UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q☑ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
MarchOR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from_ to_
Commission File Number:
0-18059PTC Inc.
(Exact name of registrant as specified in its charter)
Massachusetts | 04-2866152 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
121 Seaport Boulevard,
(Address of principal executive offices, including zip code)
(781) 370-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | PTC | NASDAQ Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☑There were 115,695,431116,854,806 shares of our common stock outstanding on May 4, 2020.
PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended March 28, 2020
Page Number | ||||
Item 1. | 1 | |||
Consolidated Balance Sheets as of March | 1 | |||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
7 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||
Item 3. | 37 | |||
Item 4. | 37 | |||
Item 1. | 38 | |||
Item 1A. | 38 | |||
Item 6. | 38 | |||
39 |
PART I—FINANCIAL INFORMATION
ITEM 1. | UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
|
| March 31, 2021 |
|
| September 30, 2020 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 326,081 |
|
| $ | 275,458 |
|
Short-term marketable securities |
|
| 0 |
|
|
| 28,129 |
|
Accounts receivable, net of allowance for doubtful accounts of $520 and $543 at March 31, 2021 and September 30, 2020, respectively |
|
| 434,533 |
|
|
| 415,221 |
|
Prepaid expenses |
|
| 86,719 |
|
|
| 69,408 |
|
Other current assets |
|
| 54,430 |
|
|
| 45,231 |
|
Total current assets |
|
| 901,763 |
|
|
| 833,447 |
|
Property and equipment, net |
|
| 97,260 |
|
|
| 101,499 |
|
Goodwill |
|
| 2,193,632 |
|
|
| 1,625,786 |
|
Acquired intangible assets, net |
|
| 410,310 |
|
|
| 237,570 |
|
Long-term marketable securities |
|
| 0 |
|
|
| 30,970 |
|
Deferred tax assets |
|
| 182,176 |
|
|
| 190,963 |
|
Operating right-of-use lease assets |
|
| 148,684 |
|
|
| 149,933 |
|
Other assets |
|
| 247,396 |
|
|
| 212,570 |
|
Total assets |
| $ | 4,181,221 |
|
| $ | 3,382,738 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 22,230 |
|
| $ | 24,910 |
|
Accrued expenses and other current liabilities |
|
| 124,244 |
|
|
| 96,313 |
|
Accrued compensation and benefits |
|
| 94,641 |
|
|
| 101,087 |
|
Accrued income taxes |
|
| 16,707 |
|
|
| 7,011 |
|
Deferred revenue |
|
| 480,861 |
|
|
| 416,804 |
|
Short-term lease obligations |
|
| 28,137 |
|
|
| 34,635 |
|
Total current liabilities |
|
| 766,820 |
|
|
| 680,760 |
|
Long-term debt |
|
| 1,508,389 |
|
|
| 1,005,314 |
|
Deferred tax liabilities |
|
| 11,270 |
|
|
| 12,431 |
|
Deferred revenue |
|
| 11,560 |
|
|
| 9,661 |
|
Long-term lease obligations |
|
| 178,247 |
|
|
| 180,388 |
|
Other liabilities |
|
| 54,402 |
|
|
| 55,936 |
|
Total liabilities |
|
| 2,530,688 |
|
|
| 1,944,490 |
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 5,000 shares authorized; NaN issued |
|
| 0 |
|
|
| 0 |
|
Common stock, $0.01 par value; 500,000 shares authorized; 116,855 and 116,125 shares issued and outstanding at March 31, 2021 and September 30, 2020, respectively |
|
| 1,169 |
|
|
| 1,161 |
|
Additional paid-in capital |
|
| 1,676,791 |
|
|
| 1,602,728 |
|
Retained earnings (accumulated deficit) |
|
| 70,510 |
|
|
| (62,267 | ) |
Accumulated other comprehensive loss |
|
| (97,937 | ) |
|
| (103,374 | ) |
Total stockholders’ equity |
|
| 1,650,533 |
|
|
| 1,438,248 |
|
Total liabilities and stockholders’ equity |
| $ | 4,181,221 |
|
| $ | 3,382,738 |
|
March 28, 2020 | September 30, 2019 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 826,776 | $ | 269,579 | |||
Short-term marketable securities | 34,254 | 27,891 | |||||
Accounts receivable, net of allowance for doubtful accounts of $831 and $744 at March 28, 2020 and September 30, 2019, respectively | 352,673 | 372,743 | |||||
Prepaid expenses | 66,854 | 52,701 | |||||
Other current assets | 60,869 | 59,707 | |||||
Total current assets | 1,341,426 | 782,621 | |||||
Property and equipment, net | 104,147 | 105,531 | |||||
Goodwill | 1,603,081 | 1,238,179 | |||||
Acquired intangible assets, net | 251,191 | 169,949 | |||||
Long-term marketable securities | 22,687 | 29,544 | |||||
Deferred tax assets | 202,683 | 198,634 | |||||
Operating right-of-use lease assets | 157,016 | — | |||||
Other assets | 184,240 | 140,130 | |||||
Total assets | $ | 3,866,471 | $ | 2,664,588 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 33,728 | $ | 42,442 | |||
Accrued expenses and other current liabilities | 115,278 | 104,028 | |||||
Accrued compensation and benefits | 83,904 | 88,769 | |||||
Accrued income taxes | 15,963 | 17,407 | |||||
Current portion of long-term debt | 496,435 | — | |||||
Deferred revenue | 407,412 | 385,509 | |||||
Short-term lease obligations | 39,452 | — | |||||
Total current liabilities | 1,192,172 | 638,155 | |||||
Long-term debt | 1,134,287 | 669,134 | |||||
Deferred tax liabilities | 19,541 | 41,683 | |||||
Deferred revenue | 9,790 | 11,123 | |||||
Long-term lease obligations | 184,706 | — | |||||
Other liabilities | 51,894 | 102,495 | |||||
Total liabilities | 2,592,390 | 1,462,590 | |||||
Commitments and contingencies (Note 15) | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued | — | — | |||||
Common stock, $0.01 par value; 500,000 shares authorized; 115,695 and 114,899 shares issued and outstanding at March 28, 2020 and September 30, 2019, respectively | 1,157 | 1,149 | |||||
Additional paid-in capital | 1,536,770 | 1,502,949 | |||||
Accumulated deficit | (150,351 | ) | (191,390 | ) | |||
Accumulated other comprehensive loss | (113,495 | ) | (110,710 | ) | |||
Total stockholders’ equity | 1,274,081 | 1,201,998 | |||||
Total liabilities and stockholders’ equity | $ | 3,866,471 | $ | 2,664,588 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License |
| $ | 198,011 |
|
| $ | 127,607 |
|
| $ | 375,186 |
|
| $ | 251,037 |
|
Support and cloud services |
|
| 223,756 |
|
|
| 196,473 |
|
|
| 440,002 |
|
|
| 387,409 |
|
Total software revenue |
|
| 421,767 |
|
|
| 324,080 |
|
|
| 815,188 |
|
|
| 638,446 |
|
Professional services |
|
| 40,018 |
|
|
| 35,523 |
|
|
| 75,648 |
|
|
| 77,267 |
|
Total revenue |
|
| 461,785 |
|
|
| 359,603 |
|
|
| 890,836 |
|
|
| 715,713 |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of license revenue |
|
| 14,160 |
|
|
| 13,873 |
|
|
| 27,416 |
|
|
| 27,046 |
|
Cost of support and cloud services revenue |
|
| 39,972 |
|
|
| 34,264 |
|
|
| 78,314 |
|
|
| 73,192 |
|
Total cost of software revenue |
|
| 54,132 |
|
|
| 48,137 |
|
|
| 105,730 |
|
|
| 100,238 |
|
Cost of professional services revenue |
|
| 35,316 |
|
|
| 34,890 |
|
|
| 70,548 |
|
|
| 70,194 |
|
Total cost of revenue |
|
| 89,448 |
|
|
| 83,027 |
|
|
| 176,278 |
|
|
| 170,432 |
|
Gross margin |
|
| 372,337 |
|
|
| 276,576 |
|
|
| 714,558 |
|
|
| 545,281 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
| 129,178 |
|
|
| 107,438 |
|
|
| 253,903 |
|
|
| 215,042 |
|
Research and development |
|
| 72,545 |
|
|
| 59,954 |
|
|
| 143,380 |
|
|
| 125,262 |
|
General and administrative |
|
| 60,805 |
|
|
| 33,629 |
|
|
| 110,333 |
|
|
| 78,186 |
|
Amortization of acquired intangible assets |
|
| 7,650 |
|
|
| 7,288 |
|
|
| 14,197 |
|
|
| 14,065 |
|
Restructuring and other charges, net |
|
| 469 |
|
|
| 18,242 |
|
|
| 716 |
|
|
| 32,276 |
|
Total operating expenses |
|
| 270,647 |
|
|
| 226,551 |
|
|
| 522,529 |
|
|
| 464,831 |
|
Operating income |
|
| 101,690 |
|
|
| 50,025 |
|
|
| 192,029 |
|
|
| 80,450 |
|
Interest and debt premium expense |
|
| (12,925 | ) |
|
| (32,618 | ) |
|
| (24,444 | ) |
|
| (44,716 | ) |
Other expense, net |
|
| (2,408 | ) |
|
| (1,629 | ) |
|
| (3,821 | ) |
|
| (925 | ) |
Income before income taxes |
|
| 86,357 |
|
|
| 15,778 |
|
|
| 163,764 |
|
|
| 34,809 |
|
Provision (benefit) for income taxes |
|
| (22,905 | ) |
|
| 8,622 |
|
|
| 30,987 |
|
|
| (7,802 | ) |
Net income |
| $ | 109,262 |
|
| $ | 7,156 |
|
| $ | 132,777 |
|
| $ | 42,611 |
|
Earnings per share—Basic |
| $ | 0.94 |
|
| $ | 0.06 |
|
| $ | 1.14 |
|
| $ | 0.37 |
|
Earnings per share—Diluted |
| $ | 0.92 |
|
| $ | 0.06 |
|
| $ | 1.13 |
|
| $ | 0.37 |
|
Weighted-average shares outstanding—Basic |
|
| 116,777 |
|
|
| 115,606 |
|
|
| 116,587 |
|
|
| 115,401 |
|
Weighted-average shares outstanding—Diluted |
|
| 118,331 |
|
|
| 116,017 |
|
|
| 117,966 |
|
|
| 115,856 |
|
Three months ended | Six months ended | ||||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Revenue: | |||||||||||||||
License | $ | 127,607 | $ | 61,876 | $ | 251,037 | $ | 167,198 | |||||||
Support and cloud services | 196,473 | 187,645 | 387,409 | 375,566 | |||||||||||
Total software revenue | 324,080 | 249,521 | 638,446 | 542,764 | |||||||||||
Professional services | 35,523 | 40,930 | 77,267 | 82,376 | |||||||||||
Total revenue | 359,603 | 290,451 | 715,713 | 625,140 | |||||||||||
Cost of revenue: | |||||||||||||||
Cost of license revenue | 13,873 | 12,875 | 27,046 | 25,438 | |||||||||||
Cost of support and cloud services revenue | 34,264 | 32,874 | 73,192 | 64,071 | |||||||||||
Total cost of software revenue | 48,137 | 45,749 | 100,238 | 89,509 | |||||||||||
Cost of professional services revenue | 34,890 | 34,155 | 70,194 | 67,747 | |||||||||||
Total cost of revenue | 83,027 | 79,904 | 170,432 | 157,256 | |||||||||||
Gross margin | 276,576 | 210,547 | 545,281 | 467,884 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 107,438 | 103,722 | 215,042 | 207,940 | |||||||||||
Research and development | 59,954 | 61,402 | 125,262 | 122,184 | |||||||||||
General and administrative | 33,629 | 35,371 | 78,186 | 73,235 | |||||||||||
Amortization of acquired intangible assets | 7,288 | 5,930 | 14,065 | 11,866 | |||||||||||
Restructuring and other charges, net | 18,242 | 26,980 | 32,276 | 45,473 | |||||||||||
Total operating expenses | 226,551 | 233,405 | 464,831 | 460,698 | |||||||||||
Operating income (loss) | 50,025 | (22,858 | ) | 80,450 | 7,186 | ||||||||||
Interest and debt premium expense | (32,618 | ) | (11,383 | ) | (44,716 | ) | (21,659 | ) | |||||||
Other income (expense), net | (1,629 | ) | 821 | (925 | ) | 1,475 | |||||||||
Income (loss) before income taxes | 15,778 | (33,420 | ) | 34,809 | (12,998 | ) | |||||||||
Provision (benefit) for income taxes | 8,622 | 10,093 | (7,802 | ) | 9,530 | ||||||||||
Net income (loss) | $ | 7,156 | $ | (43,513 | ) | $ | 42,611 | $ | (22,528 | ) | |||||
Earnings (loss) per share—Basic | $ | 0.06 | $ | (0.37 | ) | $ | 0.37 | $ | (0.19 | ) | |||||
Earnings (loss) per share—Diluted | $ | 0.06 | $ | (0.37 | ) | $ | 0.37 | $ | (0.19 | ) | |||||
Weighted-average shares outstanding—Basic | 115,606 | 118,461 | 115,401 | 118,392 | |||||||||||
Weighted-average shares outstanding—Diluted | 116,017 | 118,461 | 115,856 | 118,392 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Net income |
| $ | 109,262 |
|
| $ | 7,156 |
|
| $ | 132,777 |
|
| $ | 42,611 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge gain (loss) arising during the period, net of tax of $0 million and $0.2 million in the second quarter of 2021 and 2020, respectively, and $0 million and $0.9 million in the first six months of 2021 and 2020, respectively |
|
| 7,017 |
|
|
| 701 |
|
|
| 238 |
|
|
| (2,642 | ) |
Foreign currency translation adjustment, net of tax of $0 for each period |
|
| (15,851 | ) |
|
| (10,559 | ) |
|
| 4,124 |
|
|
| (412 | ) |
Unrealized loss on marketable securities, net of tax of $0 for each period |
|
| 0 |
|
|
| (537 | ) |
|
| (307 | ) |
|
| (544 | ) |
Amortization of net actuarial pension loss included in net income, net of tax of $0.3 million and $0.3 million in the second quarter of 2021 and 2020, respectively, and $0.6 million and $0.6 million in the first six months of 2021 and 2020, respectively |
|
| 744 |
|
|
| 680 |
|
|
| 1,476 |
|
|
| 1,354 |
|
Change in unamortized pension loss during the period related to changes in foreign currency |
|
| 1,018 |
|
|
| 81 |
|
|
| (94 | ) |
|
| (541 | ) |
Other comprehensive income (loss) |
|
| (7,072 | ) |
|
| (9,634 | ) |
|
| 5,437 |
|
|
| (2,785 | ) |
Comprehensive income (loss) |
| $ | 102,190 |
|
| $ | (2,478 | ) |
| $ | 138,214 |
|
| $ | 39,826 |
|
Three months ended | Six months ended | ||||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Net income (loss) | $ | 7,156 | $ | (43,513 | ) | $ | 42,611 | $ | (22,528 | ) | |||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Hedge gain (loss) arising during the period, net of tax of $0.2 million in the second quarter of 2020 and 2019, respectively, and $0.9 million and $0.2 million in the first six months of 2020 and 2019, respectively | 701 | 2,955 | (2,642 | ) | 826 | ||||||||||
Net hedge (gain) loss reclassified into earnings, net of tax of $0.0 million in the second quarter of 2020 and 2019, respectively, and $0.0 million and $0.1 million in the first six months of 2020 and 2019, respectively | — | — | — | (549 | ) | ||||||||||
Realized and unrealized gain (loss) on hedging instruments | 701 | 2,955 | (2,642 | ) | 277 | ||||||||||
Foreign currency translation adjustment, net of tax of $0 for each period | (10,559 | ) | (4,033 | ) | (412 | ) | (11,602 | ) | |||||||
Unrealized gain (loss) on marketable securities, net of tax of $0 for each period | (537 | ) | 289 | (544 | ) | 302 | |||||||||
Amortization of net actuarial pension gain included in net income, net of tax of $0.3 million and $0.2 million in the second quarter of 2020 and 2019, respectively, and $0.6 million and $0.3 million in the first six months of 2020 and 2019, respectively | 680 | 428 | 1,354 | 858 | |||||||||||
Change in unamortized pension gain (loss) during the period related to changes in foreign currency | 81 | 345 | (541 | ) | 626 | ||||||||||
Other comprehensive loss | (9,634 | ) | (16 | ) | (2,785 | ) | (9,539 | ) | |||||||
Comprehensive income (loss) | $ | (2,478 | ) | $ | (43,529 | ) | $ | 39,826 | $ | (32,067 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
| Six months ended |
| |||||
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 132,777 |
|
| $ | 42,611 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 40,169 |
|
|
| 40,193 |
|
Amortization of right-of-use lease assets |
|
| 18,956 |
|
|
| 19,143 |
|
Stock-based compensation |
|
| 90,828 |
|
|
| 48,420 |
|
Other non-cash items, net |
|
| (720 | ) |
|
| (1,695 | ) |
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (9,854 | ) |
|
| 20,187 |
|
Accounts payable and accrued expenses |
|
| 6,142 |
|
|
| 6,583 |
|
Accrued compensation and benefits |
|
| (7,038 | ) |
|
| (4,629 | ) |
Deferred revenue |
|
| 52,210 |
|
|
| 17,393 |
|
Accrued income taxes |
|
| (4,944 | ) |
|
| (43,815 | ) |
Other current assets and prepaid expenses |
|
| (17,049 | ) |
|
| 681 |
|
Operating lease liabilities |
|
| (9,982 | ) |
|
| (671 | ) |
Other noncurrent assets and liabilities |
|
| (56,041 | ) |
|
| (49,072 | ) |
Net cash provided by operating activities |
|
| 235,454 |
|
|
| 95,329 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
| (8,242 | ) |
|
| (10,243 | ) |
Purchases of short- and long-term marketable securities |
|
| (7,562 | ) |
|
| (10,151 | ) |
Proceeds from sales of short- and long-term marketable securities |
|
| 56,170 |
|
|
| 0 |
|
Proceeds from maturities of short- and long-term marketable securities |
|
| 9,861 |
|
|
| 9,971 |
|
Acquisitions of businesses, net of cash acquired |
|
| (717,198 | ) |
|
| (468,520 | ) |
Other investing activities |
|
| (3,353 | ) |
|
| 2,200 |
|
Net cash used in investing activities |
|
| (670,324 | ) |
|
| (476,743 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of Senior Notes |
|
| 0 |
|
|
| 1,000,000 |
|
Borrowings under credit facility |
|
| 600,000 |
|
|
| 455,000 |
|
Repayments of borrowings under credit facility |
|
| (98,000 | ) |
|
| (480,000 | ) |
Proceeds from issuance of common stock |
|
| 10,484 |
|
|
| 8,980 |
|
Debt issuance costs |
|
| 0 |
|
|
| (16,266 | ) |
Payments of withholding taxes in connection with stock-based awards |
|
| (27,242 | ) |
|
| (23,571 | ) |
Payments of principal for financing leases |
|
| (279 | ) |
|
| 0 |
|
Net cash provided by financing activities |
|
| 484,963 |
|
|
| 944,143 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 543 |
|
|
| (5,740 | ) |
Net change in cash, cash equivalents, and restricted cash |
|
| 50,636 |
|
|
| 556,989 |
|
Cash, cash equivalents, and restricted cash, beginning of period |
|
| 275,960 |
|
|
| 270,689 |
|
Cash, cash equivalents, and restricted cash, end of period |
| $ | 326,596 |
|
| $ | 827,678 |
|
Six months ended | |||||||
March 28, 2020 | March 30, 2019 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | 42,611 | $ | (22,528 | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 40,193 | 39,558 | |||||
Stock-based compensation | 48,420 | 56,374 | |||||
Other non-cash items, net | (1,926 | ) | 247 | ||||
Loss on disposal of fixed assets | 231 | 32 | |||||
Changes in operating assets and liabilities, excluding the effects of acquisitions: | |||||||
Accounts receivable | 20,187 | 54,501 | |||||
Accounts payable and accrued expenses | 12,193 | 423 | |||||
Accrued compensation and benefits | (4,629 | ) | (28,291 | ) | |||
Deferred revenue | 17,393 | 36,947 | |||||
Accrued income taxes | (43,815 | ) | (15,677 | ) | |||
Other current assets and prepaid expenses | 681 | 1,723 | |||||
Other noncurrent assets and liabilities | (36,210 | ) | 39,035 | ||||
Net cash provided by operating activities | 95,329 | 162,344 | |||||
Cash flows from investing activities: | |||||||
Additions to property and equipment | (10,243 | ) | (51,268 | ) | |||
Purchases of short- and long-term marketable securities | (10,151 | ) | (14,460 | ) | |||
Proceeds from maturities of short- and long-term marketable securities | 9,971 | 14,227 | |||||
Acquisitions of businesses, net of cash acquired | (468,520 | ) | (69,453 | ) | |||
Purchases of investments | — | (7,500 | ) | ||||
Settlement of net investment hedges | 2,200 | 114 | |||||
Net cash used in investing activities | (476,743 | ) | (128,340 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of Senior Notes | 1,000,000 | — | |||||
Borrowings under credit facility | 455,000 | 205,000 | |||||
Repayments of borrowings under credit facility | (480,000 | ) | (110,000 | ) | |||
Repurchases of common stock | — | (64,994 | ) | ||||
Proceeds from issuance of common stock | 8,980 | 4,158 | |||||
Payments for debt issuance costs | (16,266 | ) | — | ||||
Contingent consideration | — | (1,575 | ) | ||||
Payments of withholding taxes in connection with stock-based awards | (23,571 | ) | (34,491 | ) | |||
Net cash provided by (used in) financing activities | 944,143 | (1,902 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5,740 | ) | 2,237 | ||||
Net change in cash, cash equivalents, and restricted cash | 556,989 | 34,339 | |||||
Cash, cash equivalents, and restricted cash, beginning of period | 270,689 | 261,093 | |||||
Cash, cash equivalents, and restricted cash, end of period | $ | 827,678 | $ | 295,432 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
| Three months ended March 31, 2021 |
