
|
|
i 33,139 |
|
|
|
i 33,425 |
|
|
|
i 66,259 |
|
|
|
i 67,172 |
|
|
Profit |
|
|
i 6,879 |
|
|
|
i 2,098 |
|
|
|
i 9,389 |
|
|
|
i 10,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
|
i 461,785 |
|
|
|
i 359,603 |
|
|
|
i 890,836 |
|
|
|
i 715,713 |
|
|
Total segment costs |
|
|
i 142,449 |
|
|
|
i 128,337 |
|
|
|
i 280,970 |
|
|
|
i 264,276 |
|
|
Total segment profit |
|
|
i 319,336 |
|
|
|
i 231,266 |
|
|
|
i 609,866 |
|
|
|
i 451,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
|
i 115,873 |
|
|
|
i 100,292 |
|
|
|
i 225,599 |
|
|
|
i 200,444 |
|
|
General and administrative expenses |
|
|
i 31,487 |
|
|
|
i 27,795 |
|
|
|
i 58,887 |
|
|
|
i 54,714 |
|
|
Restructuring and other charges, net |
|
|
i 469 |
|
|
|
i 18,242 |
|
|
|
i 716 |
|
|
|
i 32,276 |
|
|
Intangibles amortization |
|
|
i 14,767 |
|
|
|
i 14,167 |
|
|
|
i 27,581 |
|
|
|
i 27,743 |
|
|
Stock-based compensation |
|
|
i 44,740 |
|
|
|
i 20,484 |
|
|
|
i 90,828 |
|
|
|
i 48,420 |
|
|
Other unallocated operating expenses(3) |
|
|
i 10,310 |
|
|
|
i 261 |
|
|
|
i 14,226 |
|
|
|
i 7,390 |
|
|
Total operating income |
|
|
i 101,690 |
|
|
|
i 50,025 |
|
|
|
i 192,029 |
|
|
|
i 80,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and debt premium expense |
|
|
( i 12,925 |
) |
|
|
( i 32,618 |
) |
|
|
( i 24,444 |
) |
|
|
( i 44,716 |
) |
|
Other expense, net |
|
|
( i 2,408 |
) |
|
|
( i 1,629 |
) |
|
|
( i 3,821 |
) |
|
|
( i 925 |
) |
|
Income before income taxes |
|
$ |
i 86,357 |
|
|
$ |
i 15,778 |
|
|
$ |
i 163,764 |
|
|
$ |
i 34,809 |
|
|
(1) |
Operating costs for the Software Products segment include all costs of software revenue and research and development costs, excluding stock-based compensation and intangible amortization. |
|
(2) |
Operating costs for the Professional Services segment include all costs of professional services revenue, excluding stock-based compensation. |
|
(3) |
Other unallocated operating expenses include acquisition-related and other transactional costs. |
Our international revenue is presented based on the location of our customer. Revenue for the geographic regions in which we operate is presented below.
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Americas |
|
$ |
i 180,329 |
|
|
$ |
i 153,993 |
|
|
$ |
i 382,609 |
|
|
$ |
i 309,967 |
|
|
Europe |
|
|
i 202,477 |
|
|
|
i 146,422 |
|
|
|
i 364,796 |
|
|
|
i 282,943 |
|
|
Asia Pacific |
|
|
i 78,979 |
|
|
|
i 59,188 |
|
|
|
i 143,431 |
|
|
|
i 122,803 |
|
|
Total revenue |
|
$ |
i 461,785 |
|
|
$ |
i 359,603 |
|
|
$ |
i 890,836 |
|
|
$ |
i 715,713 |
|
/
19
12. Income Taxes
i|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Income before income taxes |
|
$ |
i 86,357 |
|
|
$ |
i 15,778 |
|
|
$ |
i 163,764 |
|
|
$ |
i 34,809 |
|
|
Provision (benefit) for income taxes |
|
$ |
( i 22,905 |
) |
|
$ |
i 8,622 |
|
|
$ |
i 30,987 |
|
|
$ |
( i 7,802 |
) |
|
Effective income tax rate |
|
|
( i 27 |
)% |
|
|
i 55 |
% |
|
|
i 19 |
% |
|
|
( i 22 |
)% |
In the second quarter and first six months of 2021 and 2020, our effective tax rate differed from the statutory federal income tax rate of i i i i 21 / / / % due to U.S. tax reform, our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate, and the excess tax benefit related to stock-based compensation. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland. In 2021 and 2020, the foreign rate differential predominantly relates to these Irish earnings. In addition, the effective tax rate was impacted by the matters described below.
Our results for the six months ended March 31, 2021 include a charge of $ i 36.1 million related to the effects of a tax matter in the Republic of Korea (South Korea) of $ i 33.2 million, and the resulting impact on U.S. income taxes of $ i 2.9 million. The charge relates to an assessment with respect to various tax issues, primarily foreign withholding taxes, under appeal in South Korea. We received an assessment of approximately $ i 12 million from the tax authorities in South Korea in the fourth quarter of 2016 for the years 2011 to 2015 and paid the assessment in the first quarter of 2017. We appealed that assessment and believed that upon completion of the multi-level appeal process it was more likely than not that our positions would be sustained. However, in December 2020, our appeal to the Seoul High Court (an intermediate appellate court) was rejected. We have appealed this decision to the Supreme Court of the Republic of Korea. We continue to believe that our position is meritorious, and we will aggressively pursue our position with the Supreme Court.
In the second quarter of 2021, we reduced our previously established U.S. valuation allowance by $ i 42.3 million as a result of the Arena acquisition. In the first six months of 2020, we reduced our previously established U.S. valuation allowance by $ i 21.2 million as a result of the Onshape acquisition.
We have concluded, based on the weight of available evidence, that a full valuation allowance continues to be required against our U.S. net deferred tax assets as they are not more likely than not to be realized in the future. However, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of any valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. We will continue to reassess our valuation allowance requirements each financial reporting period.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits.
As of March 31, 2021 and September 30, 2020, we had unrecognized tax benefits of $ i 47.7 million and $ i 16.1 million, respectively. If all our unrecognized tax benefits as of March 31, 2021 were to become recognizable in the future, we would record a benefit to the income tax provision of $ i 47.7 million, which would be partially offset by an increase in the U.S. valuation allowance of $ i 9.7 million.
Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $ i 28 million.
/20
13. Debt
iAt March 31, 2021 and September 30, 2020, we had the following long-term debt obligations:
|
(in thousands) |
|
|
|
|
||||
|
4.000% Senior notes due 2028 |
|
$ |
i 500,000 |
|
|
$ |
i 500,000 |
|
|
3.625% Senior notes due 2025 |
|
|
i 500,000 |
|
|
|
i 500,000 |
|
|
Credit facility revolver(1) |
|
|
i 520,000 |
|
|
|
i 18,000 |
|
|
Total debt |
|
|
i 1,520,000 |
|
|
|
i 1,018,000 |
|
|
Unamortized debt issuance costs for the senior notes(2) |
|
|
( i 11,611 |
) |
|
|
( i 12,686 |
) |
|
Total debt, net of issuance costs |
|
$ |
i 1,508,389 |
|
|
$ |
i 1,005,314 |
|
|
(1) |
Unamortized debt issuance costs related to the credit facility were $ i 4.4 million and $ i 4.9 million as of March 31, 2021 and September 30, 2020, respectively, and are included in other assets on the Consolidated Balance Sheets. |
|
(2) |
Unamortized debt issuance costs are included in long-term debt on the Consolidated Balance Sheets. |
Senior Notes
In February 2020, we issued $ i 500 million in aggregate principal amount of i 4.0% senior, unsecured long-term debt at par value, due in 2028 (the 2028 notes) and $ i 500 million in aggregate principal amount of i 3.625% senior, unsecured long-term debt at par value, due in 2025 (the 2025 notes).
