CIMdata PLM Industry Summary Online Archive
25 July 2007
Financial News
PTC Reports Third Quarter Fiscal Year 2007 Results
PTC reported revenue of $225.1 million for the third quarter ended June 30, 2007, up 4% from the same period last year. Total license revenue for the third quarter of 2007 was $62.1 million, a decline of 5% from the same period last year. Results for the third quarter of 2007 reflected year-over-year revenue growth in Europe and the Pacific Rim, offset by declines in North America and Japan. Additionally, PTC delivered continued growth in its Enterprise Solutions product category, but Desktop Solutions revenue declined year over year. In the third quarter of 2007, PTC achieved the highest level of quarterly maintenance revenue in the company's history.
"Our third quarter license revenue shortfall reflects two major factors: several large transactions that we expected but did not close and a reduction in add-on sales of Desktop Solutions in North America and Japan," said C. Richard Harrison, president and chief executive officer. "Though our third quarter results did not meet our expectations, we continue to have confidence in the strength of the PLM market and in PTC's competitive position. As evidenced by our record maintenance revenue in the third quarter and our revenue growth year to date, we have a large and loyal customer base that continues to benefit from the use of PTC's differentiated solutions."
GAAP operating income for the third quarter of 2007 was $19.8 million, compared with $13.5 million in the year-ago period. GAAP net income for the third quarter of 2007 was $87.2 million, or $0.74 per diluted share, and includes the impact of the reversal of our valuation allowance against U.S. deferred tax assets as described below, as well as a one-time tax benefit of $5.3 million due to the favorable resolution of a tax refund claim. This compares with GAAP net income of $16.9 million, or $0.15 per diluted share, in the year-ago period. Non-GAAP operating income, which excludes stock-based compensation cost, restructuring charges, acquisition-related in-process research and development expenses and amortization of acquisition-related intangible assets, was $28.9 million for the third quarter of 2007, compared with $34.4 million in the year-ago period. Non-GAAP net income, which excludes the items excluded from non-GAAP operating income and the related tax effect of those items, as well as one-time tax items, was $18.7 million for the third quarter of 2007, or $0.16 per diluted share, compared to $29.5 million in the year-ago period, or $0.26 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.
Reversal of Valuation Allowance Against U.S. Deferred Tax Assets
After concluding that its U.S. operations have achieved sustainable profitability, in the third quarter, PTC reversed its valuation allowance against deferred tax assets in the U.S. and in a foreign jurisdiction, which resulted in a $65.5 million GAAP tax benefit, as well as balance sheet adjustments to goodwill and stockholders' equity. Non-GAAP earnings results have been fully taxed at a rate of 40% for the third quarter of 2007, versus a tax rate of about 20% applied in prior periods. PTC would have reported GAAP earnings per share of $0.19 and non-GAAP earnings per share of $0.21 had we not reversed the valuation allowance in the third quarter of 2007. Since the valuation allowance release is a non-cash adjustment, there has been no change to PTC's cash tax rate due to the utilization of net operating loss carryforwards. We have provided more information about the impact of this change in the attached financial tables.
Cash and cash equivalents were $260 million at the end of the third fiscal quarter of 2007, up from $238 million at the end of the second fiscal quarter of 2007, in line with expectations. Cash flow from operations was $38.9 million and $115.1 million for the third quarter and first nine months of 2007 respectively.
