2021
ANNUAL REPORT
digital transforms physical
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: September 30, 2021
OR
☐ 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: 0-18059
PTC Inc.
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of
incorporation or organization)
04-2866152
(I.R.S. Employer
Identification Number)
121 Seaport Boulevard, Boston, MA 02210
(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
Common Stock, $.01 par value per share
Trading
Symbol
PTC
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant
to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑
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 or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of our voting stock held by non-affiliates was approximately $14,486,748,642 on March 31, 2021 based on the last reported
sale price of our common stock on the Nasdaq Global Select Market on that date. There were 116,854,806 shares of our common stock outstanding on that day
and 117,871,872 shares of our common stock outstanding on November 17, 2021.
Portions of the definitive Proxy Statement in connection with the 2022 Annual Meeting of Stockholders (2022 Proxy Statement) are incorporated by
reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
PTC Inc.
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 2021
Table of Contents
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16.
Exhibit Index
Signatures
APPENDIX A
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Page
1
7
17
17
17
17
17
17
18
33
35
35
35
36
36
37
37
37
37
37
38
38
39
41
F-1
F-4
F-9
Forward-Looking Statements
Statements in this Annual Report about our anticipated financial results, capital development and
growth, as well as about the development of our products, markets and workforce, are forward-looking
statements that are based on our current plans and assumptions. Important information about factors
that may cause our actual results to differ materially from these statements is discussed in Item 1A. “Risk
Factors” and generally throughout this Annual Report.
Unless otherwise indicated, all references to a year reflect our fiscal year that ends on September 30.
ITEM 1.
Business
PART I
PTC is a global software and services company that enables industrial companies to improve growth
and profitability with a portfolio of innovative digital solutions that work together to transform how physical
products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans
the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things
(IIoT), and Augmented Reality (AR) markets. Our technology can be delivered on premises, in the cloud,
or in a hybrid model.
Our customer base includes some of the world’s most innovative manufacturers in the aerospace
and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences,
oil and gas, retail and consumer products industries. Our solutions enable industrial companies to create a
closed loop of information shared across their organization’s entire value chain. This “digital thread” can
drive excellence in engineering, efficiency in manufacturing operations and service delivery, and
innovation across product offerings and business models. With our solutions, digital transforms physical.
As a purpose-driven company, we don’t just imagine a better world, we help create it. Our purpose
statement - Power To Create – is a commitment to our customers to help them solve difficult challenges; a
commitment to our employees to build a culture that supports diversity, equity, and inclusion so they can
achieve their greatest potential; and a commitment to support the communities our employees live and
work in globally.
We generate revenue through the sale of software subscriptions, which include license access and
support (technical support and software updates); support for existing perpetual licenses; professional
services (consulting, implementation, and training); and cloud services (hosting for our software and
SaaS).
Our Strategy
There are three key elements to our strategy to deliver long-term shareholder value.
Align with market demand to deliver technology solutions aligned with secular market trends,
including digital transformation, SaaS, remote collaboration and AI. We believe demand for solutions
such as ours that enable work from home and/or office, global team and supply chain collaboration,
remote asset management, and remote frontline worker training and support is strong. In addition, there
is growing customer demand for SaaS offerings; we intend to increase our investment in SaaS initiatives,
while better aligning with SaaS best practices in order to meet the needs of the market.
Drive sustainable top line ARR growth by expanding our footprint with existing customers, cross-selling
complementary solutions in our customer base, adding new customers and by maintaining strong
customer retention rates through our global field organization and partner ecosystem. FY’21 marked the
fourth consecutive year of double-digit ARR growth, despite the manufacturing and macroeconomic
environments over that period. In FY’22, we are evolving our organizational structure to align better with a
traditional SaaS model and create a much-improved customer experience.
1
Grow operating cash flow through continued operating discipline within a recurring business model.
Our organizational changes are designed to grow ARR, increase customer retention, and improve
operating efficiency, we expect to grow our operating cash flow.
Our Principal Products and Services
In order to drive clear focus, we have divided our business into two key product groups: Digital
Thread and Velocity. The Digital Thread business is focused on customers that are embracing digital
transformation and the Velocity business is focused on customers that prioritize agile product
development.
Digital Thread – Core
its design
and
Our Creo® 3D CAD technology enables the digital
design, testing, and modification of product
simulation, additive
models. With
manufacturing,
design
innovations, we enable our customers to be first to
market with differentiated products. From initial
concept to design, simulation, and analysis, Creo
provides designers with
to
innovative
efficiently create better products, faster.
generative
tools
Our Windchill® PLM application suite manages all
aspects of the product development lifecycle -
from concept through service and retirement - by
enabling a digital thread of product parts,
materials, and configuration information. Windchill
provides real-time information sharing, dynamic
data visualization, and the ability to collaborate
across geographically-distributed teams, enabling
manufacturers
product
development process. With its open architecture
integrates with other enterprise systems,
that
Windchill provides a solid
for a
product-driven digital thread.
foundation
elevate
their
to
Digital Thread – Growth
Flexible and purpose-built for Industrial IoT, our
ThingWorx® platform offers a rich set of capabilities
that enable enterprises to digitally transform every
aspect of their business with innovative solutions
that are simple to create, easy to implement,
scalable to meet future needs, and designed to
enable customers to accelerate time to value.
results
reality
in manufacturing,
Our Vuforia® augmented
technology
enables the visualization of digital information in a
the creation of AR
physical context and
experiences to deliver workforce productivity and
business
service,
engineering, and operations. Vuforia enables
augmented reality and mixed reality experiences
for the industrial enterprise. Vuforia solutions equip
frontline workers with focused and effective step-
by-step
instructions, procedural guidance, skill
development and remote assistance that enable
enterprises
increase asset
reduce errors,
utilization and drive higher profitability.
to
Digital Thread – Focused Solutions Group (FSG)
Our IntegrityTM application lifecycle management (ALM) and model-based systems engineering
capabilities enable users to manage system models, software configurations, and test plans and defects.
Our Servigistics® service parts management solution enables customers to effectively manage service
parts, improve their products and services, and increase customer satisfaction.
2
Velocity
design with
Software-as-a-Service
(SaaS)
Our Onshape®
product development platform unites computer-
aided
data management,
collaboration tools, and real-time analytics. A
cloud-native multi-tenant solution that can be
instantly deployed on virtually any computer or
mobile device, Onshape enables teams to work
together from just about anywhere. Real-time
design reviews, commenting, and simultaneous
editing enable a collaborative workflow where
multiple design iterations can be completed in
parallel and merged into the final design.
Our Arena® SaaS PLM solution enables product
teams
to collaborate virtually anytime and
anywhere, making it easier to share the latest
product and quality
internal
teams and supply chain partners and help deliver
innovative products to customers
faster. Our
Arena quality management system software
connects quality and product designs into a single
system to simplify regulatory compliance.
information with
Our Markets and How We Address Them
We compete in the CAD, PLM, IIoT and AR markets. The markets we serve present different growth
opportunities for us. We see greater opportunity for market growth for our IIoT and AR solutions for the
enterprise and our SaaS solutions, followed by more moderate market growth for our on-premise CAD
and PLM solutions, both of which have been growing faster than their respective market growth rates.
We derive most of our sales from products and services sold directly by our sales force to end-user
customers. Approximately 30% to 35% of our sales of products and services are through third-party
resellers. Our sales force focuses on large accounts, while our reseller channel provides a cost-effective
means of covering the small- and medium-size business market. Our strategic alliance partners enable us
to increase our market reach, offer broader solutions, and add compelling technology to our offerings.
Our strategic services partners provide service offerings to help customers implement our product
offerings.
Additional financial information about our segments and international and domestic operations may
be found in Note 18. Segment and Geographic Information of Notes to Consolidated Financial
Statements in this Form 10-K, which information is incorporated herein by reference.
Competition
We compete with a number of companies whose offerings address one or more specific functional
areas covered by our solutions. In our IIoT business, we compete with large established companies such
as Amazon, IBM, Oracle, SAP, Siemens AG, and Software AG as well as customers’ homegrown solutions.
There are also a number of smaller companies that compete in the market for IIoT products. For enterprise
CAD and PLM solutions, we compete with large established companies including Autodesk, Dassault
Systèmes SA, and Siemens AG. For our PLM solutions, we also compete with Oracle and SAP, but we
believe our products are more specifically targeted toward the business process challenges of
manufacturing companies and offer broader and deeper functionality for those processes than ERP-
based solutions. For our AR products, our primary competitors include TeamViewer, ScopeAR and
Re’Flekt. Although Microsoft is a partner (especially in IoT), it is a competitor in AR; the competing
products are Microsoft Dynamics 365 Remote Assist and Dynamics 365 Guides.
Proprietary Rights
Our software products and related technical know-how, along with our trademarks, including our
company names, product names and logos, are proprietary. We protect our intellectual property rights in
these items by relying on copyrights, trademarks, patents and common law safeguards, including trade
secret protection. The nature and extent of such legal protection depends in part on the type of
intellectual property right and the relevant jurisdiction. In the U.S., we are generally able to maintain our
trademark registrations for as long as the trademarks are in use and to maintain our patents for up to 20
years from the earliest effective filing date. We also use license management and other anti-piracy
3
technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of
our products.
Our proprietary rights are subject to risks and uncertainties described under Item 1A. “Risk Factors”
below, which is incorporated into this section by reference.
People and Culture
PTC’s commitment to building a diverse, equitable, and inclusive culture is fundamental to our
purpose – the Power to Create, and critical to every aspect of our talent strategy. Our approach is
focused on sustainable talent practices and core values that promote an agile culture, an increased
sense of belonging, engaged work environments, and high-performing teams.
As of September 30, 2021, PTC had 6,709 employees. Our population is geographically diverse and
serves a geographically diverse customer and partner network.
PTC at-a-Glance
Regional Representation
2.2%
11.5%
38.3%
23.1%
24.9%
United States
EMEA India APAC Other
Functional Representation
14.6%
41.4%
44.0%
Field
Products G&A
4
Gender Diversity
30.2%
69.8%
Female
Male
Commitment to Diversity and Inclusion
We have been improving our systems and processes to enable us to better track, manage and
develop our employees. With these improvements, we aim to better understand our demographic
population and to develop demographic goals we can share.
Commitment to our values and diversity in our workforce has inspired our top-line company goals.
They include a focus on increasing under-represented minority and gender representation in global
leadership as a first and essential step to diversifying our employee population. In addition to hiring our first
Chief Diversity & CSR Officer in 2020, we are building an extended team to support our diversity and
inclusion initiatives. Key milestones include establishing a global employee DEI Champion network,
launching leadership development experiences for our underrepresented minority and underrepresented
group populations, designing training programs in psychological safety, inclusive leadership, and
conscious inclusion, and enhancing our Employee Resource Group program.
Employee Health & Safety | COVID-19 Response
Throughout the COVID-19 crisis, PTC focused on protecting the safety and well-being of our
employees and supported our local communities. PTC moved to fully remote work in March 2020.
Employees may continue to work remotely until 2022. PTC will then move to a hybrid flex model with a
blend of in-office and remote work.
Workforce Planning & Long-Range Plan
We believe that the transition of industrial software to SaaS is inevitable and is accelerating. To
better position us to be a leader in this SaaS evolution by aligning our internal processes and
resources with SaaS operating best practices, in November 2021, we committed to a plan to
reorganize our workforce and consolidate select facilities. While this restructuring will result in a
number of employee reductions to create operating efficiencies, it will enable us to invest in roles
that will further our journey to SaaS. We expect we will continue to recruit and hire many new
employees in FY’22, particularly in SaaS sales and engineering roles. For those employees adversely
impacted by this realignment, we are providing separation packages and outplacement support to
help make the transition as smooth as possible. It is never easy to reduce employee resources and
we’re focused on supporting and treating all impacted employees with dignity and respect.
5
Website Access to Reports and Code of Business Conduct and Ethics
We make available free of charge on our website at www.ptc.com the following reports as soon as
reasonably practicable after electronically filing them with, or furnishing them to, the SEC: our Annual
Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; and
amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934. Our Proxy Statements for our Annual Meetings and Section 16 trading reports on
SEC Forms 3, 4 and 5 also are available on our website. The reference to our website is not intended to
incorporate information on our website into this Annual Report by reference.
Our Code of Ethics for Senior Executive Officers is embedded in our Code of Business Conduct and
Ethics, which is also available on our website. Additional information about this code and amendments
and waivers thereto can be found below in Part III, Item 10 of this Annual Report.
Executive Officers
Information about our executive officers is incorporated by reference from our 2022 Proxy Statement.
PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts.
Corporate Information
6
ITEM 1A.
Risk Factors
The following are important factors we have identified that could affect our future results and your
investment in our securities. You should consider them carefully when evaluating an investment in PTC
securities or any forward-looking statements made by us, including those contained in this Annual Report,
because these factors could cause actual results to differ materially from historical results or the
performance projected in forward-looking statements. The risks described below are not the only risks we
face. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial may also materially adversely affect our business, financial condition and/or operating results.
I.
Risks Related to Our Business Operations and Industry
We face significant competition, which may reduce our profitability and limit or reduce our market share.
The markets for our products and solutions are rapidly changing and characterized by intense
competition, disruptive technology developments, evolving distribution models and increasingly lower
barriers to entry. If we are unable to provide products and solutions that address customers’ needs as well
as our competitors’ products and solutions do, or to align our pricing, licensing and delivery models with
customer preferences, we could lose customers and/or fail to attract new customers, which could cause
us to lose revenue and market share.
For example, the COVID-19 pandemic has caused companies worldwide to close their offices and
their employees to have to work remotely from their homes, which has focused companies on the need
for solutions that empower and support remote work by employees. We believe customers and potential
customers will increasingly seek software solutions that support remote work by employees. Although
many of our solutions support remote work, others are less efficient at doing so. We have embarked on an
effort to make our solutions available on a SaaS platform; however, this will require significant effort and
investment and we cannot be sure that we will be able to make our solutions available as SaaS solutions
as quickly as we expect or that customers will adopt them as we expect. If we are unable to compete
successfully with competitors offering SaaS solutions, we could lose customers and/or fail to attract new
customers, which could cause us to lose revenue and market share, which would adversely affect our
business and financial results.
In addition, competitive pressures could cause us to reduce our prices, which could reduce our
revenue and margins.
Finally, our current and potential competitors range from large and well-established companies to
emerging start-ups. Some of our competitors and potential competitors have greater name recognition in
the markets we serve and greater financial, technical, sales and marketing, and other resources, which
could limit our ability to gain customer recognition and confidence in our products and solutions and
successfully sell our products and solutions, which could adversely affect our ability to grow our business.
A breach of security in our products or computer systems, or those of our third-party service providers,
could compromise the integrity of our products, cause loss of data, harm our reputation, create additional
liability and adversely impact our financial results.
We have implemented and continue to implement measures intended to maintain the security and
integrity of our products, source code and IT systems. The potential for a security breach or system
disruption has significantly increased over time as the scope, number, intensity and sophistication of
attempted cyberattacks and cyber intrusions have increased. We face cyberattacks and intrusions
designed to access and exfiltrate information and to disrupt and lock-up access to systems for the
purpose of demanding a ransom payment. Despite efforts to create security barriers to such threats, it is
impossible for us to eliminate the risk of a successful cyberattack or intrusion, and, in fact, we deal with
security issues on a regular basis and have experienced security incidents from time to time. Accordingly,
there is a risk that a cyberattack or intrusion will be successful and that such event will be material.
In addition, we offer cloud services to our customers and some of our products, including our SaaS
products, are hosted by third-party service providers, which expose us to additional risks as those
repositories of our customers’ proprietary data may be targeted and a cyberattack or intrusion may be
7
successful and material. Interception of data transmission, misappropriation or modification of data,
corruption of data and attacks against our service providers may adversely affect our products or
product and service delivery. Malicious code, viruses or vulnerabilities that are undetected by our service
providers may disrupt our business operations generally and may have a disproportionate effect on those
of our products that are developed and delivered in the cloud environment.
While we devote resources to maintaining the security and integrity of our products and systems, as
well as performing due diligence of our third-party service providers, a significant breach of the security
and/or integrity of our products or systems, or those of our third-party service providers, could prevent our
products from functioning properly, could enable access to sensitive, proprietary or confidential
information, including that of our customers, or could disrupt our business operations or those of our
customers. This could require us to incur significant costs of investigation, remediation and/or payment of
a ransom; harm our reputation; cause customers to stop buying our products; and cause us to face
lawsuits and potential liability, which could have a material adverse effect on our financial condition and
results of operations.
We increasingly rely on third-party providers of cloud infrastructure services to deliver our offerings to
users on our platform, and any disruption of or interference with our use of these services could adversely
affect our business.
Our continued growth depends in part on the ability of our existing and potential customers to use
and access our cloud services or our website in order to download our software or encrypted access keys
for our software within an acceptable amount of time. We use a number of third-party service providers,
which we do not control, for key components of our infrastructure, particularly with respect to
development and delivery of our cloud-based products. The use of these service providers gives us
greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes
us to additional risks and vulnerabilities. Third-party service providers operate their own platforms that we
access, and we are, therefore, vulnerable to their service interruptions. We may experience interruptions,
delays and outages in service and availability from time to time as a result of problems with our third-party
service providers’ infrastructure. Lack of availability of this infrastructure could be due to a number of
potential causes including technical failures, natural disasters, fraud or security attacks that we cannot
predict or prevent. Such outages could lead to the triggering of our service level agreements and the
issuance of credits to our cloud-based product customers, which may impact our business and
consolidated financial statements.
If we are unable to renew our agreements with our cloud service providers on commercially
reasonable terms, or our agreement is prematurely terminated, or we need to add new cloud services
providers to increase capacity and uptime, we could experience interruptions, downtime, delays, and
additional expenses related to transferring to and providing support for these new platforms. Any of the
above circumstances or events may harm our reputation and brand, reduce the availability or usage of
our platforms and impair our ability to attract new users, any of which could adversely affect our business,
financial condition and results of operations.
We may be unable to hire or retain personnel with the necessary skills to operate and grow our business,
which could adversely affect our ability to compete.