As of March 31, 2021, the total estimated fair value of the 2028 and 2025 notes was approximately $ i 508.6 million and $ i 513.4 million, respectively, based on quoted prices for the notes on that date.
We were in compliance with all the covenants for all of our senior notes as of March 31, 2021.
Credit Agreement
In February 2020, we entered into a secured multi-currency bank credit facility with a syndicate of banks. We expect to use the new credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and working capital requirements.
The credit facility consists of a $ i 1 billion revolving credit facility, which may be increased by up to an additional $ i 500 million in the aggregate if the existing or additional lenders are willing to make such increased commitments. The maturity date of the credit facility is i February 13, 2025, when all remaining amounts outstanding will be due and payable. The revolving loan commitment does not require amortization of principal and may be repaid in whole or in part prior to the scheduled maturity date at our option without penalty or premium. As of March 31, 2021, the fair value of our credit facility approximates its book value.
Loans under the credit facility bear interest at variable rates which reset every 30 to i 180 days depending on the rate and period selected by PTC as described below. As of March 31, 2021, the annual rate for borrowings outstanding was i 1.75%. Interest rates on borrowings outstanding under the credit facility range from i 1.25% to i 1.75% above an adjusted LIBO rate (or an agreed successor rate) for Euro currency borrowings or range from i 0.25% to i 0.75% above the defined base rate (the greater of the Prime Rate, the NYFRB rate plus i 0.5%, or an adjusted LIBO rate plus i 1%) for base rate borrowings, in each case based upon PTC’s total leverage ratio. Additionally, PTC may borrow certain foreign currencies at rates set in the same range above the respective LIBO rates (or agreed successor rates) for those currencies, based on PTC’s total leverage ratio. A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from i 0.175% to i 0.30% per annum based upon PTC’s total leverage ratio.
As of March 31, 2021, we were in compliance with all financial and operating covenants of the credit facility.
We made interest payments on our debt of $ i 19.8 million and $ i 20.5 million in the second quarter and first six months of 2021, respectively, and $ i 6.8 million and $ i 23.7 million in the second quarter and first six months of 2020, respectively. The average interest rate on borrowings outstanding was approximately i 3.3% and i 3.5% during the second quarter and first six months of 2021, respectively, and i 4.6% and i 4.8% during the second quarter and first six months of 2020, respectively.
/21
14. Leases
Our operating leases expire at various dates through 2037 and are primarily for office space, cars, servers, and office equipment.
Our headquarters are located at 121 Seaport Boulevard, Boston, Massachusetts. In February 2019, we subleased a portion of our headquarters through June 30, 2022. We will receive approximately $ i 9.1 million in sublease income over the term of the sublease.
iThe components of lease cost reflected in the Consolidated Statement of Operations for the three and six months ended March 31, 2021 and March 28, 2020 were as follows:
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Operating lease cost |
|
$ |
i 9,565 |
|
|
$ |
i 10,386 |
|
|
$ |
i 18,956 |
|
|
$ |
i 19,143 |
|
|
Short-term lease cost |
|
|
i 610 |
|
|
|
i 1,017 |
|
|
|
i 1,158 |
|
|
|
i 2,890 |
|
|
Variable lease cost |
|
|
i 2,476 |
|
|
|
i 575 |
|
|
|
i 4,863 |
|
|
|
i 2,490 |
|
|
Sublease income |
|
|
( i 1,131 |
) |
|
|
( i 1,013 |
) |
|
|
( i 2,215 |
) |
|
|
( i 2,025 |
) |
|
Total lease cost |
|
$ |
i 11,520 |
|
|
$ |
i 10,965 |
|
|
$ |
i 22,762 |
|
|
$ |
i 22,498 |
|
Supplemental cash flow information related to leases for the three and six months ended March 31, 2021 was as follows:
|
(in thousands) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
i 14,016 |
|
|
$ |
i 9,642 |
|
|
$ |
i 28,076 |
|
|
$ |
i 15,140 |
|
|
Financing cash flows from financing leases |
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 279 |
|
|
$ |
i — |
|
|
Right-of-use assets obtained in exchange for new lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases(1) |
|
$ |
i 53 |
|
|
$ |
i 87 |
|
|
$ |
i 647 |
|
|
$ |
i 5,468 |
|
|
Financing leases |
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i — |
|
|
$ |
i 1,500 |
|
|
(1) |
In the three months ended March 31, 2021, operating right-of-use assets also increased by $ i 10.8 million from modifications and extensions to existing leases and by $ i 1.3 million from assets obtained through acquisitions. In the three months ended March 28, 2020, operating right-of-use assets decreased by $ i 1.3 million due to lease incentives being earned for a right-of-use asset obtained in the first quarter of 2020. |
Supplemental balance sheet information related to leases as of March 31, 2021 was as follows:
|
|
As of |
|
|
|
Weighted-average remaining lease term - operating leases |
i 12.3 years |
|
|
|
Weighted-average remaining lease term - financing leases |
i 4.5 years |
|
|
|
Weighted-average discount rate - operating leases |
|
i 5.5 |
% |
|
Weighted-average discount rate - financing leases |
|
i 3.0 |
% |
i
Maturities of operating lease liabilities as of March 31, 2021 were as follows:
|
(in thousands) |
|
|
|
|
|
Remainder of 2021 |
|
$ |
i 19,703 |
|
|
2022 |
|
|
i 34,768 |
|
|
2023 |
|
|
i 25,111 |
|
|
2024 |
|
|
i 22,057 |
|
|
2025 |
|
|
i 19,185 |
|
|
Thereafter |
|
|
i 171,047 |
|
|
Total future lease payments |
|
$ |
i 291,871 |
|
|
Less: imputed interest |
|
|
( i 85,487 |
) |
|
Total lease liability |
|
$ |
i 206,384 |
|
22
Exited (Restructured) Facilities
As of March 31, 2021, we had net liabilities of $ i 5.3 million related to excess facilities (compared to $ i 11.3 million at September 30, 2020), representing $ i 1.9 million of right-of-use assets and $ i 7.2 million of lease obligations, of which $ i 4.7 million is classified as short term and $ i 2.5 million is classified as long term. Variable costs related to these exited facilities are included in our restructuring accrual. All expenses and income associated with exited facilities are included in restructuring and other charges, net (refer to Note 3. Restructuring and Other Charges).
In determining the amount of right-of-use assets for restructured facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. Updates to these estimates may result in revisions to the value of right-of-use assets recorded. The amounts recorded are based on the net present value of estimated sublease income. As of March 31, 2021, the right-of-use assets for exited facilities reflects discounted committed sublease income of approximately $ i 1.9 million.
In the three and six months ended March 31, 2021, we made payments of $ i 2.5 million and $ i 6.3 million, respectively, related to lease costs for exited facilities. In the three and six months ended March 28, 2020, we made payments of $ i 2.1 million and $ i 4.5 million, respectively.
i15. Commitments and Contingencies
Legal and Regulatory Matters
South Korean Tax Audit
We continue to appeal an assessment from the tax authorities in South Korea. In the first quarter of 2021, we recorded a charge of $ i 36.1 million associated with this matter. See Note 12. Income Taxes for additional information.
Legal Proceedings
With respect to legal proceedings and claims, we record an accrual for a contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
401(k) Plan
On i September 17, 2020, i three individual plaintiffs filed a putative class action lawsuit against PTC, the Investment Committee for the PTC Inc. 401(k) Plan (“Plan”), and the Board of Directors (the “PTC Defendants”) in the i U.S. District Court for the District of Massachusetts alleging claims regarding the Plan. Plaintiffs allege that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in the oversight of the Plan, principally by allegedly selecting and retaining certain investment options despite their higher fees and costs than other available investment options, causing participants in the Plan to pay excessive recordkeeping fees and suffer lower returns on their investments, and by allegedly failing to monitor other fiduciaries. i The plaintiffs seek unspecified damages on behalf of a class of Plan participants from September 17, 2014 through the date of any judgment. An answer to the complaint was filed on May 4, 2021. We are currently unable to reasonably estimate what effect the ultimate outcome might have, if any, on our financial position, results of operations or cash flows.
