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PTC Announces Third Quarter Fiscal 2017 Results

NEEDHAM, Mass.--(BUSINESS WIRE)--PTC (NASDAQ: PTC) today reported financial results for its fiscal third quarter ended July 1, 2017.

“PTC delivered total revenue and earnings per share at or near the high-end of our guidance”

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  • Total GAAP revenue was $291 million; total non-GAAP revenue was $292 million
  • GAAP operating income was $11 million or 4% of revenue; non-GAAP operating income was $45 million or 15% of revenue
  • GAAP net loss was $1 million or $0.01 per diluted share; non-GAAP net income was $33 million or $0.28 per diluted share
  • License and subscription bookings were $90 million and subscription mix was 64%; Annual Contract Value (ACV) of new subscription contracts signed in the quarter was $29 million
  • Total deferred revenue, billed and unbilled, increased $251 million to $909 million from the same period last year
  • Subscription Annualized Recurring Revenue (ARR) increased $171 million or 131% to $302 million from the same period last year

“PTC delivered total revenue and earnings per share at or near the high-end of our guidance,” said James Heppelmann, President and CEO, PTC. “Led by subscription revenue growth of 135% and recurring software revenue growth of 11%, total software revenue grew 4% year-over-year, despite a higher mix of subscription bookings than last year. We remain focused on creating long-term shareholder value by driving growth, expanding margins and transitioning to a subscription-based business model.”

Heppelmann continued, “We are excited about both the transformation we are driving in our core business and our leadership position in IoT. In addition to attracting over 8,000 in-person and virtual attendees to LiveWorx, we recently received two 2017 Compass Intelligence IoT Awards, and our strong technology and market position received further validation in IDC’s MarketScape report, which placed PTC squarely in the IoT platform leadership category and also recognized PTC as the market share leader.”

Additional third quarter operating and financial highlights are set forth below. Information about our bookings and other reporting measures is provided beginning on page four. For additional details, please refer to the prepared remarks and financial data tables that have been posted to the Investor Relations section of our website at investor.ptc.com.

  • License and subscription bookings were $90 million. License and subscription bookings were below our expectations in the quarter due to sales execution issues in Japan. Actions to improve performance in Japan are underway. Compared to Q3’16, license and subscription bookings were down 14% as reported and 13% in constant currency due almost entirely to Japan. Q3’16 bookings also present a tough comparison, as bookings grew 32% over Q3’15 as reported and 31% in constant currency. On a year-to-date basis, bookings were $275 million, an increase of 6% year-over-year as reported and 7% in constant currency, despite a year-to-date decline in bookings in Japan of $20 million.
  • Subscription bookings comprised 64% of total bookings, modestly below our expectations primarily due to subscription bookings performance below our expectations, but also due to one large IoT deal that closed as a perpetual license. Subscription mix of 64% increased from 58% in the same period last year.
  • Total deferred revenue – billed and unbilled - increased $251 million or 38% year-over-year and 3% sequentially to $909 million. Billed deferred revenue increased 9% year-over year and declined 6% sequentially to $465 million, as expected, due to timing of support contract billings during the year. Billed deferred revenue can fluctuate quarterly based upon the contractual billings dates in our recurring revenue contracts as well as the timing of our fiscal reporting periods.
  • GAAP and non-GAAP software revenue were both approximately $248 million, an increase of 4% year-over-year as reported and 5% year-over-year in constant currency, despite a higher mix of subscription bookings than last year.
  • Approximately 87% of software revenue came from recurring revenue streams, up from 81% in the same period last year.
  • Annualized recurring revenue (ARR) was approximately $865 million, an increase of 11% year-over-year.
  • GAAP operating expenses were approximately $198 million, compared to $199 million in the same period last year; non-GAAP operating expenses were approximately $174 million, compared to $175 million in the same period last year.
  • Operating cash flows were $74 million, and free cash flow was $69 million, both of which include cash payments for restructuring of approximately $6 million and legal payments of approximately $2 million.
  • Total cash, cash equivalents, and marketable securities as of the end of the third quarter was $311 million and total debt, net of deferred issuance costs, was $712 million.
  • We resumed share buybacks in Q3’17 and repurchased $35 million worth of shares in the quarter, which represents more than 50% of free cash flow in the quarter.

Fiscal 2017 Business Outlook
For the fourth quarter and fiscal year ending September 30, 2017, the company expects:

In millions except per share amounts
Operating Measures(1)

Q4’17
Low

Q4’17
High

FY’17
Low

FY’17
High

Subscription ACV $ 41 $ 44 $ 133 $ 136
License and Subscription Bookings $ 120 $ 130 $ 395 $ 405
Subscription % of Bookings 68 % 68 % 67 % 67 %

(1) An explanation of the metrics included in this table is provided below.