Our success depends upon our ability to attract and retain highly skilled managerial, sales and
marketing, technical, financial and administrative personnel to operate and grow our business.
Competition for such personnel in our industry is intense, particularly in the Boston, Massachusetts area
where our global headquarters is located.
The technical personnel required to develop our products and solutions are in high demand,
particularly technical personnel with augmented and virtual reality and analytics expertise as there are
comparatively fewer persons with those skills. If we are unable to attract and retain technical personnel
with the requisite skills, our product and solution development efforts could be delayed, which could
adversely affect our ability to compete and thereby adversely affect our revenues and profitability.
8
The managerial, sales and marketing, financial and administrative personnel necessary to guide our
operations, market and sell our solutions and support our business operations are also in high demand due
to the intense competition in our industry.
If we are unable to attract and retain the personnel we need to develop compelling products and
solutions, and guide, operate and support our business, we may be unable to successfully compete in the
marketplace, which would adversely affect our revenues and profitability.
The extent to which the COVID-19 pandemic may impact our business is uncertain and it could materially
adversely affect our financial condition and results of operations.
The COVID-19 pandemic continues to impact global economic activity and create macroeconomic
uncertainty. Public and private sector policies and initiatives to reduce the transmission of COVID-19, such
as the imposition of travel restrictions, temporary closures of businesses, and the adoption of remote
working, have significantly changed the way we and our customers work. The effects and duration of this
disruption remain uncertain.
While PTC was able to transition to remote working without significant disruption to our day-to-day
operations, disruption to our customers’ and our prospects’ operations and the way we work with them
have adversely affected our business.
Demand for our solutions declined and could decline further due to challenges associated with
conducting in-person sales meetings and project scoping and implementation activities while social
distancing measures are in place, which has deterred or prevented, and could further deter or prevent,
customers from proceeding with new software purchases and deployments. Likewise, temporary plant
closures, layoffs and furloughs at our customers and the challenges they face forecasting business needs
in this time of global economic uncertainty have caused, and could continue to cause, our customers to
delay or reduce new license purchases.
Longer term plant closures and layoffs among our customer base could cause existing subscription
customers to renew fewer existing licenses when their subscriptions come up for renewal and could cause
existing support customers to discontinue support at the time of renewal. If churn increases in the future,
our ARR and financial results and condition could be negatively impacted.
Reductions in new subscription sales and/or renewals and in professional services delivered could
reduce our ARR growth or cause our ARR to decline, and would reduce our professional services revenue,
all of which would adversely affect our revenue, earnings and cash flow. Further prolonged disruption
could continue to negatively impact the businesses of our customers and prospective customers and,
therefore, our business and financial condition.
If our business declines due to the factors above, we could be required to reduce our expenses,
which could result in material restructuring charges and/or reduce or delay investments in our business,
including hiring. Reductions in our workforce and/or investments in our business could hamper our ability
to recover and compete successfully, which could adversely affect our business and results of operations.
We depend on sales within the discrete manufacturing sector and our business could be adversely
affected if manufacturing activity does not grow, or if it contracts, or if manufacturers are adversely
affected by other economic factors.
A large amount of our sales are to customers in the discrete manufacturing sector. Manufacturers
worldwide are facing increasing uncertainty about the global economic climate due to, among other
factors, the COVID-19 pandemic and the geopolitical environment. In addition, within the technology
industry the U.S. Administration’s focus on technology transactions with non-U.S. entities and potential
expanded prohibitions has created additional uncertainty. In light of these concerns, customers may
delay, reduce or forego purchases of our solutions, which would adversely affect our business and
financial results.
9
If we fail to successfully manage our transition to a SaaS company, our business and financial results
could be adversely affected.
Becoming a SaaS company requires considerable additional investment in our organization. Whether
our transition will be successful and will accomplish our business and financial objectives is subject to
uncertainties, including but not limited to: customer demand, attach and renewal rates, channel
adoption, our ability to further develop and scale infrastructure, our ability to include functionality and
usability in such offerings that address customer requirements, and our costs. If we are unable to
successfully establish these new offerings and navigate our business transition due to these risks and
uncertainties, our business and financial results could be adversely impacted.
Because our sales and operations are globally dispersed, we face additional compliance risks and any
compliance failure could adversely affect our business and financial results.
We sell and deliver software and services, and maintain support operations, in many countries whose
laws and practices differ from one another and are subject to unexpected changes. Managing these
geographically dispersed operations requires significant attention and resources to ensure compliance
with laws of those countries and those of the U.S. governing our activities in non-U.S. countries.
Those laws include, but are not limited to, anti-corruption laws and regulations (including the U.S.
Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act 2010), data privacy laws and regulations
(including the European Union's General Data Privacy Regulation), and trade and economic sanctions
laws and regulations (including laws administered by the U.S. Department of the Treasury’s Office of
Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations
Security Council and other relevant sanctions authorities). Our compliance risks are heightened due to
the go-to-market approach for our business that relies heavily on a partner ecosystem, the fact that we
operate in, and are expanding into, countries with a higher incidence of corruption and fraudulent
business practices than others, the fact that we deal with governments and state-owned business
enterprises, and the fact that global enforcement of laws has significantly increased.
Accordingly, while we strive to maintain a comprehensive compliance program, we cannot
guarantee that an employee, agent or business partner will not act in violation of our policies or U.S. or
other applicable laws or that we may inadvertently violate such laws. Investigations of alleged violations
of those laws can be expensive and disruptive. Violations of such laws can lead to civil and/or criminal
prosecutions, substantial fines and other sanctions, including the revocation of our rights to continue
certain operations, and also cause business and reputation loss, which could adversely affect our
financial results and/or stock price.
II.
Risks Related to Acquisitions and Strategic Relationships
Businesses we acquire may not generate the revenue and earnings we anticipate and may otherwise
adversely affect our business.
We have acquired, and intend to continue to acquire, new businesses and technologies. If we fail to
successfully integrate and manage the businesses and technologies we acquire, if an acquisition does
not further our business strategy as we expect, or if a business we acquire has unexpected legal or
financial liabilities, our operating results will be adversely affected.
The types of issues that we may face in integrating and operating the acquired business include:
difficulties managing an acquired company’s technologies or lines of business or entering new
markets where we have limited or no prior experience or where competitors may have stronger
market positions;
unanticipated operating difficulties in connection with the acquired entities, including potential
declines in revenue of the acquired entity;
diversion of management and employee attention;
10
loss of key personnel; and
potential incompatibility of business cultures.
Further, if we do not achieve the expected return on our investments it could impair the intangible
assets and goodwill that we recorded as part of an acquisition, which could require us to record a
reduction to the value of those assets.
We may incur significant debt or issue a material amount of debt or equity securities to finance an
acquisition, which could adversely affect our operating flexibility and financial statements.
If we were to incur a significant amount of debt—whether by borrowing funds or issuing new debt
securities—to finance an acquisition, our interest expense, debt service requirements and leverage would
increase significantly. The increases in these expenses and in our leverage could adversely impact our
ability to operate the company as we might otherwise and to borrow additional amounts.
If we were to issue a significant amount of equity securities in connection with an acquisition, existing
stockholders would be diluted and earnings per share could decrease.
Our inability to maintain or develop our strategic and technology relationships could adversely affect our
business.
We have many strategic and technology relationships with other companies with which we work to
offer complementary solutions and services, that market and sell our solutions, and that provide
technologies that we embed in our solutions. We may not realize the expected benefits from these
relationships and such relationships may be terminated by the other party. If these companies fail to
perform or if a company terminates or substantially alters the terms of the relationship, we could suffer
delays in product development, reduced sales or other operational difficulties and our business, results of
operations and financial condition could be materially adversely affected.
III.
Risks Related to Our Intellectual Property
We may be unable to adequately protect our proprietary rights, which could adversely affect our business
and our ability to compete effectively.
Our software products are proprietary. We protect our intellectual property rights in these items by
relying on copyrights, trademarks, patents and common law safeguards, including trade secret
protection, as well as restrictions on disclosures and transferability contained in our agreements with other
parties. Despite these measures, the laws of all relevant jurisdictions may not afford adequate protection
to our products and other intellectual property. In addition, we frequently encounter attempts by
individuals and companies to pirate our software. If our measures to protect our intellectual property
rights fail, others may be able to use those rights, which could reduce our competitiveness and revenues.
In addition, any legal action to protect our intellectual property rights that we may bring or be
engaged in could be costly, may distract management from day-to-day operations and may lead to
additional claims against us, and we may not succeed, all of which would materially adversely affect our
operating results.
Intellectual property infringement claims could be asserted against us, which could be expensive to
defend and could result in limitations on our use of the claimed intellectual property.
The software industry is characterized by frequent litigation regarding copyright, patent and other
intellectual property rights. If a lawsuit of this type is filed, it could result in significant expense to us and
divert the efforts of our technical and management personnel. We cannot be sure that we would prevail
against any such asserted claims. If we did not prevail, we could be prevented from using the claimed
intellectual property or be required to enter into royalty or licensing agreements, which might not be
available on terms acceptable to us. In addition to possible claims with respect to our proprietary
products, some of our products contain technology developed by and licensed from third parties and we
may likewise be susceptible to infringement claims with respect to these third-party technologies.
11
IV.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our business, financial condition and results of
operations, as well as our ability to meet our payment obligations under our debt.
We have a significant amount of indebtedness. As of November 19, 2021, our total debt outstanding
was approximately $1,450 billion, $1 billion of which was associated with the 3.625% Senior Notes and
4.000% Senior Notes (together, “Senior Notes”) issued February 2020, which mature in February 2025 and
2028, respectively, and are unsecured, and $450 million of which was borrowed under our credit facility,
which matures in February 2025. All amounts outstanding under the credit facility and the Senior Notes will
be due and payable in full on their respective maturity dates. As of November 19, 2021, we had unused
commitments under our credit facility of $550 million. PTC Inc. and one of our foreign subsidiaries are
eligible borrowers under the credit facility and certain other foreign subsidiaries may become borrowers
under our credit facility in the future, subject to certain conditions.
Specifically, our level of debt could:
make it more difficult for us to satisfy our debt obligations and other ongoing business obligations,
which may result in defaults;
result in an event of default if we fail to comply with the financial and other covenants contained
in the agreements governing our debt instruments, which could result in all of our debt becoming
immediately due and payable or require us to negotiate an amendment to financial or other
covenants that could cause us to incur additional fees and expenses;
limit our ability to obtain additional financing to fund future working capital, capital expenditures,
acquisitions or other general corporate requirements;
reduce the availability of our cash to fund working capital, capital expenditures, acquisitions and
other general corporate purposes and limit our ability to obtain additional financing for these
purposes;
increase our vulnerability to the impact of adverse economic and industry conditions;
expose us to the risk of increased interest rates as certain of our borrowings, including borrowings
under the credit facility, are at variable rates of interest;
limit our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our
business, the industries in which we operate, and the overall economy;
place us at a competitive disadvantage compared to other, less leveraged competitors; and
increase our cost of borrowing.
Any of the above-listed factors could have an adverse effect on our business, financial condition
and results of operations and our ability to meet our payment obligations under our debt agreements.
Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially
more debt and other obligations. This could further exacerbate the risks to our financial condition
described above.
We and our subsidiaries may be able to incur significant additional indebtedness and other
obligations in the future, including secured debt. Although the credit agreement governing our credit
facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to
a number of qualifications and exceptions. The additional indebtedness incurred in compliance with
these restrictions could be substantial. In addition, the credit agreement and the indenture governing the
Senior Notes will not prevent us from incurring obligations that do not constitute indebtedness. If new debt
is added to our current debt levels, or we incur other obligations, the related risks that we now face could
intensify.
12
We may not be able to generate enough cash to service all our indebtedness and may be forced to take
other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our
financial condition and operating performance, which are subject to prevailing economic and
competitive conditions and to certain financial, business, legislative, regulatory and other factors, some of
which are beyond our control. We may be unable to maintain a level of cash flows from operating
activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could
face substantial liquidity problems and could be forced to reduce or delay investments and capital
expenditures or to dispose of material assets or operations, seek additional debt or equity capital or
restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if
necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions
may not allow us to meet our scheduled debt service obligations. Our debt agreements restrict our ability
to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise
debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be
able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt
service obligations then due.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our
indebtedness on commercially reasonable terms or at all, would materially and adversely affect our
financial position and results of operations and our ability to satisfy our debt obligations.
If we cannot make scheduled payments on our debt, we will be in default and the lenders under our
credit facility could terminate their commitments to loan money, the lenders could foreclose against the
assets securing their borrowings, the holders of our Senior Notes could declare all outstanding principal,
premium, if any, and interest to be due and payable, and we could be forced into bankruptcy or
liquidation. These events could result in a loss of your investment.
We are required to comply with certain financial and operating covenants under our debt agreements.
Any failure to comply with those covenants could cause amounts borrowed to become immediately due
and payable and/or prevent us from borrowing under the credit facility.
We are required to comply with specified financial and operating covenants under our debt
agreements and to make payments under our debt, which limit our ability to operate our business as we
otherwise might operate it. Our failure to comply with any of these covenants or to meet any debt
payment obligations could result in an event of default which, if not cured or waived, would result in any
amounts outstanding, including any accrued interest and/or unpaid fees, becoming immediately due
and payable. We might not have enough working capital or liquidity to satisfy any repayment obligations
if those obligations were accelerated. In addition, if we are not in compliance with the financial and
operating covenants under the credit facility when we wish to borrow funds, we will be unable to borrow
funds.
In addition, the financial and operating covenants under the credit facility may limit our ability to
borrow funds, including for strategic acquisitions and share repurchases.
Our credit facility has variable interest tied to LIBOR and we could become subject to higher interest rates
if the replacement rate we agree on with our banks is higher.
Borrowings under our revolving credit facility use the London Interbank Offering Rate (LIBOR) as a
benchmark for establishing the interest rate. On March 5, 2021, the Intercontinental Exchange Benchmark
Administration, the U.K. Financial Conduct Authority (FCA) regulated and authorized administrator
of LIBOR, announced, and the FCA confirmed, that one week and two-month USD LIBOR settings will
cease on December 31, 2021, and that the USD LIBOR panel for all other tenors will cease on June 30,
2023.
The credit facility provides a mechanism pursuant to which we and the administrative agent may
agree, under certain circumstances, to transition to an alternate base rate borrowing or amend the
13
credit facility to establish an alternate interest rate to LIBOR that includes consideration of the then-
prevailing market convention for determining interest rates for syndicated loans in the United States at
that time.
Although we believe the alternative rates will not materially increase the rates on our credit facility,
the final agreed rate may increase the cost of our variable rate indebtedness.
V.
Risks Related to Our Common Stock and Common Stock of Public Companies We Own
Our operating results fluctuate from quarter to quarter, making future operating results difficult to predict;
failure to meet market expectations could cause the price of our securities to decline.
Our quarterly operating results historically have fluctuated and are likely to continue to fluctuate
depending on many factors, including:
variability in our contracts, including timing of start dates, length of contracts, and mix of on-
premises and cloud-based purchases, which would impact our revenue and earnings;
a high percentage of our orders historically have been generated in the third month of each
fiscal quarter and any failure to receive, complete or process orders at the end of any quarter
could cause us to fall short of our financial targets;
our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers:
Topic 606 in 2019 creates significant revenue volatility;
a significant percentage of our orders comes from transactions with large customers, which tend
to have long lead times that are less predictable;
because our operating expenses are largely fixed in the short term and are based on expected
revenues, any failure to achieve our revenue targets could cause us to miss our earnings targets;
because a significant portion of our revenue and expenses are generated from outside the U.S.,
shifts in foreign currency exchange rates could adversely affect our reported results; and
we may incur significant expenses in a quarter in connection with corporate development
initiatives, restructuring efforts or the investigation, defense or settlement of legal actions that
would increase our operating expenses and reduce our earnings for the quarter in which those
expenses are incurred.
Accordingly, our quarterly results are difficult to predict prior to the end of the quarter and we may
be unable to confirm or adjust expectations with respect to our operating results for a quarter until that
quarter has closed. Any failure to meet our quarterly revenue or earnings expectations could adversely
impact the market price of our securities.
Our stock price has been volatile, which may make it harder to resell shares at a favorable time and
price.
Market prices for securities of software companies are generally volatile and are subject to significant
fluctuations that may be unrelated or disproportionate to the operating performance of these
companies. Further, our stock price has been more volatile than that of other software companies.
Accordingly, the trading prices and valuations of software companies’ stocks, and of ours, may not be
predictable. Negative changes in the public’s perception of the prospects of software companies, or of
PTC or the markets we serve, could depress our stock price regardless of our operating results.
14
Also, a large percentage of our common stock is held by institutional investors and by Rockwell
Automation. Purchases and sales of our common stock by these investors could have a significant impact
on the market price of the stock. For more information about those investors, please see our proxy
statement with respect to our most recent annual meeting of stockholders and Schedules 13D and 13G
filed with the SEC with respect to our common stock.
From time to time, we may acquire common stock in publicly traded companies as strategic investments.
Owning such stock exposes us to the volatility, liquidity and other risks inherent in holding that stock.
From time to time, we may own common stock of publicly traded companies. We are required to
present the value of such stock on our Consolidated Balance Sheet at their fair value at the end of each
reporting period. The fair value of those shares may fluctuate due to the volatility of the stock market,
changes in general economic conditions, and the performance of these publicly traded companies. We
recognize all changes in the fair value of the owned shares (whether realized or unrealized) as gains or
losses in our Consolidated Statement of Operations. Accordingly, changes in the fair value of the owned
shares can materially impact the earnings we report, which introduces volatility in our earnings that is not
associated with the results of our business operations. In particular, significant declines in the fair value of
the owned shares would produce significant declines in our reported earnings.
The reported value of the owned shares does not necessarily reflect their lowest current market price.
If we were forced to sell some or all of the owned shares in the market, there can be no assurance that
we would be able to sell them at prices equivalent to the value that we have reported on our
Consolidated Balance Sheet, and we may be forced to sell them at significantly lower prices.
VI.