Other Legal Proceedings
In addition to the matters listed above, we are subject to legal proceedings and claims against us in the ordinary course of business. As of March 31, 2021, we estimate that the range of possible outcomes for such matters is immaterial and we do not believe that resolving them will have a material adverse impact on our financial condition, results of operations or cash flows. However, the results of legal proceedings cannot be predicted with certainty. Should any of these legal proceedings and claims be resolved against us, the operating results for a reporting period could be adversely affected.
/23
Guarantees and Indemnification Obligations
We enter into standard indemnification agreements with our customers and business partners in the ordinary course of our business. Under such agreements, we typically indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to our products. Indemnification may also cover other types of claims, including claims relating to certain data breaches. Except for intellectual property infringement indemnification, the liability for which is uncapped, these agreements typically limit our liability with respect to other indemnification claims. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and, accordingly, we believe the estimated fair value of liabilities under these agreements is immaterial.
We warrant that our software products will perform in all material respects in accordance with our standard published specifications during the term of the license/subscription. Additionally, we generally warrant that our consulting services will be performed consistent with generally accepted industry standards and, in the case of fixed price services, the agreed-upon specifications. In most cases, liability for these warranties is capped. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, we have not incurred significant cost under our product or services warranties. As a result, we believe the estimated fair value of these liabilities is immaterial.
24
Business Overview
PTC is a global software and services company that delivers solutions to power our industrial customers' digital transformations, enabling them to better design, manufacture, operate, and service their products. Our Internet of Things (IoT) and Augmented Reality (AR) solutions enable companies to connect factories and plants, smart products, and enterprise systems to transform their businesses. These products, along with Onshape and Arena, are considered our Growth Products. The primary products in our Core Products portfolio are innovative Computer-Aided Design (CAD) and Product Lifecycle Management (PLM) solutions that enable manufacturers to create, innovate, and service products. Our Focused Solutions Group (FSG) is a family of software products that target specific vertical industries where we can deliver unique domain expertise and a competitive advantage with Application Lifecycle Management (ALM) products, Service Lifecycle Management (SLM) products, and other niche tailored solutions. Together, these technologies power the digital thread across industrial enterprises.
Forward-Looking Statements
Statements in this document that are not historic facts, including statements about our future financial and growth expectations and targets, debt repayment 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, the COVID-19 pandemic, which could cause customers to delay or reduce purchases of new software, reduce the number of subscriptions they carry, or delay payments to us, all of which would adversely affect ARR and our financial results, including cash flow; our businesses, including our SaaS businesses, may not expand and/or generate the revenue or ARR we expect if customers are slower to adopt our technologies than we expect or if they adopt competing technologies; 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, and other uses of cash or our credit facility limits or other matters could preclude such repayment and/or repurchases; foreign exchange rates may differ materially from those we expect; and orders 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, which could cause the ARR associated with those orders to churn. 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. 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 Factors of this report.
Operating and Non-GAAP Financial Measures
Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures.
Executive Overview
ARR of $1.39 billion represents 18% growth (15% on a constant currency basis) compared to Q2’20 driven by a combination of strong results in our Growth business, continued momentum in our Core business, and strong performance from Arena Solutions in its first quarter as part of PTC. Organic ARR growth year over year was 14% (11% constant currency). Second quarter revenue was up 28% year over year (22% constant currency), driven by strong execution as well as the impact of up-front license revenue recognition under ASC 606 and a modest contribution from Arena. Organic revenue growth year over year was 26% (20% constant currency).
Our Q2’21 operating margin increased over 800 bps compared to Q2’20, primarily due to strong revenue growth, as well as continued financial discipline. Our Q2’21 diluted EPS of $0.92 was up
25
significantly compared to $0.06 in Q2’20, which reflects those same factors, as well as the recognition of a $42 million tax benefit related to the Arena acquisition and lower interest expense.
In Q2’21, we acquired Arena Solutions for approximately $715 million, net of cash acquired. Arena contributed approximately $54 million of ARR and an immaterial amount of revenue to our Q2’21 results.
We generated $122 million of cash from operations in Q2'21 compared to $88 million in Q2'20, primarily reflecting higher collections and lower restructuring payments. We ended Q2’21 with $326 million of cash and cash equivalents and $1.5 billion of debt outstanding with a weighted average cost of debt of 3.1%.
Future Expectations
Our results have been impacted, and we expect will continue to be impacted, by our ability to close large transactions. Additionally, under the subscription license model, particularly sales of products in our growth business, customers may place smaller initial orders than under a perpetual license model. Sales of our products may have long lead times as they often follow a lengthy product selection and evaluation process and, for existing customers, are influenced by contract duration and expiration cycles. Accordingly, the amount of revenue attributable to large transactions, and the number of such transactions, may vary significantly from quarter to quarter based on customer purchasing decisions and macroeconomic conditions. This may cause volatility in our results.
Despite the challenges associated with the COVID-19 pandemic, we currently anticipate ARR, revenue, and operating margin growth in FY’21. We expect organic churn to improve slightly compared to FY’20.
Results of Operations
The following table shows the financial measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude the items described in Non-GAAP Financial Measures below. Investors should use these non-GAAP financial measures only in conjunction with our GAAP results.