| |||||||||||||||||||||
|
| Common Stock |
|
|
|
|
|
| Retained |
|
| Accumulated |
|
|
|
|
| |||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Earnings (Accumulated Deficit) |
|
| Other Comprehensive Loss |
|
| Total Stockholders’ Equity |
| ||||||
Balance as of December 31, 2020 |
|
| 116,664 |
|
| $ | 1,167 |
|
| $ | 1,623,379 |
|
| $ | (38,752 | ) |
| $ | (90,865 | ) |
| $ | 1,494,929 |
|
Common stock issued for employee stock-based awards |
|
| 60 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
| �� | — |
|
|
| — |
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
| (13 | ) |
|
| — |
|
|
| (1,810 | ) |
|
| — |
|
|
| — |
|
|
| (1,810 | ) |
Common stock issued for employee stock purchase plan |
|
| 144 |
|
|
| 1 |
|
|
| 10,483 |
|
|
| — |
|
|
| — |
|
|
| 10,484 |
|
Compensation expense from stock-based awards |
|
| — |
|
|
| — |
|
|
| 44,740 |
|
|
| — |
|
|
| — |
|
|
| 44,740 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 109,262 |
|
|
| — |
|
|
| 109,262 |
|
Unrealized gain on net investment hedges, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,017 |
|
|
| 7,017 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,851 | ) |
|
| (15,851 | ) |
Change in pension benefits, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,762 |
|
|
| 1,762 |
|
Balance as of March 31, 2021 |
|
| 116,855 |
|
| $ | 1,169 |
|
| $ | 1,676,791 |
|
| $ | 70,510 |
|
| $ | (97,937 | ) |
| $ | 1,650,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended March 31, 2021 |
| |||||||||||||||||||||
|
| Common Stock |
|
|
|
|
|
| Retained |
|
| Accumulated |
|
|
|
|
| |||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Earnings (Accumulated Deficit) |
|
| Other Comprehensive Loss |
|
| Total Stockholders’ Equity |
| ||||||
Balance as of September 30, 2020 |
|
| 116,125 |
|
| $ | 1,161 |
|
| $ | 1,602,728 |
|
| $ | (62,267 | ) |
| $ | (103,374 | ) |
| $ | 1,438,248 |
|
Common stock issued for employee stock-based awards |
|
| 862 |
|
|
| 9 |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
| (276 | ) |
|
| (2 | ) |
|
| (27,239 | ) |
|
| — |
|
|
| — |
|
|
| (27,241 | ) |
Common stock issued for employee stock purchase plan |
|
| 144 |
|
|
| 1 |
|
|
| 10,483 |
|
|
| — |
|
|
| — |
|
|
| 10,484 |
|
Compensation expense from stock-based awards |
|
| — |
|
|
| — |
|
|
| 90,828 |
|
|
| — |
|
|
| — |
|
|
| 90,828 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 132,777 |
|
|
| — |
|
|
| 132,777 |
|
Unrealized gain on net investment hedges, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 238 |
|
|
| 238 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,124 |
|
|
| 4,124 |
|
Unrealized loss on available-for-sale securities, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (307 | ) |
|
| (307 | ) |
Change in pension benefits, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,382 |
|
|
| 1,382 |
|
Balance as of March 31, 2021 |
|
| 116,855 |
|
| $ | 1,169 |
|
| $ | 1,676,791 |
|
| $ | 70,510 |
|
| $ | (97,937 | ) |
| $ | 1,650,533 |
|
5
|
| Three months ended March 28, 2020 |
| |||||||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Deficit |
|
| Other Comprehensive Loss |
|
| Total Stockholders’ Equity |
| ||||||
Balance as of December 28, 2019 |
|
| 115,494 |
|
| $ | 1,155 |
|
| $ | 1,508,030 |
|
| $ | (157,507 | ) |
| $ | (103,861 | ) |
| $ | 1,247,817 |
|
Common stock issued for employee stock-based awards |
|
| 55 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
| (10 | ) |
|
| — |
|
|
| (722 | ) |
|
| — |
|
|
| — |
|
|
| (722 | ) |
Common stock issued for employee stock purchase plan |
|
| 156 |
|
|
| 1 |
|
|
| 8,979 |
|
|
| — |
|
|
| — |
|
|
| 8,980 |
|
Compensation expense from stock-based awards |
|
| — |
|
|
| — |
|
|
| 20,484 |
|
|
| — |
|
|
| — |
|
|
| 20,484 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,156 |
|
|
| — |
|
|
| 7,156 |
|
Unrealized gain on net investment hedges, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 701 |
|
|
| 701 |
|
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,559 | ) |
|
| (10,559 | ) |
Unrealized loss on available-for-sale securities, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (537 | ) |
|
| (537 | ) |
Change in pension benefits, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 761 |
|
|
| 761 |
|
Balance as of March 28, 2020 |
|
| 115,695 |
|
| $ | 1,157 |
|
| $ | 1,536,770 |
|
| $ | (150,351 | ) |
| $ | (113,495 | ) |
| $ | 1,274,081 |
|
|
| Six months ended March 28, 2020 |
| |||||||||||||||||||||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Accumulated Deficit |
|
| Other Comprehensive Loss |
|
| Total Stockholders’ Equity |
| ||||||
Balance as of September 30, 2019 |
|
| 114,899 |
|
| $ | 1,149 |
|
| $ | 1,502,949 |
|
| $ | (191,390 | ) |
| $ | (110,710 | ) |
| $ | 1,201,998 |
|
ASU 2016-02 (ASC 842) adoption |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,572 | ) |
|
| — |
|
|
| (1,572 | ) |
Common stock issued for employee stock-based awards |
|
| 958 |
|
|
| 10 |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Shares surrendered by employees to pay taxes related to stock-based awards |
|
| (318 | ) |
|
| (3 | ) |
|
| (23,568 | ) |
|
| — |
|
|
| — |
|
|
| (23,571 | ) |
Common stock issued for employee stock purchase plan |
|
| 156 |
|
|
| 1 |
|
|
| 8,979 |
|
|
| — |
|
|
| — |
|
|
| 8,980 |
|
Compensation expense from stock-based awards |
|
| — |
|
|
| — |
|
|
| 48,420 |
|
|
| — |
|
|
| — |
|
|
| 48,420 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42,611 |
|
|
| — |
|
|
| 42,611 |
|
Unrealized loss on net investment hedges, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,642 | ) |
|
| (2,642 | ) |
Foreign currency translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (412 | ) |
|
| (412 | ) |
Unrealized loss on available-for-sale securities, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (544 | ) |
|
| (544 | ) |
Change in pension benefits, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 813 |
|
|
| 813 |
|
Balance as of March 28, 2020 |
|
| 115,695 |
|
| $ | 1,157 |
|
| $ | 1,536,770 |
|
| $ | (150,351 | ) |
| $ | (113,495 | ) |
| $ | 1,274,081 |
|
Three months ended March 28, 2020 | ||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance as of December 28, 2019 | 115,494 | $ | 1,155 | $ | 1,508,030 | $ | (157,507 | ) | $ | (103,861 | ) | $ | 1,247,817 | |||||||||
Common stock issued for employee stock-based awards | 55 | 1 | (1 | ) | — | — | — | |||||||||||||||
Shares surrendered by employees to pay taxes related to stock-based awards | (10 | ) | — | (722 | ) | — | — | (722 | ) | |||||||||||||
Common stock issued for employee stock purchase plan | 156 | 1 | 8,979 | — | — | 8,980 | ||||||||||||||||
Compensation expense from stock-based awards | — | — | 20,484 | — | — | 20,484 | ||||||||||||||||
Net income | — | — | — | 7,156 | — | 7,156 | ||||||||||||||||
Unrealized gain on net investment hedges, net of tax | — | — | — | — | 701 | 701 | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (10,559 | ) | (10,559 | ) | ||||||||||||||
Unrealized loss on available-for-sale securities, net of tax | — | — | — | — | (537 | ) | (537 | ) | ||||||||||||||
Change in pension benefits, net of tax | — | — | — | — | 761 | 761 | ||||||||||||||||
Balance as of March 28, 2020 | 115,695 | $ | 1,157 | $ | 1,536,770 | $ | (150,351 | ) | $ | (113,495 | ) | $ | 1,274,081 |
Six months ended March 28, 2020 | ||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance as of September 30, 2019 | 114,899 | $ | 1,149 | $ | 1,502,949 | $ | (191,390 | ) | $ | (110,710 | ) | $ | 1,201,998 | |||||||||
ASU 2016-02 (ASC 842) adoption | — | — | — | (1,572 | ) | — | (1,572 | ) | ||||||||||||||
Common stock issued for employee stock-based awards | 958 | 10 | (10 | ) | — | — | — | |||||||||||||||
Shares surrendered by employees to pay taxes related to stock-based awards | (318 | ) | (3 | ) | (23,568 | ) | — | — | (23,571 | ) | ||||||||||||
Common stock issued for employee stock purchase plan | 156 | 1 | 8,979 | — | — | 8,980 | ||||||||||||||||
Compensation expense from stock-based awards | — | — | 48,420 | — | — | 48,420 | ||||||||||||||||
Net income | — | — | — | 42,611 | — | 42,611 | ||||||||||||||||
Unrealized loss on net investment hedges, net of tax | — | — | — | — | (2,642 | ) | (2,642 | ) | ||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (412 | ) | (412 | ) | ||||||||||||||
Unrealized loss on marketable securities, net of tax | — | — | — | — | (544 | ) | (544 | ) | ||||||||||||||
Change in pension benefits, net of tax | — | — | — | — | 813 | 813 | ||||||||||||||||
Balance as of March 28, 2020 | 115,695 | $ | 1,157 | $ | 1,536,770 | $ | (150,351 | ) | $ | (113,495 | ) | $ | 1,274,081 |
Three months ended March 30, 2019 | ||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance as of December 29, 2018 | 118,657 | $ | 1,187 | $ | 1,553,875 | $ | (138,785 | ) | $ | (95,108 | ) | $ | 1,321,169 | |||||||||
Common stock issued for employee stock-based awards | 52 | — | — | — | — | — | ||||||||||||||||
Shares surrendered by employees to pay taxes related to stock-based awards | (8 | ) | — | (703 | ) | — | — | (703 | ) | |||||||||||||
Common stock issued for employee stock purchase plan | 122 | 1 | 8,797 | — | — | 8,798 | ||||||||||||||||
Compensation expense from stock-based awards | — | — | 26,967 | — | — | 26,967 | ||||||||||||||||
Net income (loss) | — | — | — | (43,513 | ) | — | (43,513 | ) | ||||||||||||||
Repurchases of common stock | (725 | ) | (7 | ) | (64,987 | ) | — | — | (64,994 | ) | ||||||||||||
Unrealized gain on net investment hedges, net of tax | — | — | — | — | 2,955 | 2,955 | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (4,033 | ) | (4,033 | ) | ||||||||||||||
Unrealized gain on available-for-sale securities, net of tax | — | — | — | — | 289 | 289 | ||||||||||||||||
Change in pension benefits, net of tax | — | — | — | — | 773 | 773 | ||||||||||||||||
Balance as of March 30, 2019 | 118,098 | $ | 1,181 | $ | 1,523,949 | $ | (182,298 | ) | $ | (95,124 | ) | $ | 1,247,708 |
Six months ended March 30, 2019 | ||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||
Shares | Amount | |||||||||||||||||||||
Balance as of September 30, 2018 | 117,981 | $ | 1,180 | $ | 1,558,403 | $ | (599,409 | ) | $ | (85,585 | ) | $ | 874,589 | |||||||||
ASU 2016-16 adoption | — | — | — | 72,261 | — | 72,261 | ||||||||||||||||
ASC 606 adoption | — | — | — | 367,378 | — | 367,378 | ||||||||||||||||
Common stock issued for employee stock-based awards | 1,108 | 11 | (11 | ) | — | — | — | |||||||||||||||
Shares surrendered by employees to pay taxes related to stock-based awards | (388 | ) | (4 | ) | (34,487 | ) | — | — | (34,491 | ) | ||||||||||||
Common stock issued | — | — | (140 | ) | — | — | (140 | ) | ||||||||||||||
Common stock issued for employee stock purchase plan | 122 | 1 | 8,797 | — | — | 8,798 | ||||||||||||||||
Compensation expense from stock-based awards | — | — | 56,374 | — | — | 56,374 | ||||||||||||||||
Net income (loss) | — | — | — | (22,528 | ) | — | (22,528 | ) | ||||||||||||||
Repurchases of common stock | (725 | ) | (7 | ) | (64,987 | ) | — | — | (64,994 | ) | ||||||||||||
Unrealized loss on cash flow hedges, net of tax | — | — | — | — | (385 | ) | (385 | ) | ||||||||||||||
Unrealized gain on net investment hedges, net of tax | — | — | — | — | 662 | 662 | ||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (11,602 | ) | (11,602 | ) | ||||||||||||||
Unrealized gain on marketable securities, net of tax | — | — | — | — | 302 | 302 | ||||||||||||||||
Change in pension benefits, net of tax | — | — | — | — | 1,484 | 1,484 | ||||||||||||||||
Balance as of March 30, 2019 | 118,098 | $ | 1,181 | $ | 1,523,949 | $ | (182,298 | ) | $ | (95,124 | ) | $ | 1,247,708 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
PTC Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of our financial position, results of operations and cash flows at the dates and for the periods indicated. The September 30, 20192020 Consolidated Balance Sheet included herein is derived from our audited consolidated financial statements.
Unless otherwise indicated, all references to a year mean our fiscal year, which ends on September 30. OurIn the first quarter of 2021, we changed our fiscal calendar from thirteen-week quarters endending on a Saturday followingto three-month quarters ending on the last calendar day of the third month. There was no change to our fiscal year-end. We do not expect that this change will materially impact comparability of our financial results for fiscal years 2021 and 2020. Because our fiscal year-end did not change, we were not required to file a thirteen-week calendartransition report.The second quarter of 2021 ended on March 31, 2021 and may result in different quarter end dates year to year. The
Risks and Uncertainties -
COVID-19 PandemicIn December 2019, a novel strain of coronavirus, now referred to asthe virus that causes COVID-19 surfaced. The virus has spread to over 100 countries,worldwide, including in the United States, and has been declared a pandemic by the World Health Organization.
We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the COVID-19 pandemic as of March 28, 202031, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there wasour assessment did not result in a material impact to our consolidated financial statements as of and for the quarter ended March 28, 2020, resulting from our assessments,31, 2021, our future assessment of our current expectations at that time of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.
Intangibles—Goodwill and Other—Internal-Use Software
In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. TheWe adopted the new standard will beprospectively effective for us inOctober 1, 2020. As a result of the first quarter of 2021. Entities can chooseadoption, we are required to adopt the new guidance prospectively or retrospectively. We plan to adopt this standard using the prospective adoption approach. We are currently evaluating the effects of this pronouncement on our consolidated financial statements.
Financial Instruments
—Credit LossesIn June 2016, the FASB issued ASU 2016-13, Financial Instruments
—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which, along with subsequent amendments,Pending Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. ASU 2020-04 is effective for all entities upon issuance through December 31, 2022. We are still evaluating the impact, but do not expect the standard to have a material impact on our consolidated financial statements.
Income Taxes
In December 2019, the FASB issued Accounting Standards Update ASU 2019-12, Income Taxes (Topic 740) on Simplifying the Accounting for Income Taxes. The decisions reflected in ASU 2019-12 update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. The new standard will be effective for us in the first quarter of 2021.
2. Revenue from Contracts with Customers
Contract Assets and Contract Liabilities
(in thousands) | March 28, 2020 | September 30, 2019 |
| March 31, 2021 |
|
| September 30, 2020 |
| |||||||
Contract asset | $ | 19,582 | $ | 21,038 |
| $ | 10,328 |
|
| $ | 11,984 |
| |||
Deferred revenue | $ | 417,202 | $ | 396,632 |
| $ | 492,421 |
|
| $ | 426,465 |
|
As of March 28, 2020,31, 2021, $7.6 million of our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. The remainder is included in other long-term assets and expected to be transferred within the next 24 months. Approximately $10.2$6.3 million of the September 30, 20192020 contract asset balance was transferred to receivables during the
8
During the
six months ended MarchOur multi-year, non-cancellable on-premise subscription contracts provide customers with an annual right to exchange software within the subscription with other software. Although the exchange right is limited to software products within a similar product grouping, the exchange right is not limited to products with substantially similar features and functionality as those originally delivered. We determined that this right to exchange previously delivered software for different software represents variable consideration to be accounted for as a liability. We have identified a standard portfolio of contracts with common characteristics and applied the expected value method of determining variable consideration associated with this right. Additionally, where there are isolated situations that are outside of the standard portfolio of contracts due to contract size, longer contract duration, or other unique contractual terms, we use the most likely amount method to determine the amount of variable consideration. In both circumstances, the variable consideration included in the transaction price is constrained to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. As of March 28, 202031, 2021 and September 30, 2019,2020, the total refund liability was $30.2$39.6 million and $22.9$34.5 million, respectively, primarily associated with the annual right to exchange on-premise subscription software.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Effective October 1, 2020, we adopted ASC 326, Financial Instruments—Credit Losses, which replaces the incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic conditions, and accounts receivable aging trends. Our allowance for doubtful accounts on trade accounts receivable was $0.5 million as of March 31, 2021 and September 30, 2020. Uncollectible trade accounts receivable written-off and bad debt expense were immaterial in the three and six months ended March 31, 2021.
Costs to Obtain or Fulfill a Contract
We recognize an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred costs (primarily commissions) are amortized proportionately relatedprimarily relate to revenue over five years, which is generally longer than the term of the initial contract because of anticipated renewals as commissions for renewals are not commensurate with commissions related to our initial contracts.commissions. As of March 28, 202031, 2021 and September 30, 2019,2020, deferred costs to obtain a contract of $29.7$41.0 million and $27.7$33.9 million, respectively, wereare included in other current assets and $65.7$73.4 million and $64.8$72.9 million, respectively, wereare included in other assets (non-current).
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of March 28, 2020,31, 2021, the amounts include additional performance obligations of $417.2$492.4 million recorded in deferred revenue and $608.8$894.5 million that are not yet recorded in the consolidated balance sheets.Consolidated Balance Sheets. We expect to recognize approximately 90%85% of the total $1,026.0$1,386.9 million over the next 24 months, with the remaining amount thereafter. Certain of our multi-year subscription contracts with start dates on or after October 1, 2018 contain a limited annual cancellation right. For such cancellable subscription contracts, we consider each annual period a discrete contract. Early in the fourth quarter of 2019, we discontinued offering thethis cancellation right for substantially all new contracts.