Risks Related to Our Senior Notes
Our Senior Notes are unsecured and do not limit our ability to incur indebtedness, which could reduce
any payments to holders of the Senior Notes in connection with any insolvency, liquidation,
reorganization, dissolution or other winding up of PTC.
Unlike the credit facility, which is secured, the Senior Notes are not secured. Although the indenture
governing the Senior Notes limits our ability to incur secured debt, the covenant is subject to significant
exceptions, and we may incur additional secured debt in the future. The effect of this subordination is
that upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the
event of bankruptcy, insolvency, liquidation, dissolution or reorganization of our company (collectively,
“Adverse Events”), the proceeds from the sale of assets securing our secured indebtedness will be
available to pay obligations on the Senior Notes only after all indebtedness under the credit facility and
any other secured debt has been paid in full. As a result, the holders of the Senior Notes may receive less,
ratably, than the holders of secured debt if an Adverse Event occurs.
In addition, the indenture governing the Senior Notes does not limit our ability to incur unsecured
indebtedness. If we incur any additional indebtedness that ranks equally with the Senior Notes, subject to
collateral arrangements, the holders of that debt will be entitled to share ratably with holders of the Senior
Notes in any proceeds distributed in connection with any of the Adverse Events described above. This
may reduce the amount of proceeds to holders of the Senior Notes.
Our Senior Notes are not guaranteed by any of our subsidiaries, which could adversely affect our ability to
pay interest on or redeem the Senior Notes when due.
We conduct a substantial portion of our operations through our subsidiaries, none of which currently
guarantees the Senior Notes. Accordingly, payment of interest on the Senior Notes and redemption of the
Senior Notes is dependent on the generation of cash flow by our subsidiaries and their ability to make
such cash available to us, by dividend, debt repayment or otherwise. Unless they become guarantors of
the Senior Notes, our subsidiaries do not have any obligation to pay amounts due on the Senior Notes or
to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted
to, make distributions to enable us to make payments in respect of the Senior Notes. Each subsidiary is a
distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our
15
ability to obtain cash from our subsidiaries. If we do not receive distributions from our subsidiaries, we may
be unable to make required payments of principal, premium, if any, and interest on the Senior Notes.
Our Senior Notes are not listed on any national securities exchange or included in any automated
quotation system, which could make it harder to resell the notes at a favorable time and price.
Our Senior Notes are not listed on any national securities exchange or included in any automated
quotation system. As a result, an active market for the notes may not exist or be maintained, which would
adversely affect the market price and liquidity of the notes. In that case, holders may not be able to sell
their notes when they want to or at a favorable price.
The market for non-investment grade debt historically has been subject to severe disruptions that
have caused substantial volatility in the prices of securities similar to the notes. The market, if any, for the
notes may experience similar disruptions and any such disruptions may adversely affect the liquidity in
that market or the prices at which the notes may be sold.
VII.
General Risk Factors
Our international businesses present economic and operating risks, which could adversely affect our
business and financial results.
We expect that our international operations will continue to expand and to account for a significant
portion of our total revenue. Because we transact business in various foreign currencies, the volatility of
foreign exchange rates has had and may in the future have a material adverse effect on our revenue,
expenses and operating results.
Other risks inherent in our international operations include, but are not limited to, the following:
difficulties in staffing and managing foreign sales and development operations;
possible future limitations upon foreign-owned businesses;
increased financial accounting and reporting burdens and complexities;
inadequate local infrastructure; and
greater difficulty in protecting our intellectual property.
We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate,
which could increase our income tax expense and reduce our net income.
As a multinational organization, we are subject to income taxes as well as non-income based taxes
in the U.S. and in various foreign jurisdictions. Significant judgment is required in determining our worldwide
income tax provision and other tax liabilities. In the ordinary course of a global business, there are many
intercompany transactions and calculations where the ultimate tax determination is uncertain. Our tax
returns are subject to review by various taxing authorities. Although we believe that our tax estimates are
reasonable, the final determination of tax audits or tax disputes could be different from what is reflected
in our historical income tax provisions and accruals.
Our effective tax rate can be adversely affected by several factors, many of which are outside of
our control, including:
changes in tax laws, regulations, and interpretations in multiple jurisdictions in which we operate;
assessments, and any related tax interest or penalties, by taxing authorities;
changes in the relative proportions of revenues and income before taxes in the various
jurisdictions in which we operate that have differing statutory tax rates;
changes to the financial accounting rules for income taxes;
16
unanticipated changes in tax rates; and
changes to a valuation allowance on net deferred tax assets, if any.
ITEM 1B.
Unresolved Staff Comments
None.
ITEM 2.
Properties
We currently have 86 office locations used in operations in the United States and internationally,
predominately as sales and/or support offices and for research and development work. Of our total of
approximately 1,270,000 square feet of leased facilities used in operations, approximately 527,000 square
feet are located in the U.S., including 250,000 square feet at our headquarters facility located in Boston,
Massachusetts, and approximately 260,000 square feet are located in India, where a significant amount
of our research and development is conducted. In addition, approximately 210,000 feet are associated
with facilities that have been restructured, primarily our previous headquarters facility in Needham,
Massachusetts. We believe that our facilities are adequate for our present and foreseeable needs.
ITEM 3.
Legal Proceedings
Information on legal proceedings can be found in Note 10. Commitments and Contingencies of
Notes to Consolidated Financial Statements in this Form 10-K, which information is incorporated herein by
reference.
ITEM 4.
Mine Safety Disclosures
Not applicable.
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the Nasdaq Global Select Market under the symbol "PTC."
On September 30, 2021, the close of our fiscal year, and on November 17, 2021, our common stock
was held by 1,023 and 1,020 shareholders of record, respectively.
The table below shows the shares of our common stock we repurchased in the fourth quarter of 2021.
Period
July 2021
August 2021
September 2021
Total
Total Number of
Shares (or Units)
Purchased
Average Price
Paid per Share
(or Unit)
$
225,909
132.80
225,909
$
132.80
Total Number of
Shares (or Units)
Purchased as Part of
Publicly
Announced Plans
or Programs
225,909
225,909
Approximate
Dollar Value of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs(1)
1,000,000,000
970,000,047
970,000,047
970,000,047
$
$
(1) On November 13, 2020, the Board of Directors authorized us to repurchase up to $1 billion of our common stock in the period
November 13, 2020 through September 30, 2023.
ITEM 6.
[Reserved]
17
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements in this Annual Report about anticipated financial results, capital developments and
growth, as well as about the development of our products, markets and workforce, are forward-looking
statements that are based on our current plans and assumptions. Important information about the bases
for these plans and assumptions and factors that may cause our actual results to differ materially from
these statements is contained below and in Item 1A. “Risk Factors” of this Annual Report.
Unless otherwise indicated, all references to a year reflect our fiscal year that ends on September 30.
Operating and Non-GAAP Financial Measures
Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-
GAAP financial 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 Results of
Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively.
The methodology used to calculate constant currency disclosures is described in Results of Operations -
Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to
understand our operating measure, non-GAAP financial measures, and constant currency disclosures.
Executive Overview
ARR increased 16% (actual and constant currency) to $1,475 million in FY’21 compared to the end of
FY’20. Excluding the impact of Arena, which was acquired in the second quarter of FY’21, our organic
constant currency ARR growth was 12% in FY’21 compared to FY’20. Organic churn improved
approximately 130 basis points year over year, primarily driven by strong execution in CAD, PLM, FSG and
modest continued improvement in IoT and AR.
FY’21 revenue of $1.81 billion increased 24% over FY’20 (20% in constant currency). Our FY’21
revenue was positively impacted by ASC 606 as longer contract durations and support to subscription
conversions increased the amount of upfront subscription license revenue recognized in the year. FY’21
operating margin of 21% increased approximately 700 basis points over FY’20 due to strong revenue
performance as strong product differentiation improved sales and renewals, while maintaining good
discipline on our operating expense structure. FY’21 diluted EPS more than doubled year over year to
$4.03, due in part to a gain of $69 million related to common stock we own in a publicly-traded
company, the release of a $137 million valuation allowance related to our deferred tax assets in the U.S.,
and a non-cash tax benefit of $42 million related to our Arena acquisition.
FY’21 operating cash flow of $369 million grew 58% over FY’20; FY’21 free cash flow of $344 million
grew 61% over FY’20. Operating cash flow and free cash flow included an $18 million outflow related to a
foreign tax dispute, $15 million of acquisition-related costs, and $15 million of restructuring payments. We
ended FY’21 with cash and cash equivalents of $327 million. In addition, we held a $78 million equity
investment in Matterport, Inc., currently subject to trading restrictions. We ended FY’21 with gross debt of
$1.45 billion, with an aggregate interest rate of 3.2%.
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, 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 Non-GAAP Financial Measures below. Investors
should use these non-GAAP financial measures only in conjunction with our GAAP results.
18
For discussion of FY’20 results and comparison with FY’19 results, refer to Management's Discussion
and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2020.
(Dollar amounts in millions, except per share data)
Year ended September 30,
Percent Change
ARR
Total recurring revenue
Perpetual license
Professional services
Total revenue
Total cost of revenue
Gross margin
Operating expenses
Operating income
Non-GAAP operating income(1)
Operating margin
Non-GAAP operating margin(1)
Diluted earnings per share
Non-GAAP diluted earnings per share(1)(2)
Cash flow from operations(3)
Free cash flow(4)
Actual
Constant
Currency(1)
16 %
26 %
1 %
10 %
24 %
11 %
28 %
16 %
81 %
50 %
16 %
22 %
(1 )%
5 %
20 %
9 %
23 %
14 %
63 %
42 %
2021
1,474.7
1,616.3
33.0
157.8
1,807.2
371.1
1,436.1
1,055.3
380.7
634.4
21.1 %
35.1 %
4.03
3.97
368.8
344.1
$
$
$
$
$
$
$
$
2020
1,270.0
1,281.9
32.7
143.8
1,458.4
334.3
1,124.1
913.2
210.9
423.4
14.5 %
29.0 %
1.12
2.57
233.8
213.6
$
$
$
$
$
$
$
$
(1)
(2)
See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP measures and Impact of
Foreign Currency Exchange on Results of Operations below for a description of how we calculate our results on a constant
currency basis.
In FY’21 and FY’20 our GAAP results included tax benefits of $179.7 million and $21.2 million, respectively. The FY’21 results
include a $137.4 million benefit related to the release of the valuation allowance on the majority of our U.S. deferred tax assets
and a $42.3 million benefit related to the release of a valuation allowance resulting from the Arena acquisition. The FY’20
results include a $21.2 million benefit related to the release of a valuation allowance resulting from the Onshape acquisition. As
the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded.
Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax
rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, our non-GAAP results for FY'21 exclude tax expense
of $34.8 million related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes.
(3) Cash flow from operations for FY’21 and FY’20 includes $14.5 million and $42 million of restructuring payments, respectively.
Cash from operations for FY’21 and FY’20 includes $15.0 million and $9.6 million of acquisition-related payments, respectively.
Cash from operations for FY’21 includes $17.9 million in un-forecasted payments related to the prior period tax exposure from a
non-U.S. tax dispute.
Free cash flow is cash from operations net of capital expenditures of $24.7 million and $20.2 million in FY’21 and FY’20,
respectively.
(4)
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, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Our
constant currency disclosures are calculated by multiplying the results in local currency for FY’21 and
FY’20 by the exchange rates in effect on September 30, 2020, excluding the effect of any hedging. If
FY'21 reported results were converted into U.S. dollars based on this methodology, FY'21 revenue would
have been lower by $20 million and expenses would have been lower by $8 million. The net impact on
year-over-year results would have been a decrease in operating income of $12 million in FY'21.
The results of operations in the table above and revenue by line of business, product group, and
geographic region in the tables that follow present both actual percentage changes year over year and
percentage changes on a constant currency basis.
Our revenue results period to period are impacted by contract terms, including the duration and
start dates of our subscription contracts, due to up-front recognition of subscription license revenue. We
are expanding our SaaS offerings and are releasing additional cloud functionality into our products. As a
Revenue
19
result, our revenue will be impacted over time as a higher portion of our sales will be from cloud services,
which are recognized ratably.
Revenue by Line of Business
(Dollar amounts in millions)
Year ended September 30,
Percent Change
License (1)
Support (2) and cloud services
Total software revenue
Professional services
Total revenue
2021
2020
Actual
Constant
Currency
$
$
738.1
911.3
1,649.3
157.8
1,807.2
$
$
509.8
804.8
1,314.6
143.8
1,458.4
45%
13%
25%
10%
24%
40 %
10 %
22 %
5 %
20 %
(1)
(2)
Includes perpetual licenses and the license portion of subscription sales.
Includes support on perpetual licenses and the support portion of subscription sales.
Software revenue increased in FY’21 compared to FY’20 due to subscription revenue growth of 42%
(38% constant currency), offset by an 18% decline in perpetual support revenue (21% constant currency)
due to conversions of perpetual support contracts to subscriptions. Arena; acquired in the second
quarter, contributed approximately $29 million in FY’21. In FY’21, license revenue growth was primarily
driven by contracts with longer durations.
Professional services engagements typically result from sales of new licenses and software upgrades;
revenue is recognized over the term of the engagement. 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 grew in FY’21 by 10% (5% constant currency); where FY’20 revenue was
negatively impacted by the COVID-19 pandemic, FY’21 benefited from increased delivery activity
associated with PLM deployments.
Revenue and ARR by Product Group
Software Revenue by Product Group
(Dollar amounts in millions)
Core (CAD and PLM)
Growth (IoT, AR, Onshape, Arena)
FSG (Focused Solutions Group)
Total Software revenue
Year ended September 30,
Percent Change
2021
2020
Actual
$
$
1,161.7
277.4
210.2
1,649.3
$
$
947.1
183.8
183.7
1,314.6
Constant
Currency
19 %
48 %
11 %
22 %
23%
51%
14%
25%
Core product software revenue growth in FY’21 compared to FY’20 was driven by subscription
revenue growth of 39% (34% constant currency), offset by expected declines in perpetual support
revenue of 20% (23% constant currency) due in part to ongoing perpetual support contract conversions
to subscription.
ARR increased 11% (12% constant currency) for FY’21 compared to FY’20, reflecting solid ARR growth
for both PLM (13% actual, 14% constant currency) and CAD (10% actual and constant currency) as
customers pursue their digital transformation initiatives.
Growth product software revenue growth in FY’21 was driven by subscription revenue growth of 67%
(63% constant currency) compared to the year-ago period, driven primarily by IoT and contribution from
Arena.
Growth product ARR increased 50% (actual and constant currency) for FY’21 compared to FY’20,
due in part to a $59 million contribution from Arena. Excluding Arena, organic ARR growth was 17% (18%
20
constant currency), reflecting 15% (16% constant currency) growth in IoT and 16% (actual and constant
currency) growth in AR.
FSG product software revenue growth in FY’21 compared to FY’20 was primarily driven by
subscription revenue growth of 34% (31% constant currency), offset by a decline in perpetual support
revenue of 15% (17% constant currency) due to conversions of perpetual support contracts to
subscriptions.
FSG product ARR increased 6% (actual and constant currency) for FY’21 compared to FY’20.
Software Revenue & ARR by Geographic Region
A significant portion of our software revenue is generated outside the U.S. In both FY’21 and FY’20,
approximately 40% to 45% of software revenue was generated in the Americas, 35% to 40% in Europe,
and 20% in Asia Pacific.
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Americas
Europe
Asia Pacific
Total Software revenue
2021
2020
Actual
$
$
710.7
645.8
292.8
1,649.3
$
$
592.7
482.5
239.4
1,314.6
Constant
Currency
20 %
25 %
19 %
22 %
20 %
34 %
22 %
25 %
Americas software revenue growth in FY’21 was driven by growth in subscription revenue of 34%
(actual and constant currency) as compared to FY’20, partially offset by a decline of 26% (actual and
constant currency) in perpetual support revenue, due to conversions of perpetual support contracts to
subscriptions, resulting in recurring revenue growth of 21% (actual and constant currency).
Americas ARR was up 19%, led by double-digit growth in Core products and Arena.
Europe software revenue growth in FY’21 was driven by growth in subscription revenue of 56% (46%
constant currency) as compared to FY’20, partially offset by a decline of 16% (21% constant currency) in
perpetual support revenue, resulting in recurring revenue growth of 35% (26% constant currency).
ARR in Europe was up 13% constant currency, led by high-single digit growth in Core products, low-
40s growth in Growth products, and double-digit growth in FSG.
Asia Pacific software revenue growth in FY’21 was driven by subscription revenue growth of 36% (32%
constant currency) as compared to FY’20, partially offset by a decline of 9% (12% constant currency) in
perpetual support revenue, resulting in recurring revenue growth of 22% (18% constant currency).
ARR in Asia Pacific was up 17% constant currency, led by mid-teens growth in Core products and
low-30s growth in Growth products.
21
Gross Margin
(Dollar amounts in millions)
Gross margin:
License gross margin
License gross margin percentage
Support and cloud services gross margin
Support and cloud services gross margin percentage
Professional services
Professional services gross margin percentage
Total gross margin
Total gross margin percentage
Non-GAAP gross margin(1)
Non-GAAP gross margin percentage(1)
Year ended September 30,
2021
2020
Percent
Change
$
$
$
$
$
676.3
92%
747.2
82%
12.6
8%
1,436.1
79%
1,485.1
82%
$
$
$
$
$
456.6
90 %
659.4
82 %
8.1
6 %
1,124.1
77 %
1,165.5
80 %
48 %
13 %
55 %
28 %
27 %
(1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.
License gross margin increased in FY’21 compared to FY’20 due to subscription license revenue
increasing significantly as a result of longer subscription term durations, offset by increased royalty
expense due to the mix of products sold and higher intangible amortization due to the Arena acquisition.
Support and cloud services gross margin percentage is flat in FY’21 compared to FY’20, while gross
margin contribution increased from FY’20 to FY’21 reflecting an increase in subscription support and cloud
revenue, offset by a decrease in perpetual support revenue, higher compensation costs, and an increase
in costs associated with our cloud services business due to greater demand for those services.