|
(Dollar amounts in millions, except per share data) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
|
|
|
|
|
Actual |
|
|
Constant Currency(1) |
|
||||||
|
Recurring revenue(1) |
|
$ |
414.8 |
|
|
$ |
315.9 |
|
|
|
31 |
% |
|
|
25 |
% |
|
Perpetual license |
|
|
6.9 |
|
|
|
8.2 |
|
|
|
(16 |
)% |
|
|
(19 |
)% |
|
Professional services |
|
|
40.0 |
|
|
|
35.5 |
|
|
|
13 |
% |
|
|
7 |
% |
|
Total revenue |
|
|
461.8 |
|
|
|
359.6 |
|
|
|
28 |
% |
|
|
22 |
% |
|
Total cost of revenue |
|
|
89.4 |
|
|
|
83.0 |
|
|
|
8 |
% |
|
|
5 |
% |
|
Gross margin |
|
|
372.3 |
|
|
|
276.6 |
|
|
|
35 |
% |
|
|
28 |
% |
|
Operating expenses |
|
|
270.6 |
|
|
|
226.6 |
|
|
|
19 |
% |
|
|
17 |
% |
|
Total costs and expenses |
|
|
360.1 |
|
|
|
309.6 |
|
|
|
16 |
% |
|
|
14 |
% |
|
Operating income |
|
$ |
101.7 |
|
|
$ |
50.0 |
|
|
|
103 |
% |
|
|
73 |
% |
|
Non-GAAP operating income(2) |
|
$ |
172.0 |
|
|
$ |
103.2 |
|
|
|
67 |
% |
|
|
52 |
% |
|
Operating margin |
|
|
22.0 |
% |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
Non-GAAP operating margin(2) |
|
|
37.2 |
% |
|
|
28.7 |
% |
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.92 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted earnings per share(2)(3) |
|
$ |
1.08 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
Cash flow from operations(4) |
|
$ |
121.7 |
|
|
$ |
87.8 |
|
|
|
|
|
|
|
|
|
|
Free cash flow(5) |
|
$ |
116.3 |
|
|
$ |
82.3 |
|
|
|
|
|
|
|
|
|
26
|
(Dollar amounts in millions, except per share data) |
|
Six months ended |
|
|
Percent Change |
|
||||||||||
|
|
|
|
|
|
|
Actual |
|
|
Constant Currency(1) |
|
||||||
|
Recurring revenue(1) |
|
$ |
799.8 |
|
|
$ |
621.2 |
|
|
|
29 |
% |
|
|
24 |
% |
|
Perpetual license |
|
|
15.4 |
|
|
|
17.2 |
|
|
|
(11 |
)% |
|
|
(13 |
)% |
|
Professional services |
|
|
75.6 |
|
|
|
77.3 |
|
|
|
(2 |
)% |
|
|
(7 |
)% |
|
Total revenue |
|
|
890.8 |
|
|
|
715.7 |
|
|
|
24 |
% |
|
|
20 |
% |
|
Total cost of revenue |
|
|
176.3 |
|
|
|
170.4 |
|
|
|
3 |
% |
|
|
1 |
% |
|
Gross margin |
|
|
714.6 |
|
|
|
545.3 |
|
|
|
31 |
% |
|
|
26 |
% |
|
Operating expenses |
|
|
522.5 |
|
|
|
464.8 |
|
|
|
12 |
% |
|
|
11 |
% |
|
Total costs and expenses |
|
|
698.8 |
|
|
|
635.3 |
|
|
|
10 |
% |
|
|
8 |
% |
|
Operating income |
|
$ |
192.0 |
|
|
$ |
80.5 |
|
|
|
139 |
% |
|
|
103 |
% |
|
Non-GAAP operating income(2) |
|
$ |
325.4 |
|
|
$ |
196.3 |
|
|
|
66 |
% |
|
|
53 |
% |
|
Operating margin |
|
|
21.6 |
% |
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
Non-GAAP operating margin(2) |
|
|
36.5 |
% |
|
|
27.4 |
% |
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
1.13 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted earnings per share(2)(3) |
|
$ |
2.05 |
|
|
$ |
1.16 |
|
|
|
|
|
|
|
|
|
|
Cash flow from operations(4) |
|
$ |
235.5 |
|
|
$ |
95.3 |
|
|
|
|
|
|
|
|
|
|
Free cash flow(5) |
|
$ |
227.2 |
|
|
$ |
85.1 |
|
|
|
|
|
|
|
|
|
|
(1) |
Recurring revenue is comprised of subscription, perpetual support, SaaS, and cloud revenue. |
|
(2) |
See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP measures and Impact of Foreign Currency Exchange on Results of Operations below for a description of how we calculate our results on a constant currency basis. |
|
(3) |
We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the FY’21 and FY’20 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. In Q2’21 and Q1'20, our GAAP results included benefits of $42.3 million and $21.2 million, respectively, related to the release of a valuation allowance as a result of the Arena and Onshape acquisitions. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded. 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, our non-GAAP results for the first six months of FY’21 exclude tax expense of $34.2 million related to a non-U.S. tax exposure described in Note 12. Income Taxes to the Financial Statements. |
|
(4) |
Cash flow from operations for the second quarter and first six months of FY’21 includes $4.5 million and $11.7 million of restructuring payments, respectively, and $8.2 million and $11.1 million of acquisition-related payments, respectively. Cash flow from operations for the second quarter and first six months of FY’20 includes $18.0 million and $21.3 million of restructuring payments, respectively, and $2.1 million and $8.6 million of acquisition-related payments, respectively. |
|
(5) |
Free cash flow is cash from operations net of capital expenditures of $5.4 million and $8.2 million in the second quarter and first six months of FY’21, respectively, and $5.5 million and $10.2 million in the second quarter and first six months of FY’20, respectively. |
Impact of Foreign Currency Exchange on Results of Operations
Approximately 60% of our revenue and 40% 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 and year-to-date periods for FY’21 and FY’20 by the exchange rates in effect on September 30, 2020. The results of operations in the table above and revenue by line of business, product group, and geographic region in the tables that follow present both actual percentage changes year over year and percentage changes on a constant currency basis.
Revenue
Our revenue results quarter to quarter are impacted by contract terms, including the duration and start dates of our subscription contracts, due to our up-front recognition of subscription license revenue. We are expanding our SaaS offerings and are releasing additional cloud functionality into our products. As a result, our revenue will be impacted over time as a higher portion of it will be recognized ratably.
27
Revenue by Line of Business
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
|
Six months ended |
|
|
Percent Change |
|
||||||||||||||||||||
|
|
|
|
|
|
|
Actual |
|
|
Constant Currency |
|
|
|
|
|
|
Actual |
|
|
Constant Currency |
|
||||||||||||
|
License |
|
$ |
198.0 |
|
|
$ |
127.6 |
|
|
|
55 |
% |
|
|
47 |
% |
|
$ |
375.2 |
|
|
$ |
251.0 |
|
|
|
49 |
% |
|
|
43 |
% |
|
Support and cloud services |
|
|
223.8 |
|
|
|
196.5 |
|
|
|
14 |
% |
|
|
9 |
% |
|
|
440.0 |
|
|
|
387.4 |
|
|
|
14 |
% |
|
|
10 |
% |
|
Software revenue |
|
|
421.8 |
|
|
|
324.1 |
|
|
|
30 |
% |
|
|
24 |
% |
|
|
815.2 |
|
|
|
638.4 |
|
|
|
28 |
% |
|
|
23 |
% |
|
Professional services |
|
|
40.0 |
|
|
|
35.5 |
|
|
|
13 |
% |
|
|
7 |
% |
|
|
75.6 |
|
|
|
77.3 |
|
|
|
(2 |
)% |
|
|
(7 |
)% |
|
Total revenue |
|
$ |
461.8 |
|
|
$ |
359.6 |
|
|
|
28 |
% |
|
|
22 |
% |
|
$ |
890.8 |
|
|
$ |
715.7 |
|
|
|
24 |
% |
|
|
20 |
% |
Software revenue in the second quarter and first six months of FY’21 increased compared to the year-ago periods due to subscription revenue growth, partially offset by a decline in perpetual support revenue due to conversions of support contracts to subscriptions. License revenue growth was primarily driven by contracts with longer durations. Subscription support and cloud services revenue in the second quarter and first six months of FY’21 grew 39% (34% constant currency) and 38% (34% constant currency), respectively, compared to the year-ago periods, while perpetual support revenue decreased 19% (22% constant currency) and 16% (19% constant currency), primarily due to conversions of perpetual support contracts to subscriptions.
Professional services engagements typically result from sales of new licenses; revenue is recognized over the term of the engagement. Our expectation is that professional services revenue will trend flat-to-down over time due to our strategy to expand margins by migrating more services engagements to our partners and delivering products that require less consulting and training services.
Professional services revenue growth in Q2’21 compared to Q2’20 is partially due to a Q2’20 revenue reversal related to an extension to complete work on a large fixed price professional services contract in that period, as well as the start of new contracts in Q2’21. In the first six months of FY’21, professional services revenue declined due to challenges with project scoping and implementation activities and performance due to social distancing measures and facility closures implemented to address the COVID-19 pandemic, as well as the end of a few large projects.
