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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from_ to_
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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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.
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).
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:
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☑ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
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Emerging growth company |
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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
There were
PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended December 31, 2021
PART I—FINANCIAL INFORMATION
|
ITEM 1. |
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
|
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December 31, 2021 |
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September 30, 2021 |
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||
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ASSETS |
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Current assets: |
|
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Cash and cash equivalents |
|
$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Acquired intangible assets, net |
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Deferred tax assets |
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Operating right-of-use lease assets |
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Other assets |
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Total assets |
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$ |
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$ |
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Accrued compensation and benefits |
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Accrued income taxes |
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Deferred revenue |
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Short-term lease obligations |
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Total current liabilities |
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Long-term debt |
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Deferred tax liabilities |
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Long-term deferred revenue |
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Long-term lease obligations |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (Note 10) |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
) |
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Total stockholders’ equity |
|
|
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|
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|
|
Total liabilities and stockholders’ equity |
|
$ |
|
|
|
$ |
|
|
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)
|
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|
Three months ended |
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|||||
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December 31, 2021 |
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December 31, 2020 |
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Revenue: |
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License |
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$ |
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$ |
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Support and cloud services |
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Total software revenue |
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Professional services |
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Total revenue |
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Cost of revenue: |
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Cost of license revenue |
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Cost of support and cloud services revenue |
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Total cost of software revenue |
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Cost of professional services revenue |
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Total cost of revenue |
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Gross margin |
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Operating expenses: |
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Sales and marketing |
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Research and development |
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General and administrative |
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Amortization of acquired intangible assets |
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Restructuring and other charges, net |
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Total operating expenses |
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Operating income |
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Interest expense |
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( |
) |
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( |
) |
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Other income (expense), net |
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( |
) |
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Income before income taxes |
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Provision for income taxes |
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Net income |
|
$ |
|
|
|
$ |
|
|
|
Earnings per share—Basic |
|
$ |
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$ |
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Earnings per share—Diluted |
|
$ |
|
|
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$ |
|
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Weighted-average shares outstanding—Basic |
|
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|
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|
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Weighted-average shares outstanding—Diluted |
|
|
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|
|
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|
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
|
|
|
Three months ended |
|
|||||
|
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|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
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|
Hedge gain (loss) arising during the period, net of tax of $ |
|
|
|
|
|
|
( |
) |
|
Foreign currency translation adjustment, net of tax of $ |
|
|
( |
) |
|
|
|
|
|
Unrealized gain (loss) on marketable securities, net of tax of $ |
|
|
|
|
|
|
( |
) |
|
Amortization of net actuarial pension loss included in net income, net of tax of $ |
|
|
|
|
|
|
|
|
|
Change in unamortized pension gain (loss) during the period related to changes in foreign currency |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
Comprehensive income |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Amortization of right-of-use lease assets |
|
|
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|
|
|
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|
Stock-based compensation |
|
|
|
|
|
|
|
|
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Gain on investment |
|
|
( |
) |
|
|
|
|
|
Other non-cash items, net |
|
|
( |
) |
|
|
( |
) |
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits |
|
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
Accrued income taxes |
|
|
( |
) |
|
|
|
|
|
Other current assets and prepaid expenses |
|
|
( |
) |
|
|
|
|
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Other noncurrent assets and liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchases of short- and long-term marketable securities |
|
|
|
|
|
|
( |
) |
|
Proceeds from sales of short- and long-term marketable securities |
|
|
|
|
|
|
|
|
|
Proceeds from maturities of short- and long-term marketable securities |
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
|
|
|
|
( |
) |
|
Purchase of intangible assets |
|
|
( |
) |
|
|
( |
) |
|
Settlement of net investment hedges |
|
|
|
|
|
|
( |
) |
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Repayments of borrowings under credit facility |
|
|
|
|
|
|
( |
) |
|
Repurchases of common stock |
|
|
( |
) |
|
|
|
|
|
Payments of withholding taxes in connection with stock-based awards |
|
|
( |
) |
|
|
( |
) |
|
Payments of principal for financing leases |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
|
Net change in cash, cash equivalents, and restricted cash |
|
|
( |
) |
|
|
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosure of non-cash financing activities: |
|
|
|
|
|
|
|
|
|
Withholding taxes in connection with stock-based awards, accrued |
|
$ |
|
|
|
$ |
( |
) |
|
Repurchases of common stock, accrued |
|
$ |
( |
) |
|
$ |
|
|
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 December 31, 2021 |
|
|||||||||||||||||||||
|
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|
Common Stock |
|
|
|
|
|
|
|
|
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Accumulated |
|
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|
|
|
||||||
|
|
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Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Retained Earnings |
|
|
Other Comprehensive Loss |
|
|
Total Stockholders’ Equity |
|
||||||
|
Balance as of September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Common stock issued for employee stock-based awards |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Change in pension benefits, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2020 |
|
|||||||||||||||||||||
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
||||||
|
|
|
Shares |
|
|
Amount |
|
|
Additional Paid-In Capital |
|
|
Accumulated Deficit |
|
|
Other Comprehensive Loss |
|
|
Total Stockholders’ Equity |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Common stock issued for employee stock-based awards |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Compensation expense from stock-based awards |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized loss on net investment hedges, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Change in pension benefits, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
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|
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|
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|
|
|
|
|
|
|
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|
|
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|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
PTC Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. 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, 2021. 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, 2021 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.
Risks and Uncertainties - COVID-19 Pandemic
The COVID-19 pandemic that began in early 2020 continues to significantly affect global economic activity and create 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 December 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 December 31, 2021, our future assessment could result in material impacts to our consolidated financial statements in future reporting periods.
Recently Adopted Accounting Pronouncements
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 became effective for us in this first quarter of 2022 ending December 31, 2021 and did not have a material 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.
Business Combinations
In October 2021, the FASB issued Accounting Standards Update ASU 2021-08, Business Combinations (Topic 805) on Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by
6
addressing diversity in practice and inconsistency related to 1) recognition of an acquired contract asset and liability, and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 will be effective for us in the first quarter of 2024, though early adoption of the standard 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 for prior acquisitions. The impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations.
2. Revenue from Contracts with Customers
Contract Assets and Contract Liabilities
|
(in thousands) |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Contract asset |
|
$ |
|
|
|
$ |
|
|
|
Deferred revenue |
|
$ |
|
|
|
$ |
|
|
As of December 31, 2021, $
During the three months ended December 31, 2021, we recognized $
Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the subscription with other software. As of December 31, 2021 and September 30, 2021, the total refund liability was $
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. 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 $
Costs to Obtain or Fulfill 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 related to commissions. As of December 31, 2021 and September 30, 2021, deferred costs of $
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of December 31, 2021, the amounts include additional performance obligations of $
7
Disaggregation of Revenue
|
(in thousands) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Recurring revenue(1) |
|
$ |
|
|
|
$ |
|
|
|
Perpetual license |
|
|
|
|
|
|
|
|
|
Professional services |
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
Recurring revenue is comprised of subscription, perpetual support, and SaaS revenue. |
For further disaggregation of revenue by geographic region and product group see Note 11. Segment and Geographic Information.