Professional services gross margin increased in FY’21 compared to FY’20 primarily due to the impact
of the COVID-19 pandemic on FY’20 resulting in a year-over-year increase in revenue and lower travel
costs in FY’21, partially offset by higher compensation and outside services costs.
(Dollar amounts in millions)
Sales and marketing
% of total revenue
Research and development
% of total revenue
General and administrative
% of total revenue
Amortization of acquired intangible assets
% of total revenue
Restructuring and other charges, net
% of total revenue
Total operating expenses
Operating Expenses
Year ended September 30,
2021
2020
Percent
Change
$
517.8
$
29 %
299.9
17 %
206.0
11 %
29.4
2 %
2.2
0 %
435.5
30 %
256.6
18 %
159.8
11 %
28.7
2 %
32.7
2 %
$
1,055.3
$
913.3
19 %
17 %
29 %
2 %
(93)%
16 %
Total headcount increased by 7.5% in FY’21 to 6,709 from 6,243 at the end of FY’20. Headcount at
the end of FY’21 includes approximately 180 people from Arena and other smaller acquisitions.
Operating expenses in FY'21 compared to FY'20 increased primarily due to the following:
a $142.3 million increase in compensation expense (including benefit costs), primarily driven by:
a $56.8 million (56%) increase in stock-based compensation expense,
22
a $55.4 million (14%) increase in salaries due to higher headcount and merit increases as well
as $10.3 million from Arena,
a $15.8 million increase (17%) in benefits, of which $1.8 million is related to Arena,
a $12.3 million (114%) increase in cash bonus expense due to higher attainment and includes
$1.2 million from Arena,
a $9.7 million (17%) increase in commissions due to additional amortization of capitalized
commissions;
a $7.8 million (39%) increase in professional fees;
a $6.8 million (55%) increase in internal hosting costs;
a $6.4 million increase in acquisition-related charges, which are included in general and
administrative costs; and
a $4.3 million (16%) increase in marketing expense;
partially offset by:
a $28.8 million decrease in restructuring charges.
Stock-based compensation was higher in FY’21 compared to FY’20 primarily due to higher estimated
attainment under performance-based incentive compensation and more time-based awards
outstanding in FY’21. Cash bonus expense was also higher in FY’21 compared to FY’20 due to higher
attainment under the FY’21 bonus plan.
(Dollar amounts in millions)
Interest Expense
Year ended September 30,
2021
2020
Percent
Change
Interest and debt premium expense
$
(50.5 )
$
(76.4)
(34)%
Interest expense includes interest under our credit facility and senior notes. Interest expense was
lower in FY’21 as FY’20 included $15 million of expense related to penalties for the early redemption of the
6.000% Senior Notes due 2024, with higher balances in FY’21 partially offset by lower rates. We had $1,450
million of total debt at September 30, 2021, compared to $1,018 million at September 30, 2020. For
additional detail on the changes in our debt structure, see Note 9. Debt, included in the Notes to
Consolidated Financial Statements in this Annual Report.
The average interest rate on our total borrowings was 3.3% in FY'21 and 4.3% in FY'20.
(Dollar amounts in millions)
Year ended September 30,
Other Income (Expense)
Interest income
Other income (expense), net
Other income, net
2021
2020
$
$
1.8
59.7
61.5
$
$
3.8
(3.5)
0.3
Percent
Change
(54)%
(1830 )%
16464%
Interest income represents earnings on the investment of our available cash and marketable
securities.
Other expense, net includes foreign currency gains and losses and other non-operating gains and
losses. In FY’21, we recorded a $69 million non-operating gain related to an equity investment in
Matterport, Inc., which will continue to fluctuate. Foreign currency gains and losses include costs of
hedging contracts, certain realized and unrealized foreign currency transaction gains or losses, and
foreign exchange gains or losses resulting from the required period-end currency remeasurement of the
assets and liabilities of our subsidiaries that use the U.S. dollar as their functional currency.
23
(Dollar amounts in millions)
Year ended September 30,
Income Taxes
Income before income taxes
Provision (benefit) for income taxes
Effective income tax rate
2021
2020
$
$
391.8
(85.2)
(22)%
134.7
4.0
3%
Percent
Change
191 %
(2223 )%
In FY’21 and FY’20, our tax rate differed from the U.S. statutory federal income tax rate due to our
corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate. A
significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and the
Cayman Islands. In FY’21 and FY’20 the foreign rate differential predominantly relates to those earnings.
In FY’21, in addition to the foreign rate differential, our tax rate differed from the statutory federal
income tax rate due to the release of the valuation allowance on the majority of our U.S. net deferred tax
assets, the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible
Income (FDII) regimes (together referred to as U.S. Tax reform), and the excess tax benefit related to
stock-based compensation.
In FY’20, in addition to the foreign rate differential, our tax rate differed from the statutory federal
income tax rate due to U.S. tax reform, the excess tax benefit related to stock-based compensation and
the indirect effects of the adoption of ASC 606. Additionally, we recorded benefits for the reduction of
the U.S. valuation allowance as a result of the Onshape acquisition. A further reduction to the valuation
allowance was also recorded to reflect the impact from the scheduling of the reversal of existing
temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets.
Our results for the twelve months ended September 30, 2021 include a charge of $37.3 million related
to the effects of a tax matter in the Republic of Korea (South Korea) of $34.4 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 issues, primarily foreign withholding taxes, that was 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 to an intermediate appellate court. In December 2020, our appeal to that court - the Seoul
High Court - was rejected. We appealed this decision to the Supreme Court of the Republic of Korea. In
May 2021, the Supreme Court denied our request for a review of the case. Therefore, the decision of the
Seoul High Court was deemed final. We made additional payments of approximately $20 million to the
tax authorities in South Korea in FY’21 for the years 2016 to 2021 in settlement of the amounts previously
accrued.
ARR
Operating Measure
ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription
software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR includes orders
placed under our Strategic Alliance Agreement with Rockwell Automation, including orders placed to
satisfy contractual minimum commitments.
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. Because this
measure represents the annualized value of customer contracts as of a point in time, it does not represent
revenue for any particular period or remaining revenue that will be recognized in future periods.
The non-GAAP financial measures presented in the discussion of our results of operations and the
respective most directly comparable GAAP measures are:
Non-GAAP Financial Measures
free cash flow—cash flow from operations
24
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 of capital expenditures, which are expenditures for
property and equipment and consist primarily of facility improvements, office equipment, computer
equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a
useful measure of liquidity since capital expenditures are a necessary component of ongoing operations.
The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based
compensation expense; amortization of acquired intangible assets; acquisition-related and other
transactional charges included in general and administrative expenses; restructuring and other charges,
net; non-operating charges; and income tax adjustments.
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.
Stock-based compensation is a non-cash expense relating to stock-based awards issued to
executive officers, employees and outside directors, consisting of restricted stock units. We exclude this
expense as it is a non-cash expense and we assess our internal operations excluding this expense and
believe it facilitates comparisons to the performance of other companies in our industry.
Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and
magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is
relevant to our assessment of internal operations and comparisons to the performance of other
companies in our industry.
Acquisition-related and other transactional charges included in general and administrative expenses
are direct costs of potential and completed acquisitions and expenses related to acquisition integration
activities, including transaction fees, due diligence costs, severance and professional fees. Subsequent
adjustments to our initial estimated amount of contingent consideration associated with specific
acquisitions are also included within acquisition-related charges. Other transactional charges include
third-party costs related to structuring unusual transactions. We do not include these costs when reviewing
our operating results internally. The occurrence and amount of these costs will vary depending on the
timing and size of acquisitions.
Restructuring and other charges, net includes excess facility restructuring charges (credits);
impairment and accretion expense charges related to the lease assets of exited facilities; sublease
income from previously impaired facilities; and severance costs resulting from reductions of personnel and
third-party professional consulting fees related to modifications of our business strategy. These costs may
vary in size based on our restructuring plan.
Non-operating charges (credits). In Q4’21, we recorded a $69 million gain related to our equity
investment in Matterport, Inc., which will continue to fluctuate based on the market value of the
investment. In FY’20, we incurred an early redemption interest penalty and wrote off debt issuance costs,
both of which were related to the settlement of the 6.000% Senior Notes due 2024. These items are
excluded from our non-GAAP financial measures as they are non-ordinary course in nature and not
included in management’s review of our results.
25
Income tax adjustments include the tax impact of the items above and assumes that we are
profitable on a non-GAAP basis in the U.S. and one foreign jurisdiction. It also eliminates the effect of the
valuation allowance recorded against our net deferred tax assets in those jurisdictions. Additionally, we
exclude other material tax items that we do not include when reviewing our operating results internally.
We use these non-GAAP financial measures, and we believe that they assist our investors, to make
period-to-period comparisons of our operational performance because they provide a view of our
operating results without items that are not, in our view, indicative of our core operating results. We
believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we
use the measures to establish budgets and operational goals (communicated internally and externally)
for managing our business and evaluating our performance. We believe that providing non-GAAP
financial measures also affords investors a view of our operating results that may be more easily
compared to the results of other companies in our industry that use similar financial measures to
supplement their GAAP results.
The items excluded from the non-GAAP financial measures often have a material impact on our
financial results and such items often recur. Accordingly, the non-GAAP financial measures included in
this Annual Report 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.
(in millions, except per share amounts)
Year ended September 30,
2020
2021
GAAP gross margin
Stock-based compensation
Amortization of acquired intangible assets included in cost of revenue
Non-GAAP gross margin
GAAP operating income
Stock-based compensation
Amortization of acquired intangible assets included in cost of revenue
Amortization of acquired intangible assets
Acquisition-related and other transactional charges included in general and
administrative expenses
Restructuring and other charges, net
Non-GAAP operating income
GAAP net income
Stock-based compensation
Amortization of acquired intangible assets included in cost of revenue
Amortization of acquired intangible assets
Acquisition-related and other transactional charges included in general and
administrative expenses
Restructuring and other charges, net
Non-operating charges (credits)(1)
Income tax adjustments(2)
Non-GAAP net income
GAAP diluted earnings per share
Stock-based compensation
Total amortization of acquired intangible assets
Acquisition-related and other transactional charges included in general and
administrative expenses
Restructuring and other charges, net
Non-operating charges (credits)(1)
Income tax adjustments(2)
Non-GAAP diluted earnings per share
$
$
$
$
$
$
$
$
1,436.1
19.3
29.8
1,485.1
380.7
177.3
29.8
29.4
15.0
2.2
634.4
476.9
177.3
29.8
29.4
15.0
2.2
(68.8)
(191.6)
470.2
4.03
1.50
0.50
0.13
0.02
(0.58)
(1.62)
3.97
$
$
$
$
$
$
$
$
1,124.1
14.0
27.4
1,165.5
210.9
115.1
27.4
28.7
8.6
32.7
423.4
130.7
115.1
27.4
28.7
8.6
32.7
18.5
(63.3 )
298.4
1.12
0.99
0.48
0.07
0.28
0.16
(0.54 )
2.57
(1)
(2)
In FY’21, we recorded a $69 million gain on common stock we own in a public company. In FY’20, we recognized $15 million
of expense related to penalties for the early redemption of the 6.000% Senior Notes due in 2024 and wrote off approximately
$3 million of related debt issuance costs.
In FY’21 and FY’20 our GAAP results included tax benefits of $179.7 million and $21.2 million, respectively. The FY’21 results
include a $137.4 million benefit related to the release of the valuation allowance on the majority of our U.S. deferred tax assets
and a $42.3 million benefit related to the release of a valuation allowance resulting from the Arena acquisition. The FY’20
results include a $21.2 million benefit related to the release of a valuation allowance resulting from the Onshape acquisition. As
the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded.
26
Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax
rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, our non-GAAP results for FY'21 exclude tax expense
of $34.8 million related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes.
Operating margin impact of non-GAAP adjustments:
GAAP operating margin
Stock-based compensation
Total amortization of acquired intangible assets
Acquisition-related and other transactional charges included in general and
administrative expenses
Restructuring and other charges, net
Non-GAAP operating margin
Year ended September 30,
2020
2021
21.1%
9.8%
3.3%
0.8%
0.1%
35.1%
14.5 %
7.9%
3.8%
0.6%
2.2%
29.0 %
Critical Accounting Policies and Estimates
We have prepared our consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. In preparing our financial statements, we make
estimates, assumptions and judgments that can have a significant impact on our reported revenues,
results of operations, and net income, as well as on the value of certain assets and liabilities on our
balance sheet. These estimates, assumptions and judgments are made based on our historical
experience and on other assumptions that we believe to be reasonable under the circumstances. These
estimates may change as new events occur or additional information is obtained, and we may
periodically be faced with uncertainties, the outcomes of which are not within our control and may not
be known for a prolonged period of time.
The accounting policies, methods and estimates used to prepare our financial statements are
described generally in Note 2. Summary of Significant Accounting Policies of Notes to Consolidated
Financial Statements in this Annual Report. The most important accounting judgments and estimates that
we made in preparing the financial statements involved:
revenue recognition;
accounting for income taxes; and
valuation of assets and liabilities acquired in business combinations.
A critical accounting policy is one that is both material to the presentation of our financial
statements and requires us to make subjective or complex judgments that could have a material effect
on our financial condition and results of operations. Critical accounting policies require us to make
assumptions about matters that are uncertain at the time of the estimate, and different estimates that we
could have used, or changes in the estimates that are reasonably likely to occur, may have a material
impact on our financial condition or results of operations. Because the use of estimates is inherent in the
financial reporting process, actual results could differ from those estimates.
Accounting policies, guidelines and interpretations related to our critical accounting policies and
estimates are generally subject to numerous sources of authoritative guidance and are often reexamined
by accounting standards rule makers and regulators. These rule makers and/or regulators may
promulgate interpretations, guidance or regulations that may result in changes to our accounting
policies, which could have a material impact on our financial position and results of operations.
27
Revenue Recognition
We record revenues in accordance with the guidance provided by ASC 606, Revenue from
Contracts with Customers. For a full description of our revenue accounting policy, refer to Note 2.
Summary of Significant Accounting Policies, included in the Notes to Consolidated Financial Statements in
this Annual Report.
Our sources of revenue include: (1) subscriptions, (2) perpetual licenses, (3) support for perpetual
licenses and (4) professional services. Subscriptions include term-based on-premises licenses, Software-as-
a-Service (SaaS), and hosting services.
Judgments and Estimates
Determination of performance obligations. Our subscriptions are frequently sold as a bundle of
products and services, typically pairing on-premises term software licenses with support and/or cloud
services over the same term. On-premises software is typically determined to be a distinct performance
obligation and is thus recognized separately from the support and/or cloud components. On-premises
license software revenue is generally recognized at the point in time that the software is made available
to the customer, while the support and cloud software revenue components are recognized over the
term of the contract. In cases where subscriptions include cloud functionality and on-premises software,
an assessment has been performed to determine whether the cloud services are distinct from the on-
premises software. In the substantial majority of instances, cloud services provide incremental functionality
to customers and have been considered distinct and recognized separately from the on-premises
software. This assessment could have a significant impact on the timing of revenue recognition and may
change as our product offerings evolve.
Allocation of transaction price. We estimate the standalone selling price of each identified
performance obligation and use that estimate to allocate the transaction price among said performance
obligations. The estimated standalone selling price is determined using all information reasonably
available to us, including market conditions and other observable inputs. Significant judgment is used in
determining the standalone selling prices of the on-premises license, support, and cloud components of
our subscription products. These estimates are subject to change as our product offerings change and
could have a significant impact due to the difference in the timing of revenue recognition for on-
premises licenses and support and/or cloud.
Right to exchange. Our multi-year, non-cancellable on-premises subscription contracts provide
customers with an annual right to exchange software within the original subscription with other software.
We account for this right as a refund liability. For most contracts, we use the expected value method to
determine the refund liability associated with this right across a portfolio of contracts. Where contracts 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 refund liability for
each individual contract. In both circumstances, the transaction price is constrained based on our
estimates, which impacts the amount of revenue recognized. Changes in these estimates could
significantly impact revenue for any given period.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to
calculate our income tax expense based on taxable income by jurisdiction. There are many transactions
and calculations about which the ultimate tax outcome is uncertain; as a result, our calculations involve
estimates by management. Some of these uncertainties arise as a consequence of revenue-sharing, cost-
reimbursement and transfer pricing arrangements among related entities and the differing tax treatment
of revenue and cost items across various jurisdictions. If we were compelled to revise or to account
differently for our arrangements, that revision could affect our recorded tax liabilities.
The income tax accounting process also involves estimating our actual current tax liability, together
with assessing temporary differences resulting from differing treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which are included within our
consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be
28
recovered from future taxable income and, to the extent we believe that it is more likely than not that all
or a portion of our deferred tax assets will not be realized, we must establish a valuation allowance as a
charge to income tax expense.
As of September 30, 2021, we have a valuation allowance of $17.7 million against net deferred tax
assets in the U.S. and a valuation allowance of $34.4 million against net deferred tax assets in certain
foreign jurisdictions. We have concluded, based on the weight of available evidence, that a full valuation
allowance is no longer required against our U.S. net deferred tax assets as they are more likely than not to
be realized in the future. We will continue to reassess our valuation allowance requirements each
financial reporting period.
The valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is
established primarily for our capital loss carryforwards, the majority of which do not expire. However, there
are limitations imposed on the utilization of such capital losses that could further restrict the recognition of
any tax benefits.
Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the
undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no
deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were
subjected to a one-time transition tax and there is therefore no longer a material cumulative basis
difference associated with the undistributed earnings. We maintain our assertion to permanently reinvest
these earnings outside the U.S. unless repatriation can be done substantially tax-free, with the exception
of a foreign holding company formed in 2018 and our Taiwan subsidiary. If we decide to repatriate any
additional non-U.S. earnings in the future, we may be required to establish a deferred tax liability on such
earnings. The amount of unrecognized deferred tax liability on the undistributed earnings would not be
material.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities,
including the Internal Revenue Service (IRS) 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, transfer pricing, 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.