Disaggregation of Revenue
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Recurring revenue(1) |
| $ | 414,845 |
|
| $ | 315,862 |
|
| $ | 799,803 |
|
| $ | 621,230 |
|
Perpetual license |
|
| 6,922 |
|
|
| 8,218 |
|
|
| 15,385 |
|
|
| 17,216 |
|
Professional services |
|
| 40,018 |
|
|
| 35,523 |
|
|
| 75,648 |
|
|
| 77,267 |
|
Total revenue |
| $ | 461,785 |
|
| $ | 359,603 |
|
| $ | 890,836 |
|
| $ | 715,713 |
|
(in thousands) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Total recurring revenue | $ | 315,862 | $ | 239,185 | $ | 621,230 | $ | 490,623 | |||||||
Perpetual license | 8,218 | 10,336 | 17,216 | 52,141 | |||||||||||
Professional services | 35,523 | 40,930 | 77,267 | 82,376 | |||||||||||
Total revenue | $ | 359,603 | $ | 290,451 | $ | 715,713 | $ | 625,140 |
(1) | Recurring revenue is comprised of subscription, perpetual support, SaaS, and cloud revenue. |
9
For further disaggregation of revenue by geographic region and product group see
Note 11. Segment and Geographic Information.3. Restructuring and Other Charges
Restructuring and other charges, net includes restructuring charges (credits), headquarters relocation charges, and impairment and accretion expense charges related to the lease assets of exited facilities. Refer to
Note 14. Leases for additional information about exited facilities.For the second quarterthree and firstsix months ended March 31, 2021, restructuring and other charges, net totaled $0.5 million and $0.7 million, respectively, of which $0.2million and $0.4 million is attributable to restructuring charges, respectively, and $0.3 million and $0.3 million is attributable to impairment and accretion expense related to exited facilities, respectively.
For the three and six
months ended March 28, 2020, restructuringRestructuring Charges
During the first quarter of 2020, we initiated a restructuring program as part of a realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition. The restructuring plan resulted in charges of $30.8 million through fiscal year 2020 for termination benefits associated with approximately 250 employees. During the six months ended March 28, 2020,31, 2021, we incurred $31.5charges of $0.2 million in connection with this restructuring plan for termination benefits associated with approximately 255 employees.
The following table summarizes restructuring accrual activity for the
six months ended March(in thousands) |
| Employee Severance and Related Benefits |
|
| Facility Closures and Related Costs |
|
| Total |
| |||
Accrual, October 1, 2020 |
| $ | 3,992 |
|
| $ | 5,995 |
|
| $ | 9,987 |
|
Charges to operations, net |
|
| 163 |
|
|
| 199 |
|
|
| 362 |
|
Cash disbursements |
|
| (3,924 | ) |
|
| (1,497 | ) |
|
| (5,421 | ) |
Foreign exchange impact |
|
| 31 |
|
|
| 14 |
|
|
| 45 |
|
Accrual, March 31, 2021 |
| $ | 262 |
|
| $ | 4,711 |
|
| $ | 4,973 |
|
(in thousands) | Employee severance and related benefits | Facility closures and related costs | Total | ||||||||
October 1, 2019 | $ | 298 | $ | 30,788 | $ | 31,086 | |||||
ASC 842 adoption | — | (16,462 | ) | (16,462 | ) | ||||||
Charges to operations, net | 31,358 | (4,362 | ) | 26,996 | |||||||
Cash disbursements | (14,324 | ) | (2,495 | ) | (16,819 | ) | |||||
Other non-cash | — | (281 | ) | (281 | ) | ||||||
Foreign exchange impact | 153 | (5 | ) | 148 | |||||||
Accrual, March 28, 2020 | $ | 17,485 | $ | 7,183 | $ | 24,668 |
The following table summarizes restructuring accrual activity for the
six months ended March(in thousands) |
| Employee Severance and Related Benefits |
|
| Facility Closures and Related Costs |
|
| Total |
| |||
Accrual, October 1, 2019 |
| $ | 298 |
|
| $ | 30,788 |
|
| $ | 31,086 |
|
ASC 842 adoption |
|
| 0 |
|
|
| (16,462 | ) |
|
| (16,462 | ) |
Charges to operations, net |
|
| 31,358 |
|
|
| (4,362 | ) |
|
| 26,996 |
|
Cash disbursements |
|
| (14,324 | ) |
|
| (2,495 | ) |
|
| (16,819 | ) |
Other non-cash |
|
| 0 |
|
|
| (281 | ) |
|
| (281 | ) |
Foreign exchange impact |
|
| 153 |
|
|
| (5 | ) |
|
| 148 |
|
Accrual, March 28, 2020 |
| $ | 17,485 |
|
| $ | 7,183 |
|
| $ | 24,668 |
|
(in thousands) | Employee severance and related benefits | Facility closures and related costs | Total | ||||||||
October 1, 2018 | $ | — | $ | 2,415 | $ | 2,415 | |||||
Charges to operations, net | 16,034 | 26,937 | 42,971 | ||||||||
Cash disbursements | (15,085 | ) | (2,847 | ) | (17,932 | ) | |||||
Foreign exchange impact | 6 | (34 | ) | (28 | ) | ||||||
Other non-cash charges | — | 4,812 | 4,812 | ||||||||
Accrual, March 30, 2019 | $ | 955 | $ | 31,283 | $ | 32,238 |
The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.
10
Of the accrual for facility closures and other current liabilities, representing the present value of lease commitments net of estimated sublease income, were reclassified
4. Stock-based Compensation
Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs, including performance-based awards, as theour principal equity incentive awards, including performance-based awards that are earned based onawards.
The following table shows RSU activity for the six months ended March 31, 2021:
(in thousands, except grant date fair value data) |
| Number of RSUs |
|
| Weighted-Average Grant Date Fair Value Per RSU |
| ||
Balance of outstanding restricted stock units, October 1, 2020 |
|
| 3,509 |
|
| $ | 79.13 |
|
Granted(1) |
|
| 1,004 |
|
| $ | 103.64 |
|
Vested |
|
| (861 | ) |
| $ | 79.86 |
|
Forfeited or not earned |
|
| (67 | ) |
| $ | 80.39 |
|
Balance of outstanding restricted stock units, March 31, 2021 |
|
| 3,585 |
|
| $ | 85.91 |
|
(1) | Restricted stock granted includes 33,000 shares from prior period TSR awards that were earned upon achievement of the performance criteria and vested in November 2020. |
The following table presents the number of performance criteria established by the Compensation Committee of our Board of Directors. Each RSU represents the contingent right to receive 1 share of our common stock.
Restricted stock unit activity for the six months ended March 28, 2020 | Number of RSUs (in thousands) | Weighted- Average Grant Date Fair Value Per RSU | ||||
Balance of outstanding restricted stock units October 1, 2019 | 3,232 | $ | 80.52 | |||
Granted | 1,349 | $ | 77.18 | |||
Vested | (958 | ) | $ | 68.79 | ||
Forfeited or not earned | (550 | ) | $ | 84.27 | ||
Balance of outstanding restricted stock units March 28, 2020 | 3,073 | $ | 82.03 |
(in thousands) | Restricted Stock Units | ||||
Grant Period | Performance-based RSUs (1) | Service-based RSUs (2) | Total Shareholder Return RSUs (3) | ||
First six months of 2020 | 97 | 1,155 | 97 |
(in thousands) | Six months ended March 31, 2021 | |||
Performance-based RSUs(1) | 90 | |||
Service-based RSUs(2) | 791 | |||
Total Shareholder Return RSUs(3) | 90 |
(1) | The performance-based RSUs were granted to our executives and are eligible to vest based upon annual |
(2) | |
The service-based RSUs were granted to employees, including our executive officers. Substantially all service-based RSUs will vest in 3 substantially equal annual installments on or about the anniversary of the date of grant. |
(3) | |
The Total Shareholder Return RSUs (TSR RSUs) were granted to our executives |
The weighted-average fair value of the TSR RSUs was $106.69$124.04 per target RSU on the grant date. The fair value of the TSR RSUs was determined using a Monte Carlo simulation model, a generally accepted statistical technique used to simulate a range of possible future stock prices for PTC and the peer group. The method uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each entity, and the pairwise correlations of each entity being modeled. The fair value for each simulation is the product of the payout percentage determined by PTC’s TSR rank against the peer group, the projected price of PTC stock, and a discount factor based on the risk-free rate.
The significant assumptions used in the Monte Carlo simulation model were as follows:
Average volatility of peer group | 41.5 | % | ||
Risk free interest rate | 0.21 | % | ||
Dividend yield | 0 | % |
11
Compensation expense recorded for our stock-based awards wasis classified in our Consolidated Statements of Operations as follows:
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Cost of license revenue |
| $ | 20 |
|
| $ | 11 |
|
| $ | 40 |
|
| $ | 11 |
|
Cost of support and cloud services revenue |
|
| 2,309 |
|
|
| 1,524 |
|
|
| 4,611 |
|
|
| 3,010 |
|
Cost of professional services revenue |
|
| 2,177 |
|
|
| 1,465 |
|
|
| 4,289 |
|
|
| 3,022 |
|
Sales and marketing |
|
| 13,305 |
|
|
| 7,146 |
|
|
| 28,304 |
|
|
| 14,598 |
|
Research and development |
|
| 7,921 |
|
|
| 4,765 |
|
|
| 16,364 |
|
|
| 11,697 |
|
General and administrative |
|
| 19,008 |
|
|
| 5,573 |
|
|
| 37,220 |
|
|
| 16,082 |
|
Total stock-based compensation expense |
| $ | 44,740 |
|
| $ | 20,484 |
|
| $ | 90,828 |
|
| $ | 48,420 |
|
(in thousands) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Cost of license revenue | $ | 11 | $ | 48 | $ | 11 | $ | 370 | |||||||
Cost of support and cloud services revenue | 1,523 | 1,158 | 3,010 | 2,133 | |||||||||||
Cost of professional services revenue | 1,466 | 1,906 | 3,022 | 3,720 | |||||||||||
Sales and marketing | 7,146 | 9,522 | 14,598 | 19,244 | |||||||||||
Research and development | 4,765 | 5,190 | 11,697 | 10,090 | |||||||||||
General and administrative | 5,573 | 9,143 | 16,082 | 20,817 | |||||||||||
Total stock-based compensation expense | $ | 20,484 | $ | 26,967 | $ | 48,420 | $ | 56,374 |
Stock-based compensation expense includes $1.8 million and $3.8 million in the second quarter and first six months of 2021, respectively, and $1.3 million and $2.8 million in the
second quarter and first six months of 2020, respectively,5. Earnings per Share (EPS) and Common Stock
EPS
The following table presents the weighted-average number ofcalculation for both basic and diluted EPS:
(in thousands, except per share data) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Net income |
| $ | 109,262 |
|
| $ | 7,156 |
|
| $ | 132,777 |
|
| $ | 42,611 |
|
Weighted-average shares outstanding—Basic |
|
| 116,777 |
|
|
| 115,606 |
|
|
| 116,587 |
|
|
| 115,401 |
|
Dilutive effect of restricted stock units |
|
| 1,554 |
|
|
| 411 |
|
|
| 1,379 |
|
|
| 455 |
|
Weighted-average shares outstanding—Diluted |
|
| 118,331 |
|
|
| 116,017 |
|
|
| 117,966 |
|
|
| 115,856 |
|
Earnings per share—Basic |
| $ | 0.94 |
|
| $ | 0.06 |
|
| $ | 1.14 |
|
| $ | 0.37 |
|
Earnings per share—Diluted |
| $ | 0.92 |
|
| $ | 0.06 |
|
| $ | 1.13 |
|
| $ | 0.37 |
|
Anti-dilutive shares outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted-average number of shares outstanding plus the dilutive effect, if any, of outstanding RSUs using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of unrecognized compensation expense as additional proceeds.
Three months ended | Six months ended | ||||||||||||||
Calculation of Basic and Diluted EPS (in thousands, except per share data) | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | |||||||||||
Net income (loss) | $ | 7,156 | $ | (43,513 | ) | $ | 42,611 | $ | (22,528 | ) | |||||
Weighted-average shares outstanding—Basic | 115,606 | 118,461 | 115,401 | 118,392 | |||||||||||
Dilutive effect of restricted stock units | 411 | — | 455 | — | |||||||||||
Weighted-average shares outstanding—Diluted | 116,017 | 118,461 | 115,856 | 118,392 | |||||||||||
Earnings (loss) per share—Basic | $ | 0.06 | $ | (0.37 | ) | $ | 0.37 | $ | (0.19 | ) | |||||
Earnings (loss) per share—Diluted | $ | 0.06 | $ | (0.37 | ) | $ | 0.37 | $ | (0.19 | ) |
Common Stock Repurchases
Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $1,500 million$1 billion of our common stock in the period October 1, 20172020 through September 30, 2020.2023. We did not0t repurchase any shares in the second quarter and first six months of 2021 or 2020. We repurchased $65.0 million of our common stock in the second quarter and first six months of 2019. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.
6. Acquisitions
Acquisition-related costs in the
second quarter and first six months ofOur results of operations include the results of acquired businesses beginning on their respective acquisition date. Our results of operations for the reported periods if presented on a pro forma basis would not differ materially from our reported results.
Arena
On January 15, 2021, we acquired Arena Holdings, Inc. (“Arena”) pursuant to the Agreement and Plan of Merger dated as of December 12, 2020 by and among PTC, Arena, Astronauts Merger Sub, Inc.,
12
and the Representative named therein, the material terms of which are described in the Form 8-K filed by PTC on December 14, 2020 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $715 million, net of cash acquired of $11.3 million, for Arena, which amount was financed with cash on hand and $600 million borrowed under our existing credit facility. Arena had approximately 170 employees on the close date. The acquisition of Arena is expected to add revenue of approximately $40 millionin 2021.
The acquisition of Arena has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.
The purchase price allocation resulted in $562.7 million of goodwill, $155.0 million of customer relationships, $38.3 million of purchased software, $4.2 million of trademarks, $41.3 million of deferred tax liabilities, $15.5 million of deferred revenue, $11.4 million of accounts receivable, and $0.4 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 13 years, 9 years, and 12 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by participation in expected future growth of the PLM SaaS market and expansion into the mid-market for PLM, where SaaS solutions are becoming the standard.
Onshape
On November 1, 2019, we completed our acquisition ofacquired Onshape Inc. pursuant to the Agreement and Plan of Merger dated as of October 23, 2019 by and among Onshape Inc., OPAL Acquisition Corporation and the Stockholder Representative named therein, the material terms of which are described in the Form 8-K filed by PTC on October 23, 2019 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $469 million, net of cash acquired of $7.5 million, for Onshape, which amount we borrowed under our existing credit facility. Onshape ishad approximately 110 employees on the close date.The acquisition of Onshape did not expected to beadd material to our 2020 results.
The acquisition of Onshape has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.
The purchase price allocation resulted in $364.9 million of goodwill, $56.8 million of customer relationships, $47.3 million of purchased software, $3.6 million of trademarks and $4.1 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 10 years, 16 years, and 15 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by acceleratingthe expected acceleration of CAD and PLM growth, especially in the low-endlow end of the market, and participatingparticipation in expected future growth inof the CAD and PLM SaaS market.
7. Goodwill and Intangible Assets
We have 2 operating and reportable segments: (1) Software Products and (2) Professional Services. We assess goodwill for impairment at the reporting unit level. Our reporting units are determined based on the components of our operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Our reporting units are the same as our operating segments.
As of March 28, 2020,31, 2021, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $1,809.1$2,558.7 million and attributable to our Professional Services segment was $45.2 million. As of September 30, 2019,2020, goodwill and acquired intangible assets in the aggregate
13
attributable to our Software Products segment was $1,362.4$1,818.1 million and attributable to our Professional Services segment was $45.7$45.3 million. Acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
We completed our annual goodwill impairment review as of June 29, 201927, 2020 based on a qualitativequantitative assessment. Our qualitative assessment included company specific (financial performance and long-range plans), industry, and macroeconomic factors, and considerationTo conduct these tests of goodwill, the fair value of eacha reporting unit relativeis compared to its carrying value. If the reporting unit’s carrying value atexceeds its fair value, we record an impairment loss equal to the last valuation date. Based on our qualitative assessment, we believe it is more likely than not thatdifference between the carrying value of goodwill and its estimated fair value. We estimate the fair values of our reporting units exceed theirusing discounted cash flow valuation models. Those models require estimates of future revenues, profits, capital expenditures, working capital, terminal values based on revenue multiples, and discount rates for each reporting unit. We estimate these amounts by evaluating historical trends; current budgets and operating plans, including consideration of the impact of the COVID-19 pandemic on our future results; and industry data. The estimated fair value of each reporting unit exceeded its carrying value as of June 27, 2020. Through March 31, 2021, there were no events or changes in circumstances that indicated that the carrying values and no further impairment testing is required.
Goodwill and acquired intangible assets consisted of the following:
(in thousands) |
| March 31, 2021 |
|
| September 30, 2020 |
| ||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Book Value |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Book Value |
| ||||||
Goodwill (not amortized) |
|
|
|
|
|
|
|
|
| $ | 2,193,632 |
|
|
|
|
|
|
|
|
|
| $ | 1,625,786 |
|
Intangible assets with finite lives (amortized): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software |
| $ | 484,190 |
|
| $ | 322,869 |
|
| $ | 161,321 |
|
| $ | 443,275 |
|
| $ | 309,124 |
|
| $ | 134,151 |
|
Capitalized software |
|
| 22,877 |
|
|
| 22,877 |
|
|
| 0 |
|
|
| 22,877 |
|
|
| 22,877 |
|
|
| 0 |
|
Customer lists and relationships |
|
| 575,836 |
|
|
| 337,194 |
|
|
| 238,642 |
|
|
| 418,953 |
|
|
| 322,092 |
|
|
| 96,861 |
|
Trademarks and trade names |
|
| 26,959 |
|
|
| 16,612 |
|
|
| 10,347 |
|
|
| 22,687 |
|
|
| 16,129 |
|
|
| 6,558 |
|
Other |
|
| 4,019 |
|
|
| 4,019 |
|
|
| 0 |
|
|
| 4,017 |
|
|
| 4,017 |
|
|
| 0 |
|
Total intangible assets with finite lives |
| $ | 1,113,881 |
|
| $ | 703,571 |
|
| $ | 410,310 |
|
| $ | 911,809 |
|
| $ | 674,239 |
|
| $ | 237,570 |
|
Total goodwill and acquired intangible assets |
|
|
|
|
|
|
|
|
| $ | 2,603,942 |
|
|
|
|
|
|
|
|
|
| $ | 1,863,356 |
|
(in thousands) | March 28, 2020 | September 30, 2019 | |||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | ||||||||||||||||||
Goodwill (not amortized) | $ | 1,603,081 | $ | 1,238,179 | |||||||||||||||||||
Intangible assets with finite lives (amortized): | |||||||||||||||||||||||
Purchased software | $ | 427,092 | $ | 292,756 | $ | 134,336 | $ | 377,359 | $ | 278,144 | $ | 99,215 | |||||||||||
Capitalized software | 22,877 | 22,877 | — | 22,877 | 22,877 | — | |||||||||||||||||
Customer lists and relationships | 413,054 | 303,095 | 109,959 | 355,931 | 288,828 | 67,103 | |||||||||||||||||
Trademarks and trade names | 22,524 | 15,628 | 6,896 | 18,891 | 15,260 | 3,631 | |||||||||||||||||
Other | 3,942 | 3,942 | — | 3,910 | 3,910 | — | |||||||||||||||||
$ | 889,489 | $ | 638,298 | $ | 251,191 | $ | 778,968 | $ | 609,019 | $ | 169,949 | ||||||||||||
Total goodwill and acquired intangible assets | $ | 1,854,272 | $ | 1,408,128 |
Goodwill
Changes in goodwill presented by reportable segments were as follows:
(in thousands) |
| Software Products |
|
| Professional Services |
|
| Total |
| |||
Balance, October 1, 2020 |
| $ | 1,583,316 |
|
| $ | 42,470 |
|
| $ | 1,625,786 |
|
Arena acquisition |
|
| 562,657 |
|
|
| 0 |
|
|
| 562,657 |
|
Other acquisitions |
|
| 963 |
|
|
| 0 |
|
|
| 963 |
|
Foreign currency translation adjustment |
|
| 4,116 |
|
|
| 110 |
|
|
| 4,226 |
|
Balance, March 31, 2021 |
| $ | 2,151,052 |
|
| $ | 42,580 |
|
| $ | 2,193,632 |
|
(in thousands) | Software Products | Professional Services | Total | ||||||||
Balance, October 1, 2019 | $ | 1,196,064 | $ | 42,115 | $ | 1,238,179 | |||||
Onshape acquisition | 364,910 | — | 364,910 | ||||||||
Foreign currency translation adjustment | (8 | ) | — | (8 | ) | ||||||
Balance, March 28, 2020 | $ | 1,560,966 | $ | 42,115 | $ | 1,603,081 |
Amortization of Intangible Assets
The aggregate amortization expense for intangible assets with finite lives wasis classified in our Consolidated Statements of Operations as follows:
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Amortization of acquired intangible assets |
| $ | 7,650 |
|
| $ | 7,288 |
|
| $ | 14,197 |
|
| $ | 14,065 |
|
Cost of license revenue |
|
| 7,117 |
|
|
| 6,879 |
|
|
| 13,384 |
|
|
| 13,678 |
|
Total amortization expense |
| $ | 14,767 |
|
| $ | 14,167 |
|
| $ | 27,581 |
|
| $ | 27,743 |
|
(in thousands) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | �� | March 28, 2020 | March 30, 2019 | |||||||||||
Amortization of acquired intangible assets | $ | 7,288 | $ | 5,930 | $ | 14,065 | $ | 11,866 | |||||||
Cost of license revenue | 6,879 | 6,842 | 13,678 | 13,559 | |||||||||||
Total amortization expense | $ | 14,167 | $ | 12,772 | $ | 27,743 | $ | 25,425 |
8. Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we considerin the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricingfor the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. GAAP prescribes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Threeliability. There are three levels of inputs that may beare used to measure fair value:
14
• | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; |
• | Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices |
• | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.