3. Restructuring and Other Charges
Restructuring and other charges, net includes restructuring charges (credits) 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.
In the three months ended December 31, 2021, restructuring and other charges, net totaled $
In the three months ended December 31, 2020, restructuring and other charges, net totaled $
Restructuring Charges
In the first quarter of 2022, we committed to a plan to restructure our workforce and consolidate select facilities to align our customer facing and product-related functions with the SaaS industry best practices and accelerate the opportunity for our on-premise customers to move to the cloud. The restructuring plan resulted in charges of $
In 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 $
The following table summarizes restructuring accrual activity for the three months ended December 31, 2021:
|
(in thousands) |
|
Employee Severance and Related Benefits |
|
|
Facility Closures and Related Costs |
|
|
Total |
|
|||
|
Accrual, October 1, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Charges to operations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash disbursements |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Foreign exchange impact |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Accrual, December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table summarizes restructuring accrual activity for the three months ended December 31, 2020:
|
(in thousands) |
|
Employee Severance and Related Benefits |
|
|
Facility Closures and Related Costs |
|
|
Total |
|
|||
|
Accrual, October 1, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Charges to operations, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Cash disbursements |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Foreign exchange impact |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual, December 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
8
The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.
The accrual for facility closures and related costs is included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.
4. 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 as our principal equity incentive awards.
The following table shows RSU activity for the three months ended December 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, 2021 |
|
|
|
|
|
$ |
|
|
|
Granted(1) |
|
|
|
|
|
$ |
|
|
|
Vested |
|
|
( |
) |
|
$ |
|
|
|
Forfeited or not earned |
|
|
( |
) |
|
$ |
|
|
|
Balance of outstanding restricted stock units, December 31, 2021 |
|
|
|
|
|
$ |
|
|
|
(1) |
Restricted stock units granted includes |
|
(in thousands) |
|
Three months ended December 31, 2021 |
|
|
|
Performance-based RSUs(1) |
|
|
|
|
|
Service-based RSUs(2) |
|
|
|
|
|
Total Shareholder Return RSUs(3) |
|
|
|
|
|
(1) |
The performance-based RSUs were granted to our executives and are eligible to vest based upon annual increasing performance measures over a period. To the extent earned, those performance-based RSUs will vest in |
|
(2) |
The service-based RSUs were granted to employees, including our executive officers. Substantially all service-based RSUs will vest in |
|
(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 the measurement period ending on September 30, 2024. The RSUs earned will vest on November 15, 2024. Up to a maximum of |
The weighted-average fair value of the TSR RSUs was $
The significant assumptions used in the Monte Carlo simulation model were as follows:
|
Average volatility of peer group |
|
|
|
% |
|
Risk free interest rate |
|
|
|
% |
|
Dividend yield |
|
|
|
% |
9
Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:
|
(in thousands) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Cost of license revenue |
|
$ |
|
|
|
$ |
|
|
|
Cost of support and cloud services revenue |
|
|
|
|
|
|
|
|
|
Cost of professional services revenue |
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
|
$ |
|
|
Stock-based compensation expense includes $
5. Earnings per Share (EPS) and Common Stock
EPS
The following table presents the calculation for both basic and diluted EPS:
|
(in thousands, except per share data) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
Weighted-average shares outstanding—Basic |
|
|
|
|
|
|
|
|
|
Dilutive effect of restricted stock units |
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding—Diluted |
|
|
|
|
|
|
|
|
|
Earnings per share—Basic |
|
$ |
|
|
|
$ |
|
|
|
Earnings per share—Diluted |
|
$ |
|
|
|
$ |
|
|
There were
Common Stock Repurchases
Our Articles of Organization authorize us to issue up to
6. Acquisitions
Acquisition-related costs in the first quarter of 2022 totaled $
Acquisition-related costs include direct costs of potential and completed acquisitions (e.g., investment banker fees and professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees and severance). In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges.
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.
10
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., 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 $
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 $
7. Goodwill and Intangible Assets
We have
As of December 31, 2021, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $
We completed our annual goodwill impairment review as of June 30, 2021, based on a qualitative assessment. Our qualitative assessment included company-specific (e.g., financial performance and long-range plans), industry, and macroeconomic factors, as well as consideration of the fair value of each reporting unit relative to its carrying value at the last valuation date (June 27, 2020). Based on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units exceed their carrying values and no further impairment testing is required. Through December 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.
11
Goodwill and acquired intangible assets consisted of the following:
|
(in thousands) |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||||||||||||||||||
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
||||||
|
Goodwill (not amortized) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Intangible assets with finite lives (amortized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Capitalized software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists and relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets with finite lives |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total goodwill and acquired intangible assets |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Goodwill
Changes in goodwill presented by reportable segments were as follows:
|
(in thousands) |
|
Software Products |
|
|
Professional Services |
|
|
Total |
|
|||
|
Balance, October 1, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, December 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Amortization of Intangible Assets
The aggregate amortization expense for intangible assets with finite lives is classified in our Consolidated Statements of Operations as follows:
|
(in thousands) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Amortization of acquired intangible assets |
|
$ |
|
|
|
$ |
|
|
|
Cost of license revenue |
|
|
|
|
|
|
|
|
|
Total amortization expense |
|
$ |
|
|
|
$ |
|
|
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 at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. GAAP prescribes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:
|
|
• |
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. |
12
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.
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 usually are 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. These contracts are typically classified within Level 2 of the fair value hierarchy.
Our significant financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and September 30, 2021 were as follows:
|
(in thousands) |
|
December 31, 2021 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Convertible note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock buyback pending settlement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(in thousands) |
|
September 30, 2021 |
|
|||||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Convertible note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1)
Level 3 Investments
Convertible Note
In the fourth quarter of 2021, we invested $
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 $
13
Equity Securities
As of December 31, 2021, we owned
The following table provides a summary of changes in the fair value of our Level 3 investment in the Matterport, Inc. shares:
|
(in thousands) |
|
December 31, 2021 |
|
|
|
|
|
Fair Values |
|
|
|
Balance, October 1, 2021 |
|
$ |
|
|
|
Unrealized gains |
|
|
|
|
|
Reduction in discount due to lack of marketability(1) |
|
|
|
|
|
Balance, December 31, 2021 |
|
$ |
|
|
(1)
9. Marketable Securities
We did
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 derivative transactions for trading or speculative purposes.