Valuation of Assets and Liabilities Acquired in Business Combinations
In accordance with business combination accounting, we allocate the purchase price of acquired
companies to the tangible and intangible assets acquired and liabilities assumed based on their
estimated fair values. Determining these fair values requires management to make significant estimates
and assumptions, especially with respect to intangible assets.
Our identifiable intangible assets acquired consist of developed technology, core technology,
tradenames, customer lists and contracts, and software support agreements and related relationships.
Developed technology consists of products that have reached technological feasibility. Core technology
represents a combination of processes, inventions and trade secrets related to the design and
development of acquired products. Customer lists and contracts and software support agreements and
related relationships represent the underlying relationships and agreements with customers of the
acquired company’s installed base. We have generally valued intangible assets using a discounted cash
flow model. Critical estimates in valuing certain of the intangible assets include but are not limited to:
future expected cash flows from software license sales, customer support agreements, customer
contracts and related customer relationships and acquired developed technologies and
trademarks and trade names and
discount rates used to determine the present value of estimated future cash flows.
In addition, we estimate the useful lives of our intangible assets based upon the expected period
over which we anticipate generating economic benefits from the related intangible asset.
29
Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities
and obligations. Except for deferred revenues, net tangible assets were generally valued by us at the
respective carrying amounts recorded by the acquired company, if we believed that their carrying
values approximated their fair values at the acquisition date. The values assigned to deferred revenue
reflect an amount equivalent to the estimated cost plus an appropriate profit margin to perform the
services related to the acquired company’s software support contracts.
In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with
a business combination are initially estimated as of the acquisition date and we reevaluate these items
quarterly with any adjustments to our preliminary estimates being recorded to goodwill provided that we
are within the measurement period (up to one year from the acquisition date) and we continue to collect
information in order to determine their estimated values. Subsequent to the measurement period or our
final determination of the estimated value of uncertain tax positions or tax-related valuation allowances,
whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will
affect our provision for income taxes in our Consolidated Statements of Operations.
Our estimates of fair value are based upon assumptions believed to be reasonable at that time, but
which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur, which may affect the accuracy or validity of such
assumptions, estimates or actual results.
When events or changes in circumstances indicate that the carrying value of a finite-lived intangible
asset may not be recoverable, we perform an assessment of the asset for potential impairment. This
assessment is based on projected undiscounted future cash flows over the asset’s remaining life. If the
carrying value of the asset exceeds its undiscounted cash flows, we record an impairment loss equal to
the excess of the carrying value over the fair value of the asset, determined using projected discounted
future cash flows of the asset.
Liquidity and Capital Resources
(in millions)
Cash and cash equivalents
Restricted cash
Marketable securities
Total
Activity for the year included the following:
Cash provided by operating activities
Cash used in investing activities
Cash provided by financing activities
Cash, cash equivalents and restricted cash
$
$
$
September 30,
2021
2020
$
$
$
326.5
0.5
327.0
368.8
(687.9 )
370.3
275.5
0.5
59.1
335.1
233.8
(526.0 )
297.4
We invest our cash with highly rated financial institutions and in diversified domestic and international
money market mutual funds. Cash and cash equivalents include highly liquid investments with original
maturities of three months or less. At September 30, 2021, cash and cash equivalents totaled $327 million,
compared to $275 million at September 30, 2020.
A significant portion of our cash is generated and held outside the U.S. As of September 30, 2021, we
had cash and cash equivalents of $37 million in the U.S., $111 million in Europe, $145 million in Asia Pacific
(including India) and $34 million in other non-U.S. countries. All our marketable securities are held in the
U.S. We have substantial cash requirements in the U.S., but we believe that the combination of our existing
U.S. cash and cash equivalents, marketable securities, our ability to repatriate cash to the U.S. more cost
effectively, 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 provided by operating activities
Cash provided by operating activities was $369 million in FY'21 compared to $234 million in FY'20. The
year-over-year increase is primarily due to approximately $190 million of higher cash collections and $20
30
million in contribution from Arena, offset by $80 million more in salary and salary-related payment and an
$18 million foreign tax payment.
Restructuring payments totaled $14 million in FY’21, compared to $42 million in FY’20. Cash paid for
income taxes was $58 million in FY’21 compared to $53 million in FY’20.
Cash used in investing activities
(in millions)
Additions to property and equipment
Proceeds (purchases) of short- and long-term marketable securities, net
Acquisitions of businesses, net of cash acquired
Purchases of investments
Purchase of intangible assets
Settlement of net investment hedges
Net cash used in investing activities
Year ended September 30,
2020
2021
$
$
(24.7)
58.4
(718.0)
(4.0)
(0.6)
1.0
(687.9)
$
$
(20.2 )
(1.8 )
(483.5 )
(11.1 )
(9.4 )
(526.0 )
Cash used in investing activities reflects $718 million used for acquisitions in FY’21, primarily related to
Arena compared to $483 million in FY’20 ($469 million of which related to Onshape). For additional detail
on our acquisitions, see Note 6. Acquisitions, included in the Notes to Consolidated Financial Statements
in this Annual Report. Our expenditures for property and equipment consist primarily of facility
improvements, office equipment, computer equipment, and software.
Cash provided by financing activities
(in millions)
Borrowings on debt, net
Repurchases of common stock
Proceeds from issuance of common stock
Debt issuance costs
Debt early redemption premium
Payments of withholding taxes in connection with stock-based awards
Payments of principal for financing leases
Net cash provided by financing activities
Year ended September 30,
2020
2021
$
$
432.0
(30.0)
21.6
(53.0)
(0.4)
370.3
$
$
344.9
18.3
(17.1 )
(15.0 )
(33.7 )
297.4
FY’21 net borrowings of $432 million were primarily used to fund the Arena acquisition. FY’20 net
borrowings were primarily related to the acquisition of Onshape. FY’20 net borrowings reflect the issuance
of $1 billion in new notes in February 2020 and the repayment of $500 million of earlier issued notes in May
2020, as well as net repayments of $155 million under our revolving credit facility.
Outstanding Debt
As of September 30, 2021, we had:
(in millions)
4.000% Senior notes due 2028
3.625% Senior notes due 2025
Credit facility revolver
Total debt
Unamortized debt issuance costs for the Senior notes
Total debt, net of issuance costs
Undrawn under credit facility revolver
Undrawn under credit facility revolver available for borrowing
September 30, 2021
500.0
500.0
450.0
1,450.0
(10.5 )
1,439.5
550.0
533.7
$
$
$
$
As of September 30, 2021, we were in compliance with all financial and operating covenants of the
credit facility and the note indentures. Any failure to comply with such covenants under the credit facility
would prevent us from being able to borrow additional funds under the credit facility, and, as with any
31
failure to comply with such covenants under the note indentures, could constitute a default that could
cause all amounts outstanding to become due and payable immediately.
Our credit facility and our Senior Notes are described in Note 9. Debt to the Condensed
Consolidated Financial Statements in this Form 10-K.
Share Repurchase Authorization
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 billion of our common stock through
September 30, 2023. We may use cash from operations and borrowings under our credit facility to make
any such repurchases. All shares of our common stock repurchased are automatically restored to the
status of authorized and unissued.
In FY’21, we repurchased approximately 226 thousand shares in the open market for $30 million. We
did not repurchase any shares in FY’20.
Expectations for Fiscal 2022
We believe that existing cash and cash equivalents, together with cash generated from operations
and amounts available under the credit facility, will be sufficient to meet our working capital and capital
expenditure requirements (which we expect to be approximately $30 million in FY’22) through at least the
next twelve months and to meet our known long-term capital requirements. In FY’22 we expect to pay
approximately $50 million to $55 million in restructuring cash payments related to our recently announced
restructuring charge as well as previous restructuring charges. In FY’22, we expect to return approximately
25% of our estimated free cash flow excluding restructuring payments, which is expected to be
approximately $450 million, to our shareholders through stock repurchases of our common stock.
Our expected uses and sources of cash could change, our cash position could be reduced, and we
could incur additional debt obligations if we decide to retire debt, 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 and other factors. The amounts involved in any debt retirement or issuance, share
repurchases, or strategic transactions may be material.
Contractual Obligations
At September 30, 2021, our future contractual obligations were related to debt, leases, pension
liabilities, unrecognized tax benefits, and purchase obligations. See Note 9. Debt, Note 19. Leases, Note
14. Pension Plans, and Note 8. Income Taxes of Notes to Consolidated Financial Statements in this Annual
Report for information about those obligations, which Notes are incorporated by reference into this
section. Our purchase obligations were approximately $90.4 million, with $43.7 million expected to be
paid in FY’22 and $46.8 million thereafter. Purchase obligations represent minimum commitments due to
third parties, including royalty contracts, research and development contracts, telecommunication
contracts, information technology maintenance contracts in support of internal-use software and
hardware, financing leases, operating leases with original terms of less than 12 months, and other
marketing and consulting contracts. Contracts for which our commitment is variable, based on volumes,
with no fixed minimum quantities, and contracts that can be canceled without payment penalties are
not included in the purchase obligation amounts above. The purchase obligations included above are in
addition to amounts included in current liabilities and prepaid expenses recorded on our September 30,
2021 Consolidated Balance Sheet.
As of September 30, 2021, we had letters of credit and bank guarantees outstanding of
approximately $16.3 million (of which $0.5 million was collateralized).
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the
purpose of raising capital, incurring debt or operating parts of our business that are not consolidated (to
Off-Balance Sheet Arrangements
32
the extent of our ownership interest therein) into our financial statements. We have not entered into any
transactions with unconsolidated entities whereby we have subordinated retained interests, derivative
instruments or other contingent arrangements that expose us to material continuing risks, contingent
liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to us.
Recent Accounting Pronouncements
In accordance with recently issued accounting pronouncements, we will be required to comply with
certain changes in accounting rules and regulations, none of which are expected to have a material
impact on our consolidated financial statements. Refer to Note 2. Summary of Significant Accounting
Policies to the Condensed Consolidated Financial Statements in this Form 10-K for all recently issued
accounting pronouncements, which is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
We face exposure to financial market risks, including adverse movements in foreign currency
exchange rates and changes in interest rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on our financial results.
Foreign currency exchange risk
Our earnings and cash flows are subject to fluctuations due to changes in foreign currency
exchange rates. Our most significant foreign currency exposures relate to Western European countries,
Japan, Israel, China and Canada. We enter into foreign currency forward contracts to manage our
exposure to fluctuations in foreign exchange rates that arise from receivables and payables
denominated in foreign currencies. We do not enter into or hold foreign currency derivative financial
instruments for trading or speculative purposes, nor do we enter into derivative financial instruments to
hedge future cash flows or forecast transactions.
Our non-U.S. revenues generally are transacted through our non-U.S. subsidiaries and typically are
denominated in their local currency. In addition, expenses that are incurred by our non-U.S. subsidiaries
typically are denominated in their local currency. Approximately 60% of our revenue and 40% of our
expenses were transacted in currencies other than the U.S. dollar. Currency translation affects our
reported results because we report our results of operations in U.S. Dollars. Historically, our most significant
currency risk has been changes in the Euro and Japanese Yen relative to the U.S. Dollar. Based on current
revenue and expense levels (excluding restructuring charges and stock-based compensation), a $0.10
change in the USD to EUR exchange rate and a 10 Yen change in the Yen to USD exchange rate would
impact operating income by approximately $28 million and $10 million, respectively.
Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany
transactions, with most intercompany transactions occurring between a U.S. dollar functional currency
entity and a foreign currency denominated entity. Intercompany transactions typically are denominated
in the local currency of the non-U.S. dollar functional currency subsidiary in order to centralize foreign
currency risk. Also, both PTC (the parent company) and our non-U.S. subsidiaries may transact business
with our customers and vendors in a currency other than their functional currency (transaction risk). In
addition, we are exposed to foreign exchange rate fluctuations as the financial results and balances of
our non-U.S. subsidiaries are translated into U.S. dollars (translation risk). If sales to customers outside of the
United States increase, our exposure to fluctuations in foreign currency exchange rates will increase.
Our foreign currency risk management strategy is principally designed to mitigate the future
potential financial impact of changes in the U.S. dollar value of balances denominated in foreign
currency, resulting from changes in foreign currency exchange rates. Our foreign currency hedging
program uses forward contracts to manage the foreign currency exposures that exist as part of our
ongoing business operations. The contracts are primarily denominated in Japanese Yen and European
currencies, and have maturities of less than three months.
Generally, we do not designate foreign currency forward contracts as hedges for accounting
purposes, and changes in the fair value of these instruments are recognized immediately in earnings.
33
Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying
foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and
losses on forward contracts and foreign currency denominated receivables and payables are included in
foreign currency net losses.
As of September 30, 2021 and 2020, we had outstanding forward contracts for derivatives not
designated as hedging instruments with notional amounts equivalent to the following:
Currency Hedged (in thousands)
Canadian / U.S. Dollar
Euro / U.S. Dollar
British Pound / U.S. Dollar
Israeli Shekel / U.S. Dollar
Japanese Yen / U.S. Dollar
Swiss Franc / U.S. Dollar
Swedish Krona / U.S. Dollar
Singapore Dollar / U.S. Dollar
Chinese Renminbi / U.S. Dollar
New Taiwan Dollar / U.S. Dollar
Russian Ruble/ U.S. Dollar
All other
Total
Debt
September 30,
2021
2020
$
$
4,894
387,466
23,141
10,475
46,450
18,039
34,196
3,498
23,297
3,369
2,614
6,482
563,921
$
$
6,847
390,673
6,328
9,503
50,379
12,874
18,871
3,281
5,415
1,483
309
6,499
512,462
In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2021, we
had $450 million outstanding under our credit facility. 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 us. These
loans are subject to interest rate risk as interest rates will be adjusted at each rollover date to the extent
such amounts are not repaid. As of September 30, 2021, the annual rate on the credit facility loans was
1.69%. If there were a hypothetical 100 basis point change in interest rates, the annual net impact to
earnings and cash flows would be $4.5 million. This hypothetical change in cash flows and earnings has
been calculated based on the borrowings outstanding at September 30, 2021 and a 100 basis point per
annum change in interest rate applied over a one-year period.
Cash and cash equivalents
As of September 30, 2021, cash equivalents were invested in highly liquid investments with maturities
of three months or less when purchased. We invest our cash with highly rated financial institutions in North
America, Europe and Asia Pacific and in diversified domestic and international money market mutual
funds. At September 30, 2021, we had cash and cash equivalents of $37 million in the United States, $111
million in Europe, $145 million in Asia Pacific (including India), and $34 million in other non-U.S. countries.
Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2021, a
hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash
equivalents.
Our invested cash is subject to interest rate fluctuations and, for non-U.S. operations, foreign currency
risk. In a declining interest rate environment, we would experience a decrease in interest income. The
opposite holds true in a rising interest rate environment. Over the past several years, the U.S. Federal
Reserve Board, European Central Bank and Bank of England have changed certain benchmark interest
rates, which has led to declines and increases in market interest rates. These changes in market interest
rates have resulted in fluctuations in interest income earned on our cash and cash equivalents. Interest
income will continue to fluctuate based on changes in market interest rates and levels of cash available
for investment. Changes in foreign currencies relative to the U.S. dollar had an unfavorable impact of $0.1
million and $2.6 million on our consolidated cash balances in 2021 and 2019, respectively, in particular
due to changes in the Euro and the Japanese Yen, and an immaterial impact in 2020.
34
ITEM 8.
Financial Statements and Supplementary Data
The consolidated financial statements and notes to the consolidated financial statements are
attached as APPENDIX A.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation 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.
As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the
participation of management, including our principal executive and principal financial officers, of the
effectiveness of the design and operation of our disclosure controls and procedures as of the end of the
period covered by this Annual Report. Based on this evaluation, we concluded that our disclosure
controls and procedures were effective at the reasonable assurance level as of September 30, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) of
the Exchange Act as a process designed by, or under the supervision of, our principal executive and
principal financial officers and effected by our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles
and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate
Our management assessed the effectiveness of our internal control over financial reporting as of
September 30, 2021 using the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment
35
and those criteria, our management concluded that, as of September 30, 2021, our internal control over
financial reporting was effective.
Management excluded Arena from our assessment of internal control over financial reporting as of
September 30, 2021 because the Company acquired it in a business combination in 2021. Arena’s total
assets and total revenues represent approximately 1% and 2%, respectively, of the Company’s total assets
and total revenues, as of and for the year ended September 30, 2021.
The effectiveness of our internal control over financial reporting as of September 30, 2021 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in
their report, which appears under Item 8.
Change in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter
ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. Other Information
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
36
ITEM 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this item with respect to our directors and executive officers may be
found in the sections captioned “Proposal 1: Election of Directors,” “Corporate Governance,” "Our
Executive Officers," and “Transactions with Related Persons” appearing in our 2022 Proxy Statement. Such
information is incorporated into this Item 10 by reference.
Code of Ethics for Senior Executive Officers
We have adopted a Code of Ethics for Senior Executive Officers that applies to our Chief Executive
Officer, President, Chief Financial Officer, and Controller, as well as others. The Code is embedded in our
Code of Business Conduct and Ethics applicable to all employees. A copy of the Code of Business
Conduct and Ethics is publicly available on our website at www.ptc.com. If we make any substantive
amendments to, or grant any waiver from, including any implicit waiver, the Code of Ethics for Senior
Executive Officers to or for our Chief Executive Officer, President, Chief Financial Officer or Controller, we
will disclose the nature of such amendment or waiver in a current report on Form 8-K.
ITEM 11.
Executive Compensation
Information with respect to director and executive compensation may be found under the headings
“Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” and
“Compensation Committee Report” appearing in our 2022 Proxy Statement. Such information is
incorporated herein by reference.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information required by this item may be found under the heading “Information about PTC Common
Stock Ownership” in our 2022 Proxy Statement. Such information is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
as of September 30, 2021
Plan Category
Equity compensation plans approved by security holders:
2000 Equity Incentive Plan(1)
2016 Employee Stock Purchase Plan(2)
Total
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
3,215,849
3,215,849
Weighted-average
exercise price
of outstanding
options, warrants
and rights
Number of
securities remaining
available for
future issuance
under equity
compensation
plans
(1)
4,074,497
634,855 (2)
4,709,352
(1) All of the shares issuable upon vesting are restricted stock units, which have no exercise price.
