01—Abstract
Summary
Summary of the 10-K filed November 16, 2018. Cited figures are marked; the original filing is the authoritative source.
PTC Inc. is a global software and services company that delivers solutions for its industrial customers' digital transformations, with products spanning Internet of Things (IoT), CAD and PLM.
For fiscal 2018 (year ended September 30, 2018), total revenue was $1,241.8 milliona, up 7% from $1,164.0 million in 2017 (up 4% on a constant currency basis). GAAP operating income rose to $73.2 million from $40.9 million, GAAP diluted EPS was $0.44 versus $0.05, and non-GAAP diluted EPS was $1.45 versus $1.17. Cash provided by operations was $247.8 million, compared with $135.2 million in 2017.
Subscription revenue rose to $482.0 millionb from $279.2 million, while support revenue fell to $496.8 million from $574.7 million, reflecting the company's transition to a subscription model. The filing highlights a $1 billion equity investment by Rockwell Automation in the fourth quarter of 2018, which funded a $1 billion accelerated share repurchase; total share repurchases in 2018 were $1,100.0 million. Unbilled deferred revenue (backlog) reached $911 million, and total deferred and unbilled revenue was $1,410 million.
Total debt was $648.1 millionc at September 30, 2018, including $500 million of 6.00% Senior Notes due 2024 and $148.1 million drawn on a credit facility amended to $700 million. The company expects further headwinds to revenue and earnings in fiscal 2019 as the subscription mix rises by 1100 to 1300 basis points, and it adopts ASC 606 effective October 1, 2018, with an expected $350 million to $380 million adjustment to retained earnings. Investors should weigh the strong bookings and recurring revenue growth against the near-term revenue pressure from the subscription transition, the planned headquarters move with potential rent-shortfall charges, and the restructuring charge of approximately $18 million announced in October 2018.
02—Key points
Key Highlights
- Total revenue of $1,241.8 million in 2018, up 7% from $1,164.0 million in 2017 (up 4% in constant currency).
- GAAP operating income of $73.2 million (5.9% operating margin) versus $40.9 million in 2017; non-GAAP operating margin of 18.4% versus 16.1%.
- GAAP diluted EPS of $0.44 versus $0.05 in 2017; non-GAAP diluted EPS of $1.45 versus $1.17.
- Rockwell Automation made a $1 billion equity investment in PTC in Q4 2018 (10,582,010 shares at $94.50), used to fund a $1,000 million accelerated share repurchase; total 2018 repurchases were $1,100.0 million.
- Unbilled deferred revenue (backlog) rose to $911 million from $633 million, and total deferred and unbilled revenue reached $1,410 million; annualized recurring revenue (ARR) was approximately $1,012 million.
- Subscription revenue grew to $482.0 million from $279.2 million, while support revenue declined to $496.8 million from $574.7 million as customers moved to subscriptions.
- Management expects a further 1100 to 1300 basis point increase in subscription mix in fiscal 2019 and a restructuring charge of approximately $18 million tied to a workforce realignment toward IoT and augmented reality.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, PTC kept $0.04.
- Revenue$1.24B100.0%
- Cost of revenue−$326.5M26.3%
- Gross profit$915.3M73.7%
- Operating costs−$842.7M67.9%
- Operating income$72.6M5.8%
- Interest, other & tax−$20.6M1.7%
- Net income$52.0M4.2%
Where FY2018 revenue went
$1.24B- Other operating costs: $592.9M, 48% of revenue
- Cost of revenue: $326.5M, 26% of revenue
- R&D: $249.8M, 20% of revenue
- Net income: $52.0M, 4.2% of revenue
- Interest, other & tax: $20.6M, 1.7% of revenue
Kept 4.2% as net incomeNet income $52.0M · 4.2%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed November 16, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.24B$1.16B | +6.7% |
| Cost of Revenue | $326.50M$329.02M | −0.8% |
| Gross Profit | $915.32M$835.54M | +9.5% |
| R&D Expenses | $249.79M$236.03M | +5.8% |
| Operating Expenses | $842.71M$588.12M | +43.3% |
| Operating Income | $72.61M$41.77M | +73.9% |
| Interest Expense | $41.67M$42.40M | −1.7% |
| Net Income | $51.99M$6.24M | +733.3% |
| EPS (Basic) | $0.45$0.05 | +800.0% |
| EPS (Diluted) | $0.44$0.05 | +780.0% |
| Shares Outstanding (Basic) | 116.39M115.52M | +0.8% |
| Shares Outstanding (Diluted) | 118.16M117.36M | +0.7% |
05—Questions
Frequently Asked Questions
How did PTC's revenue and profitability perform in fiscal 2018?
Total revenue rose 7% to $1,241.8 million from $1,164.0 million. GAAP operating income increased to $73.2 million from $40.9 million, and GAAP diluted EPS was $0.44 compared with $0.05. Non-GAAP diluted EPS was $1.45 versus $1.17. The company attributes the revenue increase to subscription growth, offset by declines in support and perpetual license revenue.
Why is subscription revenue rising while support and perpetual license revenue fall?
PTC has shifted most solutions to subscription licensing. Subscription revenue rose to $482.0 million from $279.2 million, while support revenue fell 14% to $496.8 million and perpetual license revenue fell 18% to $109.6 million. Support is now included in subscriptions and some customers converted support contracts to subscriptions. The filing states that the transition is a headwind to near-term revenue and earnings, and that new perpetual licenses will be discontinued in all regions as of January 2019.
What is the impact of the Rockwell Automation investment and share repurchases?
Rockwell Automation invested $1 billion in PTC's common stock in the fourth quarter of 2018. PTC used the proceeds for a $1,000 million accelerated share repurchase, of which $800 million in shares was delivered in July 2018 and $200 million was held back pending final settlement expected in the second or third quarter of 2019. Total repurchases in 2018 were $1,100.0 million, and the board authorized up to $1,500 million of repurchases through September 30, 2020.
What debt and liquidity position does PTC have at fiscal year-end?
At September 30, 2018, total debt was $648.1 million, including $500 million of 6.00% Senior Notes due 2024 and $148.1 million outstanding under the credit facility. Cash, cash equivalents and marketable securities totaled $315.9 million. The credit facility was amended to a $700 million revolving commitment maturing September 13, 2023. The company reported compliance with its financial covenants, including a total leverage ratio of 2.36 to 1.00.
What accounting change and headquarters-related risks should investors watch?
PTC adopted ASC 606 effective October 1, 2018 using the modified retrospective method, and expects approximately $350 million to $380 million to be adjusted to retained earnings, with quarterly revenue volatility likely. The company is also relocating headquarters to Boston in 2019 while its Needham lease runs through November 2022. If it cannot sublease the current space for at least its rent obligations (about $12 million per year), it will record a charge for the shortfall.
06—Continue