The 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 |
|
||||||||||
|
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||||
|
Derivative assets(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Options |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Derivative liabilities(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
As of December 31, 2021 and September 30, 2021, current derivative assets of $ |
|
(2) |
As of December 31, 2021 and September 30, 2021, current derivative liabilities of $ |
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 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
14
We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they will be adversely affected by changes in Euro or Japanese Yen exchange rates. These contracts have maturities of up to approximately
As of December 31, 2021 and September 30, 2021, we had outstanding forward contracts and options with notional amounts equivalent to the following:
|
Currency Hedged (in thousands) |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Canadian / U.S. Dollar |
|
$ |
|
|
|
$ |
|
|
|
Euro / U.S. Dollar(1) |
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|
|
|
|
|
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|
|
British Pound / U.S. Dollar |
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Israeli Shekel / U.S. Dollar |
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|
Japanese Yen / U.S. Dollar(2) |
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Swiss Franc / U.S. Dollar |
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Swedish Krona / U.S. Dollar |
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Singapore Dollar / U.S. Dollar |
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Chinese Renminbi / U.S. Dollar |
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New Taiwan Dollar / U.S. Dollar |
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Romanian Leu/ U.S. Dollar |
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Russian Ruble/ U.S. Dollar |
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|
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All other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
(1) |
As of December 31, 2021, $ |
|
(2) |
As of December 31, 2021, $ |
The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three months ended December 31, 2021 and December 31, 2020:
|
(in thousands) |
|
|
|
Three months ended |
|
|||||
|
|
|
Location of Loss |
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Net realized and unrealized loss, excluding the underlying foreign currency exposure being hedged |
|
Other income (expense), net |
|
$ |
( |
) |
|
$ |
( |
) |
In the three months ended December 31, 2021, foreign currency losses, net were $
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
15
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 December 31, 2021 and September 30, 2021, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:
|
Currency Hedged (in thousands) |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Euro / U.S. Dollar |
|
$ |
|
|
|
$ |
|
|
The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three months ended December 31, 2021 and December 31, 2020:
|
(in thousands) |
|
|
|
Three months ended |
|
|||||
|
|
|
Location of Gain (Loss) |
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Gain (loss) recognized in OCI |
|
OCI |
|
$ |
( |
) |
|
$ |
|
|
|
Gain (loss) reclassified from OCI |
|
OCI |
|
|
( |
) |
|
|
|
|
|
Gain recognized, excluded portion |
|
Other income (expense), net |
|
|
|
|
|
|
|
|
As of December 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.
The following table sets forth the offsetting of derivative assets as of December 31, 2021:
|
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
|
||||||||||
|
As of December 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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
The following table sets forth the offsetting of derivative liabilities as of December 31, 2021:
|
(in thousands) |
|
Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
|
Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
|
||||||||||
|
As of December 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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
11. Segment and Geographic Information
We operate within a single industry segment – computer software and related services. Operating segments as defined under GAAP are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to
16
allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We have
The 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 |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Software Products |
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
|
|
|
$ |
|
|
|
Operating costs(1) |
|
|
|
|
|
|
|
|
|
Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
Operating costs(2) |
|
|
|
|
|
|
|
|
|
Profit |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Total segment revenue |
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|
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|
|
Total segment costs |
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|
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|
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|
|
|
|
Total segment profit |
|
|
|
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|
|
Unallocated operating expenses: |
|
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
Restructuring and other charges, net |
|
|
|
|
|
|
|
|
|
Intangibles amortization |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Other unallocated operating expenses(3) |
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and debt premium expense |
|
|
( |
) |
|
|
( |
) |
|
Other income (expense), net |
|
|
|
|
|
|
( |
) |
|
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
|
(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 |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Americas |
|
$ |
|
|
|
$ |
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
Asia Pacific |
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
12. Income Taxes
|
(in thousands) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
|
Provision for income taxes |
|
$ |
|
|
|
$ |
|
|
|
Effective income tax rate |
|
|
|
% |
|
|
|
% |
17
In the first quarter of 2022 and 2021, our effective tax rate differed from the statutory federal income tax rate of
In 2022 and 2021, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.
In the first quarter of 2021, our results also include a charge of $
We reassess our valuation allowance requirements each financial reporting period. We assess available positive and negative evidence to estimate whether sufficient future taxable income will be generated to use our existing deferred tax assets. In the assessment for the period ended September 30, 2021, we concluded it was more likely than not that our deferred tax assets related to United States federal and state income would be realizable, and therefore, the United States federal and the majority of the state valuation allowances were released in the fourth quarter of 2021. In the first quarter of 2022, we continue to maintain this conclusion.
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 December 31, 2021 and September 30, 2021, we had unrecognized tax benefits of $
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 $
13. Debt
At December 31, 2021 and September 30, 2021, we had the following long-term debt obligations:
|
(in thousands) |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
4.000% Senior notes due 2028 |
|
$ |
|
|
|
$ |
|
|
|
3.625% Senior notes due 2025 |
|
|
|
|
|
|
|
|
|
Credit facility revolver(1) |
|
|
|
|
|
|
|
|
|
Total debt |
|
|
|
|
|
|
|
|
|
Unamortized debt issuance costs for the senior notes(2) |
|
|
( |
) |
|
|
( |
) |
|
Total debt, net of issuance costs |
|
$ |
|
|
|
$ |
|
|
|
(1) |
Unamortized debt issuance costs related to the credit facility were $ |
|
(2) |
Unamortized debt issuance costs are included in long-term debt on the Consolidated Balance Sheets. |
Senior Unsecured Notes
In February 2020, we issued $
18
As of December 31, 2021, the total estimated fair value of the 2028 and 2025 notes was approximately $
We were in compliance with all the covenants for all of our senior notes as of December 31, 2021.
Terms of the 2028 and 2025 Notes
Interest on the 2028 and 2025 notes is payable semi-annually on February 15 and August 15. The debt indenture for the 2028 and 2025 notes includes covenants that limit our ability to, among other things, incur additional debt, grant liens on our properties or capital stock, enter into sale and leaseback transactions or asset sales, and make capital distributions.
We may, on one or more occasions, redeem the 2028 and 2025 notes in whole or in part at specified redemption prices. In certain circumstances constituting a change of control, we will be required to make an offer to repurchase the notes at a purchase price equal to
Credit Agreement
In February 2020, we entered into a Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, for a new 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 $
PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. Any borrowings by PTC Inc. under the credit facility would be guaranteed by PTC Inc.’s material domestic subsidiaries that become parties to the subsidiary guaranty, if any. As of the filing of this Form 10-Q, there are no subsidiary guarantors of the obligations under the credit facility. Any borrowings by eligible foreign subsidiary borrowers would be guaranteed by PTC Inc. and any subsidiary guarantors. As of the filing of this Form 10-Q,
19
Loans under the credit facility bear interest at variable rates which reset every 30 to
The credit facility limits PTC’s and its subsidiaries’ ability to, among other things: incur additional indebtedness, incur liens or guarantee obligations; pay dividends (other than to PTC) and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic subsidiaries may not invest cash or property in, or loan to, PTC’s foreign subsidiaries in aggregate amounts exceeding $
|
|
• |
Total leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA, not to exceed |
|
|
• |
Senior secured leverage ratio, defined as senior consolidated total indebtedness (which excludes unsecured indebtedness) to the consolidated trailing four quarters EBITDA, not to exceed |
|
|
• |
Interest coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA to consolidated trailing four quarters of cash basis interest expense, of not less than |
As of December 31, 2021, our total leverage ratio was
Any failure to comply with the financial or operating covenants of the credit facility would prevent PTC from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility and to terminate the credit facility. A change in control of PTC, as defined in the agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness and terminate the credit facility.