Software Revenue by Product Group
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
|
Six months ended |
|
|
Percent Change |
|
||||||||||||||||||||
|
|
|
|
|
|
|
Actual |
|
|
Constant Currency |
|
|
|
|
|
|
Actual |
|
|
Constant Currency |
|
||||||||||||
|
Core (CAD and PLM) |
|
$ |
298.8 |
|
|
$ |
234.4 |
|
|
|
27 |
% |
|
|
21 |
% |
|
$ |
588.3 |
|
|
$ |
460.5 |
|
|
|
28 |
% |
|
|
23 |
% |
|
Growth (IoT, AR, Onshape, Arena) |
|
|
70.5 |
|
|
|
43.2 |
|
|
|
63 |
% |
|
|
58 |
% |
|
|
128.2 |
|
|
|
86.4 |
|
|
|
48 |
% |
|
|
44 |
% |
|
FSG (Focused Solutions Group) |
|
|
52.5 |
|
|
|
46.5 |
|
|
|
13 |
% |
|
|
9 |
% |
|
|
98.7 |
|
|
|
91.5 |
|
|
|
8 |
% |
|
|
5 |
% |
|
Software revenue |
|
$ |
421.8 |
|
|
$ |
324.1 |
|
|
|
30 |
% |
|
|
24 |
% |
|
$ |
815.2 |
|
|
$ |
638.4 |
|
|
|
28 |
% |
|
|
23 |
% |
Core Product software revenue growth in the second quarter and first six months of FY’21 compared to the year-ago periods was driven by subscription revenue growth of 46% (38% constant currency) and 46% (40% constant currency), respectively, due in part to ongoing support contract conversions to subscription, which also result in a decline in perpetual support revenue. ARR increased 13% (10% constant currency) for Q2’21 compared to Q2’20, reflecting 17% (14% constant currency) ARR growth in PLM and 11% (8% constant currency) growth in CAD as customers pursue their digital transformation initiatives.
28
Growth Product software revenue increased in the second quarter and first six months of FY’21 compared to the year-ago periods due to subscription revenue growth of 85% (79% constant currency) and 66% (62% constant currency), respectively. Growth Product ARR increased 64% (61% constant currency) for Q2’21 compared to Q2’20, due in part to the acquisition of Arena. Organic ARR growth was 29% (27% constant currency), reflecting 22% (20% constant currency) growth in IoT and 63% (60% constant currency) growth in AR, driven in part by significant customer expansions.
FSG Product software revenue growth in the second quarter and first six months of FY’21 compared to the year-ago periods reflects subscription revenue growth of 32% (27% constant currency) and 23% (19% constant currency), due in part to ongoing support contract conversions to subscription, which also result in a decline in perpetual support revenue. ARR was flat year over year, with 1% growth (1% decrease in constant currency), due to challenges faced by commercial airlines and retail companies during the COVID-19 pandemic.
Software Revenue by Geographic Region
A significant portion of our software revenue is generated outside the U.S. In the first six months of FY’21, approximately 45% of software revenue was generated in the Americas, 40% in Europe, and 15% in Asia Pacific. In FY’20, approximately 45% of software revenue was generated in the Americas, 35% in Europe, and 20% in Asia Pacific.
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
|
Six months ended |
|
|
Percent Change |
|
||||||||||||||||||||
|
|
|
|
|
|
|
Actual |
|
|
Constant Currency |
|
|
|
|
|
|
Actual |
|
|
Constant Currency |
|
||||||||||||
|
Americas |
|
$ |
166.3 |
|
|
$ |
138.7 |
|
|
|
20 |
% |
|
|
20 |
% |
|
$ |
357.3 |
|
|
$ |
280.5 |
|
|
|
27 |
% |
|
|
28 |
% |
|
Europe |
|
|
182.7 |
|
|
|
132.2 |
|
|
|
38 |
% |
|
|
26 |
% |
|
|
327.5 |
|
|
|
247.9 |
|
|
|
32 |
% |
|
|
22 |
% |
|
Asia Pacific |
|
|
72.8 |
|
|
|
53.2 |
|
|
|
37 |
% |
|
|
29 |
% |
|
|
130.4 |
|
|
|
110.0 |
|
|
|
19 |
% |
|
|
13 |
% |
|
Software revenue |
|
$ |
421.8 |
|
|
$ |
324.1 |
|
|
|
30 |
% |
|
|
24 |
% |
|
$ |
815.2 |
|
|
$ |
638.4 |
|
|
|
28 |
% |
|
|
23 |
% |
Americas software revenue growth in the second quarter and first six months of FY’21 compared to the year-ago periods was driven by subscription revenue growth of 37% (actual and constant currency) and 47% (actual and constant currency), respectively, partially offset by a decline in perpetual support revenue. Software revenue growth reflects consistent double-digit growth in Core and Growth products. Americas ARR growth of 22% (21% constant currency) was driven by the Arena acquisition, solid performance in Core products, and strong results in IoT and AR.
Europe software revenue growth in the second quarter and first six months of FY’21 compared to the year-ago periods was driven by growth in subscription revenue of 60% (46% constant currency) and 52% (40% constant currency), respectively, partially offset by a decline in perpetual support revenue. Software revenue growth reflects strong Core products performance. Europe ARR growth of 14% (8% constant currency) is consistent with the past several quarters on a constant currency basis and reflects strength in AR and IoT.
Asia Pacific software revenue growth in the second quarter and first six months of FY’21 compared to the year-ago periods was driven by growth in subscription revenue of 60% (51% constant currency) and 32% (26% constant currency), respectively, partially offset by a decline in perpetual support revenue. Software revenue growth reflects strong growth in CAD. Asia Pacific ARR growth of 19% (16% constant currency) was the third quarter in a row of mid-teens constant currency growth, with strong performance across all segments.
29
Gross Margin
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
Percent Change |
|
||||||||||
|
License gross margin |
|
$ |
183.8 |
|
|
$ |
113.7 |
|
|
|
62 |
% |
|
$ |
347.8 |
|
|
$ |
224.0 |
|
|
|
55 |
% |
|
License gross margin percentage |
|
|
93 |
% |
|
|
89 |
% |
|
|
|
|
|
|
93 |
% |
|
|
89 |
% |
|
|
|
|
|
Support and cloud services gross margin |
|
$ |
183.8 |
|
|
$ |
162.2 |
|
|
|
13 |
% |
|
$ |
361.7 |
|
|
$ |
314.2 |
|
|
|
15 |
% |
|
Support and cloud services gross margin percentage |
|
|
82 |
% |
|
|
83 |
% |
|
|
|
|
|
|
82 |
% |
|
|
81 |
% |
|
|
|
|
|
Professional services gross margin |
|
$ |
4.7 |
|
|
$ |
0.6 |
|
|
|
643 |
% |
|
$ |
5.1 |
|
|
$ |
7.1 |
|
|
|
(28 |
)% |
|
Professional services gross margin percentage |
|
|
12 |
% |
|
|
2 |
% |
|
|
|
|
|
|
7 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin |
|
$ |
372.3 |
|
|
$ |
276.6 |
|
|
|
35 |
% |
|
$ |
714.6 |
|
|
$ |
545.3 |
|
|
|
31 |
% |
|
Total gross margin percentage |
|
|
81 |
% |
|
|
77 |
% |
|
|
|
|
|
|
80 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP gross margin(1) |
|
$ |
384.0 |
|
|
$ |
286.5 |
|
|
|
34 |
% |
|
$ |
736.9 |
|
|
$ |
565.0 |
|
|
|
30 |
% |
|
Non-GAAP gross margin percentage(1) |
|
|
83 |
% |
|
|
80 |
% |
|
|
|
|
|
|
83 |
% |
|
|
79 |
% |
|
|
|
|
|
(1) |
Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below. |
License gross margin increased in the second quarter and first six months of FY’21 compared to the FY’20 periods due to increases in license revenue while cost of license revenue remained flat.
Support and cloud services gross margin increased in the second quarter and first six months of FY’21 compared to the year-ago periods, reflecting an increase in subscription support and cloud revenue, partially offset by a decrease in perpetual support revenue, an increase in costs associated with our cloud services business due to greater demand for those services, and higher compensation costs.
