PTC Announces Fiscal 2008 Second Quarter Results Issues Q3 Guidance and Re-Affirms Full Fiscal Year Targets

PTC (Nasdaq: PMTC - News), the Product Development Company®, today reported results for its fiscal second quarter ended March 29, 2008. Highlights Q2 non-GAAP Results: Revenue of $259.5 million and EPS of $0.30 Q2 GAAP Results: Revenue of $257.8 million and EPS of $0.16 Q3 non-GAAP Guidance: Revenue of $260 to $270 million with EPS of $0.28 to $0.32 Q3 GAAP Guidance: Revenue of $259 to $269 million with EPS of $0.14 to $0.18 Fiscal Year 2008 non-GAAP Guidance: Revenue of $1,060 million with 22% operating margin Fiscal Year 2008 GAAP Guidance: Revenue of $1,055 million with 13% operating margin Q2 Results C. Richard Harrison, president and chief executive officer, commented, "We achieved 14% year-over-year non-GAAP revenue growth in the second quarter reflecting revenue contribution from the CoCreate Software business, which we acquired on November 30, 2007, strong continued license revenue growth in Europe, services and maintenance revenue growth in all geographies, as well as a favorable currency impact. As expected, the softness in license sales in North America continued.” GAAP year-over-year revenue growth for the second fiscal quarter was 13%. Our non-GAAP revenue excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $1.7 million. The following tables provide further detail on PTC’s GAAP revenue performance by line of business, region and distribution channel. Further financial and operating metrics are available on PTC’s web site at www.ptc.com/for/investors.htm. ($ in millions)     Q2 FY07     Q3 FY07     Q4 FY07     Q1 FY08     Q2 FY08   Y-Y Change             License $ 71.3 $ 62.1 $ 96.1 $ 67.2 $ 72.9 2 % Services 58.0 59.7 64.6 60.2 63.8 10 % Maintenance     98.8     103.1     106.0     113.8     121.1   23 % Total Revenue $ 228.1 $ 224.9 $ 266.7 $ 241.2 $ 257.8 13 %   Europe $ 82.9 $ 86.2 $ 101.6 $ 101.7 $ 106.2 28 % North America 89.4 86.9 102.2 84.5 88.2 -1 % Pacific Rim 30.7 32.6 34.3 29.9 33.5 9 % Japan     25.1     19.2     28.6     25.1     29.9   19 % Total Revenue $ 228.1 $ 224.9 $ 266.7 $ 241.2 $ 257.8 13 %   Direct $ 179.2 $ 177.3 $ 215.3 $ 182.5 $ 196.2 9 % Channel     48.9     47.6     51.4     58.7     61.6   26 % Total Revenue $ 228.1 $ 224.9 $ 266.7 $ 241.2 $ 257.8 13 % "We continue to see strong interest in our offerings,” continued Harrison, "particularly for our Windchill product, which is the only CAD-platform agnostic PLM product on the market today that is built on an integral architecture. In the second quarter, PTC received orders from leading organizations, including Airbus S.A.S., Hitachi High-Technologies Corporation, BAE Systems, Liebherr, Huawei Technologies Company Limited, VDO Automotive and Volkswagen. Importantly, there were 16 customers from which we recognized more than $1 million of license and services revenue in the second quarter. This is up from 12 customers last quarter and comparable to 16 in the same period last year. We recognized $37.6 million of license and services revenue from these customers in Q2, compared with $32.1 million last quarter and $35.6 million in Q2 of last year.” Neil Moses, chief financial officer, commented, "We delivered 21.0% non-GAAP operating margin in the second quarter, a 630 basis point improvement from the same period last year. The increase was driven primarily by the benefits of our globalization strategy, the continued evolution of our distribution model, improvements to our services business model, and the immediate non-GAAP operating margin accretion provided by CoCreate. Our year-to-date non-GAAP operating margin of 19.6% is up 480 basis points over the first half of fiscal 2007.” GAAP operating margin for Q2 of 2008 and the first half of fiscal 2008 was 12.0% and 9.2%, respectively. The Company’s non-GAAP tax rate in the second quarter of 2008 was 34% and its GAAP tax rate was 38.6%. Moses added, "Cash flow from operations was $107 million for the second quarter. We used $52 million in repayment of amounts borrowed under our revolving credit facility to finance the CoCreate acquisition, leaving a balance of $164.4 million as of the end of the second quarter. Additionally, we used $22 million of cash during the quarter to repurchase our common shares under our current $40 million authorization. We have $8 million remaining under that authorization. Cash and cash equivalents