Foreign currency derivative contracts are typically classified within Level 2 of the fair value hierarchy. These instruments are valued based on quoted prices in markets that are not active or based on other observable inputs consisting of market yields, reported trades and broker/dealer quotes.
Our significant financial assets and liabilities measured at fair value on a recurring basis as of March 28, 202031, 2021 and September 30, 20192020 were as follows:
(in thousands) | March 28, 2020 |
| March 31, 2021 |
| |||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash equivalents | $ | 616,556 | $ | — | $ | — | $ | 616,556 |
| $ | 115,533 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 115,533 |
| |||||||
Marketable securities: | |||||||||||||||||||||||||||||||
Commercial paper | — | 1,482 | — | 1,482 | |||||||||||||||||||||||||||
Corporate notes/bonds | 55,459 | — | — | 55,459 | |||||||||||||||||||||||||||
Forward contracts | — | 2,708 | — | 2,708 | |||||||||||||||||||||||||||
$ | 672,015 | $ | 4,190 | $ | — | $ | 676,205 | ||||||||||||||||||||||||
Derivative instruments |
|
| 0 |
|
|
| 6,846 |
|
|
| 0 |
|
|
| 6,846 |
| |||||||||||||||
Convertible note |
|
| 0 |
|
|
| 0 |
|
|
| 1,000 |
|
|
| 1,000 |
| |||||||||||||||
Total financial assets |
| $ | 115,533 |
|
| $ | 6,846 |
|
| $ | 1,000 |
|
| $ | 123,379 |
| |||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Forward contracts | — | 4,074 | — | 4,074 |
|
| 0 |
|
|
| 4,259 |
|
|
| 0 |
|
|
| 4,259 |
| |||||||||||
$ | — | $ | 4,074 | $ | — | $ | 4,074 | ||||||||||||||||||||||||
Total financial liabilities |
| $ | 0 |
|
| $ | 4,259 |
|
| $ | 0 |
|
| $ | 4,259 |
|
(in thousands) | September 30, 2019 |
| September 30, 2020 |
| |||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Cash equivalents | $ | 108,020 | $ | — | $ | — | $ | 108,020 |
| $ | 105,299 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 105,299 |
| |||||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Commercial paper | — | 999 | — | 999 | |||||||||||||||||||||||||||
Corporate notes/bonds | 56,436 | — | — | 56,436 |
|
| 59,099 |
|
|
| 0 |
|
|
| 0 |
|
|
| 59,099 |
| |||||||||||
Forward contracts | — | 3,064 | — | 3,064 | |||||||||||||||||||||||||||
$ | 164,456 | $ | 4,063 | $ | — | $ | 168,519 | ||||||||||||||||||||||||
Derivative instruments |
|
| 0 |
|
|
| 903 |
|
|
| 0 |
|
|
| 903 |
| |||||||||||||||
Total financial assets |
| $ | 164,398 |
|
| $ | 903 |
|
| $ | 0 |
|
| $ | 165,301 |
| |||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Forward contracts | — | 2,771 | — | 2,771 |
|
| 0 |
|
|
| 1,073 |
|
|
| 0 |
|
|
| 1,073 |
| |||||||||||
$ | — | $ | 2,771 | $ | — | $ | 2,771 | ||||||||||||||||||||||||
Total financial liabilities |
| $ | 0 |
|
| $ | 1,073 |
|
| $ | 0 |
|
| $ | 1,073 |
|
Level 3 Debt Investments
In the first quarter of 2021, we invested $1.0 million into a non-marketable equity investments at cost, lessconvertible note. This debt security is classified as available-for-sale and is included in other assets on the Consolidated Balance Sheet. There were 0t any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. We monitor non-marketable equity investments for events that could indicate that the investments are impaired, such as deterioration in the investee's financial condition and business forecasts, and lower valuations in recent or proposed financings. Changes in fair value of non-marketable equity investments are recordedthis level 3 investment in other income (expense), net on the Consolidated Statements of Operations. three and six months ended March 31, 2021.
Non-Marketable Equity Investments
The carrying value of our non-marketable equity investments is recorded in other assets on the Consolidated Balance Sheets and totaled $9.4$8.9 million as of both March 28, 202031, 2021 and September 30, 2019.
9. Marketable Securities
We did 0t hold any marketable securities as of March 31, 2021. In December 2020, we sold all our marketable securities to partially fund the Arena acquisition, resulting in proceeds of $56.2 million. Neither gross realized gains nor gross realized losses related to the sale were material. The amortized cost and fair value of marketable securities as of March 28, 2020 and September 30, 20192020 were as follows:
(in thousands) |
| September 30, 2020 |
| |||||||||||||
|
| Amortized cost |
|
| Gross unrealized gains |
|
| Gross unrealized losses |
|
| Fair value |
| ||||
Corporate notes/bonds |
| $ | 58,793 |
|
| $ | 323 |
|
| $ | (17 | ) |
| $ | 59,099 |
|
(in thousands) | March 28, 2020 | ||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
Commercial paper | $ | 1,482 | $ | — | $ | — | $ | 1,482 | |||||||
Corporate notes/bonds | 55,884 | 85 | (510 | ) | 55,459 | ||||||||||
$ | 57,366 | $ | 85 | $ | (510 | ) | $ | 56,941 |
(in thousands) | September 30, 2019 | ||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | ||||||||||||
Commercial paper | $ | 999 | $ | — | $ | — | $ | 999 | |||||||
Corporate notes/bonds | 56,318 | 146 | (28 | ) | 56,436 | ||||||||||
$ | 57,317 | $ | 146 | $ | (28 | ) | $ | 57,435 |
The following tables summarizetable summarizes the fair value and gross unrealized losses aggregated by category and the length of time that individual securities havehad been in a continuous unrealized loss position as of March 28, 2020 and September 30, 2019.
(in thousands) |
| September 30, 2020 |
| |||||||||||||||||||||
|
| Less than twelve months |
|
| Greater than twelve months |
|
| Total |
| |||||||||||||||
|
| Fair Value |
|
| Gross unrealized loss |
|
| Fair Value |
|
| Gross unrealized loss |
|
| Fair Value |
|
| Gross unrealized loss |
| ||||||
Corporate notes/bonds |
| $ | 9,841 |
|
| $ | (17 | ) |
| $ | 0 |
|
| $ | 0 |
|
| $ | 9,841 |
|
| $ | (17 | ) |
(in thousands) | March 28, 2020 | ||||||||||||||||||||||
Less than twelve months | Greater than twelve months | Total | |||||||||||||||||||||
Fair Value | Gross unrealized loss | Fair Value | Gross unrealized loss | Fair Value | Gross unrealized loss | ||||||||||||||||||
Corporate notes/bonds | $ | 44,598 | $ | (510 | ) | $ | — | $ | — | $ | 44,598 | $ | (510 | ) |
(in thousands) | September 30, 2019 | ||||||||||||||||||||||
Less than twelve months | Greater than twelve months | Total | |||||||||||||||||||||
Fair Value | Gross unrealized loss | Fair Value | Gross unrealized loss | Fair Value | Gross unrealized loss | ||||||||||||||||||
Corporate notes/bonds | $ | 12,419 | $ | (14 | ) | $ | 16,369 | $ | (14 | ) | $ | 28,788 | $ | (28 | ) |
The following table presents our marketable securities by contractual maturity date as of March 28, 2020 and September 30, 2019.2020:
(in thousands) |
| September 30, 2020 |
| |||||
|
| Amortized cost |
|
| Fair value |
| ||
Due in one year or less |
| $ | 27,727 |
|
| $ | 27,899 |
|
Due after one year through three years |
|
| 31,066 |
|
|
| 31,200 |
|
Total |
| $ | 58,793 |
|
| $ | 59,099 |
|
(in thousands) | March 28, 2020 | September 30, 2019 | |||||||||||||
Amortized cost | Fair value | Amortized cost | Fair value | ||||||||||||
Due in one year or less | $ | 34,305 | $ | 34,135 | $ | 27,725 | $ | 27,735 | |||||||
Due after one year through three years | 23,061 | 22,806 | 29,592 | 29,700 | |||||||||||
$ | 57,366 | $ | 56,941 | $ | 57,317 | $ | 57,435 |
10. Derivative Financial Instruments
We enter into derivative transactions, specifically foreign currency forward contracts and options, to manage the exposuresour exposure to foreign currency exchange risk in order to reduce earnings volatility. We do not enter into derivatives transactions for trading or speculative purposes.
The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:
(in thousands) |
| Fair Value of Derivatives Designated As Hedging Instruments |
|
| Fair Value of Derivatives Not Designated As Hedging Instruments |
| ||||||||||
|
| March 31, 2021 |
|
| September 30, 2020 |
|
| March 31, 2021 |
|
| September 30, 2020 |
| ||||
Derivative assets(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
| $ | 2,470 |
|
| $ | 3 |
|
| $ | 3,414 |
|
| $ | 900 |
|
Options |
| $ | 0 |
|
| $ | 0 |
|
| $ | 962 |
|
| $ | 0 |
|
Derivative liabilities(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
| $ | 0 |
|
| $ | 306 |
|
| $ | 4,259 |
|
| $ | 767 |
|
(1) | As of March 31, 2021 and September 30, 2020, current derivative assets of $6.8 million and $0.9 million, respectively, are recorded in other current assets in the Consolidated Balance Sheets. |
(2) | As of March 31, 2021 and September 30, 2020, current derivative liabilities of $4.3 million and $1.1 million, respectively, are recorded in accrued expenses and other current liabilities in the Consolidated Balance Sheets. |
Non-Designated Hedges
We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce
16
the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately seventhree months. Generally, we
We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they would be adversely affected by changes in Euro exchange rates. These contracts have maturities of up to approximately ten months. We do not designate these foreign currency options as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into options only as an economic hedge, any loss on the underlying Euro-denominated forecasted plan rate would be offset by the gain on the put option. Gains on put options are included in other expense, net.
As of March 28, 202031, 2021 and September 30, 2019,2020, we had outstanding forward contracts and options with notional amounts equivalent to the following:
Currency Hedged (in thousands) |
| March 31, 2021 |
|
| September 30, 2020 |
| ||
Canadian / U.S. Dollar |
| $ | 5,824 |
|
| $ | 6,847 |
|
Euro / U.S. Dollar(1) |
|
| 532,906 |
|
|
| 390,673 |
|
British Pound / U.S. Dollar |
|
| 1,459 |
|
|
| 6,328 |
|
Israeli Shekel / U.S. Dollar |
|
| 10,115 |
|
|
| 9,503 |
|
Japanese Yen / U.S. Dollar |
|
| 10,186 |
|
|
| 50,379 |
|
Swiss Franc / U.S. Dollar |
|
| 2,327 |
|
|
| 12,874 |
|
Swedish Krona / U.S. Dollar |
|
| 25,564 |
|
|
| 18,871 |
|
Chinese Renminbi / U.S. Dollar |
|
| 12,523 |
|
|
| 5,415 |
|
Taiwanese Dollar / U.S. Dollar |
|
| 7,876 |
|
|
| 1,482 |
|
All other |
|
| 13,506 |
|
|
| 10,090 |
|
Total |
| $ | 622,286 |
|
| $ | 512,462 |
|
Currency Hedged (in thousands) | March 28, 2020 | September 30, 2019 | |||||
Canadian / U.S. Dollar | $ | 5,781 | $ | 9,408 | |||
Euro / U.S. Dollar | 304,482 | 308,282 | |||||
British Pound / U.S. Dollar | 6,713 | 3,756 | |||||
Israeli Sheqel / U.S. Dollar | 8,350 | 10,272 | |||||
Japanese Yen / U.S. Dollar | 18,935 | 37,462 | |||||
Swiss Franc / U.S. Dollar | 13,986 | 12,001 | |||||
Danish Kroner/ U.S. Dollar | 3,877 | — | |||||
Swedish Kronor / U.S. Dollar | 6,873 | 20,636 | |||||
Singapore Dollar / U.S. Dollar | 41,190 | 34,585 | |||||
Chinese Renminbi / U.S. Dollar | 5,692 | 52,466 | |||||
Russian Ruble / U.S. Dollar | 6,876 | — | |||||
All other | 3,921 | 9,487 | |||||
Total | $ | 426,676 | $ | 498,355 |
(1) | As of March 31, 2021, $456.7 million of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts and $76.2 million relates to options. As of September 30, 2020, all of the Euro to U.S. Dollar outstanding notional amount relates to forward contracts. |
The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the
three and six months ended MarchDerivatives Not Designated as Hedging Instruments (in thousands) | Location of Gain or (Loss) Recognized in Income | Net realized and unrealized gain or (loss) (excluding the underlying foreign currency exposure being hedged) | ||||||||||||||||
Three months ended | Six months ended | |||||||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | |||||||||||||||
Forward Contracts | Other income (expense), net | $ | 2,151 | $ | (1,752 | ) | $ | 2,844 | $ | (2,739 | ) |
(in thousands) |
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| Location of Gain (Loss) |
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Net realized and unrealized gain (loss), excluding the underlying foreign currency exposure being hedged |
| Other expense, net |
| $ | (3,033 | ) |
| $ | 1,189 |
|
| $ | (4,620 | ) |
| $ | 652 |
|
Net Investment Hedges
We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S. Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are reported as a component of accumulated other comprehensive loss on the Consolidated Balance Sheet.Sheets. We designate certain foreign exchange forward contracts as net investment hedges against exposure on translation of balance sheet accounts of Euro functional subsidiaries. Net investment hedges partially offset the impact of foreign currency translation adjustment recorded in accumulated other comprehensive loss on the Consolidated Balance Sheet.Sheets. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance SheetSheets and the maximum duration of net investment hedge foreign exchange forward contracts is approximately three months.
17
Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of Euro functional subsidiaries. As the forward contracts are highly effective in offsetting exchange rate exposure, we record changes in these net investment hedges in accumulated other comprehensive loss and subsequently reclassify them to
As of March 28, 202031, 2021 and September 30, 2019,2020, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:
Currency Hedged (in thousands) |
| March 31, 2021 |
|
| September 30, 2020 |
| ||
Euro / U.S. Dollar |
| $ | 165,784 |
|
| $ | 164,885 |
|
Currency Hedged (in thousands) | March 28, 2020 | September 30, 2019 | |||||
Euro / U.S. Dollar | $ | 182,095 | $ | 183,396 | |||
Total | $ | 182,095 | $ | 183,396 |
The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the second quarterthree and first
Derivatives Designated as Hedging Instruments | Gain or (Loss) Recognized in OCI | Location of Gain or (Loss) Reclassified from OCI | Gain or (Loss) Reclassified from OCI | Location of Gain or (Loss) Excluded from Effectiveness Testing | Gain or (Loss) Recognized-Excluded Portion | |||||||||||||||||||||
Three months ended | Three months ended | Three months ended | ||||||||||||||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||||
Forward Contracts | $ | (2,140 | ) | $ | 1,466 | Accumulated other comprehensive loss | $ | (6,016 | ) | $ | (1,813 | ) | Other income (expense), net | $ | 962 | $ | 1,107 | |||||||||
Six months ended | Six months ended | Six months ended | ||||||||||||||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||||
Forward Contracts | $ | (5,706 | ) | $ | 768 | Accumulated other comprehensive loss | $ | (6,778 | ) | $ | (1,040 | ) | Other income (expense), net | $ | 2,191 | $ | 1,593 |
(in thousands) |
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| Location of Gain (Loss) |
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Gain (loss) recognized in OCI |
| OCI |
| $ | 1,462 |
|
| $ | (2,140 | ) |
| $ | 2,041 |
|
| $ | (5,706 | ) |
Loss reclassified from OCI |
| OCI |
|
| (3,041 | ) |
|
| (6,016 | ) |
|
| (99 | ) |
|
| (6,778 | ) |
Gain recognized, excluded portion |
| Other expense, net |
|
| 426 |
|
|
| 962 |
|
|
| 733 |
|
|
| 2,191 |
|
As of March 28, 2020,31, 2021, we estimate that all amounts reported in accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.
(in thousands) | Fair Value of Derivatives Designated As Hedging Instruments | Fair Value of Derivatives Not Designated As Hedging Instruments | |||||||||||||
March 28, 2020 | September 30, 2019 | March 28, 2020 | September 30, 2019 | ||||||||||||
Derivative assets (1): | |||||||||||||||
Forward Contracts | $ | — | $ | 1,674 | $ | 2,708 | $ | 1,390 | |||||||
Derivative liabilities (2): | |||||||||||||||
Forward Contracts | $ | 1,841 | $ | — | $ | 2,233 | $ | 2,771 |
Offsetting Derivative Assets and Liabilities
We have entered into master netting arrangements for our forward contracts that allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.
The following table sets forth the offsetting of derivative assets as of March 28, 2020:31, 2021:
(in thousands) |
| Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
| Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
| ||||||||||
As of March 31, 2021 |
| Gross Amount of Recognized Assets |
|
| Gross Amounts Offset in the Consolidated Balance Sheets |
|
| Net Amounts of Assets Presented in the Consolidated Balance Sheets |
|
| Financial Instruments |
|
| Cash Collateral Received |
|
| Net Amount |
| ||||||
Forward Contracts |
| $ | 5,884 |
|
| $ | 0 |
|
| $ | 5,884 |
|
| $ | (4,259 | ) |
| $ | 0 |
|
| $ | 1,625 |
|
(in thousands) | Gross Amounts Offset in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | |||||||||||||||||||||
As of March 28, 2020 | Gross Amount of Recognized Assets | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Assets Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Received | Net Amount | |||||||||||||||||
Forward Contracts | $ | 2,708 | $ | — | $ | 2,708 | $ | (2,708 | ) | $ | — | $ | — |
The following table sets forth the offsetting of derivative liabilities as of March 28, 2020:31, 2021:
(in thousands) |
| Gross Amounts Offset in the Consolidated Balance Sheets |
|
|
|
|
|
| Gross Amounts Not Offset in the Consolidated Balance Sheets |
|
|
|
|
| ||||||||||
As of March 31, 2021 |
| Gross Amount of Recognized Liabilities |
|
| Gross Amounts Offset in the Consolidated Balance Sheets |
|
| Net Amounts of Liabilities Presented in the Consolidated Balance Sheets |
|
| Financial Instruments |
|
| Cash Collateral Pledged |
|
| Net Amount |
| ||||||
Forward Contracts |
| $ | 4,259 |
|
| $ | 0 |
|
| $ | 4,259 |
|
| $ | (4,259 | ) |
| $ | 0 |
|
| $ | 0 |
|
(in thousands) | Gross Amounts Offset in the Consolidated Balance Sheets | Gross Amounts Not Offset in the Consolidated Balance Sheets | |||||||||||||||||||||
As of March 28, 2020 | Gross Amount of Recognized Liabilities | Gross Amounts Offset in the Consolidated Balance Sheets | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Pledged | Net Amount | |||||||||||||||||
Forward Contracts | $ | 4,074 | $ | — | $ | 4,074 | $ | (2,708 | ) | $ | — | $ | 1,366 |
18
11. Segment and Geographic Information
We operate within a single industry segment --– computer software and related services. Operating segments as defined under GAAP are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We have 2 operating and reportable segments: (1) Software Products, which includes license, subscription, SaaS, and related support revenue (including updates and technical support) for all our products; and (2) Professional Services, which includes consulting, implementation and training services. We do not allocate sales and marketing or general and administrative expense to our operating segments as these activities are managed on a consolidated basis. Additionally, segment profit does not include stock-based compensation, amortization of intangible assets, restructuring charges and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.