(2)
This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which
110,363 shares are subject to purchase during the current offering period.
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Information with respect to this item may be found under the headings “Independence of Our
Directors,” “Review of Transactions with Related Persons” and “Transactions with Related Persons” in our
2022 Proxy Statement. Such information is incorporated herein by reference.
ITEM 14.
Principal Accounting Fees and Services
Information with respect to this item may be found under the headings “Engagement of
Independent Auditor and Approval of Professional Services and Fees” and “PricewaterhouseCoopers LLP
Professional Services and Fees” in our 2022 Proxy Statement. Such information is incorporated herein by
reference.
37
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of Form 10-K
1.
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2021 and 2020
Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and
2019
Consolidated Statements of Comprehensive Income (Loss) for the years ended September
30, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended September 30, 2021, 2020 and
2019
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2021,
2020 and 2019
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Schedules have been omitted since they are either not required, not applicable, or the
information is otherwise included in the Financial Statements per Item 15(a)1 above.
F-1
F-4
F-5
F-6
F-7
F-8
F-9
3.
Exhibits
The list of exhibits in the Exhibit Index is incorporated herein by reference.
(b) Exhibits
We hereby file the exhibits listed in the attached Exhibit Index.
(c) Financial Statement Schedules
None.
ITEM 16.
Form 10-K Summary
None.
38
Exhibit
Number
Exhibit
EXHIBIT INDEX
3.1 — Restated Articles of Organization of PTC Inc. adopted August 4, 2015 (filed as Exhibit 3.1 to our Annual Report on Form
10-K for the fiscal year ended September 30, 2015 (File No. 0-18059) and incorporated herein by reference).
3.2 — By-Laws, as amended and restated, of PTC Inc. (filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 2014 (File No. 0-18059) and incorporated herein by reference).
3.3 — Amendment to PTC By-Laws dated June 24, 2021 (filed as Exhibit 3.1 to our Current Report on Form 8-K filed on June 25,
2021 (File No. 0-18059) and incorporated herein by reference).
4.1 —
Indenture, dated as of February 13, 2020, between PTC Inc. and Wells Fargo Bank, National Association, as trustee
(filed as Exhibit 4.1 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated
herein by reference).
4.2 — Form of 3.625% senior unsecured notes due 2025 (filed as Exhibit 4.2 to our Current Report on Form 8-K filed on February
13, 2020 (File No. 0-18059) and incorporated herein by reference).
4.3 — Form of 4.000% senior unsecured notes due 2028 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on February
13, 2020 (File No. 0-18059) and incorporated herein by reference).
4.4 — Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934 (filed as Exhibit 4.4 to our
Annual Report on Form 10-K for the year ended September 30, 2019 (File No. 0-18059) and incorporated herein by
reference).
10.1.1* — 2000 Equity Incentive Plan (filed as Exhibit 10 to our Current Report on Form 8-K filed on March 8, 2019 (File No. 0-18059)
and incorporated herein by reference.
10.1.2 — Form of Restricted Stock Unit Certificate (Non-U.S.) (filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
fiscal quarter ended July 2, 2005 (File No. 0-18059) and incorporated herein by reference).
10.1.3* — Form of Restricted Stock Unit Certificate (Non-Employee Director) (filed as Exhibit 10.1.1 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 30, 2013 (File No. 0-18059) and incorporated herein by reference).
10.1.4 — Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.9 to our Annual Report on Form 10-K for the fiscal
year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.5 — Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.10 to our Annual Report on Form 10-K for the fiscal
year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.6 — Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.11 to our Annual Report on Form 10-K for the fiscal
year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.7 — Form of Restricted Stock Unit Certificate (U.S. EVP) (filed as Exhibit 10.1.12 to our Annual Report on Form 10-K for the
fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.8* — Form of Restricted Stock Unit Certificate (U.S. Section 16) (filed as Exhibit 10.1.13 to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.9 — Form of Restricted Stock Unit Certificate (U.S. EVP) (filed as Exhibit 10.1.14 to our Annual Report on Form 10-K for the
fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.10 — Form of Restricted Stock Unit Certificate (U.S.) (filed as Exhibit 10.1.15 to our Annual Report on Form 10-K for the fiscal
year ended September 30, 2016(File No. 0-18059) and incorporated herein by reference).
10.1.11* — Form of Restricted Stock Unit Certificate (U.S. Section 16) (filed as Exhibit 10.1.16 to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2016 (File No. 0-18059) and incorporated herein by reference).
10.1.12* — Form of Restricted Stock Unit Certificate (U.S. Section 16) (filed as Exhibit 10.1.17 to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2012 (File No. 0-18059) and incorporated herein by reference).
10.2* — 2016 Employee Stock Purchase Plan (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended December 28, 2019 (File No. 0-18059) and incorporated herein by reference).
10.3* — Executive Agreement by and between the Company and James Heppelmann, President and Chief Executive Officer,
dated September 30, 2020 (filed as Exhibit 10.1 to our Current Report on Form 8-K dated September 30, 2020 (File No. 0-
18059) and incorporated herein by reference).
10.4* — Form of Amended and Restated Executive Agreement between the Company and each of Kristian Talvitie and Aaron
von Staats (filed as Exhibit 10.3 to PTC’s Quarterly Report on Form 10-Q for the period ended December 28, 2019 (File.
0-18059) and incorporated herein by reference).
39
10.5* — Form of Executive Agreement between the Company and Michael DiTullio (filed as Exhibit 10.1 to PTC’s Quarterly
Report on Form 10-Q for the period ended March 28, 2020 (File. No. 0-18059) and incorporated herein by reference).
10.6* — Executive Agreement between the Company and Troy Richardson dated November 16, 2020 (filed as Exhibit 10.6 to
PTC’s Annual Report on Form 10-K for the period ended September 30, 2020 (File 0-18059) and incorporated herein by
reference).
10.7 — Lease dated December 14, 1999 by and between PTC Inc. and Boston Properties Limited Partnership (filed as
Exhibit 10.21 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (File No. 0-18059) and
incorporated herein by reference).
10.8 — Third Amendment to Lease Agreement dated as of October 27, 2010 by and between Boston Properties Limited
Partnership and PTC Inc. (filed as Exhibit 10.1 to our Current Report on Form 8-K dated November 8, 2010 (File No. 0-
18059) and incorporated herein by reference).
10.9 — Fifth Amendment dated April 10, 2020 to Lease dated December 14, 1999 by and between PTC Inc. and Boston
Properties Limited Partnership (filed as Exhibit 10.2 to PTC’s Quarterly Report on Form 10-Q for the period ended March
28, 2020 (File. No. 0-18059) and incorporated herein by reference).
10.10 — Office Lease Agreement dated as of September 7, 2017 by and between PTC Inc. and SCD L2 Seaport Square LLC
(filed as Exhibit 10 to our Current Report on Form 8-K filed on September 7, 2017 (File No. 0-18059) and incorporated
herein by reference).
10.11 — First Amendment to Lease dated as of October 5, 2017 by and between PTC Inc. and SCD L2 Seaport Square LLC
(filed as Exhibit 10.23 to our Annual Report on Form 10-K for the period ended September 30, 2017 (File No. 0-18059)
and incorporated herein by reference).
10.12*** — Third Amended and Restated Strategic Alliance Agreement by and between PTC Inc. and Rockwell Automation, Inc.
dated as of October 28, 2020 (filed as Exhibit 10.1 to our Current Report on Form 8-K dated October 28, 2020 (File No.
0-18059) and incorporated herein by reference).
10.13 — Registration Rights Agreement by and between the Company and Rockwell Automation, Inc., dated July 19, 2018
(filed as Exhibit 10.1 in our Current Report on Form 8-K filed on July 19, 2018 (File No. 0-18059) and incorporated herein
by reference).
10.14 — Securities Purchase Agreement by and between PTC Inc. and Rockwell Automation, Inc., dated as of June 11, 2018
(filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 11, 2018 (File No. 0-18059) and incorporated herein
by reference).
10.15 — Amendment No. 1 to Securities Purchase Agreement dated as of May 11, 2021 between PTC Inc. and Rockwell
Automation, Inc. filed as Exhibit 10.1 to our Current Report on Form 8-K filed on May 13, 2021 (File No. 0-18059) and
incorporated herein by reference).
10.16 — Third Amended and Restated Credit Agreement, by and among the Company, PTC (IFSC) Limited, the lenders listed
thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 4.4 to our Current Report on Form 8-K
filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).
21.1 — Subsidiaries of PTC Inc.
23.1 — Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm.
31.1 — Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13(a)-14(a) and 15d-14(a).
31.2 — Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13(a)-14(a) and 15d-14(a).
32** — Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350.
101 — The following materials from PTC Inc.'s Annual Report on Form 10-K for the year ended September 30, 2021, formatted
in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2021 and
2020; (ii) Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019;
(iii) Consolidated Statements of Comprehensive Income for the years ended September 30, 2021, 2020 and 2019;
(iv) Consolidated Statements of Cash Flows for the years ended September 30, 2021, 2020 and 2019; (v) Consolidated
Statements of Stockholders’ Equity for the years ended September 30, 2021, 2020 and 2019; and (vi) Notes to
Consolidated Financial Statements.
104 — The cover page of the Annual Report on Form 10-K formatted in Inline XBRL (included in Exhibit 101).
*
Identifies a management contract or compensatory plan or arrangement in which an executive officer or director of PTC
participates.
Indicates that the exhibit is being furnished with this report and is not filed as a part of it.
**
*** Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to
the registrant if publicly disclosed.
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 19th day of November, 2021.
SIGNATURES
PTC Inc.
By:
/s/ JAMES HEPPELMANN
James Heppelmann
President and Chief Executive Officer
41
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated below, on the
19th day of November, 2021.
Signature
(i) Principal Executive Officer:
/s/ JAMES HEPPELMANN
James Heppelmann
Title
President and Chief Executive Officer
(ii) Principal Financial and Accounting Officer:
/s/ KRISTIAN TALVITIE
Kristian Talvitie
(iii) Board of Directors:
/s/ ROBERT SCHECHTER
Robert Schechter
/s/ MARK BENJAMIN
Mark Benjamin
/s/ JANICE CHAFFIN
Janice Chaffin
/s/ JAMES HEPPELMANN
James Heppelmann
/s/ KLAUS HOEHN
Klaus Hoehn
/s/ PAUL LACY
Paul Lacy
/s/ CORINNA LATHAN
Corinna Lathan
/s/ BLAKE MORET
Blake Moret
Executive Vice President and Chief Financial
Officer
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
42
APPENDIX A
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of PTC Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of PTC Inc. and its subsidiaries (the
“Company”) as of September 30, 2021 and 2020, and the related consolidated statements of operations,
of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in
the period ended September 30, 2021, including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of September 30, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended September 30, 2021 in
conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of September 30, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in
which it accounts for leases in fiscal 2020 and the manner in which it accounts for revenues from
contracts with customers in fiscal 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in Management’s Annual Report on Internal Control over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud, and whether
effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included performing
F-1
such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management
has excluded Arena Holdings, Inc. from its assessment of internal control over financial reporting as of
September 30, 2021 because it was acquired by the Company in a purchase business combination
during fiscal 2021. We have also excluded Arena Holdings, Inc. from our audit of internal control over
financial reporting. Arena Holdings, Inc. is a wholly-owned subsidiary whose total assets and total
revenues excluded from management’s assessment and our audit of internal control over financial
reporting represent approximately 1% and 2%, respectively, of the related consolidated financial
statement amounts as of and for the year ended September 30, 2021.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the
audit committee and that (i) relate to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Revenue from Contracts with Customers - Identification of Distinct Performance Obligations
As described in Note 2 to the consolidated financial statements, the Company’s sources of revenue
include: (1) subscriptions, (2) perpetual license, (3) support for perpetual licenses and (4) professional
services. Revenue is derived from the licensing of computer software products and from related support
and/or professional services contracts. During the year ended September 30, 2021, the Company
recognized revenue from contracts with customers of $1,807.2 million. The Company’s contracts with
customers for subscriptions typically include commitments to transfer term-based, on-premises software
licenses bundled with support and/or cloud services. On-premises software is determined to be a distinct
performance obligation from support. The corresponding revenues are recognized as the related
performance obligations are satisfied.
The principal considerations for our determination that performing procedures relating to revenue
recognition, specifically related to management’s identification of distinct performance obligations, is a
critical audit matter are the significant judgment by management in the identification of distinct
performance obligations, specifically the determination that the on-premises software is determined to
F-2
be a distinct performance obligation from support, which in turn led to a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to
management’s identification of distinct performance obligations within contracts with customers.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to the revenue recognition process, including the identification of
distinct performance obligations. These procedures also included, among others (i) evaluating the
Company’s revenue recognition accounting policy and (ii) testing management’s identification of
distinct performance obligations in its contracts with customers by examining revenue contracts on a
sample basis and evaluating whether these performance obligations are satisfied at a point in time or
satisfied over time.
Acquisition of Arena Holdings, Inc. – Valuation of the Customer Relationships Intangible Asset
As described in Note 6 to the consolidated financial statements, the Company completed its acquisition
of Arena Holdings, Inc. on January 15, 2021, for purchase consideration of approximately $715.0 million,
net of cash acquired of $11.1 million. The acquisition of Arena Holdings, Inc. 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 purchase price allocation resulted in $155.0 million of customer
relationships being recorded. Management estimated the fair value of the customer relationships
intangible asset using a discounted cash flow model which included significant judgment and
assumptions related to future revenues and costs.
The principal considerations for our determination that performing procedures relating to the valuation of
the customer relationships intangible asset in the acquisition of Arena Holdings, Inc. is a critical audit
matter are the significant judgment by management when estimating the fair value of the customer
relationships intangible asset, which in turn led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures and evaluating audit evidence related to the discounted cash flow
model utilized to value the customer relationships intangible asset and management’s assumptions
related to future revenues and costs. In addition, the audit effort involved the use of professionals with
specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to management’s determination of the fair value of the customer
relationships intangible asset. These procedures also included, among others (i) reading the purchase
agreement; (ii) testing management’s process for estimating the fair value of the customer relationships
intangible asset; (iii) evaluating the appropriateness of the discounted cash flow model used by
management; (iv) testing the completeness and accuracy of the underlying data used in the valuation;
and (v) evaluating the reasonableness of the significant assumptions related to future revenues and costs.
Evaluating management’s assumptions related to future revenues and costs involved evaluating whether
the assumptions used by management were reasonable considering (i) the consistency with external
economic and industry data and (ii) whether these assumptions were consistent with evidence obtained
in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in
evaluating the appropriateness of the discounted cash flow model.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 2021
We have served as the Company’s auditor since 1992.
F-3
PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30,
2021
2020
$
326,532
$
Current assets:
ASSETS
Cash and cash equivalents
Short-term marketable securities
Accounts receivable, net of allowance for doubtful accounts of $304 and $543 at
September 30, 2021 and September 30, 2020, respectively
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Goodwill
Acquired intangible assets, net
Long-term marketable securities
Deferred tax assets
Operating right-of-use lease assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued compensation and benefits
Accrued income taxes
Deferred revenue
Short-term lease obligations
Total current liabilities
Long-term debt
Deferred tax liabilities
Deferred revenue
Long-term lease obligations
Other liabilities
Total liabilities
Commitments and contingencies (Note 10)
Stockholders equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued
Common stock, $0.01 par value; 500,000 shares authorized; 117,163 and 116,125
shares issued and outstanding at September 30, 2021 and September 30, 2020,
respectively
Additional paid-in capital
Retained earnings (Accumulated deficit)
Accumulated other comprehensive loss
Total stockholders equity
Total liabilities and stockholders equity
$
$
$
275,458
28,129
415,221
69,408
45,231
833,447
101,499
1,625,786
237,570
30,970
190,963
149,933
212,570
3,382,738
24,910
96,313
101,087
7,011
416,804
34,635
680,760
1,005,314
12,431
9,661
180,388
55,936
1,944,490
541,072
69,991
135,415
1,073,010
100,237
2,191,887
378,967
297,789
152,337
313,333
4,507,560
33,381
113,067
117,784
5,055
482,131
27,864
779,282
1,439,471
4,165
15,546
180,935
49,693
2,469,092
$
$
1,172
1,718,504
414,656
(95,864)
2,038,468
4,507,560
$
1,161
1,602,728
(62,267)
(103,374)
1,438,248
3,382,738
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PTC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenue:
License
Support and cloud services
Total software revenue
Professional services
Total revenue
Cost of revenue:
Cost of license revenue
Cost of support and cloud services revenue
Total cost of software revenue
Cost of professional services revenue
Total cost of revenue
Gross margin
Operating expenses:
Sales and marketing
Research and development
General and administrative
Amortization of acquired intangible assets
Restructuring and other charges, net
Total operating expenses
Operating income
Interest and debt premium expense
Other income, net
Income before income taxes
Provision (benefit) for income taxes
Net income (loss)
Earnings (loss) per share Basic
Earnings (loss) per share Diluted
Weighted-average shares outstanding Basic
Weighted-average shares outstanding Diluted
Year ended September 30,
2020
2019
2021
$
$
$
$
738,053
911,288
1,649,341
157,818
1,807,159
61,750
164,108
225,858
145,244
371,102
1,436,057
517,779
299,917
206,006
29,396
2,211
1,055,309
380,748
(50,478)
61,485
391,755
(85,168)
476,923
4.08
4.03
116,836
118,367
$
$
$
$
509,792
804,825
1,314,617
143,798
1,458,415
53,195
145,386
198,581
135,690
334,271
1,124,144
435,451
256,575
159,826
28,713
32,716
913,281
210,863
(76,428)
271
134,706
4,011
130,695
1.13
1.12
115,663
116,267
324,400
763,700
1,088,100
167,531
1,255,631
51,936
133,478
185,414
139,964
325,378
930,253
417,449
246,888
127,919
23,841
51,114
867,211
63,042
(43,047)
305
20,300
47,760
(27,460)
(0.23 )
(0.23 )
117,724
117,724
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income, net of tax:
Hedge gain (loss) arising during the period, net of tax of $0.4 million,
$1.7 million, and $1.7 million in 2021, 2020, and 2019, respectively
Net hedge (loss) reclassified into earnings, net of tax of $0 million, $0
million, and $0.1 million in 2021, 2020, and 2019, respectively
Realized and unrealized gain (loss) on hedging instruments
Foreign currency translation adjustment, net of tax of $0 for each period
Unrealized gain (loss) on marketable securities, net of tax of $0 for each
period
Amortization of net actuarial pension gain included in net income, net of
tax of $1.2 million, $0.9 million, and $0.7 million in 2021, 2020, and 2019,
respectively
Pension net gain (loss) arising during the period net of tax of $0.7 million,
$0.7 million, and $3.6 million in 2021, 2020, and 2019, respectively
Change in unamortized pension gain (loss) during the period related to
changes in foreign currency
Other comprehensive income (loss)
Comprehensive income (loss)
Year ended September 30,
2020
2019
2021
$
476,923
$
130,695
$
(27,460)
1,248
(13,242)
5,251
1,248
1,613
(307)
2,930
1,891
(13,242)
22,076
(549 )
4,702
(24,755)
188
530
2,983
1,691
(2,791)
(8,743)
135
7,510
484,433
$
(1,878)
7,336
138,031
$
1,450
(25,125)
(52,585)
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of right-of-use lease assets
Stock-based compensation
Gain on investment
Other non-cash items, net
Provision (benefit) from deferred income taxes
Changes in operating assets and liabilities, excluding the effects
of acquisitions:
Accounts receivable
Accounts payable and accrued expenses
Accrued compensation and benefits
Deferred revenue
Income taxes
Other current assets and prepaid expenses
Operating lease liabilities
Other noncurrent assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Purchases of short- and long-term marketable securities
Proceeds from sales of short- and long-term marketable securities
Proceeds from maturities of short- and long-term marketable
securities
Acquisitions of businesses, net of cash acquired
Purchases of investments
Purchase of intangible assets
Settlement of net investment hedges
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of Senior Notes
Borrowings under credit facility
Repayments of Senior Notes
Repayments of borrowings under credit facility
Repurchases of common stock
Proceeds from issuance of common stock
Debt issuance costs
Contingent consideration
Debt early redemption premium
Payments of withholding taxes in connection with stock-based
awards
Payments of principal for financing leases
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, end of period
Supplemental disclosure of non-cash financing activities:
2021
Year ended September 30,
2020
2019
$
476,923
$
130,695
$
(27,460)
85,239
37,295
177,289
(68,829)
(1,381)
(158,105)
(119,418)
25,096
16,775
58,702
13,979
(14,206)
(7,129)
(153,421)
368,809
(24,713)
(7,562)
56,170
9,861
(718,030)
(4,000)
(550)
965
(687,859)
600,000
(168,000)
(30,000)
21,575
80,817
38,687
115,149
(3,167)
(24,641)
(32,365)
(5,135)
10,282
17,046
(26,616)
36,189
(11,110)
(92,023)
233,808
(20,196)
(33,869)
1,521
30,521
(483,478)
(11,050)
(9,421)
(525,972)
1,000,000
455,000
(500,000)
(610,125)
18,382
(17,107)
(15,000)
77,824
86,400
(4,148)
1,708
29,446
16,200
(12,098)
45,875
232
(2,829)
73,995
285,145
(64,411)
(33,027)
1,507
30,469
(86,737)
(7,500)
9,675
(150,024)
205,000
(180,000)
(114,994)
12,975
(1,575)
(52,957)
(354)
370,264
(127)
51,087
275,960
327,047
$
(33,740)
(44,366)
297,410
25
5,271
270,689
275,960
$
(122,960)
(2,565)
9,596
261,093
270,689
$
Withholding taxes in connection with stock-based awards, accrued
120
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PTC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock Additional
Paid-In
Capital
Shares Amount
117,981 $ 1,180 $ 1,558,403 $
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Stockholders
Equity
Balance as of September 30, 2018
ASU 2016-16 adoption
ASC 606 adoption
Common stock issued for employee stock-based
awards
Shares surrendered by employees to pay taxes
related to stock-based awards
Common stock issued
Common stock issued for employee stock purchase
plan
Compensation expense from stock-based awards
Net loss
Repurchases of common stock
Unrealized loss on cash flow hedges, net of tax
Unrealized gain on net investment hedges, net of tax
Foreign currency translation adjustment
Unrealized gain on available-for-sale securities, net of
tax
Change in pension benefits, net of tax
1,495
(504 )
15
(5)
275
3
(15)
(44,361)
(140)
17,612
86,400
(4,348)
(44)
(114,950)
Balance as of September 30, 2019
114,899 $ 1,149 $ 1,502,949 $
ASU 2016-02 (ASC 842) adoption
Common stock issued for employee stock-based
awards
Shares surrendered by employees to pay taxes
related to stock-based awards
Common stock issued for employee stock purchase
plan
Compensation expense from stock-based awards
Net income
Unrealized loss on net investment hedges, net of tax
Foreign currency translation adjustment
Unrealized gain on available-for-sale securities, net of
tax
Change in pension benefits, net of tax
1,392
14
(14)
(455 )
(4)
(33,736)
289
2
18,380
115,149
Common stock issued for employee stock-based
awards
Shares surrendered by employees to pay taxes
related to stock-based awards
Common stock issued for employee stock purchase
plan
Compensation expense from stock-based awards
Net income
Repurchases of common stock
Unrealized gain on net investment hedges, net of tax
Foreign currency translation adjustment
Unrealized loss on available-for-sale securities, net of
tax
Change in pension benefits, net of tax
1,490
15
(15)
(466 )
(4)
(53,073)
240
2
21,573
177,289
(226 )
(2)
(29,998)
(599,409) $
72,261
363,218
(85,585) $
874,589
72,261
363,218
(44,366)
(140)
17,615
86,400
(27,460)
(114,994)
(385)
5,087
(24,755)
530
(5,602)
1,201,998
(1,572)
(33,740)
18,382
115,149
130,695
(13,242)
22,076
(27,460)
(191,390) $
(1,572)
(385)
5,087
(24,755)
530
(5,602)
(110,710) $
130,695
(13,242)
22,076
188
(1,686)
(103,374) $
188
(1,686)
1,438,248
476,923
1,248
1,613
(53,077)
21,575
177,289
476,923
(30,000)
1,248
1,613
(307)
4,956
(95,864) $
(307)
4,956
2,038,468
Balance as of September 30, 2020
116,125 $ 1,161 $ 1,602,728 $
(62,267) $
Balance as of September 30, 2021
117,163 $ 1,172 $ 1,718,504 $
414,656 $
The accompanying notes are an integral part of these consolidated financial statements.
F-8
PTC Inc
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Business
PTC Inc. was incorporated in 1985 and is headquartered in Boston, Massachusetts. PTC is a global
software and services company that delivers a technology platform and solutions to help companies
design, manufacture, operate, and service things for a smart, connected world.
Risks and Uncertainties - COVID-19 Pandemic
In December 2019, the COVID-19 coronavirus surfaced. The virus has spread worldwide, including in
the United States, and has been declared a pandemic by the World Health Organization. The COVID-19
pandemic significantly impacted global economic activity and continues to cause macroeconomic
uncertainty.
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
COVID-19 as of September 30, 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 our assessment did not result in a material impact to our
consolidated financial statements as of and for the year ended September 30, 2021, our future
assessment could result in material impacts to our consolidated financial statements in future reporting
periods.
Basis of Presentation
Our fiscal year-end is September 30. The consolidated financial statements include PTC Inc. (the
parent company) and its wholly owned subsidiaries, including those operating outside the U.S. All
intercompany balances and transactions have been eliminated in the consolidated financial statements.
We prepare our financial statements under generally accepted accounting principles in the U.S. that
require management to make estimates and assumptions that affect the amounts reported and the
related disclosures. Actual results could differ from these estimates.
2. Summary of Significant Accounting Policies
Foreign Currency Translation
For our non-U.S. operations where the functional currency is the local currency, we translate assets
and liabilities at exchange rates in effect at the balance sheet date and record translation adjustments in
stockholders’ equity. For our non-U.S. operations where the U.S. dollar is the functional currency, we
remeasure monetary assets and liabilities using exchange rates in effect at the balance sheet date and
non-monetary assets and liabilities at historical rates and record resulting exchange gains or losses in
foreign currency net losses in the Consolidated Statements of Operations. We translate income statement
amounts at average rates for the period. Transaction gains and losses are recorded in other income, net
in the Consolidated Statements of Operations.
Revenue Recognition
We adopted ASC 606, Revenue from Contracts with Customers, effective October 1, 2018, using the
modified retrospective method.
Nature of Products and Services
Our sources of revenue include: (1) subscriptions, (2) perpetual licenses, (3) support for perpetual
licenses and (4) professional services. Revenue is derived from the licensing of computer software
products and from related support and/or professional services contracts. In accordance with ASC 606,
F-9
revenue is recognized when a customer obtains control of promised products or services. The amount of
revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for
these products or services. To achieve the core principle of this standard, we apply the following five
steps:
(1) identify the contract with the customer,
(2) identify the performance obligations in the contract,
(3) determine the transaction price,
(4) allocate the transaction price to performance obligations in the contract, and
(5) recognize revenue when or as we satisfy a performance obligation.
We enter into contracts that include combinations of licenses, support and professional services,
which are accounted for as separate performance obligations with differing revenue recognition
patterns referenced below.
Performance Obligation
Term-based subscriptions
On-premises software licenses
Support and cloud-based offerings
Perpetual software licenses
Support for perpetual software licenses
Professional services
Judgments and Estimates
When Performance Obligation is Typically Satisfied
Point in Time: Upon the later of when the software is made available or the
subscription term commences
Over Time: Ratably over the contractual term; commencing upon the later of
when the software is made available or the subscription term commences
Point in Time: when the software is made available
Over Time: Ratably over the contractual term
Over time: As services are provided
Our contracts with customers for subscriptions typically include commitments to transfer term-based,
on-premise software licenses bundled with support and/or cloud services. On-premise software is
determined to be a distinct performance obligation from support which is sold for the same term of the
subscription. For subscription arrangements which include cloud services and on-premise licenses, we
assess whether the cloud component is highly interrelated with the on-premise term-based software
licenses. Other than a limited population of subscriptions, the cloud component is not currently deemed
to be interrelated with the on-premise term software and, as a result, cloud services are accounted for as
a distinct performance obligation from the software and support components of the subscription.
Judgment is required to allocate the transaction price to each performance obligation. We use the
estimated standalone selling price method to allocate the transaction price for items that are not sold
separately. The estimated standalone selling price is determined using all information reasonably
available to us, including market conditions and other observable inputs. The corresponding revenues are
recognized as the related performance obligations are satisfied. Where subscriptions include on-premise
software and support only, we determined that 55% of the estimated standalone selling price for
subscriptions is attributable to software licenses and 45% is attributable to support for those licenses. Some
of our subscription offerings include a combination of on-premise and cloud-based technology. In such
cases, the cloud-based technology is considered distinct and receives an allocation of 5% to 50% of the
estimated standalone selling price of the subscription. The amounts allocated to cloud are based on
assessment of the relative value of the cloud functionality in the subscription, with the remaining amounts
allocated between software and support.
Our multi-year, non-cancellable on-premise subscription contracts provide customers with an annual
right to exchange software within the original 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
F-10
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
September 30, 2021 and 2020, the total refund liability was $40.3 million and $34.5 million, respectively,
primarily associated with the annual right to exchange on-premise subscription software.
Practical Expedients
We have elected certain practical expedients associated with our revenue recognition policy. We
do not account for significant financing components if the period between revenue recognition and
when the customer pays for the products or services is one year or less. Additionally, we recognize
revenue equal to the amount we have a right to invoice when the amount corresponds directly with the
value to the customer of our performance to date.
Cash Equivalents
Our cash equivalents are invested in money market accounts and time deposits of financial
institutions. We have established guidelines relative to credit ratings, diversification and maturities that are
intended to maintain safety and liquidity. Cash equivalents include highly liquid investments with maturity
periods of three months or less when purchased.
Marketable Securities
As of September 30, 2020, our investment portfolio consisted of certificates of deposit, commercial
paper, corporate notes/bonds and government securities that had a maximum maturity of three years. 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.
Equity Securities
On July 22, 2021, a company in which we were a preferred equity investor, Matterport, Inc.,
completed a business combination with a public company. The carrying value of our investment, which
was classified as a non-marketable equity investment, was approximately $8.7 million prior to the business
combination. Our preferred shares were converted into common shares of Matterport. The Matterport
shares are considered equity securities and are included in other current assets. Any change to fair value
will be recorded to the Consolidated Statements of Operations.
After the date of the business combination, for a period of six months, subject to certain exceptions,
we are restricted from selling the Matterport shares pursuant to Rule 144 under the Securities Act (Rule
144) and Matterport’s bylaws.
The fair value of the Matterport shares as of September 30, 2021 was $77.5 million and was
determined using the closing price of Matterport’s common stock on the Nasdaq stock market as of
September 30, 2021, less a temporary discount for lack of marketability. We recorded an unrealized gain
on the appreciation of the value of the shares in other income, net on the Consolidated Statement of
Operations. The discount for lack of marketability, which will reverse once the applicable restrictions are
lifted, is calculated using a put-option model which includes observable and unobservable inputs. The
methods used to determine fair value of the Matterport shares may produce a value that may not be
indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our
valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a
different fair value measurement at the reporting date.
We also have non-marketable equity investments that we account for at cost, less any impairment,
plus or minus adjustments resulting from observable price changes in orderly transactions for identical or
F-11
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 recorded in other income, net on the Consolidated
Statements of Operations. In the years ended September 30, 2021 and 2019, we did not record any
impairment charges to our investments. In the year ended September 30, 2020, we recorded $0.5 million
of impairment charges related to one of our investments. The carrying value of our non-marketable equity
investments is recorded in other assets on the Consolidated Balance Sheets and totaled $2.2 million and
$8.9 million as of September 30, 2021 and 2020, respectively.
Concentration of Credit Risk and Fair Value of Financial Instruments
The amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts
receivable and accounts payable approximate their fair value due to their short maturities. Financial
instruments that potentially subject us to concentration of credit risk consist primarily of investments, trade
accounts receivable and foreign currency derivative instruments. Our cash, cash equivalents, and foreign
currency derivatives are placed with financial institutions with high credit standings. Our credit risk for
derivatives is also mitigated due to the short-term nature of the contracts. Our customer base consists of
many geographically diverse customers dispersed across many industries. No individual customer
comprised more than 10% of our trade accounts receivable as of September 30, 2021 or 2020 or more
than 10% of our revenue for the years ended September 30, 2021, 2020 or 2019.
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
consider the principal or most advantageous market in which we would transact and consider
assumptions that market participants would use when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of nonperformance. Generally accepted accounting principles prescribe 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.
Three levels of inputs that may be used to measure fair value:
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 in active markets for similar assets or liabilities, quoted prices for identical or similar assets or
liabilities in markets that are not active, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities; or
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.
Allowance for Doubtful Accounts
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 $0.3 million as of September 30, 2021, $0.5 million as
of September 30, 2020, and $0.7 million as of September 30, 2019. Uncollectible trade accounts
F-12
receivable written-off, net of recoveries, were $0.1 million, $0.2 million and $0.2 million in 2021, 2020 and
2019, respectively. Bad debt recoveries were $0.2 million in 2021, and bad debt expense was $0.0 million
and $0.3 million in 2020 and 2019, respectively, and is included in general and administrative expenses in
the accompanying Consolidated Statements of Operations.
Derivatives
Generally accepted accounting principles require all derivatives, whether designated in a hedging
relationship or not, to be recorded on the balance sheet at fair value. Our earnings and cash flows are
subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign
currency exposures relate to Western European countries, Japan, China and Canada. Our foreign
currency risk management strategy is principally designed to mitigate the future potential financial
impact of changes in the U.S. dollar value of anticipated transactions and balances denominated in
foreign currencies resulting from changes in foreign currency exchange rates. We enter into derivative
transactions, specifically foreign currency forward contracts, to manage the exposures to foreign
currency exchange risk to reduce earnings volatility. We do not enter into derivatives transactions for
trading or speculative purposes. For a description of our non-designated hedge and net investment
hedge activity see Note 17. Derivative Financial Instruments.
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
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 three months. Generally, we do
not designate these foreign currency forward contracts as hedges for accounting purposes and changes
in the fair value of these instruments are recognized immediately in earnings. Because we enter into
forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated
balance would be offset by the loss or gain on the forward contract. Gains or losses on the underlying
foreign-denominated balance are offset by the loss or gain on the forward contract and are included in
other income, net.
Net Investment Hedges
We translate balance sheet accounts of subsidiaries with foreign functional currencies into U.S.
Dollars 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. 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. All foreign exchange forward contracts are
carried at fair value on the Consolidated Balance Sheet and the maximum duration of foreign exchange
forward contracts is approximately three months.
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
foreign currency translation adjustment in accumulated other comprehensive loss at the time of forward
contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in
time value are excluded from the assessment of effectiveness. Our derivatives are not subject to any
credit contingent features. We manage credit risk with counterparties by trading among several
counterparties, and we review our counterparties’ credit at least quarterly.
F-13
Leases
We adopted ASC 842 effective October 1, 2019 (the effective date). ASC 842 requires a modified
retrospective transition method that could either be applied at the earliest comparative period in the
financial statements or in the period of adoption. We elected to use the period of adoption (October 1,
2019) transition method and therefore did not recast prior periods.
We determine if an arrangement is a lease at inception. Operating leases are included in operating
lease right-of-use assets and operating lease obligations on our Consolidated Balance Sheets. Our
operating leases 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. We combine fixed payments for non-lease components with lease payments and account
for them together as a single lease component which increases the amount of our lease assets and
liabilities. Finance leases are included in property and equipment, accrued expenses and other current
liabilities, and other liabilities on our Consolidated Balance Sheets.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities
represent our obligation to make lease payments arising from the leases. Right-of-use assets and liabilities
are recognized at the lease commencement date based on the present value of lease payments over
the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental
borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term as
that of the lease payments at the commencement date. The right-of-use assets include any lease
payments made and exclude lease incentives received. Operating lease expense is recognized on a
straight-line basis over the lease term.
