PTC Announces Q4 and FY’14 Results
Bangalore, November 7, 2014 - PTC (Nasdaq: PTC) today reported results for its fourth fiscal quarter ended September 30, 2014.
• Q4 Results:
o Non-GAAP revenue of $368 million, up 7% over Q4’13 non-GAAP revenue and up 6% on a constant currency basis
o Non-GAAP EPS of $0.67, up 13% year over year and up 12% year over year on a constant currency basis
o Non-GAAP operating margin of 26.2%, down 120 basis points year over year and down 130 basis points year over year on a constant currency basis
o GAAP revenue of $367 million, GAAP operating margin of 9.8% and GAAP EPS of $0.33
o Q4 non-GAAP revenue contribution from acquired businesses Enigma (acquired on July 11,
2013), NetIDEAS (acquired on September 5, 2013), ThingWorx (acquired on December 30,
2013), Atego (acquired on June 30, 2014), and Axeda (acquired on August 11, 2014) was $16 million
• FY’14 Results:
o Non-GAAP revenue of $1,358 million, up 5% on a reported and constant currency basis over
FY’13 non-GAAP revenue
o Non-GAAP EPS of $2.17, up 20% year over year and up 19% year over year on a constant currency basis
o Non-GAAP operating margin of 25.1%, up 300 basis points year over year and up 280 basis points year over year on a constant currency basis
o GAAP revenue of $1,357 million, GAAP operating margin of 14.5% and GAAP EPS of $1.34
o FY’14 non-GAAP revenue contribution from acquired businesses was $24 million
o Please see table below for detailed guidance and key assumptions
A reconciliation between the GAAP and non-GAAP results for Q4’14 and FY’14 is contained in the tables attached to this press release.
James Heppelmann, president and chief executive officer, commented, “FY’14 was an important year for PTC. From a strategic perspective we made significant investments in the Internet of Things (IoT) space, which we believe have established us as a leader in the fast-growing market for smart, connected products. This, combined with strong product offerings in our core CAD, PLM, ALM, and SLM markets, positions us to deliver new customer opportunities and drive accelerating growth in FY’15 and beyond. From a financial perspective, we achieved 5% revenue and 20% non-GAAP EPS growth inFY’14, delivering on our 2009 commitment to grow non-GAAP EPS 20% per year over five years. From FY’09 through FY’14 we have generated a 22% non-GAAP EPS CAGR and a 34% CAGR inoperating cash flow.”
Heppelmann added, “Looking at fourth quarter results, PTC non-GAAP revenue and EPS exceeded the high end of our guidance range, driven by solid performance across multiple businesses and geographic regions. Non-GAAP license revenue of $113 million increased 7% year over year on a constant currency basis. From a geographic perspective, on a constant currency basis, non-GAAPlicense revenue in Europe was up 28%, in the Americas was up 14%, in Japan was up 7%, and in the Pacific Rim was down 29%.”
Heppelmann continued, “For the second straight quarter we saw strong growth in our core CAD and Extended PLM (EPLM) businesses. EPLM license revenue grew 11% year over year on a constantcurrency basis driven by growth in our ALM business versus a soft compare in Q4’13. CAD license revenue was up 9% year over year on a constant currency basis, helped by strong growth in sales ofCreo® modules, eLearning, and a multi-million dollar license purchase of one of our heritage products. License revenue for our SLM & IoT business was down 12% on a constant currency basis, withgrowth in IoT more than offset by lower levels of revenue in our SLM business, when compared to a very strong SLM performance in Q4’13. Looking ahead to FY’15, we are encouraged by our currentSLM pipeline and the forthcoming introduction of connected SLM applications, and we believe our SLM business will return to double digit license growth. In the IoT space, we believe that our market leadership position
within the application enablement platforms space, combined with an ability to sell IoT solutions to new and existing PTC customers, will enable us to achieve healthy double digit growth rates in thisbusiness through FY’18.”
