CIMdata PLM Industry Summary Online Archive
3 December 2007
Acquisitions
PTC Completes Acquisition of CoCreate
PTC announced it has completed its acquisition of CoCreate Software GmbH, a provider of product development solutions, for approximately $250 million net of cash acquired and excluding transaction fees. CoCreate, based in Sindelfingen, Germany, has 280 employees and more than 5,000 customers globally including Agilent, Canon, Molex, Fujitsu, HP, Liebherr, Matsushita Electric, NEC, Olympus, Phoenix Contact and Seiko Epson.
"The acquisition of CoCreate enables PTC to broaden its customer base, its distribution channel, and its product offering," said C. Richard Harrison, president and chief executive officer, PTC. "Additionally, we expect the acquisition will be immediately accretive to our non-GAAP operating margins and earnings."
Customer satisfaction has been a top priority for PTC and we expect CoCreate customers to benefit from this focus. PTC is committed to maintaining, enhancing and further developing all CoCreate products indefinitely, including OneSpace Modeling, OneSpace Drafting, OneSpace Model Manager, OneSpace Drawing Manager, OneSpace Live! and OneSpace.net. PTC will continue to offer all CoCreate solutions as stand-alone offerings. Additionally, PTC plans to integrate CoCreate solutions with the PTC Product Development System (PDS) in order to offer CoCreate customers complementary product development capabilities including engineering calculations, dynamic publishing, visualization, high-speed machining, and enterprise content and process management.
"Intermec has been a long-standing customer of both PTC and CoCreate solutions," said Ryan White, mechanical engineering manager at Intermec, a leading supply chain technology provider. "We believe we will benefit not only by being able to purchase these solutions from one vendor, but also from the planned integration of the solutions, which should enable us to lower our total cost of ownership and ease transfer of files between tools."
With this acquisition, PTC embraces all the accepted approaches to mechanical modeling - parametric, explicit, derived and 2D - and is the only vendor to offer all of them based upon a customer's specific needs. Any of these modeling techniques combined with the PTC PDS offers customers a competitive advantage unmatched by any other vendor in the industry.
"PTC's acquisition of CoCreate will provide significant value for end users," said Allan A. Fotinopoulos, senior business product lifecycle development architect at Pitney Bowes, a global provider of mailstream technology. "We look forward to seeing how the tools will complement each other to provide added value to various product development programs at Pitney Bowes, as well as seeing integration plans to assist us in adopting a complete PLM solution in the future."
PTC financed the acquisition and related expenses with a combination of $50 million of cash and $220 million of debt from its existing revolving credit facility. PTC expects to repay the loan within two years.
Wachovia Securities acted as exclusive financial adviser to PTC in the transaction. CoCreate was a portfolio company affiliated with HBK Capital Management.
Updated First Quarter and Fiscal 2008 Financial Outlook
As a result of the acquisition, PTC has updated its outlook for the first quarter and fiscal year 2008. Under purchase accounting, PTC will be required to account for the fair value of CoCreate's deferred maintenance revenue balance, which we expect will result in a reduction to the maintenance revenue that CoCreate would have otherwise recorded as a stand-alone entity ("deferred maintenance revenue write-down"). PTC will report both GAAP and non-GAAP revenue in FY 2008. Non-GAAP revenue will exclude the revenue effect of the deferred revenue write-down. Therefore, the outlook below includes both GAAP and non-GAAP revenue estimates.