were $259 million at the end of the second quarter of 2008.” Q3 Outlook "Looking forward to Q3, we are currently expecting non-GAAP revenue to be between $260 million and $270 million,” said Harrison. "Non-GAAP earnings per diluted share are expected to be between $0.28 and $0.32; we are expecting a slight sequential increase in sales and marketing expense in the third quarter.” PTC expects GAAP third quarter revenue between $259 million and $269 million, and GAAP earnings per diluted share between $0.14 and $0.18. The Q3 guidance assumes a non-GAAP tax rate of 35% and GAAP tax rate of 37.5%. The non-GAAP revenue guidance for the third quarter excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $1 million. In addition, the non-GAAP earnings guidance excludes approximately $11 million of stock-based compensation expense, $9 million of acquisition-related amortization expense and $2 million of restructuring expenses related to our continued globalization program. FY08 Outlook For the fiscal year ending September 30, 2008, PTC currently expects non-GAAP revenue to be approximately $1,060 million with non-GAAP earnings per diluted share at the high-end of its previously announced range of $1.17 and $1.27. PTC expects GAAP revenue to be approximately $1,055 million with GAAP earnings per diluted share in the range of $0.66 and $0.77 for the fiscal year. The full fiscal year guidance assumes a non-GAAP tax rate of 35% and GAAP tax rate of 37.5%. Harrison concluded, "While we remain mindful of the potential impact of a slowing economy in 2008, we are confident in our ability to achieve our fiscal 2008 revenue and earnings targets. Approximately half of our expected non-GAAP revenue growth for the year of 13% is expected to come from the CoCreate business. The remaining half of the expected growth implies 6% year-over-year organic growth. This growth is consistent with our full year target, which anticipated a softening US economy. We believe this expected growth rate is very achievable given the strong growth we are achieving outside of the US, and given the strength of services and maintenance businesses.” The non-GAAP revenue guidance for the full fiscal year excludes the effect of purchase accounting on the acquired deferred maintenance revenue balance of CoCreate of approximately $5 million. In addition, the non-GAAP earnings guidance excludes approximately $44 million stock-based compensation expense, $32 million of acquisition-related amortization expense, $16 million of restructuring expenses primarily related to our continued globalization program, and $2 million of in-process research and development expense related to acquisitions completed in the first quarter of 2008. Earnings Conference Call and Webcast   What: PTC fiscal Q2 results conference call and webcast   When: Wednesday, April 23, 2008 at 10:00 a.m. Eastern Time.   Dial-in: 1-888-566-8560 or 1-517-623-4768 Call Leader: Richard Harrison Passcode: PTC   Webcast: www.ptc.com/for/investors.htm   Replay: The audio replay of this event will be archived for public replay until 4:00 pm on April 28, 2008 at 1-888-568-0346 or 1-203-369-3464. To access the replay via webcast, please visit www.ptc.com/for/investors.htm. Important Information About Non-GAAP References PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue excludes the effect of purchase accounting on the fair value of the acquired deferred maintenance revenue balance of CoCreate Software GmbH. Non-GAAP operating margin and EPS exclude stock-based compensation expense, amortization of intangible assets and acquired in-process research and development expenses, restructuring expenses, and any one-time tax items, such as valuation allowance reversals. PTC provides this non-GAAP information to facilitate period-to-period comparisons of its operational performance by adjusting for episodic expenses. We believe that providing non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies. PTC management also uses this and other non-GAAP financial information to evaluate, manage and plan our business because the information provides additional insight into ongoing financial performance. In addition, compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. However, non-GAAP information should not be construed as alternative to GAAP information as the items excluded from the non-GAAP measures often have a material impact on PTC’s financial