The revenue and profit attributable to our operating segments are summarized below. We do not produce asset information by reportable segment; therefore, it is not reported.
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Software Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 421,767 |
|
| $ | 324,080 |
|
| $ | 815,188 |
|
| $ | 638,446 |
|
Operating costs(1) |
|
| 109,310 |
|
|
| 94,912 |
|
|
| 214,711 |
|
|
| 197,104 |
|
Profit |
|
| 312,457 |
|
|
| 229,168 |
|
|
| 600,477 |
|
|
| 441,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
| 40,018 |
|
|
| 35,523 |
|
|
| 75,648 |
|
|
| 77,267 |
|
Operating costs(2) |
|
| 33,139 |
|
|
| 33,425 |
|
|
| 66,259 |
|
|
| 67,172 |
|
Profit |
|
| 6,879 |
|
|
| 2,098 |
|
|
| 9,389 |
|
|
| 10,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenue |
|
| 461,785 |
|
|
| 359,603 |
|
|
| 890,836 |
|
|
| 715,713 |
|
Total segment costs |
|
| 142,449 |
|
|
| 128,337 |
|
|
| 280,970 |
|
|
| 264,276 |
|
Total segment profit |
|
| 319,336 |
|
|
| 231,266 |
|
|
| 609,866 |
|
|
| 451,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
| 115,873 |
|
|
| 100,292 |
|
|
| 225,599 |
|
|
| 200,444 |
|
General and administrative expenses |
|
| 31,487 |
|
|
| 27,795 |
|
|
| 58,887 |
|
|
| 54,714 |
|
Restructuring and other charges, net |
|
| 469 |
|
|
| 18,242 |
|
|
| 716 |
|
|
| 32,276 |
|
Intangibles amortization |
|
| 14,767 |
|
|
| 14,167 |
|
|
| 27,581 |
|
|
| 27,743 |
|
Stock-based compensation |
|
| 44,740 |
|
|
| 20,484 |
|
|
| 90,828 |
|
|
| 48,420 |
|
Other unallocated operating expenses(3) |
|
| 10,310 |
|
|
| 261 |
|
|
| 14,226 |
|
|
| 7,390 |
|
Total operating income |
|
| 101,690 |
|
|
| 50,025 |
|
|
| 192,029 |
|
|
| 80,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and debt premium expense |
|
| (12,925 | ) |
|
| (32,618 | ) |
|
| (24,444 | ) |
|
| (44,716 | ) |
Other expense, net |
|
| (2,408 | ) |
|
| (1,629 | ) |
|
| (3,821 | ) |
|
| (925 | ) |
Income before income taxes |
| $ | 86,357 |
|
| $ | 15,778 |
|
| $ | 163,764 |
|
| $ | 34,809 |
|
(1) | Operating costs for the Software Products segment include all costs of software revenue and research and development costs, excluding stock-based compensation and intangible amortization. |
(2) | Operating costs for the Professional Services segment include all costs of professional services revenue, excluding stock-based compensation. |
(3) | Other unallocated operating expenses include acquisition-related and other transactional costs. |
(in thousands) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Software Products | |||||||||||||||
Revenue | $ | 324,080 | $ | 249,521 | $ | 638,446 | $ | 542,764 | |||||||
Operating Costs (1) | 94,912 | 93,913 | 197,104 | 185,541 | |||||||||||
Profit | 229,168 | 155,608 | 441,342 | 357,223 | |||||||||||
Professional Services | |||||||||||||||
Revenue | 35,523 | 40,930 | 77,267 | 82,376 | |||||||||||
Operating Costs (2) | 33,425 | 32,326 | 67,172 | 64,189 | |||||||||||
Profit | 2,098 | 8,604 | 10,095 | 18,187 | |||||||||||
Total segment revenue | 359,603 | 290,451 | 715,713 | 625,140 | |||||||||||
Total segment costs | 128,337 | 126,239 | 264,276 | 249,730 | |||||||||||
Total segment profit | 231,266 | 164,212 | 451,437 | 375,410 | |||||||||||
Unallocated operating expenses: | |||||||||||||||
Sales and marketing expenses | 100,292 | 94,200 | 200,444 | 188,696 | |||||||||||
General and administrative expenses | 27,795 | 25,856 | 54,714 | 51,627 | |||||||||||
Restructuring and other charges, net | 18,242 | 26,980 | 32,276 | 45,473 | |||||||||||
Intangibles amortization | 14,167 | 12,772 | 27,743 | 25,425 | |||||||||||
Stock-based compensation | 20,484 | 26,967 | 48,420 | 56,374 | |||||||||||
Other unallocated operating expenses (income) (3) | 261 | 295 | 7,390 | 629 | |||||||||||
Total operating income (loss) | 50,025 | (22,858 | ) | 80,450 | 7,186 | ||||||||||
Interest expense | (32,618 | ) | (11,383 | ) | (44,716 | ) | (21,659 | ) | |||||||
Other income (expense), net | (1,629 | ) | 821 | (925 | ) | 1,475 | |||||||||
Income (loss) before income taxes | $ | 15,778 | $ | (33,420 | ) | $ | 34,809 | $ | (12,998 | ) |
Our international revenue is presented based on the location of our customer. Revenue for the geographic regions in which we operate is presented below.
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Americas |
| $ | 180,329 |
|
| $ | 153,993 |
|
| $ | 382,609 |
|
| $ | 309,967 |
|
Europe |
|
| 202,477 |
|
|
| 146,422 |
|
|
| 364,796 |
|
|
| 282,943 |
|
Asia Pacific |
|
| 78,979 |
|
|
| 59,188 |
|
|
| 143,431 |
|
|
| 122,803 |
|
Total revenue |
| $ | 461,785 |
|
| $ | 359,603 |
|
| $ | 890,836 |
|
| $ | 715,713 |
|
(in thousands) | Three months ended | Six months ended | |||||||||||||
Revenue | March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | |||||||||||
Americas | $ | 153,993 | $ | 119,717 | $ | 309,967 | $ | 261,570 | |||||||
Europe | 146,422 | 119,045 | 282,943 | 230,397 | |||||||||||
Asia-Pacific | 59,188 | 51,689 | 122,803 | 133,173 | |||||||||||
Total revenue | $ | 359,603 | $ | 290,451 | $ | 715,713 | $ | 625,140 |
19
12. Income Taxes
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Income before income taxes |
| $ | 86,357 |
|
| $ | 15,778 |
|
| $ | 163,764 |
|
| $ | 34,809 |
|
Provision (benefit) for income taxes |
| $ | (22,905 | ) |
| $ | 8,622 |
|
| $ | 30,987 |
|
| $ | (7,802 | ) |
Effective income tax rate |
|
| (27 | )% |
|
| 55 | % |
|
| 19 | % |
|
| (22 | )% |
In the
second quarter and first six months ofOur results for the six months ended March 27, 2020, the U.S. Federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES ACT”). The CARES Act is an emergency economic stimulus package in response31, 2021 include a charge of $36.1 million related to the coronavirus outbreak, which among other things contains numerouseffects of a tax matter in the Republic of Korea (South Korea) of $33.2 million, and the resulting impact on U.S. income taxes of $2.9 million. The charge relates to an assessment with respect to various tax provisions. While weissues, primarily foreign withholding taxes, under appeal in South Korea. We received an assessment of approximately $12 million from the tax authorities in South Korea in the fourth quarter of 2016 for the years 2011 to 2015 and paid the assessment in the first quarter of 2017. We appealed that assessment and believed that upon completion of the multi-level appeal process it was more likely than not that our positions would be sustained. However, in December 2020, our appeal to the Seoul High Court (an intermediate appellate court) was rejected. We have appealed this decision to the Supreme Court of the Republic of Korea. We continue to evaluatebelieve that our position is meritorious, and we will aggressively pursue our position with the impactSupreme Court.
In the second quarter of 2021, we reduced our previously established U.S. valuation allowance by $42.3 million as a result of the CARES Act,Arena acquisition. In the first six months of 2020, we do not currently believe it will havereduced our previously established U.S. valuation allowance by $21.2 million as a material impact on our consolidated financial statements or related disclosures.
We have concluded, based on the weight of available evidence, that a full valuation allowance continues to be required against our U.S. net deferred tax assets as they are not more likely than not to be realized in the future. However, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of any valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. We will continue to reassess our valuation allowance requirements each financial reporting period.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, limitations on net operating losses and tax credits. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates.
As of March 28, 202031, 2021 and September 30, 2019,2020, we had unrecognized tax benefits of $13.2$47.7 million and $11.5$16.1 million, respectively. If all our unrecognized tax benefits as of March 28, 202031, 2021 were to become recognizable in the future, we would record a benefit to the income tax provision of $13.2$47.7 million, which would be partially offset by an increase in the U.S. valuation allowance of $6.3$9.7 million.
Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $0.5 million as audits close and statutes$28 million.
20
13. Debt
At March 28, 202031, 2021 and September 30, 2019,2020, we had the following long-term debt obligations:
(in thousands) |
| March 31, 2021 |
|
| September 30, 2020 |
| ||
4.000% Senior notes due 2028 |
| $ | 500,000 |
|
| $ | 500,000 |
|
3.625% Senior notes due 2025 |
|
| 500,000 |
|
|
| 500,000 |
|
Credit facility revolver(1) |
|
| 520,000 |
|
|
| 18,000 |
|
Total debt |
|
| 1,520,000 |
|
|
| 1,018,000 |
|
Unamortized debt issuance costs for the senior notes(2) |
|
| (11,611 | ) |
|
| (12,686 | ) |
Total debt, net of issuance costs |
| $ | 1,508,389 |
|
| $ | 1,005,314 |
|
(in thousands) | March 28, 2020 | September 30, 2019 | |||||
4.000% Senior notes due 2028(1) | $ | 500,000 | $ | — | |||
3.625% Senior notes due 2025(1) | 500,000 | — | |||||
6.000% Senior notes due 2024(2) | 500,000 | 500,000 | |||||
Credit facility revolver(3) | 148,125 | 173,125 | |||||
Total debt | 1,648,125 | 673,125 | |||||
Unamortized debt issuance costs for the Senior notes(4) | (17,403 | ) | (3,991 | ) | |||
Total debt, net of issuance costs | $ | 1,630,722 | $ | 669,134 |
(1) | |
Unamortized debt issuance costs related to the credit facility were |
(2) | |
Unamortized debt issuance costs |
Senior Notes
In February 2020, we issued $500 million in aggregate principal amount of 4.0% senior, unsecured long-term debt at par value, due in 2028 (the 2028 notes) and $500 million in aggregate principal amount of 3.625% senior, unsecured long-term debt at par value, due in 2025 (the 2025 notes). In the second quarter of 2020, we used $460 million of the net proceeds from the sale of the notes to repay a portion of the outstanding revolving loan under our credit facility. In the third quarter of 2020, we will use the remaining net proceeds from the sale of the notes to redeem the $500 million aggregate principal amount of our outstanding 6.0% senior notes due in 2024 (the 2024 notes). The redemption price for the 2024 notes is 103% of the aggregate principal amount of the notes, plus accrued and unpaid interest to, but excluding, May 15, 2020.
As of March 28, 2020, we recognized in interest expense $15.0 million for fees to be paid upon early redemption of the 2024 notes.
We were in compliance with all the covenants for all of our senior notes as of March 28, 2020.
Credit Agreement
In February 2020, we entered into a Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, for a new secured multi-currency bank credit facility with a syndicate of banks. The new credit facility replaced our prior credit facility. As with the prior credit facility, weWe expect to use the new credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and working capital requirements. As of March 28, 2020, the fair value of our credit facility approximates its book value.
The credit facility consists of a $1 billion revolving credit facility, which may be increased by up to an additional $500 million in the aggregate if the existing or additional lenders are willing to make such increased commitments. The maturity date of the credit facility is February 13, 2025, when all remaining amounts outstanding will be due and payable. The revolving loan commitment does not require amortization of principal and may be repaid in whole or in part prior to the scheduled maturity date at our option without penalty or premium.
Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by PTC as described below. As of March 28, 2020,31, 2021, the annual rate for borrowings outstanding was 2.6%1.75%. Interest rates on borrowings outstanding under the credit facility range from 1.25% to 1.75% above an adjusted LIBO rate (or an agreed successor rate) for Euro currency borrowings or range from 0.25% to 0.75% above the defined base rate (the greater of the Prime Rate, the NYFRB rate plus 0.5%, or an adjusted LIBO rate plus 1%) for base rate borrowings, in each case based upon PTC’s total leverage ratio. Additionally, PTC may borrow certain foreign currencies at rates set in the same range above the respective LIBO rates (or agreed successor rates) for those currencies, based on PTC’s total leverage ratio. A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from 0.175% to 0.30% per annum based upon PTC’s total leverage ratio.
As of March 28, 2020, our total leverage ratio was 3.36 to 1.00, our senior secured leverage ratio was 0.47 to 1.00 and our interest coverage ratio was 7.86 to 1.00 and31, 2021, we were in compliance with all financial and operating covenants of the credit facility.
We made interest payments on our debt of the credit facility would prevent PTC from being able to borrow additional funds,$19.8 million and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility and to terminate the credit facility. A change in control of PTC, as defined$20.5 million in the agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness and terminate the credit facility.
21
14. Leases
Our operating leases expire at various dates through 2037 and are primarily for office space, cars, servers, and office equipment. We made an election not to separate lease components from non-lease components for office space, servers and office equipment. Finance leases are included in property and equipment, accrued expenses and other current liabilities, and other liabilities on our Consolidated Balance Sheets.
Our headquarters are located at 121 Seaport Boulevard, Boston, Massachusetts (the Boston lease). The Boston lease is for approximately 250,000 square feet and runs from January 1,Massachusetts. In February 2019, we subleased a portion of our headquarters through June 30, 2037. Base rent for2022. We will receive approximately $9.1 million in sublease income over the first yearterm of the lease is $11.0 million and will increase by $1 per square foot per year thereafter ($0.3 million per year) with base rent first becoming payable on July 1, 2020. In addition to the base rent, we are required to pay our pro rata portions of building operating costs and real estate taxes (together, “Additional Rent”). Additional Rent is estimated to be approximately $7.1 million for the first year we begin paying rent. The lease provides for $25 million in landlord funding for leasehold improvements ($100 per square foot). The leasehold improvement funding provision was fully utilized by us and was reflected as a derecognition adjustment to the right-of-use asset.
The components of lease cost reflected in the Consolidated Statement of Operations for the second quarterthree and first six months ended March 31, 2021 and March 28, 2020 were as follows:
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Operating lease cost |
| $ | 9,565 |
|
| $ | 10,386 |
|
| $ | 18,956 |
|
| $ | 19,143 |
|
Short-term lease cost |
|
| 610 |
|
|
| 1,017 |
|
|
| 1,158 |
|
|
| 2,890 |
|
Variable lease cost |
|
| 2,476 |
|
|
| 575 |
|
|
| 4,863 |
|
|
| 2,490 |
|
Sublease income |
|
| (1,131 | ) |
|
| (1,013 | ) |
|
| (2,215 | ) |
|
| (2,025 | ) |
Total lease cost |
| $ | 11,520 |
|
| $ | 10,965 |
|
| $ | 22,762 |
|
| $ | 22,498 |
|
(in thousands) | Three months ended | Six months ended | |||||
March 28, 2020 | March 28, 2020 | ||||||
Operating lease cost | $ | 10,386 | $ | 19,143 | |||
Short-term lease cost | 1,017 | 2,890 | |||||
Variable lease cost | 575 | 2,490 | |||||
Sublease income | (1,013 | ) | (2,025 | ) | |||
Total lease cost | $ | 10,965 | $ | 22,498 |
Supplemental cash flow and right-of use assets information related to leases for the three and six months ended March 28, 202031, 2021 was as follows:
(in thousands) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 14,016 |
|
| $ | 9,642 |
|
| $ | 28,076 |
|
| $ | 15,140 |
|
Financing cash flows from financing leases |
| $ | 0 |
|
| $ | 0 |
|
| $ | 279 |
|
| $ | 0 |
|
Right-of-use assets obtained in exchange for new lease obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases(1) |
| $ | 53 |
|
| $ | 87 |
|
| $ | 647 |
|
| $ | 5,468 |
|
Financing leases |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,500 |
|
(dollar amounts in thousands) | Three months ended | Six months ended | |||||
March 28, 2020 | March 28, 2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities | |||||||
Operating cash flows from operating leases | $ | 9,642 | $ | 15,140 | |||
Right-of-use assets obtained in exchange for new operating lease liabilities(1) | $ | (1,230 | ) | $ | 4,151 | ||
Right-of-use assets obtained in exchange for new financing lease liabilities | $ | — | $ | 1,500 |
(1) | |
In the three months |
Supplemental balance sheet information related to the leases as of March 28, 202031, 2021 was as follows:
As of March 31, 2021 | |||
Weighted-average remaining lease term - operating leases | 12.3 years | ||
Weighted-average remaining lease term - financing leases | 4.5 years | ||
Weighted-average discount rate - operating leases | 5.5 | % | |
Weighted-average discount rate - financing leases | 3.0 | % |
Maturities of operating lease liabilities as of March 28, 2020 are31, 2021 were as follows:
(in thousands) |
|
|
|
|
Remainder of 2021 |
| $ | 19,703 |
|
2022 |
|
| 34,768 |
|
2023 |
|
| 25,111 |
|
2024 |
|
| 22,057 |
|
2025 |
|
| 19,185 |
|
Thereafter |
|
| 171,047 |
|
Total future lease payments |
| $ | 291,871 |
|
Less: imputed interest |
|
| (85,487 | ) |
Total lease liability |
| $ | 206,384 |
|
(in thousands) | Operating Leases | ||
Remainder of 2020 | $ | 22,462 | |
2021 | 42,670 | ||
2022 | 28,457 | ||
2023 | 21,174 | ||
2024 | 17,757 | ||
Thereafter | 186,554 | ||
Total future lease payments | $ | 319,074 | |
Less: imputed interest | (94,916 | ) | |
Total | $ | 224,158 |
22
Exited (Restructured) Facilities
As of March 28, 2020,31, 2021, we have operating leases that have not yet commenced. These leases will commence in 2020 with lease terms between 3 years to 5 years and approximate future lease payments of $2.2 million.
2020 | $ | 31,868 | |
2021 | 33,094 | ||
2022 | 25,624 | ||
2023 | 19,279 | ||
2024 | 16,909 | ||
Thereafter | 186,037 | ||
Total minimum lease payments | $ | 312,811 |
In determining the amount of right-of-use assets for restructured facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. Updates to these estimates may result in revisions to the value of right-of-use assets recorded. The amounts recorded are based on the net present value of estimated sublease income.
As of MarchIn the three and uncommitted sublease income of approximately $1.2 million. As a result of changes in our sublease income assumptions and an incremental obligation to exit a portion of our former headquarters facility early, in the threesix months ended March 28, 2020,31, 2021, we recorded a facility impairment chargemade payments of $4.0 million. In addition, in the second quarter of 2020, we$2.5 million and $6.3 million, respectively, related to lease costs for exited the former Onshape headquarters lease and recorded a related $0.7 million impairment charge.
15. Commitments and Contingencies
Legal and Regulatory Matters
South Korean Tax Audit
We continue to appeal an assessment of approximately $12 million from the tax authorities in South Korea related to an ongoing tax audit. Korea. In the first quarter of 2021, we recorded a charge of $36.1 million associated with this matter. See
Legal Proceedings
With respect to various other legal proceedings and claims, we record an accrual for a contingency when it is probable that arisea liability has been incurred and the amount of the loss can be reasonably estimated.
401(k) Plan
On September 17, 2020, 3 individual plaintiffs filed a putative class action lawsuit against PTC, the Investment Committee for the PTC Inc. 401(k) Plan (“Plan”), and the Board of Directors (the “PTC Defendants”) in the U.S. District Court for the District of Massachusetts alleging claims regarding the Plan. Plaintiffs allege that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in the oversight of the Plan, principally by allegedly selecting and retaining certain investment options despite their higher fees and costs than other available investment options, causing participants in the Plan to pay excessive recordkeeping fees and suffer lower returns on their investments, and by allegedly failing to monitor other fiduciaries. The plaintiffs seek unspecified damages on behalf of a class of Plan participants from September 17, 2014 through the date of any judgment. An answer to the complaint was filed on May 4, 2021. We are currently unable to reasonably estimate what effect the ultimate outcome might have, if any, on our financial position, results of operations or cash flows.
