PTC Inc. (Parametric Technology Corporation) — FY2010 Form 10-K
Reporting period: Fiscal year ended September 30, 2010. The filing also reports unaudited fourth-quarter results for the quarter ended September 30, 2010. PTC develops product lifecycle management (PLM), computer-aided design (CAx) software, maintenance, consulting and training services.
Financial performance
| Metric | FY2010 | FY2009 |
|---|---|---|
| Revenue | $1,010.0 million | $938.2 million |
| License revenue | $296.0 million | $212.7 million |
| Maintenance revenue | $496.4 million | $499.1 million |
| Consulting and training revenue | $217.6 million | $226.4 million |
| Operating income / margin | $74.8 million / 7.4% | $19.3 million / 2.1% |
| Non-GAAP operating income / margin | $157.7 million / 15.6% | $120.9 million / 12.9% |
| Net income | $24.4 million | $31.5 million |
| Diluted EPS | $0.20 | $0.27 |
| Non-GAAP diluted EPS | $1.00 | $0.80 |
| Cash from operating activities | $156.6 million | $69.7 million |
Amounts are in U.S. dollars. Revenue increased 8% reported (6% at constant currency), led by 39% license growth. Enterprise license revenue rose 73%, driven primarily by Windchill sales to large customers; Desktop license revenue rose 15%. Service revenue declined 2% overall. GAAP operating income increased sharply, while GAAP net income and diluted EPS fell, principally because a one-time $43.4 million tax provision related to a legal-entity reorganization raised the effective tax rate to 70% (from a tax benefit in 2009). Non-GAAP figures exclude specified items and should be considered alongside, not instead of, GAAP results.
Fourth-quarter revenue was $268.1 million and operating income was $28.9 million; the quarter recorded a net loss of $13.2 million, or $0.11 per diluted share.
Liquidity, debt and capital
- Cash and cash equivalents were $240.3 million at year-end, versus $235.1 million a year earlier. Working capital was $115.3 million.
- PTC had no revolving-credit borrowings at September 30, 2010, after repaying $50.8 million during the year. A new $300 million revolving facility, with a possible $150 million increase subject to lender agreement, runs through August 2014. The company reported covenant compliance.
- Operating cash flow was $156.6 million; capital expenditures were $26.7 million. Financing uses included $62.5 million for share repurchases. The company repurchased 3.7 million shares during FY2010 and had $118.0 million remaining under its authorization.
- Management expected approximately $28 million of FY2011 capital expenditures and stated that cash and operating cash generation should cover working capital, capital spending and the litigation payment for at least 12 months.
Material changes, outlook and notable items
- FY2010 revenue remained below FY2008’s $1,070.3 million despite recovery from FY2009. License revenue was still 11% below FY2008, while PLM license revenue exceeded both prior years.
- Cash flow from operations more than doubled year over year. The increase reflected higher profitability, lower payments for prior-year compensation accruals and lower tax payments.
- Management forecast FY2011 revenue growth of 10%–12% and license revenue growth of 20%–25%, with maintenance and services revenue expected to return to growth. It planned measured increases in direct sales, R&D and services capacity, while noting investments might be reduced if revenue underperformed.
- PTC announced its Creo CAD initiative in October 2010 and expected Creo 1.0 to launch in summer 2011. Timing and customer adoption were identified as execution risks.
- PTC settled GE Japan litigation in October 2010. It recorded a $9.0 million gain in FY2010 and paid approximately $48 million in the first quarter of FY2011; neither party admitted liability. The payment resolved the claims, with certain recovery rights assigned to PTC.
- Other risk factors include uncertain global economic recovery, competition and pricing pressure, dependence on discrete manufacturing and large enterprise deals, foreign-exchange volatility, maintenance renewals, product development and implementation execution, and potentially fluctuating taxes. Approximately 62% of revenue came from outside North America.
- PTC renewed its headquarters lease in FY2011 for an additional ten years through November 2022, adding approximately $72 million of future minimum lease payments beyond amounts in the year-end contractual-obligations table.
Important facts for investors to verify
- Whether FY2011 growth guidance was achieved, particularly the forecast 20%–25% license growth and the contribution of large Windchill deals.
- Whether maintenance renewals and consulting and training revenue recovered as management expected, and how services mix affected margins.
- The cash-flow and liquidity impact of the approximately $48 million GE Japan settlement, planned repurchases, capital spending and any acquisitions.
- The sustainability of earnings excluding the $43.4 million tax charge and other exclusions in non-GAAP measures; review the non-GAAP-to-GAAP reconciliations.
- Creo launch timing and customer adoption, together with progress on product development spending and execution risks.
- Exposure to foreign exchange, tax audits and deferred-tax-asset realization, as well as pension underfunding of approximately $57.3 million at year-end.