Professional services gross margin increased in Q2’21 compared to Q2’20 due to an increase in revenue and a decrease in travel costs, partially offset by higher compensation costs. Professional services gross margin decreased in the first six months of FY’21 compared to the year-ago period primarily due to a decrease in revenue resulting from the impact of the COVID-19 pandemic and higher compensation costs, partially offset by lower travel and outside services costs.
Operating Expenses
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
Percent Change |
|
||||||||||
|
Sales and marketing |
|
$ |
129.2 |
|
|
$ |
107.4 |
|
|
|
20 |
% |
|
$ |
253.9 |
|
|
$ |
215.0 |
|
|
|
18 |
% |
|
% of total revenue |
|
|
28 |
% |
|
|
30 |
% |
|
|
|
|
|
|
29 |
% |
|
|
30 |
% |
|
|
|
|
|
Research and development |
|
$ |
72.5 |
|
|
$ |
60.0 |
|
|
|
21 |
% |
|
$ |
143.4 |
|
|
$ |
125.3 |
|
|
|
14 |
% |
|
% of total revenue |
|
|
16 |
% |
|
|
17 |
% |
|
|
|
|
|
|
16 |
% |
|
|
18 |
% |
|
|
|
|
|
General and administrative |
|
$ |
60.8 |
|
|
$ |
33.6 |
|
|
|
81 |
% |
|
$ |
110.3 |
|
|
$ |
78.2 |
|
|
|
41 |
% |
|
% of total revenue |
|
|
13 |
% |
|
|
9 |
% |
|
|
|
|
|
|
12 |
% |
|
|
11 |
% |
|
|
|
|
|
Amortization of acquired intangible assets |
|
$ |
7.6 |
|
|
$ |
7.3 |
|
|
|
5 |
% |
|
$ |
14.2 |
|
|
$ |
14.1 |
|
|
|
1 |
% |
|
% of total revenue |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
Restructuring and other charges, net |
|
$ |
0.5 |
|
|
$ |
18.2 |
|
|
|
(97 |
)% |
|
$ |
0.7 |
|
|
$ |
32.3 |
|
|
|
(98 |
)% |
|
% of total revenue |
|
|
0 |
% |
|
|
5 |
% |
|
|
|
|
|
|
0 |
% |
|
|
5 |
% |
|
|
|
|
|
Total operating expenses |
|
$ |
270.6 |
|
|
$ |
226.6 |
|
|
|
19 |
% |
|
$ |
522.5 |
|
|
$ |
464.8 |
|
|
|
12 |
% |
Headcount increased 9% between Q2’20 and Q2’21.
30
Operating expenses in Q2’21 compared to operating expenses in Q2’20 increased primarily due to the following:
|
|
• |
a $47.8 million increase in compensation expense (including benefit costs), primarily driven by a $22.8 million (130%) increase in stock-based compensation expense, a $12.7 million (13%) increase in salaries due in part to the Arena acquisition, and a $5.6 million increase in bonus expense; |
|
|
• |
a $10.0 million increase in acquisition-related transaction costs, included in general and administrative; and |
|
|
• |
a $2.8 million increase in cloud services hosting costs; |
partially offset by:
|
|
• |
a $17.8 million decrease in restructuring costs; and |
|
|
• |
a $4.2 million decrease in travel costs due to the COVID-19 pandemic. |
Operating expenses in the first six months of FY’21 compared to operating expenses in the first six months of FY’20 increased primarily due to the following:
|
|
• |
an $82.4 million increase in compensation expense (including benefit costs), primarily driven by a $39.5 million (93%) increase in stock-based compensation expense, a $23.9 million (13%) increase in salaries due in part to the Arena acquisition, and a $6.8 million (185%) increase in bonus expense; |
|
|
• |
a $6.8 million increase in acquisition-related transaction costs, included in general and administrative; |
|
|
• |
a $4.6 million increase in cloud services hosting costs; and |
|
|
• |
$3.8 million of expenses related to our investment in our digital transformation; |
partially offset by:
|
|
• |
a $31.6 million decrease in restructuring costs; and |
|
|
• |
a $9.8 million decrease in travel costs due to the COVID-19 pandemic. |
Stock-based compensation was higher in FY’21 compared to FY’20 primarily due to higher estimated attainment under performance-based awards. In addition, an increase in time-based award grants in FY’20 and expected higher stock-based bonus attainment in FY’21 increased expense. Non-stock based bonus expense was also higher in FY’21 compared to FY’20 due higher estimated attainment under the FY’21 bonus plan.
Interest Expense
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
Percent Change |
|
||||||||||
|
Interest and debt premium expense |
|
$ |
(12.9 |
) |
|
$ |
(32.6 |
) |
|
|
(60 |
)% |
|
$ |
(24.4 |
) |
|
$ |
(44.7 |
) |
|
|
(45 |
)% |
Interest expense includes interest under our credit facility and senior notes, as well as $15 million of expense recognized in Q2’20 related to penalties for the early redemption of debt. We had $1.5 billion of total debt at March 31, 2021, compared to $1.6 billion at March 28, 2020. The average interest rate on borrowings outstanding was approximately 3.3% and 3.5% during the second quarter and first six months of FY’21, respectively, and 4.6% and 4.8% during the second quarter and first six months of FY’20, respectively.
31
Other Income (Expense)
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
Percent Change |
|
||||||||||
|
Interest income |
|
$ |
0.3 |
|
|
$ |
1.6 |
|
|
|
(81 |
)% |
|
$ |
0.9 |
|
|
$ |
2.5 |
|
|
|
(65 |
)% |
|
Other expense, net |
|
|
(2.7 |
) |
|
|
(3.2 |
) |
|
|
(15 |
)% |
|
|
(4.7 |
) |
|
|
(3.4 |
) |
|
|
37 |
% |
|
Other expense, net |
|
$ |
(2.4 |
) |
|
$ |
(1.6 |
) |
|
|
48 |
% |
|
$ |
(3.8 |
) |
|
$ |
(0.9 |
) |
|
|
314 |
% |
Other expense, net primarily consists of foreign currency losses. In the second quarter and first six months of FY’21, foreign currency losses, net were $2.4 million and $4.2 million, respectively. In the second quarter and first six months of FY’20, foreign currency losses, net were $2.5 million and $2.6 million, respectively.
Income Taxes
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
Percent Change |
|
||||||||||
|
Income before income taxes |
|
$ |
86.4 |
|
|
$ |
15.8 |
|
|
|
447 |
% |
|
$ |
163.8 |
|
|
$ |
34.8 |
|
|
|
370 |
% |
|
Provision (benefit) for income taxes |
|
$ |
(22.9 |
) |
|
$ |
8.6 |
|
|
|
(366 |
)% |
|
$ |
31.0 |
|
|
$ |
(7.8 |
) |
|
|
(497 |
)% |
|
Effective income tax rate |
|
|
(27 |
)% |
|
|
55 |
% |
|
|
|
|
|
|
19 |
% |
|
|
(22 |
)% |
|
|
|
|
In the second quarter and first six months of FY’21 and FY’20, our effective tax rate differed from the statutory federal income tax rate of 21% due to U.S. tax reform, our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate, and the excess tax benefit related to stock-based compensation. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland. In FY’21 and FY’20, the foreign rate differential predominantly relates to these Irish earnings. In addition, the effective tax rate was impacted by the matters described below.
Our results for the six months ended March 31, 2021 include a charge of $36.1 million related to the effects of an unrecognized tax benefit in a non-U.S. jurisdiction. See Note 12. Income Taxes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information about this charge.
In the second quarter of FY’21, we reduced our previously established U.S. valuation allowance by $42.3 million as a result of the Arena acquisition. In the first six months of FY’20, we reduced our previously established U.S. valuation allowance by $21.2 million as a result of the Onshape acquisition.
Operating Measure
ARR
ARR (Annual Run Rate) ARR represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR includes orders placed under our Strategic Alliance Agreement with Rockwell Automation, including orders placed to satisfy contractual minimum commitments.
