01—Abstract
Summary
Summary of the 10-K filed November 16, 2012. Cited figures are marked; the original filing is the authoritative source.
Parametric Technology Corporation (PTC) reported fiscal 2012 (year ended September 30, 2012) total revenue of $1,255.7 milliona, up 8% from $1,166.9 million in 2011 (up 10% on a constant currency basis), while GAAP net results turned to a loss of $35.4 million, or $(0.30) per diluted share, compared with net income of $85.4 million in 2011.
The loss was driven primarily by a non-cash $124.5 millionb income tax charge to establish a valuation allowance against U.S. net deferred tax assets, plus $24.9 million of restructuring charges. On a non-GAAP basis, operating margin rose to 19.6% from 17.7% and non-GAAP diluted EPS grew 20% to $1.51. License revenue was $348.4 million, up 2%, while maintenance revenue reached $612.0 million, up 10%, and consulting and training revenue was $295.3 million, up 11%.
Cash and cash equivalents rose to $489.5 millionc at September 30, 2012, with operating cash flow of $218.0 million. Debt increased to $370 million under the credit facility, including $230 million drawn to finance the acquisition of Servigistics, Inc., which closed on October 2, 2012 for approximately $220 million. For fiscal 2013, management targets revenue growth of 8% to 10% including Servigistics, non-GAAP operating margin of approximately 21.5%, and GAAP operating margin of approximately 12%.
The company also disclosed an ongoing investigation of payments by certain business partners and employees in China, which may carry fines or sanctions it is unable to estimate, and management expects a restructuring charge of approximately $16 milliond in the first quarter of 2013. The filing notes that the company expects the U.S. to generate a taxable loss in 2013 that would produce cumulative three-year losses, and that the company does not expect near-term U.S. taxable income sufficient to realize its U.S. net deferred tax assets. Investors should weigh the strong maintenance and services growth and Enterprise momentum against weaker license revenue, the Desktop license decline, the tax valuation allowance, and the open China matter.
02—Key points
Key Highlights
- Total revenue of $1,255.7 million, up 8% (10% constant currency); license revenue of $348.4 million, up 2%, with the license decline concentrated in Desktop (down 10%).
- GAAP net loss of $(35.4) million, or $(0.30) per diluted share, versus net income of $85.4 million in 2011, driven by a $124.5 million non-cash valuation allowance charge on U.S. net deferred tax assets.
- Non-GAAP operating margin of 19.6%, up 190 basis points year over year, and non-GAAP diluted EPS of $1.51, up 20%.
- Maintenance revenue of $612.0 million, up 10%, with more than 1.7 million software seats under maintenance at year-end; Enterprise total revenue grew 20%.
- Cash and cash equivalents of $489.5 million and operating cash flow of $218.0 million, with total debt of $370 million after a $230 million borrowing for the Servigistics acquisition.
- Fiscal 2013 targets include revenue growth of 8% to 10%, non-GAAP operating margin of approximately 21.5%, and a restructuring charge of approximately $16 million in the first quarter.
- An internal investigation of payments in China, which the company voluntarily disclosed to the DOJ and SEC, could result in fines or sanctions that cannot yet be estimated; China has historically been 6% to 7% of revenue.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2012, PTC lost $0.03.
- Revenue$1.26B100.0%
- Cost of revenue−$372.1M29.6%
- Gross profit$883.6M70.4%
- Operating costs−$755.5M60.2%
- Operating income$128.1M10.2%
- Interest, other & tax−$163.5M13.0%
- Net income−$35.4M2.8%
Where FY2012 revenue went
$1.26B- Other operating costs: $540.5M, 43% of revenue
- Cost of revenue: $372.1M, 30% of revenue
- R&D: $215.0M, 17% of revenue
- Operating income: $128.1M, 10% of revenue
Kept 10% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed November 16, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $1.26B$1.17B | +7.6% |
| Cost of Revenue | $372.13M$356.77M | +4.3% |
| Gross Profit | $883.55M$810.18M | +9.1% |
| R&D Expenses | $214.96M$211.41M | +1.7% |
| Operating Expenses | $755.46M$693.07M | +9.0% |
| Operating Income | $128.10M$117.11M | +9.4% |
| Interest Expense | $4.75M$3.31M | +43.4% |
| Net Income | -$35.40M$85.42M | −141.4% |
| EPS (Basic) | $-0.30$0.73 | −141.1% |
| EPS (Diluted) | $-0.30$0.71 | −142.3% |
| Shares Outstanding (Basic) | 118.70M117.58M | +1.0% |
| Shares Outstanding (Diluted) | 118.70M120.97M | −1.9% |
05—Questions
Frequently Asked Questions
Why did PTC report a GAAP net loss in fiscal 2012 when operating income increased?
The net loss of $35.4 million was driven primarily by a non-cash income tax charge of $124.5 million recorded in the fourth quarter to establish a valuation allowance against U.S. net deferred tax assets. GAAP operating income actually rose to $128.1 million from $117.1 million, though it was partly offset by $24.9 million of restructuring charges.
What is the difference between PTC's GAAP and non-GAAP results?
Non-GAAP measures exclude items such as stock-based compensation ($51.3 million), amortization of acquired intangible assets ($36.1 million), acquisition-related charges ($3.8 million), restructuring charges ($24.9 million), and the fair value adjustment on acquired MKS deferred maintenance revenue ($2.5 million), along with related tax effects and identified tax items. Non-GAAP operating income was $246.8 million and non-GAAP diluted EPS was $1.51.
How is the Servigistics acquisition being financed and what does it add?
PTC closed the acquisition of Servigistics, Inc. on October 2, 2012 for approximately $220 million in cash, funded by a $230 million borrowing under its credit facility. Servigistics develops service lifecycle management (SLM) software, and the filing states it had annualized revenues of approximately $80 million and approximately 400 employees.
What risks does the China investigation pose to investors?
PTC is investigating payments and expenses by certain China business partners and employees for possible Foreign Corrupt Practices Act or policy compliance issues. The company has terminated some employees and partners, which may reduce China sales until replacements are productive, and has disclosed the matter to the DOJ and SEC. Resolution could include fines or other sanctions, but PTC is unable to estimate an amount.
What does the valuation allowance mean for PTC's future tax expense?
The filing states that PTC now expects the U.S. to generate a taxable loss in 2013 that results in cumulative three-year losses, and does not expect sufficient U.S. taxable income in the near future to realize its U.S. net deferred tax assets. The company expects its first-quarter 2013 tax provision to be a net benefit, due to a release of a significant portion of the valuation allowance as a result of purchase accounting for Servigistics.
06—Continue