Other Legal Proceedings
In addition to the matters listed above, we are subject to legal proceedings and claims against us in the ordinary course of business. WeAs of March 31, 2021, we estimate that the range of possible outcomes for such matters is immaterial and we do not believe that resolving the legal proceedings and claims that we are currently subject tothem will have a material adverse impact on our financial condition, results of operations or cash flows. However, the results of legal proceedings cannot be predicted with certainty. Should any of these legal proceedings and claims be resolved against us, the operating results for a reporting period could be adversely affected.
23
Guarantees and Indemnification Obligations
We enter into standard indemnification agreements with our customers and business partners in the ordinary course of our business. Under such agreements, with our business partners or customers, we typically indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to our products,products. Indemnification may also cover other types of claims, including claims relating to property damage or personal injury resulting from the performance of services by us or our subcontractors andcertain data breaches. The maximum potential amount of future payments we could be required to make under indemnification agreementsExcept for intellectual property and damage and injury claimsinfringement indemnification, the liability for which is unlimited; in most cases the maximum potential amount foruncapped, these agreements typically limit our liability with respect to other indemnification for data breaches is capped in those contracts.claims. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and, accordingly, we believe the estimated fair value of liabilities under these agreements is immaterial.
We warrant that our software products will perform in all material respects in accordance with our standard published specifications in effect atduring the time of deliveryterm of the licensed products for a specified period of time.license/subscription. Additionally, we generally warrant that our consulting services will be performed consistent with generally accepted industry standards.standards and, in the case of fixed price services, the agreed-upon specifications. In most cases, liability for these warranties is capped. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, we have not incurred significant cost under our
24
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Business Overview
PTC is a global software and services company that delivers solutions to power our industrial customers' digital transformations, helpingenabling them to better design, manufacture, operate, and service their products. Our Internet of Things (IoT) and Augmented Reality (AR) solutions enable companies to connect factories and plants, smart products, and enterprise systems to transform their businesses. These products, along with Onshape and Arena, are considered our
Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Qdocument that are not historic facts, including statements about our future financial and growth expectations and targets, debt repayment and potential stock repurchases, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the COVID-19 pandemic's impact on the global macroeconomic environment and our business could be more severe and prolonged than we expect; the macroeconomic and/or global manufacturing climates may not improve when or as we expect, or may deteriorate, further due to, among other factors, the geopolitical environment, including the focus on technology transactions with non-U.S. entities and potential expanded prohibitions, and ongoing trade tensions and tariffs;COVID-19 pandemic, which could cause customers may continue to delay or reduce purchases of new software, to reduce the number of subscriptions they carry, or delay payments to us, due to the COVID-19 pandemic, all of which would adversely affect ARR and our financial results, including cash flow; our businesses, including our Internet of Things (IoT), Augmented Reality and OnshapeSaaS businesses, may not expand and/or generate the revenue or ARR we expect if customers are slower to adopt thoseour technologies than we expect or if they adopt competing technologies; bookings associated with minimum purchase commitments under our Strategic Alliance Agreement with Rockwell Automation may not result in subscription contracts sold through to end-user customers; our strategic initiatives and investments may not generate the revenue we expect; we may be unable to expand our partner ecosystem as we expect and our partners may not generate the revenue we expect; we may be unable to generate sufficient operating cash flow to repay our outstanding debt when or as we expect or to return 50% of free cash flow to shareholders, under our long-term capital plan, and other uses of cash or our credit facility limits or other matters could preclude such repayments repayment and/or share repurchases.repurchases; foreign exchange rates may differ materially from those we expect; and orders associated with minimum purchase commitments under our Strategic Alliance Agreement with Rockwell Automation may not result in subscription contracts sold through to end-user customers, which could cause the ARR associated with those orders to churn. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses, and profits, as well as otherprofits.Other risks and uncertainties that could cause actual results to differ materially from those projected are described below throughout or referenced in Part II, Item 1 A. 1A. Risk Factors of this report.
Operating and Non-GAAP Financial Measures
Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, and non-GAAP financial measures.measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in
Executive Overview
ARR of our recurring revenue model. We delivered 10% ARR$1.39 billion represents 18% growth (11%(15% on a constant currency basis) compared to Q2’20 driven by a combination of strong results in our Growth business, continued momentum in our Core business, and strong performance from Arena Solutions in its first quarter as part of PTC. Organic ARR growth year over year was 14% (11% constant currency). Second quarter revenue was up 28% year over year (22% constant currency), 24%driven by strong execution as well as the impact of up-front license revenue recognition under ASC 606 and a modest contribution from Arena. Organic revenue growth (25% onyear over year was 26% (20% constant currency).
Our Q2’21 operating margin increased over 800 bps compared to Q2’20, primarily due to strong revenue growth, as well as continued financial discipline. Our Q2’21 diluted EPS of $0.92 was up
25
significantly compared to $0.06 in Q2’20, which reflects those same factors, as well as the recognition of a constant currency basis), and 117% EPS growth (173% non-GAAP EPS growth) over Q2’19. We experienced some pressure on new bookings in the final weeks of the quarter$42 million tax benefit related to the COVID-19 pandemic resulting in new license bookings being down mid-teens over Q2’19. The impact on new bookings was late in the quarterArena acquisition and varied acrosslower interest expense.
In Q2’21, we acquired Arena Solutions for approximately $715 million, net of cash acquired. Arena contributed approximately $54 million of ARR and an immaterial amount of revenue to our product portfolio and geographies as companies were affected by and
We generated $88$122 million of cash from operations in Q2'20Q2'21 compared to $141$88 million in Q2'19,Q2'20, primarily reflecting higher collections and lower accounts receivable collections in the second quarter of 2020 than in the second quarter of 2019 due to the last time perpetual license sales in the first quarter of 2019 in Asia Pacific as well as higher restructuring payments during the quarter. In Q2'20, we issued $500 million in aggregate principal amount of 4.0% Senior Notes due in 2028 and $500 million in aggregate principal amount of 3.625% Senior Notes due in 2025. payments.We used $460ended Q2’21 with $326 million of the net proceeds from the salecash and cash equivalents and $1.5 billion of the notes to repay a portion of the outstanding revolving loan under our credit facility. As of March 28, 2020, the balance outstanding under our credit facility was $148 million and total debt outstanding was $1,648 million, $500 millionwith a weighted average cost of which will be repaid when we redeem our 6% Senior Notes due 2024 in May 2020.
Future Expectations; COVID-19 Impact
Our results have been impacted, and we expect will continue to be impacted, by our ability to close large transactions, which has been adversely impacted bytransactions. Additionally, under the COVID-19 pandemic assubscription license model, particularly sales of products in our growth business, customers delay purchases due to the macroeconomic uncertainty and the inability to implement manymay place smaller initial orders than under a perpetual license model. Sales of our solutions due to the on-site work generally required to do so. The amount of revenue attributable to large transactions, and the number of such transactions, may also vary significantly from quarter to quarter based on customer purchasing decisions and macroeconomic conditions. Such transactionsproducts may have long lead times as they often follow a lengthy product selection and evaluation process and, for existing customers, are influenced by contract duration and expiration cycles. Accordingly, the amount of revenue attributable to large transactions, and the number of such transactions, may vary significantly from quarter to quarter based on customer purchasing decisions and macroeconomic conditions. This may cause volatility in our results.
Despite the challenges associated with the COVID-19 pandemic, we are anticipating FY'20currently anticipate ARR, growth of approximately 11%, revenue, growth of approximately 12%, and a 30-basis point increase (90-basis points on non-GAAP basis) in operating margin over FY'19.
Results of Operations
The following table shows the financial measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude the items described in
(Dollar amounts in millions, except per share data) |
| Three months ended |
|
| Percent Change |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency(1) |
| ||||
Recurring revenue(1) |
| $ | 414.8 |
|
| $ | 315.9 |
|
|
| 31 | % |
|
| 25 | % |
Perpetual license |
|
| 6.9 |
|
|
| 8.2 |
|
|
| (16 | )% |
|
| (19 | )% |
Professional services |
|
| 40.0 |
|
|
| 35.5 |
|
|
| 13 | % |
|
| 7 | % |
Total revenue |
|
| 461.8 |
|
|
| 359.6 |
|
|
| 28 | % |
|
| 22 | % |
Total cost of revenue |
|
| 89.4 |
|
|
| 83.0 |
|
|
| 8 | % |
|
| 5 | % |
Gross margin |
|
| 372.3 |
|
|
| 276.6 |
|
|
| 35 | % |
|
| 28 | % |
Operating expenses |
|
| 270.6 |
|
|
| 226.6 |
|
|
| 19 | % |
|
| 17 | % |
Total costs and expenses |
|
| 360.1 |
|
|
| 309.6 |
|
|
| 16 | % |
|
| 14 | % |
Operating income |
| $ | 101.7 |
|
| $ | 50.0 |
|
|
| 103 | % |
|
| 73 | % |
Non-GAAP operating income(2) |
| $ | 172.0 |
|
| $ | 103.2 |
|
|
| 67 | % |
|
| 52 | % |
Operating margin |
|
| 22.0 | % |
|
| 13.9 | % |
|
|
|
|
|
|
|
|
Non-GAAP operating margin(2) |
|
| 37.2 | % |
|
| 28.7 | % |
|
|
|
|
|
|
|
|
Diluted earnings per share |
| $ | 0.92 |
|
| $ | 0.06 |
|
|
|
|
|
|
|
|
|
Non-GAAP diluted earnings per share(2)(3) |
| $ | 1.08 |
|
| $ | 0.59 |
|
|
|
|
|
|
|
|
|
Cash flow from operations(4) |
| $ | 121.7 |
|
| $ | 87.8 |
|
|
|
|
|
|
|
|
|
Free cash flow(5) |
| $ | 116.3 |
|
| $ | 82.3 |
|
|
|
|
|
|
|
|
|
26
(Dollar amounts in millions, except per share data) |
| Six months ended |
|
| Percent Change |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency(1) |
| ||||
Recurring revenue(1) |
| $ | 799.8 |
|
| $ | 621.2 |
|
|
| 29 | % |
|
| 24 | % |
Perpetual license |
|
| 15.4 |
|
|
| 17.2 |
|
|
| (11 | )% |
|
| (13 | )% |
Professional services |
|
| 75.6 |
|
|
| 77.3 |
|
|
| (2 | )% |
|
| (7 | )% |
Total revenue |
|
| 890.8 |
|
|
| 715.7 |
|
|
| 24 | % |
|
| 20 | % |
Total cost of revenue |
|
| 176.3 |
|
|
| 170.4 |
|
|
| 3 | % |
|
| 1 | % |
Gross margin |
|
| 714.6 |
|
|
| 545.3 |
|
|
| 31 | % |
|
| 26 | % |
Operating expenses |
|
| 522.5 |
|
|
| 464.8 |
|
|
| 12 | % |
|
| 11 | % |
Total costs and expenses |
|
| 698.8 |
|
|
| 635.3 |
|
|
| 10 | % |
|
| 8 | % |
Operating income |
| $ | 192.0 |
|
| $ | 80.5 |
|
|
| 139 | % |
|
| 103 | % |
Non-GAAP operating income(2) |
| $ | 325.4 |
|
| $ | 196.3 |
|
|
| 66 | % |
|
| 53 | % |
Operating margin |
|
| 21.6 | % |
|
| 11.2 | % |
|
|
|
|
|
|
|
|
Non-GAAP operating margin(2) |
|
| 36.5 | % |
|
| 27.4 | % |
|
|
|
|
|
|
|
|
Diluted earnings per share |
| $ | 1.13 |
|
| $ | 0.37 |
|
|
|
|
|
|
|
|
|
Non-GAAP diluted earnings per share(2)(3) |
| $ | 2.05 |
|
| $ | 1.16 |
|
|
|
|
|
|
|
|
|
Cash flow from operations(4) |
| $ | 235.5 |
|
| $ | 95.3 |
|
|
|
|
|
|
|
|
|
Free cash flow(5) |
| $ | 227.2 |
|
| $ | 85.1 |
|
|
|
|
|
|
|
|
|
(Dollar amounts in millions, except per share data) | Three months ended | ||||||||||||
Percent Change | |||||||||||||
March 28, 2020 | March 30, 2019 | Actual | Constant Currency | ||||||||||
Total recurring revenue | $ | 315.9 | $ | 239.2 | 32 | % | 34 | % | |||||
Perpetual license | 8.2 | 10.3 | (21 | )% | (19 | )% | |||||||
Professional services | 35.5 | 40.9 | (13 | )% | (11 | )% | |||||||
Total revenue | 359.6 | 290.5 | 24 | % | 25 | % | |||||||
Total cost of revenue | 83.0 | 79.9 | 4 | % | 5 | % | |||||||
Gross margin | 276.6 | 210.5 | 31 | % | 33 | % | |||||||
Operating expenses | 226.6 | 233.4 | (3 | )% | (3 | )% | |||||||
Total costs and expenses | 309.6 | 313.3 | (1 | )% | (1 | )% | |||||||
Operating income (loss) | 50.0 | (22.9 | ) | (319 | )% | (288 | )% | ||||||
Non-GAAP operating income (1) | $ | 103.2 | $ | 44.4 | 133 | % | 146 | % | |||||
Operating margin | 13.9 | % | (7.9 | )% | |||||||||
Non-GAAP operating margin (1) | 28.7 | % | 15.3 | % | |||||||||
Diluted earnings (loss) per share | $ | 0.06 | $ | (0.37 | ) | ||||||||
Non-GAAP diluted earnings per share (1) (2) | $ | 0.59 | $ | 0.22 | |||||||||
Cash flow from operations (3) | $ | 87.8 | $ | 141.1 |
(Dollar amounts in millions, except per share data) | Six months ended | ||||||||||||
Percent Change | |||||||||||||
March 28, 2020 | March 30, 2019 | Actual | Constant Currency | ||||||||||
Total recurring revenue | $ | 621.2 | $ | 490.6 | 27 | % | 28 | % | |||||
Perpetual license | 17.2 | 52.1 | (67 | )% | (67 | )% | |||||||
Professional services | 77.3 | 82.4 | (6 | )% | (4 | )% | |||||||
Total revenue | 715.7 | 625.1 | 14 | % | 16 | % | |||||||
Total cost of revenue | 170.4 | 157.3 | 8 | % | 10 | % | |||||||
Gross margin | 545.3 | 467.9 | 17 | % | 18 | % | |||||||
Operating expenses | 464.8 | 460.7 | 1 | % | 1 | % | |||||||
Total costs and expenses | 635.3 | 618.0 | 3 | % | 3 | % | |||||||
Operating income | 80.5 | 7.2 | 1,021 | % | 19,432 | % | |||||||
Non-GAAP operating income (1) | $ | 196.3 | $ | 135.6 | 45 | % | 51 | % | |||||
Operating margin | 11.2 | % | 1.1 | % | |||||||||
Non-GAAP operating margin (1) | 27.4 | % | 21.7 | % | |||||||||
Diluted earnings (loss) per share | $ | 0.37 | $ | (0.19 | ) | ||||||||
Non-GAAP diluted earnings per share (1) (2) | $ | 1.16 | $ | 0.78 | |||||||||
Cash flow from operations (3) | $ | 95.3 | $ | 162.3 |
(1) | Recurring revenue is comprised of subscription, perpetual support, SaaS, and cloud revenue. |
(2) | See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP |
(3) | |
We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the |
(4) | |
Cash flow from operations for the second quarter and first six months of |
(5) | Free cash flow is cash from operations |
Impact of Foreign Currency Exchange on Results of Operations
Approximately 60% of our revenue and 40% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Sheqel,Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Starting in the first quarter of 2020, ourOur constant currency disclosures are calculated by multiplying the results in local currency for the second quarterquarterly and first six months of 2020year-to-date periods for FY’21 and 2019FY’20 by the exchange rates in effect on September 30, 2019, excluding the effect of any hedging.2020. The results of operations in
Revenue
Our revenue results quarter to quarter are impacted by contract terms, including the duration and start dates of our subscription contracts. This is particularly true during the COVID-19 crisis as customerscontracts, due to our up-front recognition of subscription license revenue. We are generally electing one-year contracts given the current macroeconomic uncertainty. This may cause volatility inexpanding our results.
27
Revenue by Line of Business
(Dollar amounts in millions) |
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| Percent Change |
|
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| Percent Change |
| ||||||||||||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency |
| ||||||||
License |
| $ | 198.0 |
|
| $ | 127.6 |
|
|
| 55 | % |
|
| 47 | % |
| $ | 375.2 |
|
| $ | 251.0 |
|
|
| 49 | % |
|
| 43 | % |
Support and cloud services |
|
| 223.8 |
|
|
| 196.5 |
|
|
| 14 | % |
|
| 9 | % |
|
| 440.0 |
|
|
| 387.4 |
|
|
| 14 | % |
|
| 10 | % |
Software revenue |
|
| 421.8 |
|
|
| 324.1 |
|
|
| 30 | % |
|
| 24 | % |
|
| 815.2 |
|
|
| 638.4 |
|
|
| 28 | % |
|
| 23 | % |
Professional services |
|
| 40.0 |
|
|
| 35.5 |
|
|
| 13 | % |
|
| 7 | % |
|
| 75.6 |
|
|
| 77.3 |
|
|
| (2 | )% |
|
| (7 | )% |
Total revenue |
| $ | 461.8 |
|
| $ | 359.6 |
|
|
| 28 | % |
|
| 22 | % |
| $ | 890.8 |
|
| $ | 715.7 |
|
|
| 24 | % |
|
| 20 | % |
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||||||||||||||
Percent Change | Percent Change | ||||||||||||||||||||||||||
March 28, 2020 | March 30, 2019 | Actual | Constant Currency | March 28, 2020 | March 30, 2019 | Actual | Constant Currency | ||||||||||||||||||||
Software revenue | $ | 324.1 | $ | 249.5 | 30 | % | 31 | % | $ | 638.4 | $ | 542.8 | 18 | % | 19 | % | |||||||||||
Professional services | 35.5 | 40.9 | (13 | )% | (11 | )% | 77.3 | 82.4 | (6 | )% | (4 | )% | |||||||||||||||
Total revenue | $ | 359.6 | $ | 290.5 | 24 | % | 25 | % | $ | 715.7 | $ | 625.1 | 14 | % | 16 | % |
Software revenue consists in the second quarter and first six months of subscription, support, and perpetual license revenue. Our subscription revenue includes an immaterial amount of Software as a Service (SaaS) and cloud services. Software revenueFY’21 increased compared to the year-ago periods due to subscription revenue growth, during the quarter and year-to-date periods,partially offset by declinesa decline in perpetual support revenue due to conversions of support contracts to subscriptions. ForLicense revenue growth was primarily driven by contracts with longer durations. Subscription support and cloud services revenue in the second quarter and first six months of 2020FY’21 grew 39% (34% constant currency) and 38% (34% constant currency), respectively, compared to the year agoyear-ago periods, subscription licensewhile perpetual support revenue increased 132%decreased 19% (22% constant currency) and 103%16% (19% constant currency), respectively, in partprimarily due to the fact that we no longer provide an annual cancellation right in new multi-year contracts.
Professional services engagements typically result from sales of new licenses; revenue is recognized over the term of the engagement. Professional services revenue declined in part due to an extension to complete work on a fixed price professional services contract. Our expectation is that professional services revenue will trend flat-to-down over time due to our strategy to expand margins by migrating more services engagements to our partners and delivering products that require less consulting and training services.
Professional services revenue may be further negatively impactedgrowth in Q2’21 compared to Q2’20 is partially due to a Q2’20 revenue reversal related to an extension to complete work on a large fixed price professional services contract in that period, as well as the start of new contracts in Q2’21. In the first six months of FY’21, professional services revenue declined due to challenges with project scoping and implementation activities and performance whiledue to social distancing measures are in place dueand facility closures implemented to COVID-19.