results. Therefore, management uses, and investors should use, non-GAAP measures in conjunction with our reported GAAP results. Please refer to the attached tables for a reconciliation between GAAP results and the non-GAAP supplemental information. About PTC PTC (Nasdaq: PMTC - News) provides leading product lifecycle management (PLM), content management and dynamic publishing solutions to more than 50,000 companies worldwide. PTC customers include the world's most innovative companies in manufacturing, publishing, services, government and life sciences industries. PTC is included in the S&P Midcap 400 and Russell 2000 indices. For more information on PTC, please visit http://www.ptc.com. Statements in this news release that are not historical facts, including statements about our confidence that we will achieve our fiscal 2008 financial targets, our expected revenue growth rates and projected revenue and earnings, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include the possibility that our customers may not continue to spend at recent levels or may elect to defer or forego investment in our solutions in the current economic climate. In addition, our purchase price allocations associated with our first quarter acquisitions, including CoCreate, are preliminary and may change. Likewise, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including geographic mix of our revenue and profits and loans and cash repatriations from foreign subsidiaries. Other risks and uncertainties that could cause actual results to differ materially from those projected are detailed from time to time in reports we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. PTC, The Product Development Company, Windchill and all other PTC product names and logos are trademarks or registered trademarks of Parametric Technology Corporation or its subsidiaries in the United States and in other countries. All other companies referenced herein are trademarks or registered trademarks of their respective holders. PARAMETRIC TECHNOLOGY CORPORATION UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)         Three Months Ended Six Months Ended March 29, March 31, March 29, March 31, 2008     2007     2008     2007 Revenue: License $ 72,910 $ 71,336 $ 140,101 $ 137,924 Service 184,883     156,760     358,934     311,839 Total revenue 257,793     228,096     499,035     449,763   Costs and expenses: Cost of license revenue(1) 6,599 4,211 11,346 7,771 Cost of service revenue(1) 74,054 68,614 145,092 137,182 Sales and marketing(1) 73,359 71,560 144,387 141,121 Research and development(1) 45,734 40,153 87,282 78,137 General and administrative(1) 20,808 20,711 44,359 39,634 Amortization of acquired intangible assets 4,315 1,588 7,208 3,676 In-process research and development -- -- 1,887 -- Restructuring charge 1,892     --     11,577     -- Total costs and expenses 226,761     206,837     453,138     407,521   Operating income 31,032 21,259 45,897 42,242 Other (expense) income, net (355)     1,348     1,251     2,128 Income before income taxes 30,677 22,607 47,148 44,370 Provision for income taxes 11,829     5,208     18,420     11,818 Net income $ 18,848   $ 17,399   $ 28,728   $ 32,552 Earnings per share: Basic $ 0.17 0.15 $ 0.25 $ 0.29 Weighted average shares outstanding 113,811 112,845 113,746 112,337 Diluted $ 0.16 0.15 $ 0.24 $ 0.28 Weighted average shares outstanding 117,247 117,486 117,667 117,384 (1) For each of the three and six months ended March 29, 2008 and March 31, 2007, stock-based compensation was accounted for under SFAS 123(R), "Share-Based Payment”. The amounts in the tables above include stock-based compensation as follows:   Three Months Ended     Six Months Ended March 29,   March 31,   March 29,   March 31, 2008     2007     2008     2007 Cost of license revenue $ 14 $ 19 $ 14 $ 40 Cost of service revenue 2,222 1,768 4,569 3,678 Sales and marketing 2,936 2,326 5,803 3,891 Research and development 2,337 1,629 4,607 3,471 General and administrative 3,420     3,105     6,539     6,397 Total stock-based compensation $ 10,929   $ 8,847   $ 21,532   $ 17,477 PARAMETRIC TECHNOLOGY CORPORATION NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED) (in thousands, except per share data)     Three Months Ended   Six Months Ended March 29,   March 31, March 29,   March 31, 2008       2007   2008       2007   GAAP revenue $ 257,793 $ 228,096 $ 499,035 $ 449,763 Fair value adjustment of