In the first quarter of 2022 and 2021, we paid $
14. Leases
Our operating leases expire at various dates through
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 $
The components of lease cost reflected in the Consolidated Statement of Operations for the three months ended December 31, 2021 and December 31, 2020 were as follows:
|
(in thousands) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
Short-term lease cost |
|
|
|
|
|
|
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
|
Sublease income |
|
|
( |
) |
|
|
( |
) |
|
Total lease cost |
|
$ |
|
|
|
$ |
|
|
20
Supplemental cash flow and right-of-use assets information for the three months ended December 31, 2021 and December 31, 2020 was as follows:
|
(in thousands) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
$ |
|
|
|
Financing cash flows from financing leases |
|
$ |
|
|
|
$ |
|
|
|
Right-of-use assets obtained in exchange for new lease obligations: |
|
|
|
|
|
|
|
|
|
Operating leases |
|
$ |
|
|
|
$ |
|
|
|
Financing leases |
|
$ |
|
|
|
$ |
|
|
Supplemental balance sheet information related to the leases as of December 31, 2021 was as follows:
|
Weighted-average remaining lease term - operating leases |
|
|
|
|
Weighted-average remaining lease term - financing leases |
|
|
|
|
Weighted-average discount rate - operating leases |
|
|
% |
|
Weighted-average discount rate - financing leases |
|
|
% |
Maturities of lease liabilities as of December 31, 2021 are as follows:
|
(in thousands) |
|
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future lease payments |
|
$ |
|
|
|
Less: imputed interest |
|
|
( |
) |
|
Total lease liability |
|
$ |
|
|
Exited (Restructured) Facilities
As of December 31, 2021, we have net liabilities of $
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 December 31, 2021, the right-of-use assets for exited facilities reflects discounted committed sublease income of approximately $
In the first quarter of 2022 and 2021, we made net payments of $
15. Commitments and Contingencies
As December 31, 2021 and December 31, 2020, we had letters of credit and bank guarantees outstanding of $
Legal and Regulatory Matters
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.
21
401(k) Plan
On
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 December 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.
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.
16. Subsequent Events
Credit Facility Loan Repayment
On February 2, 2022, we paid $
Sale of Matterport Equity Securities
In January 2022, we sold
Stock Repurchase Settlement
In January 2022, we settled the trades we entered to purchase an incremental
22
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Business Overview
PTC is a global software and services company that enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things (IIoT), and Augmented Reality (AR) markets.
Our customer base includes some of the world’s most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries. Our solutions enable industrial companies to create a closed loop of information shared across their organization’s entire value chain. This “digital thread” can drive excellence in engineering, efficiency in manufacturing operations and service delivery, and innovation across product offerings and business models. With our solutions, digital transforms physical.
We generate revenue through the sale of software subscriptions, which include license access and support (technical support and software updates); support for existing perpetual licenses; professional services (consulting, implementation, and training); and cloud services (hosting for our software and Software as a Service (SaaS)).
Forward-Looking Statements
Statements in this document that are not historic facts, including statements about our future financial and growth expectations and targets, 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/or 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; our strategic initiatives and investments, including our restructuring and our accelerated investments in our transition to SaaS, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to repay amounts under our credit facility 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; and foreign exchange rates may differ materially from those we expect. 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, as well as other risks and uncertainties 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 $1.50 billion at the end of Q1’22 represents 12% growth (16% on a constant currency basis) compared to Q1’21 driven by strength in new bookings. Organic constant currency ARR growth year over year was 11%. Q1’22 revenue of $458 million was up 7% (8% constant currency) over Q1’21, driven by increased revenue from our recurring revenue business lines, including the revenue contribution from the Arena acquisition, and an increase in professional services revenues. Q1’22 operating margin was 14% compared to 21% in Q1’21, primarily due to $34 million of restructuring charges recorded in Q1’22. Q1’22 non-GAAP operating margin was 35% compared to 36% in Q1’21 due to lower up-front license revenue recognized in the quarter as a result of the mix of contract types and contract durations in Q1’22 compared to Q1’21, which also impacted Q1’22 EPS compared to Q1’21 EPS.
23
Q1’22 EPS reflects a lower tax rate compared to the prior year as Q1’21 included a charge of $35.3 million related to a South Korean tax matter, primarily related to foreign withholding taxes.
We generated a first quarter record of $138 million of cash from operations in Q1’22 compared to $114 million in Q1’21, with the increase driven by strong operational execution. Cash from operations in Q1’22 included $11 million of payments related to restructuring, compared to $7 million of restructuring payments made in Q1’21. We repurchased $120 million of our common stock in Q1’22 and ended Q1’22 with cash and cash equivalents of $296 million. In addition, we held an equity investment in Matterport, Inc., which was valued at $87 million and subject to trading restrictions as of the end of Q1’22. We sold our investment in Matterport near the end of January 2022 (in Q2’22) for an aggregate of $39 million.