Third Quarter 2007 Revenue Metrics
PTC delivered the following results for the third quarter of fiscal 2007 compared to the same period last year:
• Total revenue growth of 4%, driven by maintenance revenue growth of 9% and training and consulting service revenue growth of 6%, partially offset by a license revenue decline of 5%;
• Desktop Solutions total revenue decline of 3% to $139.0 million. License revenue declined 12% and training and consulting service revenue declined 22%. Maintenance revenue grew 7%. The license revenue decline is attributable to lower revenue from Pro/ENGINEER new seats, modules and upgrades;
• Enterprise Solutions total revenue growth of 18% to $86.1 million, driven by training and consulting service revenue growth of 26%, maintenance revenue growth of 17%, and license revenue growth of 8%. Growth in license revenue was primarily attributable to sales of Windchill® PDMLink® and Windchill ProjectLink® as more customers adopt our content and process management solutions both within engineering and the enterprise;
• Total reseller channel revenue growth of 3% to $47.6 million, reflecting significant growth in North America and Europe partially offset by a decline in Asia Pacific;
• Revenue growth of 20% in Europe, partially offset by declines of 4% in North America and 3% in Asia Pacific. Asia-Pacific revenue reflects 9% growth in the Pacific Rim offset by an 18% decline in Japan.
In the third quarter, PTC received orders from leading organizations, including Airbus S.A.S.; Boeing Company; China Shipbuilding Industry Corporation; Flextronics International Ltd.; HARMAN/BECKER Automotive Systems GmbH; HOERBIGER Group AG; ITT Corporation; Lenovo Group Ltd.; Lockheed Martin Corporation; Motorola, Inc.; Samsung Electronics Co., Ltd.; Schneider Electric S.A.; and Toyota Motor Corporation.
First Nine Months 2007 Revenue Metrics
PTC delivered the following results for the first nine months of fiscal 2007 compared to the same period last year:
• Total revenue growth of 11%, driven by license revenue growth of 12%, maintenance revenue growth of 11%, and training and consulting service revenue growth of 10%;
• Desktop Solutions total revenue growth of 7%, driven by license revenue growth of 14% and maintenance revenue growth of 9%, partially offset by a training and consulting service revenue decline of 13%;
• Enterprise Solutions total revenue growth of 18%, driven by training and consulting service revenue growth of 25%, maintenance revenue growth of 18%, and license revenue growth of 8%;
• Total reseller channel revenue growth of 15%;
• Revenue growth of 7% in North America, 18% in Europe, and 6% in Asia-Pacific. Asia-Pacific revenue growth reflects 14% growth in the Pacific Rim and a 3% decline in Japan.
"We continue to believe we have a significant growth opportunity ahead of us, along with the industry's best solutions to help our customers solve key product development challenges," continued Harrison. "However, we believe it is prudent to reduce our guidance for the fourth quarter. Additionally, we remain focused on delivering operating margin and earnings growth in FY 2007 and beyond. Therefore, we are taking actions to reduce our expenses in the fourth quarter. We believe these actions will enable us to fulfill our shareholder and customer commitments to deliver non-GAAP operating margins of 20% in fiscal 2008."
Fourth Quarter and Fiscal Year 2007 Financial Outlook
PTC's revenue forecast for the fourth quarter of fiscal 2007 is between $240 million and $250 million. On a GAAP basis, earnings per share are expected to be between $0.15 and $0.20. The Company expects non-GAAP fourth quarter earnings per share to be between $0.23 and $0.28. These non-GAAP earnings expectations reflect the change (increase) in tax rate as a result of the reversal of the valuation allowance. The non-GAAP earnings expectations also exclude the following fourth quarter estimated expenses and their tax effects:
• Approximately $8.5 million of expense related to stock-based compensation
• Approximately $3.5 million of acquisition-related amortization expense
• Approximately $10 million of restructuring expenses related to the fourth quarter cost reduction program
PTC expects its cash balance to be approximately $250 million at the end of the fourth quarter.
