01—Abstract
Summary
Summary of the 10-K filed November 23, 2015. Cited figures are marked; the original filing is the authoritative source.
PTC Inc. (Needham, Massachusetts) reported fiscal 2015 (year ended September 30, 2015) revenue of $1.255 billiona, down from $1.357 billion in 2014, as a shift toward subscription licensing, weaker manufacturing demand, and foreign currency headwinds reduced results.
GAAP operating income fell to $41.6 millionb from $196.6 million, reflecting a $66.3 million U.S. pension settlement loss, a $28.2 million accrual related to the China investigation, and $43.4 million of restructuring charges. GAAP diluted EPS was $0.41 versus $1.34 in 2014, while non-GAAP diluted EPS was $2.23 versus $2.17. Cash from operations declined to $179.9 million from $304.6 million.
Management is reorganizing the company into a Solutions Group (CAD, PLM, ALM, SLM) and a Technology Platform Group (IoT, analytics, augmented reality), and is pushing a transition to subscription licensing, with 2016 revenue guided down 3% to 5% and subscription revenue expected to grow about 35%. Recent acquisitions include ColdLight ($98.6 millionc, May 2015) and Vuforia from Qualcomm ($65 million, November 2015).
A new $1 billiond revolving credit facility maturing in 2019 was entered into in November 2015, with $718 million outstanding as of November 4, 2015. Investors should weigh the sharp decline in GAAP profitability and cash flow against management's plan to build recurring subscription revenue and grow the IoT business, while the company remains in discussions with the SEC and DOJ over the China matter.
02—Key points
Key Highlights
- Total revenue fell to $1,255.2 million from $1,357.0 million, with license and subscription revenue down 11% to $348.0 million and professional services down 19% to $225.7 million.
- GAAP operating margin dropped to 3.3% from 14.5%, while non-GAAP operating margin was 24.2% versus 25.1%.
- Cash from operations was $179.9 million, down 41% from $305 million, partly due to higher pension funding and restructuring payments.
- Recurring revenue (subscription and support) was approximately 58% of 2015 revenue, compared with approximately 52% in 2014.
- IoT license revenue exceeded 10% of total license and subscription revenue in 2015, compared with 1% in 2014.
- Management guides 2016 revenue down 3% to 5% and plans to return about 40% of free cash flow to shareholders through share repurchases over the long term.
- A $28.2 million legal accrual relates to the China investigation, and the company is in discussions with the SEC and DOJ to resolve it.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, PTC kept $0.04.
- Revenue$1.26B100.0%
- Cost of revenue−$334.7M26.7%
- Gross profit$920.5M73.3%
- Operating costs−$878.9M70.0%
- Operating income$41.6M3.3%
- Interest, other & tax$5.9M0.5%
- Net income$47.6M3.8%
Where FY2015 revenue went
$1.26B- Other operating costs: $651.4M, 52% of revenue
- Cost of revenue: $334.7M, 27% of revenue
- R&D: $227.5M, 18% of revenue
- Operating income: $41.6M, 3.3% of revenue
Kept 3.3% as operating incomeOperating income $41.6M · 3.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed November 23, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $1.26B$1.36B | −7.5% |
| Cost of Revenue | $334.73M$373.68M | −10.4% |
| Gross Profit | $920.51M$983.28M | −6.4% |
| R&D Expenses | $227.51M$226.50M | +0.4% |
| Operating Expenses | $621.08M$786.71M | −21.1% |
| Operating Income | $41.62M$196.58M | −78.8% |
| Interest Expense | $14.74M$8.15M | +80.8% |
| Net Income | $47.56M$160.19M | −70.3% |
| EPS (Basic) | $0.41$1.36 | −69.9% |
| EPS (Diluted) | $0.41$1.34 | −69.4% |
| Shares Outstanding (Basic) | 114.78M118.09M | −2.8% |
| Shares Outstanding (Diluted) | 116.01M119.98M | −3.3% |
05—Questions
Frequently Asked Questions
Why did PTC's GAAP earnings decline so sharply in fiscal 2015?
GAAP diluted EPS fell to $0.41 from $1.34 mainly because of a $66.3 million U.S. pension settlement loss, a $28.2 million China-related legal accrual, and $43.4 million of restructuring charges, alongside lower revenue. Management reports non-GAAP diluted EPS rose to $2.23 from $2.17 after excluding these items.
What is the subscription transition and how will it affect revenue?
PTC began offering subscriptions in 2015 and is shifting from perpetual licenses, which are recognized up front, to subscriptions recognized ratably over the term. The filing says license revenue and earnings will decrease in 2016, 2017 and 2018, with recurring subscription revenue growth expected from 2019. For 2016, subscription revenue is expected to grow about 35%, while perpetual revenue is expected to decline 8% to 15%.
What are the company's main growth priorities?
PTC reorganized into a Solutions Group (CAD, PLM, ALM, SLM) and a Technology Platform Group (IoT, analytics, augmented reality), effective October 1, 2015. The filing states management sees greater market growth opportunity in Technology Platform solutions, followed by SLM, PLM and ALM, and lower growth potential in CAD.
How is PTC's balance sheet and debt position?
Cash and cash equivalents were $273.4 million at September 30, 2015. Credit facility borrowings were $668 million at year end, and the new $1 billion revolving credit facility entered in November 2015 had $718 million outstanding as of November 4, 2015. The facility matures on September 15, 2019, and includes financial covenants limiting leverage and requiring a fixed charge coverage ratio.
06—Continue