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 |
|
||||||||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Actual |
|
|
Constant Currency(1) |
|
||||
|
ARR(1) |
|
$ |
1,496.3 |
|
|
$ |
1,336.1 |
|
|
|
12 |
% |
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recurring revenue(2) |
|
$ |
405.1 |
|
|
$ |
385.0 |
|
|
|
5 |
% |
|
|
6 |
% |
|
Perpetual license |
|
|
8.5 |
|
|
|
8.5 |
|
|
|
0 |
% |
|
|
0 |
% |
|
Professional services |
|
|
44.1 |
|
|
|
35.6 |
|
|
|
24 |
% |
|
|
26 |
% |
|
Total revenue |
|
|
457.7 |
|
|
|
429.1 |
|
|
|
7 |
% |
|
|
8 |
% |
|
Total cost of revenue |
|
|
95.1 |
|
|
|
86.8 |
|
|
|
10 |
% |
|
|
10 |
% |
|
Gross margin |
|
|
362.6 |
|
|
|
342.2 |
|
|
|
6 |
% |
|
|
7 |
% |
|
Operating expenses |
|
|
300.4 |
|
|
|
251.9 |
|
|
|
19 |
% |
|
|
19 |
% |
|
Total costs and expenses |
|
|
395.5 |
|
|
|
338.7 |
|
|
|
17 |
% |
|
|
17 |
% |
|
Operating income |
|
$ |
62.2 |
|
|
$ |
90.3 |
|
|
|
(31 |
)% |
|
|
(29 |
)% |
|
Non-GAAP operating income(3) |
|
$ |
158.1 |
|
|
$ |
153.4 |
|
|
|
3 |
% |
|
|
6 |
% |
|
Operating margin |
|
|
13.6 |
% |
|
|
21.1 |
% |
|
|
|
|
|
|
|
|
|
Non-GAAP operating margin(3) |
|
|
34.5 |
% |
|
|
35.8 |
% |
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.39 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
Non-GAAP diluted earnings per share(3)(4) |
|
$ |
0.95 |
|
|
$ |
0.97 |
|
|
|
|
|
|
|
|
|
|
Cash flow from operations(5) |
|
$ |
137.7 |
|
|
$ |
113.8 |
|
|
|
|
|
|
|
|
|
|
Free cash flow(6) |
|
$ |
134.4 |
|
|
$ |
110.9 |
|
|
|
|
|
|
|
|
|
|
(1) |
For go-forward comparability purposes, $7 million of ARR was removed in the period ended December 31, 2020 associated with a Vuforia AR product which we no longer intend to sell on a recurring basis beginning in FY’22. |
|
(2) |
Recurring revenue is comprised of subscription, perpetual support, and SaaS revenue. |
|
(3) |
See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP financial 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. |
|
(4) |
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. In Q1’21 we had recorded a full valuation allowance against our U.S. net deferred tax assets. As we were profitable on a non-GAAP basis, the Q1’21 tax provision was calculated assuming there was no valuation allowance. Additionally, our Q1’21 non-GAAP financial measures excluded tax expense of $34.6 million related to a South Korean tax exposure, primarily related to foreign withholding taxes. |
|
(5) |
Cash flow from operations for Q1'22 includes $10.5 million of restructuring payments. Cash flow from operations for Q1'21 includes $7.3 million of restructuring payments and $2.9 million of acquisition-related payments. |
|
(6) |
Free cash flow is cash from operations net of capital expenditures of $3.4 million and $2.9 million in Q1'22 and Q1'21, respectively. |
Impact of Foreign Currency Exchange on Results of Operations
Approximately 55% of our revenue and 35% 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 periods for FY’22 and FY’21 by the exchange rates in effect on September 30, 2021. We anticipate foreign currency exchange rates will be a headwind for FY’22.
24
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
Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, subscription) starting or renewing in any given period may have a material impact on revenue in the period. Subscription contracts have up-front recognition of subscription license revenue, with the support element of the contract recognized ratably over the term. Perpetual support contracts are recognized ratably over the term of the contract, however we continue to convert to subscription contracts resulting in a shift to up-front recognition of subscription license revenue in the period converted compared to ratable recognition for a perpetual support renewal. Revenue from our SaaS contracts is recognized ratably. We are expanding our SaaS offerings and are releasing additional cloud functionality into our products and customers are migrating from subscription to SaaS products. As a result, over time a higher portion of our revenue will be recognized ratably. Given the different mix, duration and volume of new and renewing contracts in any period, year of year or sequential revenue comparisons can have significant variability.
Revenue by Line of Business
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Actual |
|
|
Constant Currency |
|
||||
|
License |
|
$ |
169.1 |
|
|
$ |
177.2 |
|
|
|
(5 |
)% |
|
|
(4 |
)% |
|
Support and cloud services |
|
|
244.5 |
|
|
|
216.2 |
|
|
|
13 |
% |
|
|
14 |
% |
|
Software revenue |
|
|
413.6 |
|
|
|
393.4 |
|
|
|
5 |
% |
|
|
6 |
% |
|
Professional services |
|
|
44.1 |
|
|
|
35.6 |
|
|
|
24 |
% |
|
|
26 |
% |
|
Total revenue |
|
$ |
457.7 |
|
|
$ |
429.1 |
|
|
|
7 |
% |
|
|
8 |
% |
Software revenue in Q1’22 increased over Q1’21 primarily due to contribution from the acquisition of Arena, as well as subscription support growth in Digital Thread – Core, offset by a decline in perpetual support revenue due to conversions of support contracts to subscriptions. Subscription license revenue decreased in Q1’22 compared to Q1’21 due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annualized values are consistent.
Professional services revenue increased in Q1’22 over Q1’21 by 24% (26% constant currency) as Q1’21 revenue was negatively impacted by challenges with project scoping and implementation activities and performance due to social distancing measures and facility closures implemented to address the COVID-19 pandemic. Q1’22 saw an increase in revenue associated with large PLM consulting engagements, particularly with automotive, aerospace and defense customers. Q1’21 professional services revenue was also lower due to a prior-year extension to complete work on a large fixed-price contract.
We expect that professional services revenue will be higher in FY'22 than FY’21 or FY’20 as we expect demand for services will increase to a level that is more consistent with pre-pandemic levels. Our longer-term 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.
Software Revenue by Product Group
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Actual |
|
|
Constant Currency |
|
||||
|
Digital Thread - Core |
|
$ |
282.1 |
|
|
$ |
289.5 |
|
|
|
(3 |
)% |
|
|
(2 |
)% |
|
Digital Thread - Growth |
|
|
62.0 |
|
|
|
55.3 |
|
|
|
12 |
% |
|
|
13 |
% |
|
Digital Thread - FSG |
|
|
51.6 |
|
|
|
46.2 |
|
|
|
12 |
% |
|
|
12 |
% |
|
Digital Thread (Total) |
|
|
395.7 |
|
|
|
391.0 |
|
|
|
1 |
% |
|
|
2 |
% |
|
Velocity |
|
|
17.9 |
|
|
|
2.4 |
|
|
|
646 |
% |
|
|
646 |
% |
|
Software revenue |
|
$ |
413.6 |
|
|
$ |
393.4 |
|
|
|
5 |
% |
|
|
6 |
% |
25
Digital Thread
Core Product software revenue declined in Q1’22 compared to Q1’21, driven by a decline in subscription license revenue due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annualized values are consistent. Subscription support revenues increased 19% in Q1’22 compared to Q1’22 (21% constant currency), offset by a decrease in perpetual support revenue as customers have continued to convert from perpetual support to subscriptions.
ARR increased 7% (11% constant currency) for Q1’22 compared to Q1’21, reflecting double-digit constant currency growth in both CAD and PLM driven by higher than anticipated new bookings and a low rate of churn.
Growth Product software revenue increased in Q1’22 over Q1’21 due to subscription revenue growth of 16% (17% constant currency), resulting in recurring revenue growth of 15% (16% constant currency).