acquired CoCreate deferred maintenance revenue 1,705       --   2,942       --   Non-GAAP revenue $ 259,498     $ 228,096   $ 501,977     $ 449,763     GAAP operating income $ 31,032 $ 21,259 $ 45,897 $ 42,242 Fair value adjustment of acquired CoCreate deferred maintenance revenue 1,705 -- 2,942 -- Stock-based compensation 10,929 8,847 21,532 17,477 Amortization of acquired intangible assets included in cost of license revenue   4,607 1,880 7,561 3,167 Amortization of acquired intangible assets included in cost of service revenue 17 17 34 49 Amortization of acquired intangible assets 4,315 1,588 7,208 3,676 In-process research and development -- -- 1,887 -- Restructuring charge 1,892       --   11,577       --   Non-GAAP operating income $ 54,497     $ 33,591   $ 98,638     $ 66,611     GAAP net income $ 18,848 $ 17,399 $ 28,728 $ 32,552 Fair value adjustment of acquired CoCreate deferred maintenance revenue 1,705 -- 2,942 -- Stock-based compensation 10,929 8,847 21,532 17,477 Amortization of acquired intangible assets included in cost of license revenue 4,607 1,880 7,561 3,167 Amortization of acquired intangible assets included in cost of service revenue 17 17 34 49 Amortization of acquired intangible assets 4,315 1,588 7,208 3,676 In-process research and development -- -- 1,887 -- Restructuring charge, net 1,892 -- 11,577 -- Income tax adjustments (2) (6,571 )     (1,523 ) (14,647 )     (1,875 ) Non-GAAP net income $ 35,742     $ 28,208   $ 66,822     $ 55,046     GAAP diluted earnings per share $ 0.16 $ 0.15 $ 0.24 $ 0.28 Stock-based compensation 0.09 0.08 0.18 0.15 All other items identified above 0.05       0.01   0.15       0.04   Non-GAAP diluted earnings per share $ 0.30     $ 0.24   $ 0.57     $ 0.47     Weighted average shares used in calculating   Non-GAAP diluted earnings per share 117,247 117,486 117,667 117,384 (2) Reflects the tax effect of non-GAAP adjustments above. PARAMETRIC TECHNOLOGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)     March 29,   September 30, 2008     2007   ASSETS   Cash and cash equivalents $ 258,946 $ 263,271 Accounts receivable, net 181,385 217,101 Property and equipment, net 54,478 54,745 Goodwill and acquired intangibles, net 630,643 325,052 Other assets 251,603 230,144     Total assets $ 1,377,055 $ 1,090,313   LIABILITIES AND STOCKHOLDERS' EQUITY   Deferred revenue $ 286,398 $ 227,164 Borrowings under revolving credit facility 164,444 -- Other liabilities 303,951 268,642 Stockholders' equity 622,262 594,507     Total liabilities and stockholders' equity $ 1,377,055 $ 1,090,313 PARAMETRIC TECHNOLOGY CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)     Three Months Ended   Six Months Ended March 29,   March 31, March 29,   March 31, 2008     2007 2008     2007   Cash flows from operating activities: Net income $ 18,848 $ 17,399 $ 28,728 $ 32,552 Stock-based compensation 10,929 8,847 21,532 17,477 Depreciation and amortization 14,913 9,687 26,848 19,223 In process research and development -- -- 1,887 -- Accounts receivable 31,451 23,034 69,551 14,732 Accounts payable and accruals(3) (133) 6,550 (30,252) (21,054) Deferred revenue 38,133 35,899 21,716 21,004 Other (6,892)     (8,955)   (12,206)     (7,811) Net cash provided by operating activities 107,249 92,461 127,804 76,123   Capital expenditures (5,877) (6,048) (10,707) (12,393) Acquisitions of businesses, net of cash acquired (4) 693 -- (261,592) (17,639) Proceeds (payments) from debt, net (52,358) -- 152,642 -- Repurchases of common stock (22,009) -- (22,009) -- Other investing and financing activities (296) 2,141 (7,242) 4,353 Foreign exchange impact on cash 16,756     2,132 16,779     4,135   Net change in cash and cash equivalents 44,158 90,686 (4,325) 54,579 Cash and cash equivalents, beginning of period 214,788     147,341 263,271     183,448 Cash and cash equivalents, end of period $ 258,946   $ 238,027 $ 258,946   $ 238,027 (3) Includes accounts payable, accrued expenses, and accrued compensation and benefits. (4) Acquisitions of businesses: a. The first six months of 2008 includes $248 million for our acquisition of CoCreate and $14 million for two other acquisitions, net of cash acquired. b. The first six months of 2007 includes $16 million for our acquisition of ITEDO, net of cash acquired, and $2 million of contingent purchase price earned in the first quarter of 2007 related to our 2006 acquisition of certain assets and liabilities of Cadtrain, Inc.