01—Abstract
Summary
Summary of the 10-K filed November 18, 2016. Cited figures are marked; the original filing is the authoritative source.
PTC Inc. reported fiscal 2016 (year ended September 30, 2016) with total revenue of $1.14 billiona, down from $1.26 billion in 2015, and a GAAP operating loss of $37.0 million versus operating income of $41.6 million in 2015.
The decline was driven primarily by the company's transition from perpetual licenses to subscriptions, which shifted revenue recognition to ratable over the subscription term. Subscription bookings rose to 56% of license and subscription bookings in 2016 from 17% in 2015, and GAAP diluted EPS was $(0.48) compared with $0.41b a year earlier. Non-GAAP diluted EPS was $1.19, down from $2.23, and non-GAAP operating margin was 15.1% versus 24.2%.
Restructuring charges of $76.3 millionc, incurred under a plan that affected 810 employees, were a major contributor to the GAAP loss. The balance sheet and cash position reflect the strategy shift. Total debt rose to $758 million at September 30, 2016, from $668 million, after PTC issued $500 million of 6.00% senior notes due 2024 and borrowed under its $900 million credit facility.
Cash from operations was $183.2 milliond, and cash and cash equivalents ended the year at $277.9 million. The company made no share repurchases in 2016 because covenant limits on its credit facility restricted borrowing capacity, and it expects to resume repurchases in the second half of fiscal 2017. Management said it expects a significant majority of license and subscription bookings in 2017 to be subscriptions, and it does not expect net operating expense reductions in 2017 compared with 2016.
The company also reorganized into three reportable segments (Solutions Group, IoT Group and Professional Services) and made two IoT acquisitions in fiscal 2016, Vuforia and Kepware, for a combined $165.8 million in cash, net of cash acquired. Investors should weigh the near-term revenue and earnings pressure from the subscription transition against the growth reported in IoT and subscription bookings.
02—Key points
Key Highlights
- Total revenue fell to $1,140.5 million in 2016 from $1,255.2 million in 2015, and the company attributes the decline mainly to the subscription transition, lower professional services revenue and currency effects.
- GAAP operating loss of $(37.0) million in 2016 compared with operating income of $41.6 million in 2015; restructuring charges totaled $76.3 million.
- GAAP diluted EPS was $(0.48) versus $0.41 in 2015, while non-GAAP diluted EPS fell to $1.19 from $2.23.
- Subscription bookings reached 56% of license and subscription bookings in 2016, up from 17% in 2015, with subscription bookings of $226 million.
- Total debt increased to $758 million at September 30, 2016, including $500 million of 6.00% senior notes due 2024 issued in May 2016.
- No share repurchases were made in 2016 due to covenant limits on borrowing; the company expects to resume repurchases in the second half of fiscal 2017.
- Cash from operations was $183.2 million, and cash and cash equivalents were $277.9 million at fiscal year-end.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, PTC lost $0.05.
- Revenue$1.14B100.0%
- Cost of revenue−$325.7M28.6%
- Gross profit$814.9M71.4%
- Operating costs−$851.9M74.7%
- Operating income−$37.0M3.2%
- Interest, other & tax−$17.5M1.5%
- Net income−$54.5M4.8%
04—Financials
Financial Highlights
Figures from 10-KFY2016filed November 18, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.14B$1.26B | −9.1% |
| Cost of Revenue | $325.67M$334.73M | −2.7% |
| Gross Profit | $814.87M$920.51M | −11.5% |
| R&D Expenses | $229.33M$227.51M | +0.8% |
| Operating Expenses | $613.43M$621.08M | −1.2% |
| Operating Income | -$37.01M$41.62M | −188.9% |
| Interest Expense | $29.88M$14.74M | +102.7% |
| Net Income | -$54.47M$47.56M | −214.5% |
| EPS (Basic) | $-0.48$0.41 | −217.1% |
| EPS (Diluted) | $-0.48$0.41 | −217.1% |
| Shares Outstanding (Basic) | 114.61M114.78M | −0.1% |
| Shares Outstanding (Diluted) | 114.61M116.01M | −1.2% |
05—Questions
Frequently Asked Questions
Why did PTC's revenue and earnings decline in fiscal 2016?
The filing attributes the revenue decline mainly to a higher mix of subscription revenue, since subscription revenue is recognized ratably over the term rather than up front as perpetual licenses are. Other factors cited were a 13% decline in professional services revenue, a challenging macroeconomic environment, and unfavorable foreign currency effects from a stronger U.S. dollar. Earnings were also pressured by $76.3 million in restructuring charges and higher incentive-based compensation.
How much debt does PTC carry and what are its main terms?
Total debt was $758 million at September 30, 2016, consisting of $500 million of 6.00% senior unsecured notes due May 2024 and $258.1 million outstanding under a $900 million secured revolving credit facility maturing September 15, 2019. The filing states that the company was in compliance with all financial covenants at year-end, but covenants limited available borrowing to about $100 million at September 30, 2016.
Will PTC resume returning cash to shareholders through buybacks?
The company made no repurchases in 2016 because of covenant limits on its credit facility and the effect of the subscription transition on free cash flow and EBITDA. It expects to resume share repurchases in the second half of fiscal 2017, subject to having sufficient cash and remaining in compliance with credit facility covenants. Its long-term goal remains returning approximately 40% of free cash flow to shareholders through repurchases.
What is the significance of the IoT Group for PTC's business?
The IoT Group reported revenue of $72.4 million in software revenue and total segment revenue of $80.3 million in 2016, up from $52.9 million in 2015 with the acquisitions of Vuforia and Kepware. The company states that the IoT Group had strong growth from large industrial customers and that it sees the greatest market growth opportunity in IoT. However, the segment's direct costs exceeded its revenue in 2016, producing a segment loss of $11.4 million, and the filing notes IoT is a relatively new market with many competitors.
06—Continue