Growth Product ARR increased 11% (14% constant currency) for Q1’22 compared to Q1’21, reflecting double-digit growth in AR and IoT, primarily from expansion deals with existing customers. We anticipate continued improvement in IoT market conditions and the introduction of our new Digital Performance Management offering will continue to drive demand for our Growth Products.
FSG Product software revenue growth in Q1’22 reflects subscription revenue growth of 26% (actual and constant currency) over Q1’21 due to a few large contracts with longer durations, offset by a 17% (actual and constant currency) decline in perpetual support revenue due to conversions of support contracts to subscriptions.
FSG product ARR increased by 4% (6% constant currency) for Q1’22 compared to Q1’21 driven primarily by new bookings.
Velocity
Velocity Product software revenue and ARR growth in Q1’22 compared to Q1’21 are due to the acquisition and subsequent growth of the Arena business purchased in January 2021, as well as growth in Onshape.
Software Revenue by Geographic Region
A significant portion of our software revenue is generated outside the U.S. In the first three months of FY'22 and FY'21 approximately 45% to 50% of software revenue was generated in the Americas, 30% to 35% in Europe, and 15% to 20% in Asia Pacific.
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
Percent Change |
|
||||||||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Actual |
|
|
Constant Currency |
|
||||
|
Americas |
|
$ |
196.8 |
|
|
$ |
191.0 |
|
|
|
3 |
% |
|
|
3 |
% |
|
Europe |
|
|
140.8 |
|
|
|
144.8 |
|
|
|
(3 |
)% |
|
|
(1 |
)% |
|
Asia Pacific |
|
|
76.0 |
|
|
|
57.6 |
|
|
|
32 |
% |
|
|
35 |
% |
|
Software revenue |
|
$ |
413.6 |
|
|
$ |
393.4 |
|
|
|
5 |
% |
|
|
6 |
% |
Americas software revenue growth in Q1’22 was primarily driven by the contribution of the Arena acquisition, offset by a decline in Digital Thread – Core subscription license revenue due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annualized values are consistent.
Q1’22 Americas ARR was up 19% over Q1’21, led by Arena’s contribution and the Velocity business overall, as well as strength in our Core products.
Europe software revenue declined in Q1’22 primarily due to the decrease in Digital Thread – Core subscription license revenue due to the duration and mix of contract types for new and renewal contracts started in the quarter, partially offset by an increase in Digital Thread – Growth cloud services revenue.
Q1’22 ARR in Europe was up 6% (13% constant currency) over Q1’21, led by mid-30s growth in our Digital Thread Growth products and strength in our Core products.
26
Asia Pacific software revenue growth in Q1’22 was driven by subscription revenue growth of 51% (54% constant currency) over Q1’21 due to a few large multi-year renewal transactions resulting in higher up-front subscription license revenue under ASC 606.
Q1’22 ARR in Asia Pacific was up 8% (14% constant currency) over Q1’21, led by mid-teens growth in Core products.
Gross Margin
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Percent Change |
|
|||
|
License gross margin |
|
$ |
159.3 |
|
|
$ |
163.9 |
|
|
|
(3 |
)% |
|
License gross margin percentage |
|
|
94 |
% |
|
|
93 |
% |
|
|
|
|
|
Support and cloud services gross margin |
|
$ |
198.6 |
|
|
$ |
177.9 |
|
|
|
12 |
% |
|
Support and cloud services gross margin percentage |
|
|
81 |
% |
|
|
82 |
% |
|
|
|
|
|
Professional services gross margin |
|
$ |
4.7 |
|
|
$ |
0.4 |
|
|
|
1078 |
% |
|
Professional services gross margin percentage |
|
|
11 |
% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin |
|
$ |
362.6 |
|
|
$ |
342.2 |
|
|
|
6 |
% |
|
Total gross margin percentage |
|
|
79 |
% |
|
|
80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP gross margin(1) |
|
$ |
375.1 |
|
|
$ |
352.9 |
|
|
|
6 |
% |
|
Non-GAAP gross margin percentage(1) |
|
|
82 |
% |
|
|
82 |
% |
|
|
|
|
|
(1) |
Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below. |
License gross margin decreased in Q1’22 compared to Q1’21 due to an $8.1 million decrease in license revenue, partially offset by a $3.5 million decrease in cost of license revenue.
Support and cloud services gross margin increased in Q1’22 compared to Q1’21 due to increases in subscription support and cloud revenue, partially offset by a decrease in perpetual support revenue, for a $28.2 million overall increase in support and cloud services revenue. This was partially offset by an increase of $7.5 million in cost of support and cloud services in Q1’22 compared to Q1’21.
Professional services gross margin increased in Q1’22 compared to Q1’21, primarily due to the impact of the COVID-19 pandemic on Q1’21 revenue, as well as a large fixed-price contract requiring a prior-year extension that impacted Q1’21 margins.
Operating Expenses
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Percent Change |
|
|||
|
Sales and marketing |
|
$ |
125.5 |
|
|
$ |
124.7 |
|
|
|
1 |
% |
|
% of total revenue |
|
|
27 |
% |
|
|
29 |
% |
|
|
|
|
|
Research and development |
|
$ |
80.5 |
|
|
$ |
70.8 |
|
|
|
14 |
% |
|
% of total revenue |
|
|
18 |
% |
|
|
17 |
% |
|
|
|
|
|
General and administrative |
|
$ |
51.9 |
|
|
$ |
49.5 |
|
|
|
5 |
% |
|
% of total revenue |
|
|
11 |
% |
|
|
12 |
% |
|
|
|
|
|
Amortization of acquired intangible assets |
|
$ |
8.5 |
|
|
$ |
6.6 |
|
|
|
30 |
% |
|
% of total revenue |
|
|
2 |
% |
|
|
2 |
% |
|
|
|
|
|
Restructuring and other charges, net |
|
$ |
34.0 |
|
|
$ |
0.2 |
|
|
|
13662 |
% |
|
% of total revenue |
|
|
7 |
% |
|
|
0 |
% |
|
|
|
|
|
Total operating expenses |
|
$ |
300.4 |
|
|
$ |
251.9 |
|
|
|
19 |
% |
Headcount increased 1% between Q1’22 and Q1’21.