Software Revenue by Product Group
(Dollar amounts in millions) |
| Three months ended |
|
| Percent Change |
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| Percent Change |
| ||||||||||||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency |
| ||||||||
Core (CAD and PLM) |
| $ | 298.8 |
|
| $ | 234.4 |
|
|
| 27 | % |
|
| 21 | % |
| $ | 588.3 |
|
| $ | 460.5 |
|
|
| 28 | % |
|
| 23 | % |
Growth (IoT, AR, Onshape, Arena) |
|
| 70.5 |
|
|
| 43.2 |
|
|
| 63 | % |
|
| 58 | % |
|
| 128.2 |
|
|
| 86.4 |
|
|
| 48 | % |
|
| 44 | % |
FSG (Focused Solutions Group) |
|
| 52.5 |
|
|
| 46.5 |
|
|
| 13 | % |
|
| 9 | % |
|
| 98.7 |
|
|
| 91.5 |
|
|
| 8 | % |
|
| 5 | % |
Software revenue |
| $ | 421.8 |
|
| $ | 324.1 |
|
|
| 30 | % |
|
| 24 | % |
| $ | 815.2 |
|
| $ | 638.4 |
|
|
| 28 | % |
|
| 23 | % |
Software Revenue by Product Group | |||||||||||||||||||||||||||
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||||||||||||||
Percent Change | Percent Change | ||||||||||||||||||||||||||
March 28, 2020 | March 30, 2019 | Actual | Constant Currency | March 28, 2020 | March 30, 2019 | Actual | Constant Currency | ||||||||||||||||||||
Core (CAD and PLM) | $ | 234.4 | $ | 172.5 | 36 | % | 38 | % | $ | 460.5 | $ | 386.1 | 19 | % | 21 | % | |||||||||||
Growth (IoT, AR, Onshape) | 43.2 | 35.4 | 22 | % | 23 | % | 86.4 | 67.3 | 28 | % | 29 | % | |||||||||||||||
FSG (Focused Solutions Group) | 46.5 | 41.5 | 12 | % | 13 | % | 91.5 | 89.4 | 2 | % | 3 | % | |||||||||||||||
Software revenue | $ | 324.1 | $ | 249.5 | 30 | % | 31 | % | $ | 638.4 | $ | 542.8 | 18 | % | 19 | % |
Total Revenue by Product Group (1) | |||||||||||||||||||||||||||
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||||||||||||||
Percent Change | Percent Change | ||||||||||||||||||||||||||
March 28, 2020 | March 30, 2019 | Actual | Constant Currency | March 28, 2020 | March 30, 2019 | Actual | Constant Currency | ||||||||||||||||||||
Core (CAD and PLM) | $ | 252.8 | $ | 198.5 | 27 | % | 29 | % | $ | 504.6 | $ | 438.7 | 15 | % | 17 | % | |||||||||||
Growth (IoT, AR, Onshape) | 53.3 | 41.3 | 29 | % | 31 | % | 106.0 | 79.1 | 34 | % | 35 | % | |||||||||||||||
FSG (Focused Solutions Group) | 53.5 | 50.7 | 6 | % | 7 | % | 105.1 | 107.3 | (2 | )% | (1 | )% | |||||||||||||||
Total revenue | $ | 359.6 | $ | 290.5 | 24 | % | 25 | % | $ | 715.7 | $ | 625.1 | 14 | % | 16 | % |
Core Product
28
Growth Product software revenue increased in the second quarter and first six months of 2019, offset by a decline in support revenueFY’21 compared to the year-ago periods due to conversionssubscription revenue growth of support contracts85% (79% constant currency) and 66% (62% constant currency), respectively. Growth Product ARR increased 64% (61% constant currency) for Q2’21 compared to subscription.Q2’20, due in part to the acquisition of Arena. Organic ARR growth was 29% (27% constant currency), reflecting 22% (20% constant currency) growth in IoT and 63% (60% constant currency) growth in AR, driven in part by significant customer expansions.
FSG Product
software revenue growth in the second quarterSoftware Revenue by Geographic Region
A significant portion of our totalsoftware revenue is generated outside the U.S. In 2019 and in the first six months of 2020,FY’21, approximately 40%45% of totalsoftware revenue was generated in the Americas, 40% in Europe, and 15% in Asia Pacific. In FY’20, approximately 45% of software revenue was generated in the Americas, 35% in Europe, and 20% in Asia Pacific.
(Dollar amounts in millions) |
| Three months ended |
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| Percent Change |
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|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Actual |
|
| Constant Currency |
| ||||||||
Americas |
| $ | 166.3 |
|
| $ | 138.7 |
|
|
| 20 | % |
|
| 20 | % |
| $ | 357.3 |
|
| $ | 280.5 |
|
|
| 27 | % |
|
| 28 | % |
Europe |
|
| 182.7 |
|
|
| 132.2 |
|
|
| 38 | % |
|
| 26 | % |
|
| 327.5 |
|
|
| 247.9 |
|
|
| 32 | % |
|
| 22 | % |
Asia Pacific |
|
| 72.8 |
|
|
| 53.2 |
|
|
| 37 | % |
|
| 29 | % |
|
| 130.4 |
|
|
| 110.0 |
|
|
| 19 | % |
|
| 13 | % |
Software revenue |
| $ | 421.8 |
|
| $ | 324.1 |
|
|
| 30 | % |
|
| 24 | % |
| $ | 815.2 |
|
| $ | 638.4 |
|
|
| 28 | % |
|
| 23 | % |
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||||||||||||||
Percent Change | Percent Change | ||||||||||||||||||||||||||
March 28, 2020 | March 30, 2019 | Actual | Constant Currency | March 28, 2020 | March 30, 2019 | Actual | Constant Currency | ||||||||||||||||||||
Americas | $ | 138.7 | $ | 108.0 | 28 | % | 29 | % | $ | 280.5 | $ | 237.5 | 18 | % | 18 | % | |||||||||||
Europe | 132.2 | 97.3 | 36 | % | 39 | % | 247.9 | 186.7 | 33 | % | 37 | % | |||||||||||||||
Asia Pacific | 53.2 | 44.3 | 20 | % | 22 | % | 110.0 | 118.6 | (7 | )% | (7 | )% | |||||||||||||||
Total software revenue | $ | 324.1 | $ | 249.5 | 30 | % | 31 | % | $ | 638.4 | $ | 542.8 | 18 | % | 19 | % |
Americas software revenue growth in the second quarter and first six months of 2020 FY’21compared to the year-ago periodswas driven by growth in subscription revenue growth of 57%37% (actual and 37%constant currency) and 47% (actual and constant currency), respectively, compared to the second quarter and first six months of 2019, partially offset by a decline in perpetual support revenue, resulting in recurringrevenue. Software revenue growth reflects consistent double-digit growth in Core and Growth products. Americas ARR growth of 31%22% (21% constant currency) was driven by the Arena acquisition, solid performance in Core products, and 19%, respectively,strong results in the second quarterIoT and first six months of 2020 compared to the year ago periods.AR.
Europe software revenue growth in the second quarter and first six months of 2020FY’21 compared to the year-ago periods was driven by growth in subscription revenue of 85% (90%60% (46% constant currency) and 88% (95%52% (40% constant currency), respectively, compared to the second quarter and first six months of 2019, partially offset by a decline in perpetual support revenue, resulting in recurringrevenue. Software revenue growth reflects strong Core products performance. Europe ARR growth of 37%14% (8% constant currency) is consistent with the past several quarters on a constant currency basis and 35%, respectively, reflects strength in AR and IoT.
Asia Pacific software revenue growth in the second quarter and first six months of 2020FY’21 compared to the year ago periods.
29
Table of 2020, compared to the first six months of 2019, revenue declined due to a strong Contents
first quarter of 2019, which benefited from the last-time purchases of perpetual licenses in that quarter associated with the discontinuation of perpetual license sales as of January 1, 2019.
(Dollar amounts in millions) |
| Three months ended |
|
|
|
|
|
| Six months ended |
|
|
|
|
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
| ||||||
License gross margin |
| $ | 183.8 |
|
| $ | 113.7 |
|
|
| 62 | % |
| $ | 347.8 |
|
| $ | 224.0 |
|
|
| 55 | % |
License gross margin percentage |
|
| 93 | % |
|
| 89 | % |
|
|
|
|
|
| 93 | % |
|
| 89 | % |
|
|
|
|
Support and cloud services gross margin |
| $ | 183.8 |
|
| $ | 162.2 |
|
|
| 13 | % |
| $ | 361.7 |
|
| $ | 314.2 |
|
|
| 15 | % |
Support and cloud services gross margin percentage |
|
| 82 | % |
|
| 83 | % |
|
|
|
|
|
| 82 | % |
|
| 81 | % |
|
|
|
|
Professional services gross margin |
| $ | 4.7 |
|
| $ | 0.6 |
|
|
| 643 | % |
| $ | 5.1 |
|
| $ | 7.1 |
|
|
| (28 | )% |
Professional services gross margin percentage |
|
| 12 | % |
|
| 2 | % |
|
|
|
|
|
| 7 | % |
|
| 9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin |
| $ | 372.3 |
|
| $ | 276.6 |
|
|
| 35 | % |
| $ | 714.6 |
|
| $ | 545.3 |
|
|
| 31 | % |
Total gross margin percentage |
|
| 81 | % |
|
| 77 | % |
|
|
|
|
|
| 80 | % |
|
| 76 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP gross margin(1) |
| $ | 384.0 |
|
| $ | 286.5 |
|
|
| 34 | % |
| $ | 736.9 |
|
| $ | 565.0 |
|
|
| 30 | % |
Non-GAAP gross margin percentage(1) |
|
| 83 | % |
|
| 80 | % |
|
|
|
|
|
| 83 | % |
|
| 79 | % |
|
|
|
|
(1) | Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below. |
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Gross margin: | |||||||||||||||
License gross margin | $ | 113.7 | $ | 49.0 | $ | 224.0 | $ | 141.8 | |||||||
License gross margin percentage | 89 | % | 79 | % | 89 | % | 85 | % | |||||||
Support and cloud services gross margin | $ | 162.2 | $ | 154.8 | $ | 314.2 | 311.5 | ||||||||
Support and cloud services gross margin percentage | 83 | % | 82 | % | 81 | % | 83 | % | |||||||
Professional services | 0.6 | 6.8 | 7.1 | 14.6 | |||||||||||
Professional services gross margin percentage | 2 | % | 17 | % | 9 | % | 18 | % | |||||||
Total gross margin | $ | 276.6 | $ | 210.5 | $ | 545.3 | $ | 467.9 | |||||||
Total gross margin percentage | 77 | % | 72 | % | 76 | % | 75 | % | |||||||
Non-GAAP gross margin (1) | $ | 286.5 | $ | 220.6 | $ | 565.0 | $ | 488.0 | |||||||
Non-GAAP gross margin percentage | 80 | % | 76 | % | 79 | % | 78 | % |
License(1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.
Support and cloud services gross margin increased in the second quarter and first six months of 2019 as revenue increased primarily dueFY’21compared to the year-ago periods, reflecting an increase in subscription license revenue. Revenue growth in 2020 wassupport and cloud revenue, partially offset by a related increasedecrease in royalty expenses.
Professional services gross margin increased in Q2’21 compared to Q2’20 due to an increase in revenue and a decrease in travel costs, partially offset by higher compensation costs. Professional services gross margin decreased forin the first six months of 2020FY’21 compared to the first six months of 2019year-ago period primarily due to increases in costs associated with our cloud services business due to increased demand for those services, royalty expenses, and compensation costs, offset by an increase in subscription support revenue.
Operating Expenses
(Dollar amounts in millions) |
| Three months ended |
|
|
|
|
|
| Six months ended |
|
|
|
|
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
| ||||||
Sales and marketing |
| $ | 129.2 |
|
| $ | 107.4 |
|
|
| 20 | % |
| $ | 253.9 |
|
| $ | 215.0 |
|
|
| 18 | % |
% of total revenue |
|
| 28 | % |
|
| 30 | % |
|
|
|
|
|
| 29 | % |
|
| 30 | % |
|
|
|
|
Research and development |
| $ | 72.5 |
|
| $ | 60.0 |
|
|
| 21 | % |
| $ | 143.4 |
|
| $ | 125.3 |
|
|
| 14 | % |
% of total revenue |
|
| 16 | % |
|
| 17 | % |
|
|
|
|
|
| 16 | % |
|
| 18 | % |
|
|
|
|
General and administrative |
| $ | 60.8 |
|
| $ | 33.6 |
|
|
| 81 | % |
| $ | 110.3 |
|
| $ | 78.2 |
|
|
| 41 | % |
% of total revenue |
|
| 13 | % |
|
| 9 | % |
|
|
|
|
|
| 12 | % |
|
| 11 | % |
|
|
|
|
Amortization of acquired intangible assets |
| $ | 7.6 |
|
| $ | 7.3 |
|
|
| 5 | % |
| $ | 14.2 |
|
| $ | 14.1 |
|
|
| 1 | % |
% of total revenue |
|
| 2 | % |
|
| 2 | % |
|
|
|
|
|
| 2 | % |
|
| 2 | % |
|
|
|
|
Restructuring and other charges, net |
| $ | 0.5 |
|
| $ | 18.2 |
|
|
| (97 | )% |
| $ | 0.7 |
|
| $ | 32.3 |
|
|
| (98 | )% |
% of total revenue |
|
| 0 | % |
|
| 5 | % |
|
|
|
|
|
| 0 | % |
|
| 5 | % |
|
|
|
|
Total operating expenses |
| $ | 270.6 |
|
| $ | 226.6 |
|
|
| 19 | % |
| $ | 522.5 |
|
| $ | 464.8 |
|
|
| 12 | % |
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||||||||
March 28, 2020 | March 30, 2019 | Percent Change | March 28, 2020 | March 30, 2019 | Percent Change | ||||||||||||||||
Sales and marketing | $ | 107.4 | $ | 103.7 | 4 | % | $ | 215.0 | $ | 207.9 | 3 | % | |||||||||
% of Total Revenue | 30 | % | 36 | % | 30 | % | 33 | % | |||||||||||||
Research and development | 60.0 | 61.4 | (2 | )% | 125.3 | 122.2 | 3 | % | |||||||||||||
% of Total Revenue | 17 | % | 21 | % | 18 | % | 20 | % | |||||||||||||
General and administrative | 33.6 | 35.4 | (5 | )% | 78.2 | 73.2 | 7 | % | |||||||||||||
% of Total Revenue | 9 | % | 12 | % | 11 | % | 12 | % | |||||||||||||
Amortization of acquired intangible assets | 7.3 | 5.9 | 23 | % | 14.1 | 11.9 | 19 | % | |||||||||||||
% of Total Revenue | 2 | % | 2 | % | 2 | % | 2 | % | |||||||||||||
Restructuring and other charges, net | 18.2 | 27.0 | (32 | )% | 32.3 | 45.5 | (29 | )% | |||||||||||||
% of Total Revenue | 5 | % | 9 | % | 5 | % | 7 | % | |||||||||||||
Total operating expenses | $ | 226.6 | $ | 233.4 | (3 | )% | $ | 464.8 | $ | 460.7 | 1 | % |
Headcount increased 3%9% between March 30, 2019Q2’20 and March 28, 2020.
30
Operating expenses in the second quarter of 2020Q2’21 compared to operating expenses in the second quarter of 2019 decreasedQ2’20 increased primarily due to the following:
• | a $47.8 million increase in compensation expense (including benefit costs), primarily driven by a $22.8 million (130%) increase in stock-based compensation expense, a $12.7 million (13%) increase in salaries due in part to the Arena acquisition, and a $5.6 million increase in bonus expense; |
• | a $10.0 million increase in acquisition-related transaction costs, included in general and administrative; and |
• | a $2.8 million increase in cloud services hosting costs; |
partially offset by:
• | a $17.8 million decrease in restructuring costs; and |
• | a $4.2 million decrease in travel costs due to the COVID-19pandemic. |
Operating expenses in the first six months of 2020FY’21 compared to operating expenses in the first six months of 2019FY’20 increased primarily due to the following:
• | an $82.4 million increase in compensation expense (including benefit costs), primarily driven by a $39.5 million (93%) increase in stock-based compensation expense, a $23.9 million (13%) increase in salaries due in part to the Arena acquisition, and a $6.8 million (185%) increase in bonus expense; |
• | a $6.8 million increase in acquisition-related transaction costs, included in general and administrative; |
• | a $4.6 million increase in cloud services hosting costs; and |
• | $3.8 million of expenses related to our investment in our digital transformation; |
partially offset by:
• | a $31.6 million decrease in restructuring costs; and |
• | a $9.8 million decrease in travel costs due to the COVID-19 pandemic. |
Stock-based compensation was higher in FY’21 compared to FY’20 primarily due to higher estimated attainment under performance-based awards. In addition, an increase in total salestime-based award grants in FY’20 and marketing costs primarily related to a $7.6 million increaseexpected higher stock-based bonus attainment in compensation (including benefit costs and travel expenses) due toFY’21 increased expense. Non-stock based bonus expense was also higher salaries related to higher headcount and higher commissions due to amortization of capitalized commissions under ASC 606,
Interest Expense
(Dollar amounts in millions) |
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| March 31, 2021 |
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| March 28, 2020 |
|
| Percent Change |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
| ||||||
Interest and debt premium expense |
| $ | (12.9 | ) |
| $ | (32.6 | ) |
|
| (60 | )% |
| $ | (24.4 | ) |
| $ | (44.7 | ) |
|
| (45 | )% |
(in millions) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Interest expense | $ | (32.6 | ) | $ | (11.4 | ) | $ | (44.7 | ) | $ | (21.7 | ) |
Interest expense includes interest under our credit facility and senior notes.notes, as well as $15 million of expense recognized in Q2’20 related to penalties for the early redemption of debt. We had $1,648 million$1.5 billion of total debt at March 28, 2020,31, 2021, compared to $743 million$1.6 billion at March 30, 2019, which increased28, 2020. The average interest expense in the period. Additionally, we recognized $15 million of expense inrate on borrowings outstanding was approximately 3.3% and 3.5% during the second quarter and first six months of 2020 related to penalties forFY’21, respectively, and 4.6% and 4.8% during the planned thirdsecond quarter early redemptionand first six months of the 6.000% Senior Notes due in 2024.
31
Other Income (Expense)
(Dollar amounts in millions) |
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| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
| ||||||
Interest income |
| $ | 0.3 |
|
| $ | 1.6 |
|
|
| (81 | )% |
| $ | 0.9 |
|
| $ | 2.5 |
|
|
| (65 | )% |
Other expense, net |
|
| (2.7 | ) |
|
| (3.2 | ) |
|
| (15 | )% |
|
| (4.7 | ) |
|
| (3.4 | ) |
|
| 37 | % |
Other expense, net |
| $ | (2.4 | ) |
| $ | (1.6 | ) |
|
| 48 | % |
| $ | (3.8 | ) |
| $ | (0.9 | ) |
|
| 314 | % |
(in millions) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Interest income | $ | 1.6 | $ | 1.0 | $ | 2.5 | $ | 1.9 | |||||||
Other expense, net | (3.2 | ) | (0.1 | ) | (3.4 | ) | (0.5 | ) | |||||||
Other income (expense), net | $ | (1.6 | ) | $ | 0.8 | $ | (0.9 | ) | $ | 1.5 |
(Dollar amounts in millions) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
Income (loss) before income taxes | $ | 15.8 | $ | (33.4 | ) | $ | 34.8 | $ | (13.0 | ) | |||||
Provision (benefit) from income taxes | $ | 8.6 | $ | 10.1 | (7.8 | ) | 9.5 | ||||||||
Effective income tax rate | 55 | % | (30 | )% | (22 | )% | (73 | )% |
Other expense, net primarily consists of foreign currency losses. In the second quarter and first
six months ofIncome Taxes
(Dollar amounts in millions) |
| Three months ended |
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|
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|
| Six months ended |
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|
|
|
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| Percent Change |
| ||||||
Income before income taxes |
| $ | 86.4 |
|
| $ | 15.8 |
|
|
| 447 | % |
| $ | 163.8 |
|
| $ | 34.8 |
|
|
| 370 | % |
Provision (benefit) for income taxes |
| $ | (22.9 | ) |
| $ | 8.6 |
|
|
| (366 | )% |
| $ | 31.0 |
|
| $ | (7.8 | ) |
|
| (497 | )% |
Effective income tax rate |
|
| (27 | )% |
|
| 55 | % |
|
|
|
|
|
| 19 | % |
|
| (22 | )% |
|
|
|
|
In the second quarter and first six months of FY’21 and FY’20, our effective tax rate differed from the statutory federal income tax rate of 21% due to U.S. tax reform, our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate, and the excess tax benefit related to stock-based compensation and the indirect effects of the adoption of ASC 606. Additionally, in the first
Our results for the six months ended March 27, 2020, the U.S. Federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES ACT”). The CARES Act is an emergency economic stimulus package in response31, 2021 include a charge of $36.1 million related to the coronavirus outbreak, which among other things contains numerous incomeeffects of an unrecognized tax provisions. Whilebenefit in a non-U.S. jurisdiction. See Note 12. Income Taxesto the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information about this charge.
In the second quarter of FY’21, we continue to evaluate the impactreduced our previously established U.S. valuation allowance by $42.3 million as a result of the CARES Act,Arena acquisition. In the first six months of FY’20, we do not currently believe it will havereduced our previously established U.S. valuation allowance by $21.2 million as a material impact on our consolidated financial statements or related disclosures.
