01—Abstract
Summary
Summary of the 10-K filed November 29, 2017. Cited figures are marked; the original filing is the authoritative source.
PTC Inc. reported fiscal 2017 (year ended September 30, 2017) total revenue of $1.164 billiona, up 2% from $1.140 billion in 2016, with GAAP net income of $6.2 million ($0.05 per diluted share) compared with a net loss of $54.5 million in 2016.
Growth was driven by the subscription transition: subscription revenue rose 136% to $279.2 millionb while perpetual license revenue fell 23% and support revenue fell 12%. Recurring revenue reached 73% of total revenue. License and subscription bookings grew 4% to $419 million (10% excluding a $20 million 2016 mega-deal), and Annualized Recurring Revenue was approximately $905 million, up 12%.
GAAP operating margin improved to 3.5% from negative 3.2%, while non-GAAP operating margin was 16.1% versus 15.1%. Non-GAAP diluted EPS declined 2% to $1.17c. Cash and marketable securities totaled $330 million at year-end, and operating cash flow was $134.6 million, down from $183.2 million.
Total debt was $718 milliond at September 30, 2017, including $500 million of 6.00% senior notes due 2024 and $218 million outstanding under a $600 million credit facility. The company repurchased $51.0 million of stock in 2017 and approved a new $500 million repurchase program covering October 2017 through September 2020. Management plans to stop selling perpetual licenses in the Americas and Western Europe effective January 1, 2018, which it expects will further pressure near-term revenue during the transition.
The filing also discloses a planned headquarters move to a 250,000 square foot Boston Seaport lease starting in January 2019, with overlapping rent on the Needham facility through November 2022. Management attributes the IoT Group's growth to the ThingWorx and Vuforia platforms, which it describes as a nascent, high-growth market, while the Solutions Group (CAD, PLM, SLM) returned to modest growth.
02—Key points
Key Highlights
- Total revenue rose 2% to $1,164.0 million, with subscription revenue up 136% to $279.2 million as the company moved from perpetual to subscription licensing.
- GAAP net income was $6.2 million ($0.05 per diluted share) versus a net loss of $54.5 million in 2016; GAAP operating income was $40.9 million, compared with an operating loss of $37.0 million.
- Non-GAAP operating margin improved to 16.1% from 15.1%, while non-GAAP diluted EPS declined 2% to $1.17.
- License and subscription bookings grew 4% to $419 million; Annualized Recurring Revenue was approximately $905 million, up 12%.
- Cash, cash equivalents and marketable securities totaled $330 million; operating cash flow was $134.6 million, down from $183.2 million in 2016.
- Total debt was $718 million, including $500 million of 6.00% senior notes due 2024 and $218 million drawn on the $600 million credit facility.
- The Board authorized a new $500 million share repurchase program for October 2017 through September 2020, after $51.0 million of repurchases in 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, PTC kept $0.01.
- Revenue$1.16B100.0%
- Cost of revenue−$328.5M28.2%
- Gross profit$835.5M71.8%
- Operating costs−$793.8M68.2%
- Operating income$41.8M3.6%
- Interest, other & tax−$35.5M3.1%
- Net income$6.2M0.5%
Where FY2017 revenue went
$1.16B- Other operating costs: $557.2M, 48% of revenue
- Cost of revenue: $329.0M, 28% of revenue
- R&D: $236.0M, 20% of revenue
- Net income: $6.2M, 0.5% of revenue
- Interest, other & tax: $35.5M, 3.1% of revenue
Kept 0.5% as net incomeNet income $6.2M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed November 29, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.16B$1.14B | +2.1% |
| Cost of Revenue | $329.02M$325.67M | +1.0% |
| Gross Profit | $835.54M$814.87M | +2.5% |
| R&D Expenses | $236.03M$229.33M | +2.9% |
| Operating Expenses | $588.12M$613.43M | −4.1% |
| Operating Income | $41.77M-$37.01M | +212.8% |
| Interest Expense | $42.40M$29.88M | +41.9% |
| Net Income | $6.24M-$54.47M | +111.5% |
| EPS (Basic) | $0.05$-0.48 | +110.4% |
| EPS (Diluted) | $0.05$-0.48 | +110.4% |
| Shares Outstanding (Basic) | 115.52M114.61M | +0.8% |
| Shares Outstanding (Diluted) | 117.36M114.61M | +2.4% |
05—Questions
Frequently Asked Questions
Why did revenue grow only 2% while subscription revenue more than doubled?
The company is transitioning from upfront perpetual license sales to ratably recognized subscriptions. Perpetual license revenue fell 23% to $133.4 million and support revenue fell 12% to $574.7 million, as customers chose subscriptions and some support contracts converted to subscriptions. Management describes 2017 as exiting the trough of this transition.
What changes in the sales model take effect in 2018?
Effective January 1, 2018, new software licenses for core solutions and ThingWorx will be available only by subscription in the Americas and Western Europe. Perpetual licenses will continue to be offered elsewhere until management believes a change is appropriate. Management acknowledges this may affect purchasing timing and could accelerate revenue effects during the transition.
How is the company's debt position and capital return policy structured?
Total debt was $718 million at September 30, 2017, consisting of $500 million of 6.00% senior notes due May 2024 and $218.1 million under a credit facility maturing September 15, 2019. The company's long-term goal is to return approximately 40% of free cash flow through share repurchases, but it notes covenant limits, including its leverage ratio, restricted repurchases in 2016 and 2017.
What are the main risks tied to the IoT business?
The filing cites five acquisitions totaling approximately $550 million for the IoT business. It notes the IoT market is relatively new with many competitors, that customers often begin with proof-of-concept evaluations, and that growth depends on expanding the partner ecosystem and moving customers from planning to broader deployment. IoT bookings grew above an estimated market rate of 30% to 40%.
What is the company's obligation for the new headquarters?
PTC signed a lease in September 2017 for about 250,000 square feet in Boston's Seaport District, with occupancy expected in January 2019. Base rent begins July 1, 2020 at $11.3 million annually, plus approximately 63% of building operating costs and taxes. Because the Needham lease runs through November 2022, the company expects to pay rent on both locations from July 2020 until November 30, 2022 unless it exits or subleases the current space.
06—Continue