27
Operating expenses in Q1'22 compared to operating expenses in Q1'21 increased primarily due to the following:
|
|
• |
a $10 million increase in compensation expense (including benefit costs), primarily driven by: |
|
|
• |
a $5 million (5%) increase in salaries primarily due to the addition of $4 million in salary costs for Arena employees, |
|
|
• |
a $4 million (18%) increase in benefits, primarily related to higher health insurance costs, |
|
|
• |
a $1 million (87%) increase in travel due to reduced travel restrictions. |
|
|
• |
a $1 million (17%) increase in bonus expense due to higher attainment, |
|
|
• |
partially offset by a $2 million (4%) decrease in stock-based compensation expense. |
|
|
• |
a $34 million increase in restructuring charges primarily due to the restructuring plan initiated in the quarter. We expect to incur an additional $6 to $11 million of restructuring charges in the remainder of fiscal 2022. The anticipated cost savings resulting from the 2022 restructuring action are expected to help align our customer facing and product-related functions with the SaaS industry best practices and accelerate the opportunity for our on-premise customers to move to the cloud; |
|
|
• |
a $2 million (30%) increase in amortization expense due to the [acquisition of Arena]; |
|
|
• |
a $2 million (24%) increase in equipment subscriptions; |
|
|
• |
a $2 million (36%) increase in internal hosting costs; |
partially offset by:
|
|
• |
a $3 million decrease in acquisition-related charges. |
Interest Expense
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Percent Change |
|
|||
|
Interest and debt premium expense |
|
$ |
(13.0 |
) |
|
$ |
(11.5 |
) |
|
|
13 |
% |
Interest expense includes interest on our credit facility and senior notes. We had $1.5 billion of total debt at the end of Q1’22, compared to $1.0 billion at the end of Q1’21. We borrowed $600 million under our credit facility to acquire Arena in Q2’21, $450 million of which remains outstanding. The average interest rate on borrowings outstanding was 3.2% during Q1’22, compared to 3.8% during Q1’21.
Other Income (Expense)
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Percent Change |
|
|||
|
Interest income |
|
$ |
0.5 |
|
|
$ |
0.6 |
|
|
|
(15 |
)% |
|
Other income (expense), net |
|
|
5.7 |
|
|
|
(2.0 |
) |
|
|
(386 |
)% |
|
Other income (expense), net |
|
$ |
6.2 |
|
|
$ |
(1.4 |
) |
|
|
(538 |
)% |
28
The $7.6 million increase in other income (expense), net, for Q1’22 compared to Q1’21 is driven by a $9.8 million unrealized gain related to an equity investment in Matterport, Inc., calculated and recorded at the end of Q1’22, offset by foreign currency losses in the quarter. We sold our investment in Matterport near the end of January 2022 (in Q2’22) for an aggregate of $39.1 million and recognized a loss of $48.2 million.
Income Taxes
|
(Dollar amounts in millions) |
|
Three months ended |
|
|
|
|
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
|
Percent Change |
|
|||
|
Income before income taxes |
|
$ |
55.4 |
|
|
$ |
77.4 |
|
|
|
(28 |
)% |
|
Provision for income taxes |
|
$ |
9.3 |
|
|
$ |
53.9 |
|
|
|
(83 |
)% |
|
Effective income tax rate |
|
|
17 |
% |
|
|
70 |
% |
|
|
|
|
In Q1’22 and Q1’21, 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 and the Cayman Islands. In Q1’22 and Q1’21, the foreign rate differential predominantly relates to these earnings.
In Q1’22 and Q1’21, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.
In Q1’21, our results also include a charge of $35.3 million related to the effects of an unrecognized tax benefit in the Republic of Korea (South Korea), primarily related to foreign withholding taxes, as well as the effects of the full valuation allowance which was maintained against our U.S. net deferred tax assets at that time.
Operating Measure
ARR
ARR (Annual Run Rate) 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, 2021.
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 |
29
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 expense; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; non-operating charges (credits); and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. In Q1’21, we incurred tax expense related to a reserve for a South Korean tax exposure established in the quarter which is excluded from our non-GAAP financial measures as it was related to prior periods and not included in management’s view of Q1’21 results for comparative purposes.
We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP results.
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.
|
(in millions, except per share amounts) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
GAAP gross margin |
|
$ |
362.6 |
|
|
$ |
342.2 |
|
|
Stock-based compensation |
|
|
6.0 |
|
|
|
4.4 |
|
|
Amortization of acquired intangible assets included in cost of revenue |
|
|
6.5 |
|
|
|
6.3 |
|
|
Non-GAAP gross margin |
|
$ |
375.1 |
|
|
$ |
352.9 |
|
|
GAAP operating income |
|
$ |
62.2 |
|
|
$ |
90.3 |
|
|
Stock-based compensation |
|
|
45.9 |
|
|
|
46.1 |
|
|
Amortization of acquired intangible assets |
|
|
15.0 |
|
|
|
12.8 |
|
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
1.1 |
|
|
|
3.9 |
|
|
Restructuring and other charges, net |
|
|
34.0 |
|
|
|
0.2 |
|
|
Non-GAAP operating income |
|
$ |
158.1 |
|
|
$ |
153.4 |
|
|
GAAP net income |
|
$ |
46.1 |
|
|
$ |
23.5 |
|
|
Stock-based compensation |
|
|
45.9 |
|
|
|
46.1 |
|
|
Amortization of acquired intangible assets |
|
|
15.0 |
|
|
|
12.8 |
|
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
1.1 |
|
|
|
3.9 |
|
|
Restructuring and other charges, net |
|
|
34.0 |
|
|
|
0.2 |
|
|
Non-operating charges (credits) (1) |
|
|
(9.8 |
) |
|
|
0.0 |
|
|
Income tax adjustments (2) |
|
|
(19.2 |
) |
|
|
27.2 |
|
|
Non-GAAP net income |
|
$ |
113.1 |
|
|
$ |
113.7 |
|
|
GAAP diluted earnings per share |
|
$ |
0.39 |
|
|
$ |
0.20 |
|
|
Stock-based compensation |
|
|
0.39 |
|
|
|
0.39 |
|
|
Amortization of acquired intangible assets |
|
|
0.13 |
|
|
|
0.11 |
|
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
0.01 |
|
|
|
0.03 |
|
|
Restructuring and other charges, net |
|
|
0.29 |
|
|
|
— |
|
|
Non-operating charges (credits) (1) |
|
|
(0.08 |
) |
|
|
0.00 |
|
|
Income tax adjustments (2) |
|
|
(0.16 |
) |
|
|
0.23 |
|
|
Non-GAAP diluted earnings per share |
|
$ |
0.95 |
|
|
$ |
0.97 |
|
|
(1) |
In the first quarter of 2022, we recorded a $9.8 million gain on our equity investment in Matterport, Inc. |
|
(2) |
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. In 2021 we had recorded a full valuation allowance against our U.S. net deferred tax assets. As we were profitable on a non-GAAP basis, the 2021 tax provision was calculated assuming there was no valuation allowance. Additionally, our 2021 non-GAAP results excluded tax expense of $34.6 million related to a South Korean tax matter, primarily related to foreign withholding taxes. |
30
Operating margin impact of non-GAAP adjustments:
|
|
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
GAAP operating margin |
|
|
13.6 |
% |
|
|
21.1 |
% |
|
Stock-based compensation |
|
|
10.0 |
% |
|
|
10.7 |
% |
|
Amortization of acquired intangible assets |
|
|
3.3 |
% |
|
|
3.0 |
% |
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
|
0.2 |
% |
|
|
0.9 |
% |
|
Restructuring and other charges, net |
|
|
7.4 |
% |
|
|
0.1 |
% |
|
Non-GAAP operating margin |
|
|
34.5 |
% |
|
|
35.8 |
% |
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, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 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) |
|
December 31, 2021 |
|
|
September 30, 2021 |
|
||
|
Cash and cash equivalents |
|
$ |
296.1 |
|
|
$ |
326.5 |
|
|
Restricted cash |
|
|
0.5 |
|
|
|
0.5 |
|
|
Total |
|
$ |
296.6 |
|
|
$ |
327.0 |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Net cash provided by operating activities |
|
$ |
137.7 |
|
|
$ |
113.8 |
|
|
Net cash provided by investing activities |
|
$ |
2.7 |
|
|
$ |
46.7 |
|
|
Net cash used in financing activities |
|
$ |
(169.1 |
) |
|
$ |
(42.8 |
) |
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.