“We had 33 large deals (recognized license + services revenue of more than $1 million) in Q4’14, down from 45 in Q4’13, including two mega deals (a transaction resulting in recognized license revenueof over $5 million in the quarter) in Q4’14, one in the Americas and one in Europe, compared to no mega deals in Q4’13. Our mix of large deal revenue in Q4’14 was skewed more heavily towardlicense. During the quarter we recognized revenue from leading organizations such as Applied Materials, Chico’s FAS, Inc., China North Engine Research Institute, Dell Computer, Doosan, Embraer,Hanesbrands, Iseki & Co., Liebherr, Lockheed Martin, Man Truck & Bus, Raytheon, SMS Siemag, and Solar Turbines,” remarked Heppelmann.
Jeff Glidden, chief financial officer, commented, “From a profitability standpoint, we delivered $0.67 non-GAAP EPS, above our guidance range, driven by a good mix of revenue and a lower tax rate, offsetby lower gross profit due to excess capacity in our professional services business and investments we are making in select strategic customer engagements, as well as higher operating expenses due toour acquisitions of Atego and Axeda, and by investments in our Internet of Things business. As previously announced, we took a $27 million restructuring charge in Q4 in support of integrating therecently acquired Atego and Axeda businesses and the continued evolution of our business model. We expect the annualized effect of the expense reductions to be approximately $30 million, which isalready contemplated in our guidance. In Q4, we achieved a 26.2% non-GAAP operating margin and generated $51 million in operating cash flow. For the full year operating cash flow increased 36% to$305 million.”
Updated Long-Range Targets and FY’15 Outlook Commentary
Heppelmann remarked, “Looking out to FY’18 we believe we can achieve approximately 15% per year non-GAAP EPS growth, driven by a healthy mix of revenue growth, further non-GAAP operating margin expansion to 28% to 30% by FY’17 and into FY’18, reduced share count through our capital allocation strategy, and improved tax outlook.”
“Looking at FY’15, we see several headwinds facing our business, including indications of a slowdown in manufacturing activity in Europe, Japan, and China, which may result in fewer large deals and mega deals in FY’15 relative to FY’14. These challenges notwithstanding, we are encouraged by an expanding
pipeline of opportunities, particularly in our SLM & IoT businesses, which are less tied to macroeconomic trends in the manufacturing space,” said Heppelmann.
“Additionally,” Heppelmann continued, “there are two significant variables to consider as we think about our financial performance in FY’15. First, the depreciation of the Euro and Yen relative to the U.S. dollar have a significant impact on our financial results. On a constant currency basis, we are targeting revenue growth of 4% to 6% and non-GAAP EPS growth of more than 15%. Second, due toevolving customer preferences as well as acquisitions we have made in the IoT space, we are offering subscription pricing as an option for most PTC products starting in FY’15. In order to better align our reporting with how we think about our business, we will be changing our line of business revenue disclosure to: (1) perpetual license & subscription solutions; (2) support; and (3) professional services. Aspart of this new line of business breakdown, cloud services (formerly known as managed services) revenue, which was previously included in our Professional Services line of business, will now beincluded within our perpetual license & subscription solutions line of business.”
Detailed guidance using current currency assumptions and our new line of business breakdown is outlined in the table below. Glidden added, “Importantly, we assume 85% of our Perpetual License &Subscription Solutions business in Q1’15 and FY’15 will be perpetual license sales, down from approximately 92% in FY’14. The remainder of our Perpetual License & Subscription Solutions revenue is acombination of run-rate revenue from previous bookings plus new and renewal subscription solutions bookings (subscription software and cloud services), of which a portion will be recognized as revenue during the quarter and year, and the balance of which will be recorded as billed in deferred revenue and be recognized ratably over the remaining term of the subscription (as run-rate revenue).”
“If a greater percentage of our customers elect our subscription offering than our base case assumption, it will have an adverse impact on revenue, operating margin, cash flow and EPS growth relative to ourguidance. Should this happen, we believe it will be net present value positive to PTC over the long-term and we will provide relevant information to help investors understand how our business model isevolving,” concluded Glidden.
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