PTC Reports Fourth Quarter and Fiscal Year 2007 Results; Company Delivers Fiscal 2007 Revenue of $941.5 Million and Cash Flow From Operations of $127.4 Million

CIMdata PLM Industry Summary Online Archive

31 October 2007

Financial News

PTC Reports Fourth Quarter and Fiscal Year 2007 Results; Company Delivers Fiscal 2007 Revenue of $941.5 Million and Cash Flow From Operations of $127.4 Million

PTC reported revenue of $266.7 million for the fourth quarter ended September 30, 2007, up 9% from the same period last year. Total license revenue for the fourth quarter of 2007 was $96.1 million, up 14% from the same period last year. For fiscal year 2007, PTC reported total revenue of $941.5 million, up 10% from fiscal year 2006. Total license revenue for fiscal year 2007 was $296.1 million, up 12% from fiscal year 2006.

"We executed well in the fourth quarter and delivered good results for the year," said C. Richard Harrison, president and chief executive officer. "In particular, our non-GAAP operating margin of 24% for the fourth quarter contributed to our ability to deliver substantial margin growth for the full year. Additionally, sales of our Enterprise Solutions continue to significantly outpace market growth. Finally, we delivered outstanding results in Europe in 2007. We are winning customer benchmarks because our software and services solutions address real business process challenges and work together in a cohesive system. This provides customers with substantial value because it enables them to replace multiple proprietary and legacy point solutions, as well as manual processes, as they strive to globalize product development and run lean processes."

PTC also announced today that it will restate its previously issued financial statements with respect to certain transactions involving Toshiba Corporation of Japan recorded during the fiscal periods 2001 to 2006. As discussed in PTC's Current Report on Form 8-K filed today with the Securities and Exchange Commission, the transactions appear to have been related to an allegedly fraudulent scheme conducted by a Toshiba employee. The aggregate revenue associated with the transactions anticipated to be restated is approximately $41 million, or less than 1% of total PTC revenue during the affected fiscal years, and the expected reduction in fiscal 2006 revenue is approximately $8 million. The revenue to be reversed from prior periods is expected to be deferred as of September 30, 2007, to be recorded as revenue or other income in the future if and to the extent that the rights and obligations of the companies connected with the transactions are resolved in PTC's favor. As part of the restatement, PTC also expects to record adjustments to correct other previously identified immaterial errors.

"Our decision to restate our results does not indicate any change in our position in the pending litigation relating to these transactions," said Neil Moses, CFO of PTC. "PTC Japan delivered software and services and was paid for the software and services delivered. We will continue to defend vigorously our position. At the same time, Toshiba continues to be a valued customer and has made additional purchases in fiscal 2007, which are not impacted by the restatement."

No adjustments have been made to the financial results reported in this press release to reflect the anticipated restatement. PTC believes its results for the fourth quarter and fiscal year 2007 will not be materially affected by this restatement. PTC expects to complete the restatement and to file its Annual Report on Form 10-K with the SEC by the November 29, 2007 due date.

Additionally, PTC today announced its intent to acquire CoCreate Software, GmbH for $250 million (see separate press release issued October 31, 2007). The transaction value represents approximately 3.1 times CoCreate's total revenue, 4.6 times its maintenance revenue, and 7.4 times its non-GAAP operating margins, based on trailing twelve-month data. The acquisition is expected to close in December 2007, subject to customary conditions including regulatory approval.

Fourth Quarter and Fiscal 2007 Earnings Results

GAAP operating income for the fourth quarter of 2007 was $31.0 million, or 11.6% of total revenue. GAAP net income for the fourth quarter of 2007 was $36.1 million, or $0.31 per diluted share. Non-GAAP operating income, which excludes stock-based compensation cost, restructuring charges and amortization of acquisition-related intangible assets, was $64.2 million for the fourth quarter of 2007, or 24.1% of total revenue. 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 $44.5 million for the fourth quarter of 2007, or $0.38 per diluted share.

GAAP operating income for fiscal year 2007 was $93.0 million, or 9.9% of total revenue. GAAP net income for fiscal year 2007 was $155.8 million, or $1.33 per diluted share. Non-GAAP operating income, which excludes stock-based compensation cost, amortization of acquisition-related intangible assets, in-process research and development write-offs associated with acquisitions, and restructuring charges, was $159.7 million in 2007, or 17.0% of total revenue. Non-GAAP net income, which excludes the items excluded from non-GAAP operating income and the related tax effect of these items, as well as one-time tax items, was $118.2 million for 2007, or $1.01 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.

PTC's GAAP and non-GAAP results for the fourth quarter and fiscal 2007 reflect the reversal of PTC's valuation allowance against deferred tax assets in the U.S. and a foreign jurisdiction in the third quarter of 2007. This reversal resulted in a GAAP tax benefit in both the fourth quarter and full year of 2007. This tax benefit is excluded from our non-GAAP results. We have provided more information about the impact of this change in the attached financial tables.

