Strong Subscription Revenue Growth with Margins at High End of ASC 605 Guidance; Resets FY19 Outlook; Updates $850 Million Free Cash Flow Target to 2024

BOSTON — (BUSINESS WIRE) — July 24, 2019 — PTC (NASDAQ: PTC) today reported financial results for its fiscal third quarter 2019.

Financial Summary - ASC 606 ⁽¹⁾

• Revenue of $295 million
• GAAP net loss was $15 million or ($0.13) per diluted share; non-GAAP net income was $27 million or $0.23 per diluted share
• GAAP operating margin of 3%; non-GAAP operating margin of 13%

Financial Summary ASC 605 ⁽¹⁾

• Revenue of $322 million
• GAAP net income was $12 million or $0.10 per diluted share; non-GAAP net income was $42 million or $0.36 per diluted share
• GAAP operating margin of 10%; non-GAAP operating margin of 19%

⁽¹⁾ We adopted ASC 606 on October 1, 2018, which impacted our reported financial results, including the timing and classification of revenue. For comparability purposes, and unless otherwise specified, the amounts included in the commentary below refer to results under ASC 605, as shown in our financial statements, including the notes thereto.

“We delivered solid third quarter financial performance reflecting the strength of our subscription model,” said James Heppelmann, President and CEO, PTC. “Momentum in our growth business continues to be strong where we had five deals with bookings of over $1 million, as customers increasingly leverage our IoT and AR offerings to enable digital transformation.”

Heppelmann added, “The transition to a subscription business model plus operational changes we have made this year, which are important elements to our long-term success, have created some short-term headwinds in the business, but the balance of the business is performing well. We remain excited about the growth opportunities in the market and our unparalleled competitive position, backed by important strategic alliances and partner relationships. PTC is well-positioned to continue creating substantial value for our customers and shareholders.”

Other third quarter 2019 results:
Additional operating and financial highlights are set forth below. Information about our bookings and other reporting measures is provided below. For additional details, please refer to the prepared remarks and financial data tables that have been posted to the Investor Relations section of our website at investor.ptc.com.

Additional Operating Highlights:

License and subscription bookings: Q3’19 license and subscription bookings were $109 million, a decrease of 3% YoY or 1% in constant currency.

Software revenue: Q3’19 software revenue was $282 million, an increase of 3% year over year or 6% in constant currency.

Recurring Software revenue: Q3’19 recurring software revenue was $271 million, an increase of 9% year over year or 13% in constant currency.

IoT software revenue: Q3’19 IoT software revenue was $38 million, up 21% year over year or 24% on a constant currency basis, driven by subscription revenue growth of 35% year over year or 38% on a constant currency basis.

Annualized recurring revenue (ARR): Q3’19 ARR was $1,088 million, an increase of 9% year over year, or 13% in constant currency.

Deferred revenue: Billed deferred revenue in the third quarter increased 14% year over year to $551 million. Total deferred revenue – billed and unbilled - increased $105 million year over year. Billed deferred revenue primarily relates to software agreements invoiced to customers for which the revenue has not yet been recognized. Billed deferred revenue fluctuates quarterly based upon the contractual billing dates in our recurring revenue contracts, and the timing of our fiscal reporting periods. Additionally, total deferred revenue is impacted by changes in FX rates and the length of new and renewal contracts.

Operating cash flow and free cash flow: Operating cash flow in the third quarter was $68 million, up 37% over Q3’18, and free cash flow was $59 million, up 42% over Q3’18. Free cash flow in Q3’19 includes cash payments of approximately $3 million related to our restructuring plan, including the relocation of our headquarters.

Total cash, cash equivalents, and marketable securities: As of the end of the third quarter total cash, cash equivalents, and marketable securities was $322 million and total debt, net of deferred issuance costs, was $699 million. During the third quarter we used $25 million to repurchase 287,000 shares at an average price of $87. Additionally, we paid down $40 million towards our revolving credit facility. We also retired 3 million shares at no cost related to the ASR initiated in the fourth quarter of fiscal 2018.

Management's Financial Outlook:
The Company's fourth quarter and fiscal year 2019 revenue and diluted earnings per share guidance is provided below. The revenue and diluted earnings per share guidance is provided on both a GAAP and a non-GAAP basis, and in accordance with both ASC 606 and ASC 605. Non-GAAP financial measures exclude the income statement effects of acquisition adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets, acquisition-related transaction costs, restructuring charges and measurement-period adjustments related to the Tax Cuts and Jobs Act.

Kristian Talvitie, EVP and CFO, said, “Given our year-to-date performance and our revised outlook for the fourth fiscal quarter, we believe it is prudent to reset our long-term financial targets. We remain committed to delivering $850M in free cash flow, but now expect to achieve this target in fiscal 2024. We will provide more detail around our FY’20 and long-range targets under ASC 606 following the end of this fiscal year.”

Fiscal 2019 Business Outlook – ASC 606
For the fourth quarter and fiscal year ending September 30, 2019, the company expects: