PTC(PTC) - 2024 Q3 - Quarterly Report

Part I—FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements This section presents PTC Inc.'s unaudited condensed consolidated financial statements as of June 30, 2024, including balance sheets, statements of operations, comprehensive income, cash flows, and stockholders' equity, along with related notes Consolidated Balance Sheets As of June 30, 2024, total assets and liabilities decreased, while total stockholders' equity increased, with a significant rise in current portion of long-term debt and settlement of deferred acquisition consideration | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | | :----------------------- | :--------------------- | :--------------------- | | Total Assets | 6,128,145 | 6,288,842 | | Total Liabilities | 3,113,466 | 3,611,552 | | Total Stockholders' Equity | 3,014,679 | 2,677,290 | | Current Portion of Long-Term Debt | 518,071 | 9,375 | | Deferred Acquisition Consideration | — | 620,040 | Consolidated Statements of Operations For the three months ended June 30, 2024, total revenue and operating income decreased year-over-year, but net income and diluted EPS increased; for the nine months, all metrics showed growth | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | 518,639 | 542,342 | 1,671,925 | 1,550,433 | | Gross Margin | 406,723 | 426,488 | 1,339,934 | 1,225,283 | | Operating Income | 95,821 | 109,900 | 394,089 | 337,340 | | Net Income | 68,978 | 61,398 | 249,810 | 199,937 | | Diluted Earnings Per Share | 0.57 | 0.51 | 2.07 | 1.68 | Consolidated Statements of Comprehensive Income For the three months ended June 30, 2024, comprehensive income slightly decreased, primarily due to hedging losses and foreign currency translation adjustments; for the nine months, it also slightly decreased due to a significant reduction in other comprehensive income (loss) | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net Income | 68,978 | 61,398 | 249,810 | 199,937 | | Other Comprehensive Income (Loss) | (6,940) | 860 | (2,143) | 55,820 | | Comprehensive Income | 62,038 | 62,258 | 247,667 | 255,757 | Consolidated Statements of Cash Flows For the nine months ended June 30, 2024, operating cash flow significantly increased, investing cash flow substantially decreased, and financing cash flow shifted from net inflow to net outflow, resulting in a decrease in cash and cash equivalents | Metric | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | 651,870 | 561,092 | | Net Cash Used in Investing Activities | (99,472) | (866,138) | | Net Cash Provided by (Used in) Financing Activities | (590,871) | 307,531 | | Net Change in Cash and Cash Equivalents | (40,476) | 9,320 | | Cash and Cash Equivalents at End of Period | 248,322 | 282,208 | Consolidated Statements of Stockholders' Equity As of June 30, 2024, the company's total stockholders' equity increased compared to September 30, 2023, primarily driven by net income and employee stock-based compensation plans | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | | :------------------- | :--------------------- | :--------------------- | | Total Stockholders' Equity | 3,014,679 | 2,677,290 | | Retained Earnings | 1,223,087 | 973,277 | | Additional Paid-in Capital | 1,910,615 | 1,820,905 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the financial statements, covering key areas such as basis of presentation, revenue recognition, stock-based compensation, acquisitions, goodwill and intangible assets, fair value measurements, derivative financial instruments, income taxes, debt, and commitments and contingencies 1. Basis of Presentation These condensed consolidated financial statements are unaudited, prepared in accordance with U.S. GAAP and SEC regulations, and should be read in conjunction with the company's 2023 fiscal year Form 10-K annual report - The company expects ASU 2023-09 (improved income tax disclosures) to be effective in 2026 and ASU 2023-07 (improved reportable segment disclosures) in 2025, both anticipated to result only in disclosure changes[17] 2. Revenue from Contracts with Customers As of June 30, 2024, the company's net accounts receivable and deferred revenue both decreased, with total remaining performance obligations of $2.07 billion, approximately 59% expected to be recognized within 12 months | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | | :----------------------- | :--------------------- | :--------------------- | | Net Accounts Receivable | 674,959 | 811,398 | | Deferred Revenue | 671,209 | 665,362 | | Short-Term and Long-Term Accounts Receivable | 840,382 | 997,490 | | Contract Assets | 13,443 | 16,465 | | Deferred Revenue (Total) | 687,614 | 681,550 | - As of June 30, 2024, the company's total remaining performance obligations were $2.07 billion, with approximately 59% expected to be recognized within the next 12 months and 26% within the next 13 to 24 months[21] | Revenue Type | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Recurring Revenue | 481,559 | 498,410 | 1,551,600 | 1,407,662 | | Perpetual Licenses | 7,050 | 8,251 | 22,243 | 30,417 | | Professional Services | 30,030 | 35,681 | 98,082 | 112,354 | | Total Revenue | 518,639 | 542,342 | 1,671,925 | 1,550,433 | | Americas Revenue | 253,592 | 278,329 | 781,480 | 761,617 | | Europe Revenue | 170,617 | 173,559 | 624,884 | 549,835 | | Asia Pacific Revenue | 94,430 | 90,454 | 265,561 | 238,981 | 3. Stock-based Compensation As of June 30, 2024, the value of shares issued upon vesting of restricted stock units (RSUs) increased year-over-year, while stock-based compensation expense decreased in the third quarter but increased for the nine months | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Shares Issued Upon Vesting of RSUs | 88,803 | 79,129 | 283,975 | 235,430 | | Total Stock-Based Compensation Expense | 48,038 | 53,818 | 161,242 | 147,568 | 4. Earnings per Share (EPS) and Common Stock As of June 30, 2024, the company's basic and diluted earnings per share both increased year-over-year for both the third quarter and the nine months | Metric | June 30, 2024 (3 months) | June 30, 2023 (3 months) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | | :------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Basic EPS | $0.58 | $0.52 | $2.09 | $1.69 | | Diluted EPS | $0.57 | $0.51 | $2.07 | $1.68 | | Diluted Weighted-Average Shares | 120,822 | 119,392 | 120,593 | 119,072 | 5. Acquisitions The company acquired pure-systems GmbH for $93.5 million in Q1 FY2024 to expand its ALM offerings, and paid the remaining $650 million deferred acquisition consideration for ServiceMax, Inc. in October 2023 - On October 4, 2023, the company acquired pure-systems GmbH for $93.5 million (net of cash acquired), a leading provider of product and software variant management solutions, to expand its ALM offerings[28][31] - On January 3, 2023, the company acquired ServiceMax, Inc. for $1.4482 billion (net of cash acquired), a provider of cloud-native, product-centric field service management (FSM) software; the remaining $650 million deferred acquisition consideration was paid in October 2023[32] | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Acquisition and Transaction-Related Costs | 200 | 800 | 3,000 | 18,500 | 6. Goodwill and Intangible Assets The annual goodwill impairment test in Q3 FY2024 found no impairment, while total goodwill increased due to acquisitions and foreign currency adjustments, and net acquired intangible assets slightly decreased - The annual goodwill impairment test was completed in Q3 FY2024, concluding no impairment[36] | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | | :----------------------- | :--------------------- | :--------------------- | | Goodwill | 3,442,245 | 3,358,511 | | Net Acquired Intangible Assets | 910,505 | 941,249 | | Goodwill Increase from Acquisitions | 77,118 | N/A | | Goodwill Increase from Foreign Currency Translation Adjustments | 6,616 | N/A | | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total Amortization Expense | 20,357 | 20,511 | 60,294 | 55,169 | 7. Fair Value Measurements The fair value measurements of the company's financial assets and liabilities are primarily concentrated in Level 1 (cash equivalents) and Level 2 (forward contracts), with a $2 million impairment loss recognized on a Level 3 convertible note investment | Metric | June 30, 2024 (in thousands) | | :------------------- | :--------------------- | | Financial Assets: | | | Cash Equivalents (Level 1) | 41,103 | | Forward Contracts (Level 2) | 181 | | Financial Liabilities: | | | Forward Contracts (Level 2) | 2,103 | - For the nine months ended June 30, 2024, the company recognized an impairment loss of $2 million on a Level 3 convertible note investment, recorded in other income (expense), net[41] 8. Derivative Financial Instruments The company uses forward foreign exchange contracts to manage currency risk, not for trading, with a slight decrease in outstanding notional amounts for non-designated hedges and an increase for net investment hedges - The company uses forward foreign exchange contracts to manage foreign currency risk, not for trading or speculative purposes[42] | Currency Hedge (in thousands) | June 30, 2024 | September 30, 2023 | | :-------------------- | :------------ | :------------ | | Total Non-Designated Hedges | 514,850 | 523,636 | | Euro/USD | 396,345 | 383,227 | | Total Net Investment Hedges | 439,011 | 348,208 | | Euro/USD | 429,516 | 337,923 | | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net Loss on Non-Designated Hedges | (1,590) | (1,006) | (6,611) | (13,437) | | Gain (Loss) Recognized in OCI on Net Investment Hedges | 3,047 | (695) | (3,705) | (18,663) | 9. Income Taxes For the three and nine months ended June 30, 2024, the effective income tax rate was lower than the prior year, primarily due to changes in the geographic mix of pre-tax income and non-cash impacts from IRS procedural guidance | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Income Before Income Taxes | 67,373 | 76,526 | 298,717 | 244,019 | | Provision for Income Taxes (Benefit) | (1,605) | 15,128 | 48,907 | 44,082 | | Effective Income Tax Rate | (2)% | 20% | 16% | 18% | - The decrease in the effective tax rate is primarily attributable to changes in the geographic mix of pre-tax income and non-cash impacts from IRS procedural guidance, which increased estimated tax benefits for GILTI and FDII deductions; for the nine months ended June 30, 2024, this impact was partially offset by a $3.6 million tax reserve charge in a foreign jurisdiction[54] 10. Debt As of June 30, 2024, total debt (net of issuance costs) increased, with $518.1 million classified as current, primarily including $500 million of senior unsecured notes due in 2025 | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | | :----------------------- | :--------------------- | :--------------------- | | Total Debt (Net of Issuance Costs) | 1,811,154 | 1,695,785 | | 4.000% Senior Notes (due 2028) | 500,000 | 500,000 | | 3.625% Senior Notes (due 2025) | 500,000 | 500,000 | | Credit Facility Revolving Credit | 322,000 | 202,000 | | Credit Facility Term Loan | 493,750 | 500,000 | | Current Debt | 518,100 | 9,400 | - As of June 30, 2024, the company was in compliance with all covenants under its senior notes and credit facility[57][58][59] - The credit facility had $928 million of unused commitments and $912.1 million available for borrowing as of June 30, 2024[57][58][59] | Metric | June 30, 2024 (3 months) (in thousands) | June 30, 2023 (3 months) (in thousands) | June 30, 2024 (9 months) (in thousands) | June 30, 2023 (9 months) (in thousands) | | :----------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Interest and Debt Premium Expense | (27,785) | (35,836) | (94,705) | (93,719) | | Average Borrowing Rate | 5.3% | 5.2% | 5.5% | 4.8% | 11. Commitments and Contingencies The company enters into standard indemnification agreements and provides warranties for its software products and consulting services, with historical costs for these obligations being insignificant - The company enters into standard indemnification agreements with customers and business partners, covering intellectual property infringement and data breach claims, typically with limitations on liability, and historical costs have been insignificant[61] - The company provides performance warranties for its software products and consulting services, generally with liability caps, and historical costs have not been significant[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results as of June 30, 2024, highlighting ARR and free cash flow growth despite a soft demand environment, and stable liquidity Business Overview PTC Inc. is a global software company providing innovative digital solutions for engineering, manufacturing, and servicing physical products, with a portfolio including CAD and PLM solutions delivered on-premise, cloud, or hybrid - PTC Inc. provides digital solutions for engineering, manufacturing, and servicing physical products, with core offerings including CAD (product data creation) and PLM (product data management and process coordination) solutions[64] - The company's software supports on-premise, cloud, or hybrid deployment models, serving customers across aerospace, automotive, electronics, industrial machinery, life sciences, retail, and consumer products industries[64] - Revenue sources include subscriptions (on-premise software licenses and support, SaaS, hosted services), perpetual licenses, perpetual license support, and professional services[65] Executive Overview Despite a soft demand environment, the company's ARR grew 10% (12% constant currency) to $2.13 billion in Q3 FY2024, with operating and free cash flow increasing by 26% and 29% respectively | Metric | June 30, 2024 (Q3'24) (in millions) | June 30, 2023 (Q3'23) (in millions) | Year-over-Year Change (Actual) | Year-over-Year Change (Constant Currency) | | :----------------------- | :-------------------- | :-------------------- | :-------------- | :------------------ | | ARR | 2,130.0 | 1,928.7 | 10% | 12% | | Operating Cash Flow | 214 | 169.2 | 26% | N/A | | Free Cash Flow | 212 | 164.1 | 29% | N/A | | Total Revenue | 519 | 542.3 | (4)% | (3)% | | Diluted EPS | $0.57 | $0.51 | 11% | N/A | - The Q3 revenue decline was primarily due to shorter contract durations for on-premise subscription licenses and an increased proportion of SaaS contracts recognized on a ratable basis[69] Results of Operations This section provides a detailed analysis of the company's operating performance for Q3 and the nine months