Cash and cash equivalents were $263 million at the end of fiscal 2007, up from $260 million at the end of the third fiscal quarter of 2007, ahead of expectations. PTC purchased shares of PTC stock under its authorized share repurchase program for $8.1 million during the quarter. Cash flow from operations was $12.3 million and $127.4 million for the fourth quarter and fiscal year 2007 respectively.

Fourth Quarter 2007 Revenue Metrics

PTC delivered the following results for the fourth quarter of fiscal 2007:

• License revenue of $96.1 million, training and consulting service revenue of $64.6 million, and maintenance revenue of $106.0 million;

• Desktop Solutions total revenue of $157.4 million;

• Enterprise Solutions total revenue of $109.2 million, the highest quarterly Enterprise Solutions revenue in the company's history;

• Total reseller channel revenue of $51.3 million;

• Revenue of $102.2 million in North America, $101.6 million in Europe, $28.6 million in Japan and $34.2 million in the Pacific Rim.

In the fourth quarter, PTC received orders from leading organizations, including Airbus S.A.S.; Areva T&D ASUSTek Computer Inc.; China State Shipbuilding Corporation (CSSC); Danaher Tool Group; Dell Inc.; EMC Corporation; Lockheed Martin Corporation; Manitowoc Crane; Nvidia; Quanta Computer Inc.; Robert Bosch; Tata Motors Limited; Whirlpool Corporation; and ZF Friedrichshafen AG.

Fiscal Year 2007 Revenue Metrics

PTC delivered the following results for fiscal 2007:

• License revenue of $296.1 million, training and consulting service revenue of $237.0 million, and maintenance revenue of $408.4 million;

• Desktop Solutions total revenue of $586.9 million;

• Enterprise Solutions total revenue of $354.6 million;

• Total reseller channel revenue of $195.1 million;

• Revenue of $365.0 million in North America, $353.4 million in Europe, $97.5 million in Japan, and $125.6 million in the Pacific Rim.

"We have entered Fiscal 2008 with a financial plan that supports both customer success and improved shareholder value," continued Harrison. "We continue to strengthen our products with new capabilities and ease-of-use. We also continue to improve our distribution and services models to provide the best support to customers while further improving our profitability. And our globalization efforts, well underway, enable us to reduce costs while at the same time adding resource capacity to support future growth. All of these initiatives give us confidence in both short-term and long-term revenue and operating margin targets. We are introducing guidance for 2008 of revenue of $1 billion and non-GAAP EPS of $1.05 - $1.15, which implies a non-GAAP operating margin of at least 21%."

First Quarter and Fiscal Year 2008 Financial Outlook

PTC's revenue forecast for the first quarter of fiscal 2008 is between $230 million and $240 million. On a GAAP basis, earnings per share are expected to be between $0.08 and $0.13. The Company expects non-GAAP first quarter earnings per share to be between $0.20 and $0.25. These earnings expectations reflect the change (increase) in tax rate as a result of the reversal of the valuation allowance. The non-GAAP earnings expectations exclude the following first quarter estimated expenses and their tax effects:

• Approximately $11 million of expense related to stock-based compensation

• Approximately $4.5 million of acquisition-related amortization expense

• Approximately $9 million of restructuring expenses related to our continued globalization program

• PTC expects its cash balance to be between $250 million and $260 million at the end of the first quarter.

For the fiscal year ending September 30, 2008, PTC expects revenue to be about $1 billion. On a GAAP basis, earnings per share are expected to be between $0.68 and $0.78. The Company expects non-GAAP earnings per share to be between $1.05 and $1.15 for the fiscal year. The non-GAAP earnings expectations exclude the following full-year estimated expenses and their tax effects:

• Approximately $45 million of expense related to stock-based compensation

• Approximately $18 million of acquisition-related amortization expense

• Approximately $12 million of restructuring expenses related to the continued globalization program

The above guidance for the first quarter and fiscal 2008 does not include any potential effect of the CoCreate acquisition announced today. As described in that announcement, PTC expects the acquisition will be accretive to non-GAAP earnings and operating margins in the second quarter of fiscal 2008. Due to the lower level of deferred maintenance revenue that PTC will be permitted to record under purchase accounting as compared to the level of deferred maintenance revenue recorded by CoCreate, PTC expects that the acquisition will be dilutive to GAAP EPS in 2008, but accretive to GAAP EPS in 2009 and beyond. PTC expects that acquisition to close in the first quarter, subject to regulatory approval, and therefore expects to update its detailed guidance upon the close of that transaction.

Important Information about Non-GAAP References

References by PTC to non-GAAP operating costs and expenses, non-GAAP operating income, non-GAAP operating margin (non-GAAP operating income as a percentage of total revenue), 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 as 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 operating margin 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 fourth quarter and fiscal year 2007 results conference call and live webcast on October 31, 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 . A replay of the call will be available until 5:00 p.m. ET on November 5, 2007. To access the replay via webcast, please visit http://www.ptc.com/for/investors.htm . To access the replay by phone, please dial 203-369-3752.

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