Financial Measures

Q4’17
Low

Q4’17
High

FY’17
Low

FY’17
High

Subscription Revenue $ 84 $ 86 $ 280 $ 282
Support Revenue 138 138 572 572
Perpetual License Revenue 38 41 132 135
Total Software Revenue(2) 260 265 984 989
Professional Services Revenue 43 43 179 179
Total Revenue(2) $ 303 $ 308 $ 1,163 $ 1,168
Operating Expense (GAAP) $ 195 $ 198 $ 783 $ 786
Operating Expense (Non-GAAP) 173 176 680 683
Operating Margin (GAAP) 8 % 9 % 4 % 4 %
Operating Margin (Non-GAAP) 18 % 19 % 16 % 17 %
Tax Rate (GAAP) 0 % 0 % 66 % 66 %
Tax Rate (Non-GAAP) 10 % 8 % 8 % 7 %
Shares Outstanding (GAAP) 117 117 117 117
Shares Outstanding (Non-GAAP) 117 117 117 117
EPS (GAAP) $ 0.09 $ 0.14 $ (0.01 ) $ 0.04
EPS (Non-GAAP) (2) $ 0.33 $ 0.38 $ 1.17 $ 1.22
Free Cash Flow $ 115 $ 125
Adjusted Free Cash Flow(3) $ 158 $ 168

(2) We estimate that, on an annual basis, every 1% change in subscription mix will impact annual revenue by $4 million, and annual non-GAAP EPS by $0.03. We cannot estimate the effect on GAAP EPS due to the number of unknown items, including tax items, included in GAAP EPS.
(3) Adjusted Free Cash Flow is net cash provided by (used in) operating activities less capital expenditures, excluding restructuring payments of approximately $40 million and legal payments of approximately $3 million.

The fourth quarter and fiscal 2017 non-GAAP operating margin and non-GAAP EPS guidance exclude the estimated items outlined in the table below, as well as any tax effects and discrete tax items (which are not known or reflected).

In millions Q4’17 FY’17
Effect of acquisition accounting on fair value of acquired deferred revenue $ - $ 3
Stock-based compensation expense 17 73
Intangible asset amortization expense 15 58
Restructuring charges - 8
Acquisition-related charges - 1
Non-operating credit facility refinancing charges - 1
Total Estimated Pre-Tax GAAP adjustments $ 32 $ 144

PTC’s Fiscal 2017 Third Quarter Results Conference Call, Prepared Remarks and Financial Data Tables
Prepared remarks and financial data tables have been posted to the Investor Relations section of our website at ptc.com. The Company will host a management presentation to discuss results at 5:00 pm ET on Wednesday, July 19, 2017. To access the live webcast, please visit PTC’s Investor Relations website at investor.ptc.com at least 15 minutes before the scheduled start time to download any necessary audio or plug-in software. To participate in the live conference call, dial 800-857-5592 or 773-799-3757 and provide the passcode PTC. The call will be recorded and a replay will be available for 10 days following the call by dialing 800-813-5525 and entering the pass code 6125. The archived webcast will also be available on PTC’s Investor Relations website.

Bookings Metrics
We offer both perpetual and subscription licensing options to our customers, as well as monthly software rentals for certain products. Given the difference in revenue recognition between the sale of a perpetual software license (revenue is recognized at the time of sale) and a subscription (revenue is deferred and recognized ratably over the subscription term), we use bookings for internal planning, forecasting and reporting of new license and cloud services transactions. In order to normalize between perpetual and subscription licenses, we define subscription bookings as the subscription annualized contract value (subscription ACV) of new subscription bookings multiplied by a conversion factor of 2. We arrived at the conversion factor of 2 by considering a number of variables including pricing, support, length of term, and renewal rates. We define subscription ACV as the total value of a new subscription booking divided by the term of the contract (in days) multiplied by 365. If the term of the subscription contract is less than a year, the ACV is equal to the total contract value.

License and subscription bookings equal subscription bookings (as described above) plus perpetual license bookings plus any monthly software rental bookings during the period. Total ACV equals subscription ACV (as described above) plus the annualized value of incremental monthly software rental bookings during the period.

Because subscription bookings is a metric we use to approximate the value of subscription sales if sold as perpetual licenses, it does not represent the actual revenue that will be...


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