31
A significant portion of our cash is generated and held outside the U.S. As of December 31, 2021, we had cash and cash equivalents of $55 million in the U.S., $75 million in Europe, $139 million in Asia Pacific (including India) and $27 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 $138 million in Q1’22, compared to $114 million in Q1’21. The increase in cash from operations in Q1’22 compared to Q1’21 was primarily driven by an increase in collections, offset by higher salary and salary-related payments. Cash from operations for Q1’22 includes $11 million of restructuring payments, compared to $7 million of restructuring payments in the year-ago period. Q1’21 cash from operations also included $3 million of acquisition-related payments.
Cash Provided by Investing Activities
|
(in millions) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Additions to property and equipment |
|
$ |
(3.4 |
) |
|
$ |
(2.9 |
) |
|
Proceeds from (purchases of) short- and long-term marketable securities, net |
|
|
— |
|
|
|
58.5 |
|
|
Settlement of net investment hedges |
|
|
6.5 |
|
|
|
(7.4 |
) |
|
Other |
|
|
(0.4 |
) |
|
|
(1.5 |
) |
|
Net cash provided by investing activities |
|
$ |
2.7 |
|
|
$ |
46.7 |
|
Cash provided by investing activities in Q1’22 reflects settlement of net investment hedges of $6.5 million. Cash provided in investing activities in Q1’21 reflects proceeds from the sale of marketable securities of $56 million.
Cash Used in Financing Activities
|
(in millions) |
|
Three months ended |
|
|||||
|
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Borrowings on debt, net |
|
$ |
— |
|
|
$ |
(18.0 |
) |
|
Repurchases of common stock |
|
|
(119.7 |
) |
|
|
— |
|
|
Payments of withholding taxes in connection with stock-based awards |
|
|
(49.2 |
) |
|
|
(24.5 |
) |
|
Payment of principal for financing leases |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
Net cash used in financing activities |
|
$ |
(169.1 |
) |
|
$ |
(42.8 |
) |
Net cash outflows related to financing activities in Q1’22 include the repurchase of $120 million of common stock. We were committed to repurchasing an additional $5 million of common stock as of December 31, 2021, which settled in early January 2022 (Q2’22).
Outstanding Debt
|
(in millions) |
|
December 31, 2021 |
|
|
|
4.000% Senior notes due 2028 |
|
$ |
500.0 |
|
|
3.625% Senior notes due 2025 |
|
|
500.0 |
|
|
Credit facility revolver |
|
|
450.0 |
|
|
Total debt |
|
$ |
1,450.0 |
|
|
Unamortized debt issuance costs for the senior notes |
|
|
(10.0 |
) |
|
Total debt, net of issuance costs |
|
$ |
1,440.0 |
|
|
|
|
|
|
|
|
Undrawn under credit facility revolver |
|
$ |
550.0 |
|
|
Undrawn under credit facility revolver available to borrow |
|
$ |
534.7 |
|
32
As of December 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 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 the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $30 million in FY’22) through at least the next twelve months and to meet our known long-term capital requirements. In FY’22 we expect to pay approximately $45 million to $50 million in restructuring cash payments related to our recently announced restructuring charge as well as previous restructuring charges.
Our expected uses and sources of cash could change, 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 and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.
|
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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 2021 Annual Report on Form 10-K.
|
ITEM 4. |
CONTROLS AND PROCEDURES |
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 December 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 December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
33
PART II—OTHER INFORMATION
|
ITEM 1. |
LEGAL PROCEEDINGS |
Information on legal proceedings can be found in Note 15. Commitments and Contingencies – Legal and Regulatory Matters – 401(k) Plan of Notes to Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.
|
ITEM 1A. |
RISK FACTORS |
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 2021 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.
|
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The table below shows the shares of our common stock we repurchased in the first quarter of 2022.
|
Period |
Total Number of Shares (or Units) Purchased |
|
Average Price Paid per Share (or Unit) |
|
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
|
Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) |
|
||||
|
October 1, 2021 - October 31, 2021 |
|
— |
|
|
— |
|
|
— |
|
$ |
970,000,047 |
|
|
November 1, 2021 - November 30, 2021 |
|
— |
|
|
— |
|
|
— |
|
$ |
970,000,047 |
|
|
December 1, 2021- December 31, 2021 |
|
1,003,420 |
|
$ |
119.33 |
|
|
1,003,420 |
|
$ |
850,260,561 |
|
|
Total |
|
1,003,420 |
|
$ |
119.33 |
|
|
1,003,420 |
|
$ |
850,260,561 |
|
|
|
(1) |
Our Board of Directors has authorized us to repurchase up to $1 billion of our common stock in the period November 13, 2020 through September 30, 2023, which program we announced on December 15, 2020. |
34
|
ITEM 6. |
EXHIBITS |
|
3.1 |
|
|
|
|
|
|
|
3.2.1 |
|
|
|
|
|
|
|
3.2.2 |
|
|
|
4.1 |
|
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
4.3 |
|
|
|
|
|
|
|
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 December 31, 2021 ("Q1 Form 10-Q") formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of December 31, 2021 and September 30, 2021; (ii) Condensed Consolidated Statements of Operations for the three months ended December 31, 2021 and December 31, 2020; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2021 and December 31, 2020; (iv) Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2021 and December 31, 2020; (v) Consolidated Statements of Stockholders’ Equity for the three months ended December 31, 2021 and December 31, 2020; and (vi) Notes to Condensed Consolidated Financial Statements. |
|
|
|
|
|
104 |
|
The cover page of this Q1'22 Form 10-Q formatted in Inline XBRL (included in Exhibit 101). |
|
* |
Indicates that the exhibit is being furnished, not filed, with this report. |
35
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. |
|||
|
|
|
|
|
|
|
|
By: |
|
/S/ KRISTIAN TALVITIE |
|
|
|
|
|
Kristian Talvitie Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
Date: February 4, 2022
36