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 customers. Because this measure represents the annualized value of customer contracts as of a point in time, it does not represent revenue for any particular period or remaining revenue that will be recognized in future periods.
Non-GAAP Financial Measures
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, 2020.
32
The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:
|
|
• |
free cash flow—cash flow from operations |
|
|
• |
non-GAAP gross margin—GAAP gross margin |
|
|
• |
non-GAAP operating income—GAAP operating income |
|
|
• |
non-GAAP operating margin—GAAP operating margin |
|
|
• |
non-GAAP net income—GAAP net income |
|
|
• |
non-GAAP diluted earnings or loss per share—GAAP diluted earnings or loss per share |
Free cash flow is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations.
The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based compensation; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; certain non-operating charges; 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 on page 25 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. In the first six months of FY’21, we incurred tax expense related to a reserve for a South Korean tax exposure established in the period which is excluded from our non-GAAP financial measures as it is related to prior periods and not included in management’s view of Q2’21 results for comparative purposes. In Q2’21, we incurred a tax benefit related to the release of a valuation allowance as a result of the Arena acquisition. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, this benefit has been excluded from our non-GAAP financial measures.
The items excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses non-GAAP financial measures in conjunction with our GAAP results, as should investors.
The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.
33
|
(in millions, except per share amounts) |
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
GAAP gross margin |
|
$ |
372.3 |
|
|
$ |
276.6 |
|
|
$ |
714.6 |
|
|
$ |
545.3 |
|
|
Stock-based compensation |
|
|
4.5 |
|
|
|
3.0 |
|
|
|
8.9 |
|
|
|
6.0 |
|
|
Amortization of acquired intangible assets included in cost of revenue |
|
|
7.1 |
|
|
|
6.9 |
|
|
|
13.4 |
|
|
|
13.7 |
|
|
Non-GAAP gross margin |
|
$ |
384.0 |
|
|
$ |
286.5 |
|
|
$ |
736.9 |
|
|
$ |
565.0 |
|
|
GAAP operating income |
|
$ |
101.7 |
|
|
$ |
50.0 |
|
|
$ |
192.0 |
|
|
$ |
80.5 |
|
|
Stock-based compensation |
|
|
44.7 |
|
|
|
20.5 |
|
|
|
90.8 |
|
|
|
48.4 |
|
|
Amortization of acquired intangible assets |
|
|
14.8 |
|
|
|
14.2 |
|
|
|
27.6 |
|
|
|
27.7 |
|
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
10.3 |
|
|
|
0.3 |
|
|
|
14.2 |
|
|
|
7.4 |
|
|
Restructuring and other charges, net |
|
|
0.5 |
|
|
|
18.2 |
|
|
|
0.7 |
|
|
|
32.3 |
|
|
Non-GAAP operating income |
|
$ |
172.0 |
|
|
$ |
103.2 |
|
|
$ |
325.4 |
|
|
$ |
196.3 |
|
|
GAAP net income |
|
$ |
109.3 |
|
|
$ |
7.2 |
|
|
$ |
132.8 |
|
|
$ |
42.6 |
|
|
Stock-based compensation |
|
|
44.7 |
|
|
|
20.5 |
|
|
|
90.8 |
|
|
|
48.4 |
|
|
Amortization of acquired intangible assets |
|
|
14.8 |
|
|
|
14.2 |
|
|
|
27.6 |
|
|
|
27.7 |
|
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
10.3 |
|
|
|
0.3 |
|
|
|
14.2 |
|
|
|
7.4 |
|
|
Restructuring and other charges, net |
|
|
0.5 |
|
|
|
18.2 |
|
|
|
0.7 |
|
|
|
32.3 |
|
|
Non-operating charges(1) |
|
|
— |
|
|
|
15.0 |
|
|
|
— |
|
|
|
15.0 |
|
|
Income tax adjustments(2) |
|
|
(51.7 |
) |
|
|
(6.9 |
) |
|
|
(24.6 |
) |
|
|
(38.8 |
) |
|
Non-GAAP net income |
|
$ |
127.8 |
|
|
$ |
68.5 |
|
|
$ |
241.6 |
|
|
$ |
134.6 |
|
|
GAAP diluted earnings per share |
|
$ |
0.92 |
|
|
$ |
0.06 |
|
|
$ |
1.13 |
|
|
$ |
0.37 |
|
|
Stock-based compensation |
|
|
0.38 |
|
|
|
0.18 |
|
|
|
0.77 |
|
|
|
0.42 |
|
|
Amortization of acquired intangible assets |
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.23 |
|
|
|
0.24 |
|
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
0.09 |
|
|
|
— |
|
|
|
0.12 |
|
|
|
0.06 |
|
|
Restructuring and other charges, net |
|
|
— |
|
|
|
0.16 |
|
|
|
0.01 |
|
|
|
0.28 |
|
|
Non-operating charges(1) |
|
|
— |
|
|
|
0.13 |
|
|
|
— |
|
|
|
0.13 |
|
|
Income tax adjustments(2) |
|
|
(0.44 |
) |
|
|
(0.06 |
) |
|
|
(0.21 |
) |
|
|
(0.34 |
) |
|
Non-GAAP diluted earnings per share |
|
$ |
1.08 |
|
|
$ |
0.59 |
|
|
$ |
2.05 |
|
|
$ |
1.16 |
|
|
(1) |
We recognized $15 million of expense in Q2’20 related to penalties for the early redemption of the 6.000% Senior Notes due in 2024. |
|
(2) |
We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the FY’21 and FY’20 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. In Q2’21 and Q1'20, our GAAP results included benefits of $42.3 million and $21.2 million, respectively, related to the release of a valuation allowance as a result of the Arena and Onshape acquisitions. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded. 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, our non-GAAP results for the first six months of FY’21 exclude tax expense of $34.2 million related to the non-U.S. tax exposure described in Note 12. Income Taxes to the Financial Statements. |
Operating margin impact of non-GAAP adjustments:
|
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
GAAP operating margin |
|
|
22.0 |
% |
|
|
13.9 |
% |
|
|
21.6 |
% |
|
|
11.2 |
% |
|
Stock-based compensation |
|
|
9.7 |
% |
|
|
5.7 |
% |
|
|
10.2 |
% |
|
|
6.8 |
% |
|
Amortization of acquired intangible assets |
|
|
3.2 |
% |
|
|
3.9 |
% |
|
|
3.1 |
% |
|
|
3.9 |
% |
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
2.2 |
% |
|
|
0.1 |
% |
|
|
1.6 |
% |
|
|
1.0 |
% |
|
Restructuring and other charges, net |
|
|
0.1 |
% |
|
|
5.1 |
% |
|
|
0.1 |
% |
|
|
4.5 |
% |
|
Non-GAAP operating margin |
|
|
37.2 |
% |
|
|
28.7 |
% |
|
|
36.5 |
% |
|
|
27.4 |
% |
Critical Accounting Policies and Estimates
The financial information included in Item 1 reflects no material changes in our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimates in Part II,
34
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Annual Report on Form 10-K.
Recent Accounting Pronouncements
In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accounting pronouncements.
Liquidity and Capital Resources
|
(in millions) |
|
|
|
|
||||
|
Cash and cash equivalents |
|
$ |
326.1 |
|
|
$ |
275.5 |
|
|
Restricted cash |
|
|
0.5 |
|
|
|
0.5 |
|
|
Short- and long-term marketable securities |
|
|
— |
|
|
|
59.1 |
|
|
Total |
|
$ |
326.6 |
|
|
$ |
335.1 |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Six months ended |
|
|||||
|
|
|
|
|
|
||||
|
Net cash provided by operating activities |
|
$ |
235.5 |
|
|
$ |
95.3 |
|
|
Net cash used in investing activities |
|
$ |
(670.3 |
) |
|
$ |
(476.7 |
) |
|
Net cash provided by financing activities |
|
$ |
485.0 |
|
|
$ |
944.1 |
|
Cash, Cash Equivalents and Restricted Cash
We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. In December 2020, we sold all our marketable securities. At March 31, 2021, cash and cash equivalents totaled $326 million, compared to $275 million at September 30, 2020.