of FY2024, covering revenue, gross margin, operating expenses, interest, and income taxes Impact of Foreign Currency Exchange on Results of Operations Approximately 50% of the company's revenue and 35% of its expenses are denominated in non-U.S. dollar currencies, making reported results susceptible to exchange rate fluctuations - Approximately 50% of the company's revenue and 35% of its expenses are denominated in non-U.S. dollar currencies, making reported results susceptible to exchange rate fluctuations, particularly for the Euro, Japanese Yen, Shekel, and Rupee against the U.S. Dollar[72] - Constant currency disclosures are calculated by translating local currency results for the fiscal 2024 and 2023 quarterly periods using the September 30, 2023, exchange rates[72] Revenue Software revenue decreased 4% year-over-year in Q3 due to reduced license revenue, but grew 9% for the nine months, driven by PLM and CAD, while professional services revenue continued to decline | Revenue Type (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | Year-over-Year Change (Actual) | Year-over-Year Change (Constant Currency) | | :-------------------- | :-------------------- | :-------------------- | :-------------- | :------------------ | | License Revenue | 149.1 | 192.9 | (23)% | (21)% | | Support and Cloud Services Revenue | 339.5 | 313.7 | 8% | 9% | | Software Revenue | 488.6 | 506.7 | (4)% | (2)% | | Professional Services Revenue | 30.0 | 35.7 | (16)% | (15)% | | Total Revenue | 518.6 | 542.3 | (4)% | (3)% | | Revenue Type (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | Year-over-Year Change (Actual) | Year-over-Year Change (Constant Currency) | | :-------------------- | :-------------------- | :-------------------- | :-------------- | :------------------ | | License Revenue | 567.4 | 562.6 | 1% | 0% | | Support and Cloud Services Revenue | 1,006.4 | 875.4 | 15% | 15% | | Software Revenue | 1,573.8 | 1,438.1 | 9% | 9% | | Professional Services Revenue | 98.1 | 112.4 | (13)% | (13)% | | Total Revenue | 1,671.9 | 1,550.4 | 8% | 8% | | Product Group Software Revenue (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | Year-over-Year Change (Actual) | Year-over-Year Change (Constant Currency) | | :-------------------------- | :-------------------- | :-------------------- | :-------------- | :------------------ | | PLM | 300.3 | 314.4 | (4)% | (4)% | | CAD | 188.3 | 192.3 | (2)% | 0% | | Software Revenue | 488.6 | 506.7 | (4)% | (2)% | | Product Group Software Revenue (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | Year-over-Year Change (Actual) | Year-over-Year Change (Constant Currency) | | :-------------------------- | :-------------------- | :-------------------- | :-------------- | :------------------ | | PLM | 958.6 | 864.4 | 11% | 10% | | CAD | 615.2 | 573.7 | 7% | 7% | | Software Revenue | 1,573.8 | 1,438.1 | 9% | 9% | - PLM ARR grew 12% (or 13% at constant currency) from Q3 FY2023 to Q3 FY2024[78] - CAD ARR grew 8% (or 10% at constant currency) from Q3 FY2023 to Q3 FY2024[78] Gross Margin Total gross margin decreased 5% in Q3 but increased 9% for the nine months, with variations across license, support and cloud services, and professional services segments influenced by amortization and cost strategies | Metric (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | License Gross Margin | 137.0 | 181.4 | (24)% | | Support and Cloud Services Gross Margin | 269.5 | 245.5 | 10% | | Professional Services Gross Margin | 0.2 | (0.4) | 138% | | Total Gross Margin | 406.7 | 426.5 | (5)% | | Metric (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | License Gross Margin | 534.4 | 521.3 | 3% | | Support and Cloud Services Gross Margin | 802.0 | 697.8 | 15% | | Professional Services Gross Margin | 3.5 | 6.1 | (43)% | | Total Gross Margin | 1,339.9 | 1,225.3 | 9% | - The decline in professional services gross margin is due to the company's continued strategy of leveraging partners to deliver services[81] Operating Expenses Operating expenses decreased 2% in Q3 due to lower marketing and stock-based compensation, but increased 7% for the nine months, primarily from higher compensation and external services, partially offset by reduced acquisition costs | Metric (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | Sales and Marketing | 140.3 | 145.1 | (3)% | | Research and Development | 110.3 | 103.8 | 6% | | General and Administrative | 49.7 | 57.1 | (13)% | | Total Operating Expenses | 310.9 | 316.6 | (2)% | | Metric (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | Sales and Marketing | 411.8 | 392.7 | 5% | | Research and Development | 323.0 | 292.3 | 10% | | General and Administrative | 180.4 | 173.9 | 4% | | Total Operating Expenses | 945.8 | 887.9 | 7% | - Q3 operating expenses decreased primarily due to a $7 million reduction in marketing expenses (no LiveWorx event) and a $6 million decrease in stock-based compensation expense, partially offset by a $3 million increase in compensation expense and a $3 million increase in external services expense[84] - For the nine months, operating expenses increased primarily due to a $44 million increase in compensation expense (ServiceMax acquisition, increased headcount, annual merit increases), a $13 million increase in stock-based compensation expense (accelerated vesting of former CEO's equity awards, change in post-retirement vesting eligibility), and an $8 million increase in external services expense, partially offset by a $16 million decrease in acquisition and transaction-related costs and a $10 million decrease in marketing expenses[84] Interest and Other Income (Expense), Net Interest and debt premium expense decreased 22% in Q3 due to lower debt, but slightly increased for the nine months due to higher interest rates, while other income (expense) net declined due to foreign currency losses and an investment impairment | Metric (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | Interest and Debt Premium Expense | (27.8) | (35.8) | (22)% | | Other Income (Expense), Net | (0.7) | 2.5 | (127)% | | Metric (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | Interest and Debt Premium Expense | (94.7) | (93.7) | 1% | | Other Income (Expense), Net | (0.7) | 0.4 | (268)% | - For the nine months ended June 30, 2024, other income (expense), net, decreased primarily due to a $2 million impairment loss on a Level 3 investment, partially offset by lower foreign exchange losses[86] Income Taxes Effective tax rates for both the three and nine months were lower year-over-year, primarily due to changes in the geographic mix of pre-tax income and non-cash impacts from IRS procedural guidance | Metric (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | Income Before Income Taxes | 67.4 | 76.5 | (12)% | | Provision for Income Taxes (Benefit) | (1.6) | 15.1 | (111)% | | Effective Income Tax Rate | (2)% | 20% | N/A | | Metric (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | Year-over-Year Change | | :-------------------- | :-------------------- | :-------------------- | :------- | | Income Before Income Taxes | 298.7 | 244.0 | 22% | | Provision for Income Taxes (Benefit) | 48.9 | 44.1 | 11% | | Effective Income Tax Rate | 16% | 18% | N/A | - The decrease in the effective tax rate is primarily attributable to changes in the geographic mix of pre-tax income and non-cash impacts from IRS procedural guidance, which increased estimated tax benefits for GILTI and FDII deductions; for the nine months ended June 30, 2024, this impact was partially offset by a $3.6 million tax reserve charge in a foreign jurisdiction[87] Critical Accounting Policies and Estimates There were no significant changes to the company's critical accounting policies and estimates during the quarter compared to those disclosed in the 2023 annual report on Form 10-K - There were no significant changes to the company's critical accounting policies and estimates during the quarter compared to those disclosed in the 2023 annual report on Form 10-K[88] Liquidity and Capital Resources Cash and cash equivalents decreased, but operating cash flow significantly increased, while investing cash flow reduced due to acquisitions, and financing cash flow turned negative due to deferred acquisition payments | Metric (in millions) | June 30, 2024 | September 30, 2023 | | :----------------------- | :------------ | :------------ | | Cash and Cash Equivalents | 247.7 | 288.1 | | Restricted Cash | 0.6 | 0.7 | | Total | 248.3 | 288.8 | | Metric (in millions) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | | :----------------------- | :-------------------- | :-------------------- | | Net Cash Provided by Operating Activities | 651.9 | 561.1 | | Net Cash Used in Investing Activities | (99.5) | (866.1) | | Net Cash Provided by (Used in) Financing Activities | (590.9) | 307.5 | - For the nine months ended June 30, 2024, net cash provided by operating activities increased by $90.8 million, primarily due to increased collections (including ServiceMax contribution) and lower vendor payments, partially offset by higher interest and payroll-related payments[92] - For the nine months ended June 30, 2024, net cash used in investing activities primarily included $93.5 million for the pure-systems acquisition, with capital expenditures decreasing due to increased investment in cloud-based software[93] - For the nine months ended June 30, 2024, net cash used in financing activities was $590.9 million, including the payment of $620 million for the ServiceMax deferred acquisition consideration and increased payroll tax withholdings related to stock-based compensation[94][95] | Metric (in millions) | June 30, 2024 | September 30, 2023 | | :----------------------- | :------------ | :------------ | | Total Debt (Net of Issuance Costs) | 1,811.2 | 1,695.8 | | Credit Facility Revolving Credit Undrawn | 928.0 | 1,048.0 | | Credit Facility Revolving Credit Available to Borrow | 912.1 | 384.6 | - The company expects its existing cash, cash flows from operations, and credit facility to be sufficient to meet its working capital and capital expenditure needs for the next 12 months and long-term, with plans to repay revolving credit facility debt using operating cash flows for the remainder of fiscal 2024[98] Operating Measure (ARR) Annual Recurring Revenue (ARR) represents the annualized value of the company's active subscription software, SaaS, hosted, and support contracts at the end of the reporting period, used to assess subscription business health - ARR represents the annualized value of the company's active subscription software, SaaS, hosted, and support contracts at the end of the reporting period, used to assess the health of the subscription business[100][101] - ARR calculation excludes future contractual growth in contract value and is not impacted by revenue recognition timing changes under ASC 606, and should be considered independently of recognized and unrecognized revenue[100][102] Non-GAAP Financial Measures The company discloses several non-GAAP financial measures, including free cash flow, gross margin, operating income, operating margin, net income, and diluted EPS, to provide a supplementary view of core operating performance - The company discloses non-GAAP financial measures including free cash flow, non-GAAP gross margin, operating income, operating margin, net income, and diluted EPS[104] - Non-GAAP metrics exclude items such as stock-based compensation expense, amortization of acquired intangible assets, acquisition and transaction-related costs, restructuring expenses, non-operating expenses, and income tax adjustments[104] | Metric (in millions) | June 30, 2024 (3 months) | June 30, 2023 (3 months) | June 30, 2024 (9 months) | June 30, 2023 (9 months) | | :----------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | GAAP Gross Margin | 406.7 | 426.5 | 1,339.9 | 1,225.3 | | Non-GAAP Gross Margin | 422.3 | 442.2 | 1,384.7 | 1,266.8 | | GAAP Operating Income | 95.8 | 109.9 | 394.1 | 337.3 | | Non-GAAP Operating Income | 164.4 | 185.0 | 617.8 | 558.2 | | GAAP Net Income | 69.0 | 61.4 | 249.8 | 199.9 | | Non-GAAP Net Income | 118.0 | 117.7 | 427.3 | 373.4 | | GAAP Diluted EPS | $0.57 | $0.51 | $2.07 | $1.68 | | Non-GAAP Diluted EPS | $0.98 | $0.99 | $3.54 | $3.14 | | Operating Cash Flow | 213.8 | 169.2 | 651.9 | 561.1 | | Free Cash Flow | 212.2 | 164.1 | 642.0 | 543.1 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk exposure as of June 30, 2024, did not significantly change from what was disclosed in its 2023 annual report on Form 10-K - As of June 30, 2024, the company's market risk exposure did not significantly change from what was disclosed in its 2023 annual report on Form 10-K[110] Item 4. Controls and Procedures Management assessed and concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024 - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2024[112] - The second phase of the new ERP system, including customer invoicing and collections functionality, was implemented this quarter, with related internal controls designed or modified, and no material adverse impact on internal control over financial reporting is expected[113] Part II—OTHER INFORMATION Item 1A. Risk Factors Investors are advised to carefully review the risk factors disclosed in the company's 2023 annual report on Form 10-K, which could materially affect its business, financial condition, or future results - Investors should carefully review the risk factors disclosed in the company's 2023 annual report on Form 10-K, as these factors could materially affect its business, financial condition, or results of operations[115] Item 5. Other Information In Q3 2024, director Corinna Lathan adopted a Rule 10b5-1 trading arrangement to sell 3,817 shares of common stock, effective May 24, 2024, and ending September 30, 2025 - In Q3 2024, director Corinna Lathan adopted a Rule 10b5-1 trading arrangement on May 24, 2024, to sell 3,817 shares of PTC common stock, with the plan ending on September 30, 2025[116][117] Item 6. Exhibits This section lists the exhibits filed with this report, including articles of incorporation, indentures, CEO and CFO certifications, and XBRL files - Exhibits include articles of incorporation, indentures, CEO and CFO certifications (31.1, 31.2, 32), and Inline XBRL documents[119] Signature This report was formally signed by Kristian Talvitie, Executive Vice President and Chief Financial Officer of PTC Inc., on August 2, 2024 - This report was signed by Kristian Talvitie, Executive Vice President and Chief Financial Officer of PTC Inc., on August 2, 2024[121]