For the fiscal year ending September 30, 2007, PTC expects revenue to be between $915 million and $925 million. On a GAAP basis, earnings per share are expected to be between $1.17 and $1.22. These GAAP earnings expectations include actual tax benefits recorded in the third quarter resulting from the reversal of the valuation allowance against U.S. deferred tax assets as well as the one-time tax benefit due to the favorable resolution of a tax refund claim. The Company expects non-GAAP earnings per share to be between $0.86 and $0.91 for the fiscal year. PTC had previously expected non-GAAP earnings per share of $1.17 to $1.22. The new reduced guidance reflects the third quarter earnings shortfall and reduced fourth quarter guidance, as well as the change (increase) in tax rate as a result of the reversal of the valuation allowance for the third and fourth quarters of fiscal 2007. This tax change represents a reduction to our previous guidance of approximately $0.14. The non-GAAP earnings expectations also exclude the following full-year estimated expenses and their tax effects:
• Approximately $31 million of expense related to stock-based compensation
• Approximately $14 million of acquisition-related amortization expense
• $0.5 million of in-process research and development expenses related to the acquisition of NC Graphics
• Approximately $10 million of restructuring expenses related to the fourth quarter cost reduction program
Important Information about Non-GAAP References
References by PTC to non-GAAP operating costs and expenses, non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share refer to costs and expenses, operating income, net income or earnings per share, respectively, excluding stock-based compensation cost, amortization of acquisition-related intangible assets, and their related tax effects, as well one-time tax items, if any. GAAP requires that these costs and charges be included in costs and expenses and, accordingly, used to determine operating income and earnings per share. PTC's management uses non-GAAP operating costs and associated non-GAAP net income (which is the basis for non-GAAP earnings per share) to make operational and investment decisions, and PTC believes that they are among several useful measures for an enhanced understanding of our operating results for a number of reasons.
First, although PTC undertakes analyses to ensure that its stock-based compensation grants are in line with peer companies and do not unduly dilute shareholders, PTC allocates these grants and measures them at the corporate level. Management excludes their financial statement effect when planning or measuring the periodic financial performance of PTC's functional organizations since they are unrelated to our core operating metrics. Likewise, we believe that excluding amortization of intangible assets associated with acquisitions provides investors with information that helps to compare period-over-period operating performance by highlighting the effect of acquisitions on our results of operations. In addition, PTC's management excludes the financial statement effect of these items in creating operating budgets for PTC's functional business units and in evaluating and compensating employees due to the fact that it is difficult to forecast these expenses. Lastly, we believe that providing non-GAAP earnings per share affords investors a view of earnings that may be more easily compared to peer companies and enables investors to consider PTC's earnings on both a GAAP and non-GAAP basis in periods when PTC is engaged in acquisition activities or undertaking non-recurring activities.
PTC believes these non-GAAP measures aid investors' overall understanding of PTC's results by providing a higher degree of transparency for certain expenses, and providing a level of disclosure that helps investors understand how PTC plans and measures its own business. However, non-GAAP net income should be construed neither as an alternative to GAAP net income or earnings per share, as an indicator of our operating performance nor as a substitute for cash flow from operations as a measure of liquidity because the items excluded from the non-GAAP measures often have a material impact on PTC's results of operations. Therefore, management uses, and investors should use, non-GAAP measures in conjunction with our reported GAAP results.
Earnings Call Webcast
PTC will provide detailed financial information and an outlook update on its third quarter fiscal year 2007 results conference call and live webcast on July 25, 2007 at 10 a.m. ET. This earnings press release and accompanying financial and operating statistics will be accessible prior to the conference call and webcast on PTC's web site at http://www.ptc.com/for/investors.htm . In addition, the live webcast may be accessed at the same web address. To access the live call, please dial 888-566-8560 (in the U.S.) or +1-517-623-4768 (international). Please use passcode PTC. A replay of the call will be available until 5:00 p.m. ET on July 30, 2007. To access the replay via webcast, please visit http://www.ptc.com/for/investors.htm . To access the replay by phone, please dial 402-344-6812.
Become a member of the CIMdata PLM Community to receive your daily PLM news and much more.
Tell us what you think of the CIMdata Newsletter. Send your feedback.
CIMdata is committed to your privacy. Your personal information will never be sold or shared outside of CIMdata without your express permission.