PTC's GAAP revenue forecast for the first quarter of fiscal 2008 is between $234 million and $244 million, and GAAP earnings per share are expected to be between $0.06 and $0.11. The Company expects non-GAAP first quarter revenue to be between $235 million and $245 million, and expects non-GAAP earnings per share to be between $0.20 and $0.25. The non-GAAP revenue and earnings expectations exclude an anticipated deferred maintenance revenue write-down of about $1 million and the following first quarter estimated expenses and their tax effects:
• Approximately $11 million of expense related to stock-based compensation
• Approximately $6 million of acquisition-related amortization expense
• Approximately $1 million of in-process research and development expense related to the acquisition of CoCreate
• Approximately $9 million of restructuring expenses related to our continued globalization program
For the fiscal year ending September 30, 2008, PTC expects GAAP revenue to be about $1050 million, and GAAP earnings per share are expected to be between $0.61 and $0.71. The Company expects non-GAAP revenue to be about $1060 million, and expects non-GAAP earnings per share to be between $1.12 and $1.22 for the fiscal year. The non-GAAP revenue and earnings expectations exclude an anticipated deferred maintenance revenue write-down of about $10 million and the following full-year estimated expenses and their tax effects:
• Approximately $45 million of expense related to stock-based compensation
• Approximately $34 million of acquisition-related amortization expense
• Approximately $1 million of in-process research and development expense related to the acquisition of CoCreate
• Approximately $12 million of restructuring expenses related to the continued globalization program
Our purchase price allocation estimates, which impact our estimates for the deferred maintenance revenue write-down, amortization expense, and in-process research and development expense, are preliminary pending the final valuation of the acquired assets and liabilities. PTC's outlook for GAAP and non-GAAP earnings per share reflects anticipated interest payments on the debt used to finance the CoCreate acquisition. PTC expects the acquisition will be accretive to GAAP EPS in 2009 and beyond.
Important Information about Non-GAAP References
To supplement our financial results presented on a GAAP basis, we use non-GAAP measures, which exclude certain business combination accounting entries and expenses related to acquisitions as well as other significant expenses including stock-based compensation and restructuring charges, that we believe are helpful in understanding our past financial performance and our future results. 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. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies and enables investors to consider PTC's operating results on both a GAAP and non-GAAP basis in periods when PTC is engaged in acquisition activities or undertaking restructuring activities. However, non-GAAP revenue, non-GAAP net income and non-GAAP earnings per share should be construed neither as an alternative to GAAP revenue, GAAP net income or GAAP 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.
Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:
Deferred maintenance support revenue: Business combination accounting rules require us to account for the fair value of support contracts assumed in connection with our acquisitions. Because these are typically one-year contracts, our GAAP revenues for the one-year period subsequent to our acquisitions do not reflect the full amount of software license updates and product support revenues on assumed support contracts that would have otherwise been recorded by the acquired entities. The non-GAAP adjustment, reflected in non-GAAP revenue, is intended to reflect the full amount of such revenues. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business because we have historically experienced high renewal rates on support contracts, although we cannot be certain that customers will renew these contracts.
Stock-based compensation expenses: We exclude the effect of stock-based compensation expenses from our non-GAAP operating expenses, operating margin and net income. 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. Stock-based compensation expenses will recur in future periods.
Amortization of intangible assets and in-process research and development expenses: We exclude the effect of amortization of intangibles and in-process research and development expenses from our non-GAAP operating expenses and net income. We believe that excluding these expenses, which are 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 because the expense is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Amortization expenses will recur in future periods. In-process research and development charges are not recurring with respect to past acquisitions, but we may incur these expenses in connection with future acquisitions.
Restructuring expenses consist of PTC employee severance and PTC duplicate facility closures in connection our strategy to globalize our workforce to improve our profitability. We believe it is useful for investors to understand the effect of these expenses on our cost structure. Although restructuring costs are not recurring with respect to past severance and facilities closure activity, we may incur these expenses in the future in connection with continued execution of our globalization strategy.
One-time tax items, if any: We exclude the effect of one-time tax items, such as valuation allowance reversals and income tax refunds, from our non-GAAP net income. We believe that excluding these items provides investors with information that helps to compare period-over-period operating performance by highlighting the effect of one-time items on our results of operations. One-time tax items are not recurring with respect to past benefits or payments, but we may realize one-time tax benefits or incur one-time tax obligations in the future.
Conference Call Webcast
PTC will discuss its outlook update on a conference call and live webcast on December 3, 2007 at 8:30 a.m. ET. 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 402-998-0826.
Website Posting of Historical Financial and Operating Statistics
PTC has also posted updated annual and quarterly financial and operating statistics on PTC's website at http://www.ptc.com/for/investors.htm . These statistics reflect the restatement of prior financial results in the 2007 annual report on Form 10-K.
The timing of any product release or integration, including any features or functionality, will be determined as part of PTC's release schedule after the acquisition closes, and subject to change at PTC's discretion.
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