PTC Announces Q1 Results and Initiates Q2 Guidance, Maintains FY Targets

NEEDHAM, Mass.- January 26, 2011 — PTC (Nasdaq: PMTC), The Product Development Company®, today reported results for its first fiscal quarter ended January 1, 2011.

Highlights

  • Q1 Results: Revenue of $266.6 million and non-GAAP EPS of $0.22; GAAP EPS of $0.11
    • Non-GAAP operating margin of 13.3%; GAAP operating margin of 6.4%
    • Q1 EPS negatively impacted by $0.03 to $0.04 related to contract accounting treatment of the first phase of our expected multi-year engagement with Hyundai Motor Company and Kia Motors Corporation, a strategic Automotive OEM win
    • Relative to Q1 guidance ($255 – $265 million in revenue with $0.22 to $0.26 non-GAAP EPS), currency fluctuations did not impact EPS
  • Q2 Guidance: Revenue of $260 to $270 million and non-GAAP EPS of $0.22 to $0.26
    • GAAP EPS of $0.11 to $0.15
    • Assumes $1.37 USD / EURO
  • FY’11 Targets: Revenue of $1,110 to $1,130 million and non-GAAP EPS of $1.20 to $1.25
    • GAAP EPS of $0.73 to $0.78
    • License revenue growth target of 20% to 25% year-over-year growth
    • Non-GAAP operating margin of 17% to 18%; GAAP operating margin of 11% to 12%
    • Assumes $1.37 USD / EURO

The Q1 non-GAAP results exclude $11.0 million of stock-based compensation expense, $7.2 million of acquisition- related intangible asset amortization, $0.7 million of foreign currency transaction losses, and $5.8 million of income tax adjustments.  The Q1 non-GAAP results include a tax rate of 23% and 121 million diluted shares outstanding.  The Q1 GAAP results include a tax rate of 13% and 121 million diluted shares outstanding.

Results Commentary

James Heppelmann, president and chief executive officer, commented, “PTC had a very strong Q1, with revenue above our guidance range and EPS that would have been at the high-end of the range prior to the Hyundai Motor Company and Kia Motors Corporation contract accounting treatment.  As reflected in our EPS guidance for FY ’11 we will save a commensurate amount throughout the balance of the year and continue to expect to deliver full year non-GAAP EPS of $1.20 to 1.25.”

“We were pleased to see that our license revenue of $75.5 million included 36% year-over-year growth in Desktop license revenue, led by significant strength with several large customers and matched with broad-based strength in the SMB market,” Heppelmann continued.  “We are sensing the market is as excited as we are about our new Creo platform for CAD, which we expect to deliver in the third quarter. Our results were further bolstered by continued strong performance of our Enterprise PLM license revenue, though you will recall we are comparing against a year ago period where we had a handful of very large Enterprise PLM transactions in North America which drove significant (more than $20 million) upside to our license revenue performance.  Overall, solid strength across the board allowed us to perform well against this comparison as total Q1 revenue was up 4% on a constant currency basis and license revenue was up 2% compared to the strong year ago period.”

“Our continued revenue momentum in the PLM market included transactions with 3 new strategically important ‘domino’ accounts during Q1,” Heppelmann said.  “Since 2009, we have won 22 domino accounts, all of which are large multinational companies who have chosen to standardize their PLM initiatives on our Windchill platform.  Dominoes represent the largest of many competitive displacement opportunities, and we believe they demonstrate that PTC is gaining share and becoming recognized as the industry leader for both our technology and product development process expertise in the PLM market.  Of particular note, late in Q1 we won a 2 year benchmark and began a Windchill implementation at Hyundai Motor Company and Kia Motors Corporation, one of the world’s largest and fastest growing automotive OEM brands.  This was PTC’s most strategic sales campaign of FY’11 and we believe this important win will further bolster our momentum in the large and important automotive vertical.  We continue to expect we will win a cumulative total of 30 domino accounts by the end of FY’11.”

Please refer to the standalone Hyundai Motor Company and Kia Motors Corporation press release issued earlier today for more details on this important engagement.

Heppelmann added, “We had 22 large deals (license + services revenue of more than $1 million) in Q1’11, compared to 10 in Q1’10.  We believe this is an indicator of the strength of our pipeline for business opportunities with new and existing customers.  During the quarter we recognized revenue from leading organizations such as Fresenius Medical, Gemalto, GKN, Lockheed Martin, Northrup Grumman, Raytheon, Schaeffler, System SPA, and Vestas Wind Systems.”

Jeff Glidden, chief financial officer, commented, “From a profitability standpoint, while we outperformed our revenue targets, our non-GAAP EPS result of $0.22 was adversely impacted by approximately $0.03 to $0.04 related to contract accounting treatment of the first phase of our expected multi-year engagement with Hyundai Motor Company and Kia Motors Corporation, for which we did not recognize any revenue during the quarter.”

“We ended the first quarter with $183 million of cash, which was negatively impacted by approximately $48 million related to a previously announced litigation settlement in Japan,” continued Glidden.  “Our non-GAAP tax rate was lower than expected during the quarter primarily due to the extension of the R&D tax credit.”

Outlook Commentary

“Based on the market momentum we are seeing, the strength of our pipeline, our sales capacity, many important product initiatives such as the launches of Windchill 10 and Creo, and the significant interest we are seeing in other products such as Arbortext, Relex and InSight, we continue to be excited about our long-term growth opportunity,” said Heppelmann.  “We remain confident and committed to achieving our goal of a 20% non-GAAP EPS CAGR through 2014.”

“For Q2 we are providing guidance of $260 to $270 million in revenue with non-GAAP EPS of $0.22 to $0.26,” Glidden added.  “From a revenue perspective, we are expecting approximately 20% to 25% year-over-year growth in our license revenue in Q2, with our combined services and maintenance businesses up in the mid-single digit range resulting in high single- to low double-digit year-over-year growth in total revenue.”  For Q2 the GAAP EPS target is $0.11 to $0.15.

The Q2 guidance assumes a non-GAAP tax rate of 24%, a GAAP tax rate of 25% and 122 million diluted shares outstanding.  The Q2 non-GAAP guidance excludes approximately $10.2 million of stock-based compensation expense, $7.5 million of acquisition-related intangible asset amortization expense and their related income tax effects.

Glidden continued, “Looking to the full year FY’11, we are continuing to target revenue growth of 10% to 12%.  We are expecting license revenue growth of approximately 20% to 25%, services revenue growth of approximately 10% and maintenance revenue growth of approximately 5%.  We are committed to achieving our non-GAAP EPS target of $1.20 to $1.25, while balancing investments in future growth with our commitment to 20% non-GAAP EPS growth.”  For FY’11 the GAAP EPS target is $0.73 to $0.78.

The FY’11 targets assume a non-GAAP tax rate of 24%, a GAAP tax rate of 25% and 122 million diluted shares outstanding.  The FY’11 non-GAAP guidance excludes approximately $44.2 million of stock-based compensation expense, $29.1 million of acquisition-related intangible asset amortization, $0.7 million of foreign currency transaction losses, and their related income tax effects.

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