Operating Measures
ARR
ARR (Annual Run Rate) ARR represents the annualized value of our portfolio of recurring customer arrangementsactive subscription software, cloud, SaaS, and support contracts as of the end of the reporting period,period. ARR includes orders placed under our Strategic Alliance Agreement with Rockwell Automation, including subscription software, cloud, and support contracts.
We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers, existing customer expansions, and includes the impact of net total churn, which reflects gross churn, offset by the impact of any pricing increases.
Non-GAAP Financial Measures
Our non-GAAP financial measures and the reasons we use them and the reasons we exclude the items identified below are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2019.
32
The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:
• | free cash flow—cash flow from operations |
• | non-GAAP gross margin—GAAP gross margin |
• | non-GAAP operating income—GAAP operating income |
• | non-GAAP operating margin—GAAP operating margin |
• | non-GAAP net income—GAAP net income |
• | non-GAAP diluted earnings or loss per share—GAAP diluted earnings or loss per share |
Free cash flow is cash flow from operations net income—GAAP net income
The non-GAAP financial measures other than free cash flow exclude, as applicable, fair value adjustments related to acquired deferred revenue and deferred costs,applicable: stock-based compensation expense,compensation; amortization of acquired intangible assets,assets; acquisition-related and other transactional charges included in general and administrative expenses,expenses; restructuring and other charges, net, net; certain non-operating charges;and income tax adjustments as definedadjustments. Additional information about the items we exclude from our non-GAAP financial measures and the reasons we exclude them can be found inNon-GAAP Financial Measures on page 25 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020. In the second quarterfirst six months of 2020,FY’21, we also incurred an interest penaltytax expense related to a reserve for a South Korean tax exposure established in the early redemption of the 6.000% Senior Notes due 2024,period which is also excluded from our non-GAAP financial measures as it is related to prior periods and not included in management’s view of Q2’21 results for comparative purposes. In Q2’21, we incurred a significant non-ordinary course charge.
The items excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses non-GAAP financial measures in conjunction with our GAAP results, as should investors.
The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.
33
(in millions, except per share amounts) |
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
GAAP gross margin |
| $ | 372.3 |
|
| $ | 276.6 |
|
| $ | 714.6 |
|
| $ | 545.3 |
|
Stock-based compensation |
|
| 4.5 |
|
|
| 3.0 |
|
|
| 8.9 |
|
|
| 6.0 |
|
Amortization of acquired intangible assets included in cost of revenue |
|
| 7.1 |
|
|
| 6.9 |
|
|
| 13.4 |
|
|
| 13.7 |
|
Non-GAAP gross margin |
| $ | 384.0 |
|
| $ | 286.5 |
|
| $ | 736.9 |
| �� | $ | 565.0 |
|
GAAP operating income |
| $ | 101.7 |
|
| $ | 50.0 |
|
| $ | 192.0 |
|
| $ | 80.5 |
|
Stock-based compensation |
|
| 44.7 |
|
|
| 20.5 |
|
|
| 90.8 |
|
|
| 48.4 |
|
Amortization of acquired intangible assets |
|
| 14.8 |
|
|
| 14.2 |
|
|
| 27.6 |
|
|
| 27.7 |
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
| 10.3 |
|
|
| 0.3 |
|
|
| 14.2 |
|
|
| 7.4 |
|
Restructuring and other charges, net |
|
| 0.5 |
|
|
| 18.2 |
|
|
| 0.7 |
|
|
| 32.3 |
|
Non-GAAP operating income |
| $ | 172.0 |
|
| $ | 103.2 |
|
| $ | 325.4 |
|
| $ | 196.3 |
|
GAAP net income |
| $ | 109.3 |
|
| $ | 7.2 |
|
| $ | 132.8 |
|
| $ | 42.6 |
|
Stock-based compensation |
|
| 44.7 |
|
|
| 20.5 |
|
|
| 90.8 |
|
|
| 48.4 |
|
Amortization of acquired intangible assets |
|
| 14.8 |
|
|
| 14.2 |
|
|
| 27.6 |
|
|
| 27.7 |
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
| 10.3 |
|
|
| 0.3 |
|
|
| 14.2 |
|
|
| 7.4 |
|
Restructuring and other charges, net |
|
| 0.5 |
|
|
| 18.2 |
|
|
| 0.7 |
|
|
| 32.3 |
|
Non-operating charges(1) |
|
| — |
|
|
| 15.0 |
|
|
| — |
|
|
| 15.0 |
|
Income tax adjustments(2) |
|
| (51.7 | ) |
|
| (6.9 | ) |
|
| (24.6 | ) |
|
| (38.8 | ) |
Non-GAAP net income |
| $ | 127.8 |
|
| $ | 68.5 |
|
| $ | 241.6 |
|
| $ | 134.6 |
|
GAAP diluted earnings per share |
| $ | 0.92 |
|
| $ | 0.06 |
|
| $ | 1.13 |
|
| $ | 0.37 |
|
Stock-based compensation |
|
| 0.38 |
|
|
| 0.18 |
|
|
| 0.77 |
|
|
| 0.42 |
|
Amortization of acquired intangible assets |
|
| 0.12 |
|
|
| 0.12 |
|
|
| 0.23 |
|
|
| 0.24 |
|
Acquisition-related and other transactional charges included in general and administrative expenses |
|
| 0.09 |
|
|
| — |
|
|
| 0.12 |
|
|
| 0.06 |
|
Restructuring and other charges, net |
|
| — |
|
|
| 0.16 |
|
|
| 0.01 |
|
|
| 0.28 |
|
Non-operating charges(1) |
|
| — |
|
|
| 0.13 |
|
|
| — |
|
|
| 0.13 |
|
Income tax adjustments(2) |
|
| (0.44 | ) |
|
| (0.06 | ) |
|
| (0.21 | ) |
|
| (0.34 | ) |
Non-GAAP diluted earnings per share |
| $ | 1.08 |
|
| $ | 0.59 |
|
| $ | 2.05 |
|
| $ | 1.16 |
|
(in millions, except per share amounts) | Three months ended | Six months ended | |||||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||||||
GAAP revenue | $ | 359.6 | $ | 290.5 | $ | 715.7 | $ | 625.1 | |||||||
Fair value of acquired deferred revenue | — | 0.2 | — | 0.5 | |||||||||||
Non-GAAP revenue | $ | 359.6 | $ | 290.7 | $ | 715.7 | $ | 625.6 | |||||||
GAAP gross margin | $ | 276.6 | $ | 210.5 | $ | 545.3 | $ | 467.9 | |||||||
Fair value of acquired deferred revenue | — | 0.2 | — | 0.5 | |||||||||||
Fair value of acquired deferred costs | — | (0.1 | ) | — | (0.2 | ) | |||||||||
Stock-based compensation | 3.0 | 3.1 | 6.0 | 6.2 | |||||||||||
Amortization of acquired intangible assets included in cost of revenue | 6.9 | 6.8 | 13.7 | 13.6 | |||||||||||
Non-GAAP gross margin | $ | 286.5 | $ | 220.6 | $ | 565.0 | $ | 488.0 | |||||||
GAAP operating income (loss) | $ | 50.0 | $ | (22.9 | ) | $ | 80.5 | $ | 7.2 | ||||||
Fair value of acquired deferred revenue | — | 0.2 | — | 0.5 | |||||||||||
Fair value of acquired deferred costs | — | (0.1 | ) | — | (0.2 | ) | |||||||||
Stock-based compensation | 20.5 | 27.0 | 48.4 | 56.4 | |||||||||||
Amortization of acquired intangible assets included in cost of revenue | 6.9 | 6.8 | 13.7 | 13.6 | |||||||||||
Amortization of acquired intangible assets | 7.3 | 5.9 | 14.0 | 11.9 | |||||||||||
Acquisition-related and other transactional charges included in general and administrative expenses | 0.3 | 0.4 | 7.4 | 0.8 | |||||||||||
Restructuring and other charges, net | 18.2 | 27.0 | 32.3 | 45.5 | |||||||||||
Non-GAAP operating income | $ | 103.2 | $ | 44.4 | $ | 196.3 | $ | 135.6 | |||||||
GAAP net income (loss) | $ | 7.2 | $ | (43.5 | ) | $ | 42.6 | $ | (22.5 | ) | |||||
Fair value of acquired deferred revenue | — | 0.2 | — | 0.5 | |||||||||||
Fair value of acquired deferred costs | — | (0.1 | ) | — | (0.2 | ) | |||||||||
Stock-based compensation | 20.5 | 27.0 | 48.4 | 56.4 | |||||||||||
Amortization of acquired intangible assets included in cost of revenue | 6.9 | 6.8 | 13.7 | 13.6 | |||||||||||
Amortization of acquired intangible assets | 7.3 | 5.9 | 14.0 | 11.9 | |||||||||||
Acquisition-related and other transactional charges included in general and administrative expenses | 0.3 | 0.4 | 7.4 | 0.8 | |||||||||||
Restructuring and other charges, net | 18.2 | 27.0 | 32.3 | 45.5 | |||||||||||
Debt early redemption premium | 15.0 | — | 15.0 | — | |||||||||||
Income tax adjustments (1) | (6.9 | ) | 2.1 | (38.8 | ) | (12.7 | ) | ||||||||
Non-GAAP net income | $ | 68.5 | $ | 25.8 | $ | 134.6 | $ | 93.1 | |||||||
GAAP diluted earnings (loss) per share | $ | 0.06 | $ | (0.37 | ) | $ | 0.37 | $ | (0.19 | ) | |||||
Stock-based compensation | 0.18 | 0.23 | 0.42 | 0.47 | |||||||||||
Amortization of acquired intangible assets | 0.12 | 0.11 | 0.24 | 0.21 | |||||||||||
Acquisition-related and other transactional charges included in general and administrative expenses | — | — | 0.06 | 0.01 | |||||||||||
Restructuring and other charges, net | 0.16 | 0.22 | 0.28 | 0.38 | |||||||||||
Debt early redemption premium | 0.13 | — | 0.13 | — | |||||||||||
Income tax adjustments (1) | (0.06 | ) | 0.02 | (0.34 | ) | (0.11 | ) | ||||||||
Non-GAAP diluted earnings per share | $ | 0.59 | $ | 0.22 | $ | 1.16 | $ | 0.78 |
(1) | We recognized $15 million of expense in Q2’20 related to penalties for the early redemption of the 6.000% Senior Notes due in 2024. |
(2) | We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the |
Operating margin impact of non-GAAP adjustments:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| March 31, 2021 |
|
| March 28, 2020 |
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||||
GAAP operating margin |
|
| 22.0 | % |
|
| 13.9 | % |
|
| 21.6 | % |
|
| 11.2 | % |
Stock-based compensation |
|
| 9.7 | % |
|
| 5.7 | % |
|
| 10.2 | % |
|
| 6.8 | % |
Amortization of acquired intangible assets |
|
| 3.2 | % |
|
| 3.9 | % |
|
| 3.1 | % |
|
| 3.9 | % |
Acquisition-related and other transactional charges included in general and administrative expenses |
|
| 2.2 | % |
|
| 0.1 | % |
|
| 1.6 | % |
|
| 1.0 | % |
Restructuring and other charges, net |
|
| 0.1 | % |
|
| 5.1 | % |
|
| 0.1 | % |
|
| 4.5 | % |
Non-GAAP operating margin |
|
| 37.2 | % |
|
| 28.7 | % |
|
| 36.5 | % |
|
| 27.4 | % |
Three months ended | Six months ended | ||||||||||
March 28, 2020 | March 30, 2019 | March 28, 2020 | March 30, 2019 | ||||||||
GAAP operating margin | 13.9 | % | (7.9 | )% | 11.2 | % | 1.1 | % | |||
Fair value of acquired deferred revenue | — | % | 0.1 | % | — | % | 0.1 | % | |||
Stock-based compensation | 5.7 | % | 9.3 | % | 6.8 | % | 9.0 | % | |||
Amortization of acquired intangible assets | 3.9 | % | 4.4 | % | 3.9 | % | 4.1 | % | |||
Acquisition-related and other transactional charges included in general and administrative expenses | 0.1 | % | 0.1 | % | 1.2 | % | 0.1 | % | |||
Restructuring and other charges, net | 5.1 | % | 9.3 | % | 4.5 | % | 7.3 | % | |||
Non-GAAP operating margin | 28.7 | % | 15.3 | % | 27.4 | % | 21.7 | % |
Critical Accounting Policies and Estimates
The financial information included in Item 1 reflects no material changes in our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimates in Part II,
34
Item 7: 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 20192020 Annual Report on Form 10-K.
Recent Accounting Pronouncements
In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to
Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accountingLiquidity and Capital Resources
(in millions) |
| March 31, 2021 |
|
| September 30, 2020 |
| ||
Cash and cash equivalents |
| $ | 326.1 |
|
| $ | 275.5 |
|
Restricted cash |
|
| 0.5 |
|
|
| 0.5 |
|
Short- and long-term marketable securities |
|
| — |
|
|
| 59.1 |
|
Total |
| $ | 326.6 |
|
| $ | 335.1 |
|
|
|
|
|
|
|
|
|
|
(in millions) |
| Six months ended |
| |||||
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||
Net cash provided by operating activities |
| $ | 235.5 |
|
| $ | 95.3 |
|
Net cash used in investing activities |
| $ | (670.3 | ) |
| $ | (476.7 | ) |
Net cash provided by financing activities |
| $ | 485.0 |
|
| $ | 944.1 |
|
(in thousands) | March 28, 2020 | March 30, 2019 | |||||
Cash and cash equivalents (1) | $ | 826,776 | $ | 294,299 | |||
Restricted cash | 902 | 1,133 | |||||
Short- and long-term marketable securities | 56,941 | 56,415 | |||||
Total | $ | 884,619 | $ | 351,847 | |||
(in thousands) | Six months ended | ||||||
March 28, 2020 | March 30, 2019 | ||||||
Cash provided by operating activities | $ | 95,329 | $ | 162,344 | |||
Cash used by investing activities | (476,743 | ) | (128,340 | ) | |||
Cash provided (used) by financing activities | 944,143 | (1,902 | ) |
Cash, cash equivalentsCash Equivalents and restricted cash
We invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds.institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. In addition,December 2020, we hold investments insold all our marketable securities totaling approximately $57 million with an average maturity of 11 months.securities. At March 28, 2020,31, 2021, cash and cash equivalents totaled $827$326 million, compared to $270$275 million at September 30, 2019
A significant portion of our cash is generated and held outside the U.S. As of March 28, 2020,31, 2021, we had cash and cash equivalents of $574$44 million in the U.S., $132$141 million in Europe, $93$109 million in Asia Pacific (including India), and $28$32 million in other non-U.S. countries. All the marketable securities are held in Europe. We have substantial cash requirements in the United States,U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, after use of $530 million to redeem the aggregate principal amount of 6.000% Senior Notes due 2024 on May 15, 2020 (such redemption to include $500 million in principal plus $30 million, which includes interest and an early redemption premium), marketable securities, our ability to repatriate cash to the U.S. more cost effectively with the recent U.S. tax law changes, future U.S. operating cash flows, and cash available under our credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.
Cash providedProvided by operating activities
Cash provided by operating activities was $235 million in the first six months of FY’21, compared to $95 million in the first
six months ofCash Used in part to lower accounts receivable collections particularlyInvesting Activities
(in millions) |
| Six months ended |
| |||||
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||
Additions to property and equipment |
| $ | (8.2 | ) |
| $ | (10.2 | ) |
Proceeds from (purchases of) short- and long-term marketable securities, net |
|
| 58.5 |
|
|
| (0.2 | ) |
Acquisitions of businesses, net of cash acquired |
|
| (717.2 | ) |
|
| (468.5 | ) |
Other |
|
| (3.4 | ) |
|
| 2.2 |
|
Net cash used in investing activities |
| $ | (670.3 | ) |
| $ | (476.7 | ) |
35
Cash used in Asia Pacific in the second quarter of 2020 compared to the second quarter of 2019 due to the last-time perpetual license sales in the first quarter of 2019 in that region. In addition,investing activities in the first six months of 2019, we received tenant reimbursements related to our new Seaport headquarters.FY’21 reflects approximately $715 million used for the Arena acquisition and
Cash Provided by Financing Activities
(in millions) |
| Six months ended |
| |||||
|
| March 31, 2021 |
|
| March 28, 2020 |
| ||
Borrowings on debt, net |
| $ | 502.0 |
|
| $ | 975.0 |
|
Proceeds from issuance of common stock |
|
| 10.5 |
|
|
| 9.0 |
|
Debt issuance costs |
|
| — |
|
|
| (16.3 | ) |
Payments of withholding taxes in connection with stock-based awards |
|
| (27.2 | ) |
|
| (23.6 | ) |
Other |
|
| (0.3 | ) |
|
| — |
|
Net cash provided by financing activities |
| $ | 485.0 |
|
| $ | 944.1 |
|
Cash provided by financing activities in the first six months of 2020,FY’21 reflects net borrowings of $502 million under our credit facility, compared to $70net borrowings of $975 million used for the Frustum acquisition in the first six months of 2019. Capital expenditures were approximately $41 million higher for the first six months of 2019 comparedFY’20, primarily related to the first six monthsissuance of 2020,the 4.000% Senior Notes due to construction expenses for our new worldwide headquarters2028 and 3.625% Senior Notes due 2025 in the Boston Seaport District in 2019.
Outstanding Debt
(in millions) |
| March 31, 2021 |
| |
4.000% Senior notes due 2028 |
| $ | 500.0 |
|
3.625% Senior notes due 2025 |
|
| 500.0 |
|
Credit facility revolver |
|
| 520.0 |
|
Total debt |
| $ | 1,520.0 |
|
Unamortized debt issuance costs for the senior notes |
|
| (11.6 | ) |
Total debt, net of issuance costs |
| $ | 1,508.4 |
|
|
|
|
|
|
Undrawn under credit facility revolver |
| $ | 480.0 |
|
Undrawn under credit facility revolver available to borrow |
| $ | 463.7 |
|
As of March 28, 2020, we had:
(in millions) | March 28, 2020 | ||
4.000% Senior notes due 2028 | $ | 500.0 | |
3.625% Senior notes due 2025 | 500.0 | ||
6.000% Senior notes due 2024 | 500.0 | ||
Credit facility revolver | 148.1 | ||
Total debt | 1,648.1 | ||
Unamortized debt issuance costs for the Senior notes | (17.4 | ) | |
Total debt, net of issuance costs | $ | 1,630.7 | |
Undrawn under credit facility revolver | $ | 835.7 | |
Undrawn under credit facility revolver available for borrowing | $ | 393.1 |
Our credit facility and our Senior Notes due 2024, 2025, and 2028senior notes are described in
Future Expectations
We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under theour credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which capital expenditures we expect to be approximately $22an additional $15 million in 2020)FY’21) through at least the next twelve months and to meet our known long-term capital requirements.
In January 2021, we acquired Arena Solutions for approximately $715 million, net of cash acquired. In connection with the acquisition, we borrowed $600 million under our existing credit facility. We have suspended ourplan to use available cash from operations to pay down borrowings under the credit facility. We intend to continue targeting a leverage ratio (Debt/EBITDA) of below 3x and will assess share repurchase program for FY20.
Our expected uses and sources of cash could change, customerspayments due to us may delay payments to usbe delayed due to the COVID-19 pandemic, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, to engage in strategic transactions or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions
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and other factors. We also evaluate possible strategic transactions on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible strategic transactions. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no significant changes in our market risk exposure as described in Item 7A: 7A. Quantitative and Qualitative Disclosures about Market Risk of our 20192020 Annual Report on Form 10-K.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Effectiveness of Disclosure Controls and Procedures
Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.
We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 28, 2020.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a or 15(d) of the Exchange Act that occurred during the period ended March 28, 202031, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Information on legal proceedings can be found in Note 15. Commitments and Contingencies – Legal Proceedings – 401(k) Plan of Notes to Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.
ITEM 1A. | RISK FACTORS |
In addition to other information set forth in this report, and below, you should carefully consider the risk factors described in Part I. Item 1A. Risk Factors in our 20192020 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
ITEM 6. | EXHIBITS |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
4.3 | ||
31.1 | ||
31.2 | ||
32* | ||
101 | The following materials from PTC Inc.'s Quarterly Report on Form 10-Q for the quarter ended March | |
104 | The cover page of the |
* | |
Indicates that the exhibit is being furnished, not filed, with this report. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PTC Inc. | ||||
By: | /S/ KRISTIAN TALVITIE | |||
Kristian Talvitie Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: May 6, 2020
39