A significant portion of our cash is generated and held outside the U.S. As of March 31, 2021, we had cash and cash equivalents of $44 million in the U.S., $141 million in Europe, $109 million in Asia Pacific (including India) and $32 million in other non-U.S. countries. We have substantial cash requirements in the U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, our ability to repatriate cash to the U.S. more cost effectively with the recent U.S. tax law changes, future U.S. operating cash flows, and cash available under our credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.
Cash Provided by Operating Activities
Cash provided by operating activities was $235 million in the first six months of FY’21, compared to $95 million in the first six months of FY’20. Cash from operations for the first six months of FY’21 includes $11.7 million of restructuring payments and $11.1 million of acquisition-related payments compared to $21.3 million of restructuring payments and $8.6 million of acquisition-related payments in the prior-year period. The increase in cash from operations in the first six months of FY’21 compared to the same period in FY’20 was primarily driven by increased collections, offset by higher compensation payments.
Cash Used in Investing Activities
|
(in millions) |
|
Six months ended |
|
|||||
|
|
|
|
|
|
||||
|
Additions to property and equipment |
|
$ |
(8.2 |
) |
|
$ |
(10.2 |
) |
|
Proceeds from (purchases of) short- and long-term marketable securities, net |
|
|
58.5 |
|
|
|
(0.2 |
) |
|
Acquisitions of businesses, net of cash acquired |
|
|
(717.2 |
) |
|
|
(468.5 |
) |
|
Other |
|
|
(3.4 |
) |
|
|
2.2 |
|
|
Net cash used in investing activities |
|
$ |
(670.3 |
) |
|
$ |
(476.7 |
) |
35
Cash used in investing activities in the first six months of FY’21 reflects approximately $715 million used for the Arena acquisition and $56 million in proceeds from the sale of marketable securities. Cash used in investing activities in the first six months of FY’20 reflects $469 million used for the Onshape acquisition.
Cash Provided by Financing Activities
|
(in millions) |
|
Six months ended |
|
|||||
|
|
|
|
|
|
||||
|
Borrowings on debt, net |
|
$ |
502.0 |
|
|
$ |
975.0 |
|
|
Proceeds from issuance of common stock |
|
|
10.5 |
|
|
|
9.0 |
|
|
Debt issuance costs |
|
|
— |
|
|
|
(16.3 |
) |
|
Payments of withholding taxes in connection with stock-based awards |
|
|
(27.2 |
) |
|
|
(23.6 |
) |
|
Other |
|
|
(0.3 |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
$ |
485.0 |
|
|
$ |
944.1 |
|
Cash provided by financing activities in the first six months of FY’21 reflects net borrowings of $502 million under our credit facility, compared to net borrowings of $975 million in the first six months of FY’20, primarily related to the issuance of the 4.000% Senior Notes due 2028 and 3.625% Senior Notes due 2025 in Q2’20.
Outstanding Debt
|
(in millions) |
|
|
||
|
4.000% Senior notes due 2028 |
|
$ |
500.0 |
|
|
3.625% Senior notes due 2025 |
|
|
500.0 |
|
|
Credit facility revolver |
|
|
520.0 |
|
|
Total debt |
|
$ |
1,520.0 |
|
|
Unamortized debt issuance costs for the senior notes |
|
|
(11.6 |
) |
|
Total debt, net of issuance costs |
|
$ |
1,508.4 |
|
|
|
|
|
|
|
|
Undrawn under credit facility revolver |
|
$ |
480.0 |
|
|
Undrawn under credit facility revolver available to borrow |
|
$ |
463.7 |
|
As of March 31, 2021, we were in compliance with all financial and operating covenants of the credit facility and the note indentures. Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.
Our credit facility and our senior notes are described in Note 13. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Future Expectations
We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under our credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which capital expenditures we expect to be approximately an additional $15 million in FY’21) through at least the next twelve months and to meet our known long-term capital requirements.
In January 2021, we acquired Arena Solutions for approximately $715 million, net of cash acquired. In connection with the acquisition, we borrowed $600 million under our existing credit facility. We plan to use available cash from operations to pay down borrowings under the credit facility. We intend to continue targeting a leverage ratio (Debt/EBITDA) of below 3x and will assess share repurchases in that context.
Our expected uses and sources of cash could change, payments due to us may be delayed due to the COVID-19 pandemic, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, engage in strategic transactions or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions
36
and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.
There have been no significant changes in our market risk exposure as described in Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our 2020 Annual Report on Form 10-K.
Evaluation of Effectiveness of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.
We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a or 15(d) of the Exchange Act that occurred during the period ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
37
PART II—OTHER INFORMATION
Information on legal proceedings can be found in Note 15. Commitments and Contingencies – Legal Proceedings – 401(k) Plan of Notes to Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.
In addition to other information set forth in this report, you should carefully consider the risk factors described in Part I. Item 1A. Risk Factors in our 2020 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
|
3.1 |
|
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|
3.2 |
|
|
|
|
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|
4.1 |
|
|
|
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|
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4.2 |
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4.3 |
|
|
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|
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|
31.1 |
|
Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). |
|
|
|
|
|
31.2 |
|
Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). |
|
|
|
|
|
32* |
|
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
101 |
|
The following materials from PTC Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 ("Q2 Form 10-Q") formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2021 and September 30, 2020; (ii) Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2021 and March 28, 2020; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2021 and March 28, 2020; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2021 and March 28, 2020; (v) Consolidated Statements of Stockholders’ Equity for the three and six months ended March 31, 2021 and March 28, 2020; and (vi) Notes to Condensed Consolidated Financial Statements. |
|
|
|
|
|
104 |
|
The cover page of the Q2 Form 10-Q formatted in Inline XBRL (included in Exhibit 101). |
|
* |
Indicates that the exhibit is being furnished, not filed, with this report. |
38
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
PTC Inc. |
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|
|
|
|
|
|
|
|
By: |
|
||
|
|
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
Date: May 4, 2021
39
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 2/13/25 | ||||
| 11/15/23 | ||||
| 9/30/23 | ||||
| 12/31/22 | ||||
| 11/15/22 | ||||
| 9/30/22 | ||||
| 6/30/22 | ||||
| 11/15/21 | 4 | |||
| 9/30/21 | 10-K, 5 | |||
| Filed on: | 5/4/21 | 4 | ||
| 4/30/21 | ||||
| For Period end: | 3/31/21 | |||
| 1/15/21 | 4, 8-K | |||
| 12/31/20 | 10-Q | |||
| 12/12/20 | 8-K | |||
| 10/1/20 | ||||
| 9/30/20 | 10-K, 8-K | |||
| 9/17/20 | ||||
| 6/27/20 | 10-Q | |||
| 3/31/20 | 8-K | |||
| 3/28/20 | 10-Q | |||
| 12/28/19 | 10-Q | |||
| 11/1/19 | 8-K | |||
| 10/23/19 | 8-K | |||
| 10/1/19 | ||||
| 9/30/19 | 10-K | |||
| 10/1/18 | ||||
| 9/17/14 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/13/20 PTC Inc. 8-K:1,2,5,9 2/12/20 12:2M Donnelley … Solutions/FA 11/23/15 PTC Inc. 10-K 9/30/15 106:14M 5/06/14 PTC Inc. 10-Q 3/29/14 70:8.3M |