Our lease terms include periods under options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. We generally use the base non-cancellable lease term when
determining the lease assets and liabilities.
Certain lease agreements contain variable payments, which are expensed as incurred and not
included in the lease assets and liabilities. These variable payments include insurance, taxes, consumer
price index payments, and payments for maintenance and utilities.
Our operating leases expire at various dates through 2037.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over
their estimated useful lives. Computer hardware and software are typically amortized over three to five
years, and furniture and fixtures over three to twelve years. Leasehold improvements are amortized over
the shorter of their useful lives or the remaining terms of the related leases. Property and equipment under
capital leases are amortized over the lesser of the lease term or their estimated useful lives. Maintenance
and repairs are charged to expense when incurred; additions and improvements are capitalized. When
an item is sold or retired, the cost and related accumulated depreciation is relieved, and the resulting
gain or loss, if any, is recognized in income.
Software Development Costs
We incur costs to develop computer software to be licensed or otherwise marketed to customers.
Our research and development expenses consist principally of salaries and benefits, costs of computer
equipment, and facility expenses. Research and development costs are expensed as incurred, except for
costs of internally developed or externally purchased software that qualify for capitalization.
Development costs for software to be sold externally incurred subsequent to the establishment of
technological feasibility, but prior to the general release of the product, are capitalized and, upon
general release, are amortized using the greater of either the straight-line method over the expected life
of the related products or based upon the pattern in which economic benefits related to such assets are
realized. The straight-line method is used if it approximates the same amount of expense as that
calculated using the ratio that current period gross product revenues bear to total anticipated gross
product revenues. No development costs for software to be sold externally were capitalized in 2021, 2020
or 2019. We purchased software of $0.6 million and $11.1 million in 2021 and 2020, respectively.
F-14
Additionally, we acquired capitalized software through business combinations (for further detail, see Note
6. Acquisitions). These assets are included in acquired intangible assets in the accompanying
Consolidated Balance Sheets.
Business Combinations
We allocate the purchase price of acquisitions to the tangible and intangible assets acquired and
liabilities assumed based on their estimated fair value. Goodwill is measured as the excess of the
purchase price over the value of net identifiable assets acquired. While best estimates and assumptions
are used to accurately value assets acquired and liabilities assumed at the acquisition date as well as
contingent consideration, where applicable, our estimates are inherently uncertain and subject to
refinement. Any adjustments to estimated fair value are recorded to goodwill, provided that we are
within the measurement period (up to one year from the acquisition date) and that we continue to
collect information to determine estimated fair value. Subsequent to the measurement period or our final
determination of estimated fair value, whichever comes first, adjustments are recorded in the
Consolidated Statements of Operations.
Goodwill, Acquired Intangible Assets and Long-lived Assets
Goodwill is the amount by which the purchase price in a business acquisition exceeds the fair value
of net identifiable assets on the date of purchase.
Goodwill is evaluated for impairment annually as of the end of the third quarter, or more frequently if
events or changes in circumstances indicate that the asset might be impaired. Factors we consider
important, on an overall company basis and segment basis, when applicable, that could trigger an
impairment review include significant under-performance relative to historical or projected future
operating results, significant changes in our use of the acquired assets or the strategy for our overall
business, significant negative industry or economic trends, a significant decline in our stock price for a
sustained period and a reduction of our market capitalization relative to net book value.
Our annual goodwill impairment test is based on either a quantitative or qualitative assessment. A
quantitative assessment compares the fair value of the reporting unit to its carrying value. If the reporting
unit’s carrying value exceeds its fair value, we record an impairment loss equal to the difference between
the carrying value of goodwill and its estimated fair value. We estimate the fair values of our reporting
units using 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. A qualitative assessment is designed to determine whether we believe it is more
likely than not that the fair values of our reporting units exceed their carrying values. Qualitative
assessment includes a review of qualitative factors, including company-specific (financial performance
and long-range plans), industry, and macroeconomic factors, and a consideration of the fair value of
each reporting unit at the last valuation date.
We completed our annual goodwill impairment review as of June 30, 2021, based on a qualitative
assessment. Our qualitative assessment included company-specific (e.g., financial performance and
long-range plans), industry, and macroeconomic factors, as well as consideration of the fair value of
each reporting unit relative to its carrying value at the last valuation date which was June 27, 2020. Based
on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units
exceed their carrying values and no further impairment testing is required. Through September 30, 2021,
there were no events or changes in circumstances that indicated that the carrying values of goodwill or
acquired intangible assets may not be recoverable.
Long-lived assets primarily include property and equipment and acquired intangible assets with finite
lives (including purchased software, customer lists and trademarks). Purchased software is amortized over
periods up to 16 years, customer lists are amortized over periods up to 13 years and trademarks are
amortized over periods up to 12 years. We review long-lived assets for impairment when events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully
recoverable or that the useful lives of those assets are no longer appropriate. An impairment test is based
on a comparison of the undiscounted cash flows to the recorded value of the asset or asset group. If
F-15
impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash
flow analysis.
Advertising Expenses
Advertising costs are expensed as incurred. Total advertising expenses incurred were $7.1 million, $3.8
million and $3.6 million in 2021, 2020 and 2019, respectively and are included in sales and marketing
expenses in the accompanying Consolidated Statements of Operations.
Income Taxes
Our income tax expense includes U.S. and international income taxes. Certain items of income and
expense are not reported in tax returns and financial statements in the same year. The tax effects of these
differences are reported as deferred tax assets and liabilities. Deferred tax assets are recognized for the
estimated future tax effects of deductible temporary differences and tax operating loss and credit
carryforwards. Changes in deferred tax assets and liabilities are recorded in the provision for income
taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income
and, to the extent we believe that it is more likely than not that all or a portion of deferred tax assets will
not be realized, we establish a valuation allowance. To the extent we establish a valuation allowance or
increase this allowance in a period, we include an expense within the tax provision in the Consolidated
Statements of Operations.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss),
which includes foreign currency translation adjustments, changes in unrecognized actuarial gains and
losses (net of tax) related to pension benefits, unrealized gains and losses on hedging instruments and
unrealized gains and losses on marketable securities. We do not record tax provisions or benefits for the
net changes in the foreign currency translation adjustment, as we intend to reinvest permanently
undistributed earnings of our foreign subsidiaries. Accumulated other comprehensive loss is reported as a
component of stockholders’ equity and, as of September 30, 2021, was comprised of the following:
cumulative translation adjustment losses of $67.5 million, unrecognized actuarial losses related to pension
benefits of $30.2 million ($21.5 million net of tax), and accumulated net losses from net investment hedges
of $6.5 million ($6.5 million net of tax). As of September 30, 2020, accumulated other comprehensive loss
was comprised of the following: cumulative translation adjustment losses of $69.1 million, unrecognized
actuarial losses related to pension benefits of $37.2 million ($26.4 million net of tax), unrecognized gains on
available-for-sale securities of $0.3 million($0.3 million net of tax), and accumulated net gains from net
investment hedges of $8.2 million ($8.2 million net of tax).
Earnings (Loss) per Share (EPS)
Basic EPS is calculated by dividing net income by the weighted average number of 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 stock options, restricted shares
and restricted stock units using the treasury stock method. The calculation of the dilutive effect of
outstanding equity awards under the treasury stock method includes consideration of proceeds from the
assumed exercise of stock options, unrecognized compensation expense and any tax benefits as
additional proceeds. Anti-dilutive shares excluded from the calculations of diluted EPS were immaterial in
the years ended September 30, 2021 and 2020. Due to the net loss generated in the year ended
September 30, 2019, approximately 1.0 million restricted stock units were excluded from the computation
of diluted EPS in that year as the effect would have been anti-dilutive.
F-16
The following table presents the calculation for both basic and diluted EPS:
(in thousands, except per share data)
Net income (loss)
Weighted average shares outstanding
Dilutive effect of employee stock options, restricted shares and
restricted stock units
Diluted weighted average shares outstanding
Basic earnings (loss) per share
Diluted earnings (loss) per share
Stock-Based Compensation
Year ended September 30,
2020
2019
2021
$
476,923
$
130,695
$
116,836
115,663
1,531
118,367
604
116,267
$
$
4.08
4.03
$
$
1.13
1.12
$
$
(27,460)
117,724
117,724
(0.23 )
(0.23 )
We measure the compensation cost of employee services received in exchange for an award of
equity based on the grant-date fair value of the award. That cost is recognized over the period during
which an employee is required to provide service in exchange for the award. See Note 12. Equity
Incentive Plan for a description of the types of equity awards granted, the compensation expense related
to such awards and detail of such awards outstanding. See Note 8. Income Taxes for detail of the tax
benefit related to stock-based compensation recognized in the Consolidated Statements of Operations.
Recently Adopted Accounting Pronouncements
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. We adopted the new standard
prospectively effective October 1, 2020. As a result of the adoption, we are required to capitalize certain
costs related to the implementation of cloud computing arrangements. Capitalized costs related to
cloud computing arrangements, which are included in other assets on the Consolidated Balance Sheets,
were $2.8 million as of September 30, 2021.
Financial Instruments—Credit Losses
In 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, replaces
the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable
information when recording credit loss estimates. We adopted the new standard effective October 1,
2020, with no impact on our consolidated financial statements.
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
F-17
for us in the first quarter of 2022 ending December 31, 2021. We do not expect this accounting standard
to have a material impact on our consolidated financial statements.
Business Combinations
In October 2021, the FASB issued Accounting Standards Update ASU 2021-08, Business Combinations
(Topic 805) on Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This
ASU is intended to improve the accounting for acquired revenue contracts with customers in a business
combination by addressing diversity in practice and inconsistency related to 1) recognition of an
acquired contract liability, and 2) payment terms and their effect on subsequent revenue recognized by
the acquirer. ASU 2021-08 will be effective for us in the first quarter of 2024, though early adoption of the
standard is permitted. We are currently evaluating the impact the standard will have on our
consolidated financial statements, but at this time we do not expect it to be material for prior acquisitions;
the impact in future periods will depend on the contract assets and contract liabilities acquired in future
business combinations.
3. Revenue from Contracts with Customers
Contract Assets and Contract Liabilities
(in thousands)
Contract asset
Deferred revenue
September 30,
2021
2020
$
$
12,934
497,677
$
$
11,984
426,465
As of September 30, 2021, $8.2 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. As of
September 30, 2020, $6.9 million of our contract asset balance was included in other current assets and
$5.0 million was included in other long-term assets.
Approximately $6.6 million of the September 30, 2020 contract asset balance was transferred to
receivables during the year ended September 30, 2021 as a result of the right to payment becoming
unconditional. The majority of the contract asset balance relates to two large professional services
contracts with invoicing terms based on performance milestones. The net increase in contract assets of
$0.9 million includes an increase of approximately $7.5 million related to revenue recognized in the
period, net of billings.
During the year ended September 30, 2021, we recognized $402.5 million of revenue that was
included in deferred revenue as of September 30, 2020 and there were additional deferrals of $458.2
million, primarily related to new billings. In addition, deferred revenue increased by $15.5 million (net of a
$10.4 million fair value adjustment) as a result of the acquisition of Arena. For subscription contracts, we
generally invoice customers annually. The balance of total short- and long-term receivables as of
September 30, 2021 was $744.6 million, compared to $511.3 million as of September 30, 2020.
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 related to revenue over 5 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. As of September 30, 2021 and September
30, 2020, deferred costs of $40.2 million and $33.9 million, respectively, were included in other current
assets and $81.1 million and $72.9 million, respectively, were included in other assets (non-current).
Amortization expense related to costs to obtain a contract with a customer was $46.7 million and $36.2
million in the years ended September 30, 2021 and 2020, respectively. There were no impairments of the
contract cost asset in the years ended September 30, 2021 and 2020.
F-18
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be
satisfied at a later date. As of September 30, 2021, the amounts include additional performance
obligations of $497.7 million recorded in deferred revenue and $987.3 million that are not yet recorded in
the consolidated balance sheets. We expect to recognize approximately 82% of the total $1,485.0 million
over the next 24 months, with the remaining amount thereafter.
Disaggregation of Revenue
(in thousands)
Total recurring revenue
Perpetual license
Professional services
Total revenue
$
$
Year ended September 30,
2020
1,281,949
32,668
143,798
1,458,415
2021
1,616,328
33,013
157,818
1,807,159
$
$
$
$
2019
1,017,398
70,702
167,531
1,255,631
For further disaggregation of revenue by geographic region and product group see Note 18.
Segment and Geographic Information.
4. 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 19. Leases for additional information about exited facilities.
In 2021, restructuring and other charges, net totaled $2.2 million, of which $2.1 million is attributable to
restructuring charges and $0.1 million is attributable to impairment and accretion expense related to
exited lease facilities. We made cash payments related to restructuring charges of $6.7 million ($3.9 million
related to the 2020 restructuring and $2.8 million in rent payments for the restructured facilities).
In 2020, restructuring and other charges, net totaled $32.7 million, of which $26.4 million is attributable
to restructuring charges, $5.6 million is attributable to impairment and accretion expense related to exited
lease facilities, and $0.7 million is attributable to accelerated depreciation related to the planned exit of
a facility. We made cash payments related to restructuring charges of $31.5 million ($27.3 million related
to the 2020 restructuring, $3.9 million related to the 2019 restructuring, and $0.3 million related to a prior
restructuring).
In 2019, restructuring and other charges, net totaled $51.1 million, of which $48.6 million was
attributable to restructuring charges ($0.2 million of which related to prior facility restructuring actions)
and $2.5 million was attributable to headquarters relocation charges. We made cash payments related
to restructuring charges of $24.7 million ($23.6 million related to the 2019 restructuring and $1.1 million
related to a prior restructuring).
Restructuring Charges
In anticipation of a potential restructuring action, we incurred $1.7 million of professional fees in the
fourth quarter of 2021. Refer to Note 20. Subsequent Events for additional information about this
restructuring charge.
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. In
the year ended September 30, 2020, we incurred $30.8 million in connection with this restructuring plan for
termination benefits associated with approximately 250 employees. In the year ended September 30,
2021, we recorded $0.2 million of charges related to this restructuring plan.
During the first quarter of 2019, we initiated a restructuring plan to realign our workforce to shift
investment to support Industrial Internet of Things and Augmented Reality strategic opportunities. The
restructuring plan was completed in the first quarter of 2019 and resulted in restructuring charges of $16.3
million for termination benefits associated with approximately 240 employees, substantially all of which
F-19
has been paid. In the year ended September 30, 2020, we recorded $0.1 million of credits related to this
restructuring plan.
During the second quarter of 2019, we relocated our worldwide headquarters to the Boston Seaport
District. We incurred a restructuring charge for the former headquarters lease, which expires in November
2022. As a result, we bear overlapping rent obligations for those premises and, in 2019, we recorded
restructuring charges of approximately $32.7 million, based on the net present value of remaining lease
commitments net of estimated sublease income. Other costs associated with the move were recorded as
incurred. In 2020, we recorded a $4.3 million net credit for accrued variable operating restructuring
charges, primarily associated with the exit of a portion of our former headquarters lease under a partial
buy-out agreement with the landlord. In 2021, we recorded restructuring charges of $0.3 million, primarily
associated with maintenance and operating expenses.
The following table summarizes restructuring accrual activity for the three years ended September 30,
2021:
(in thousands)
Balance, September 30, 2018
Charges to operations, net
Cash disbursements
Other non-cash charges
Foreign exchange impact
Balance, September 30, 2019
ASC 842 adoption
Charges (credits) to operations, net
Cash disbursements
Other non-cash
Foreign exchange impact
Balance, September 30, 2020
Charges to operations, net
Cash disbursements
Foreign exchange impact
Balance, September 30, 2021
$
$
Employee severance
and related benefits
Facility closures
and other costs
Consolidated total
15,704
(15,402)
(4)
298
30,690
(27,256)
260
3,992
1,887
(3,925)
27
1,981
$
$
2,415
32,908
(9,319)
4,812
(28)
30,788
(16,462)
(4,263)
(4,246)
164
14
5,995
249
(2,756)
17
3,505
$
$
2,415
48,612
(24,721)
4,812
(32)
31,086
(16,462)
26,427
(31,502)
164
274
9,987
2,136
(6,681)
44
5,486
The accrual for employee severance and related benefits is included in accrued compensation and
benefits in the Consolidated Balance Sheets.
Upon adoption of ASC 842, $16.5 million of accrued expenses and other current liabilities,
representing the present value of lease commitments net of estimated sublease income, were reclassified
to lease assets and obligations: $7.6 million to lease assets, $9.2 million to short-term lease obligations and
$14.9 million to long-term lease obligations.
As of September 30, 2021, the remaining restructuring facility accrual of $3.5 million relates to variable
non-lease costs not subject to ASC 842, of which $2.6 million is included in accrued expenses and other
current liabilities and $0.9 million is included in other liabilities in the Consolidated Balance Sheets.
Of the accrual for facility closures and related costs, as of September 30, 2020, $2.8 million is included
in accrued expenses and other current liabilities and $3.2 million is included in other liabilities in the
Consolidated Balance Sheets.
Other - Headquarters Relocation Charges
Headquarters relocation charges represent other expenses associated with exiting our prior
Needham headquarters facility and relocating to our worldwide headquarters in the Boston Seaport
District. In 2019, we recorded $1.9 million of accelerated depreciation expense related to shortening the
estimated useful lives of leasehold improvements related to the Needham location. Headquarters
relocation charges for 2019 also included $0.6 million of rental expense for the Needham facility that
overlapped with rental expense for the new Seaport headquarters.
F-20
5. Property and Equipment
Property and equipment consisted of the following:
(in thousands)
Computer hardware and software
Furniture and fixtures
Leasehold improvements
Gross property and equipment
Accumulated depreciation and amortization
Net property and equipment
September 30,
2021
2020
$
$
352,704
30,568
94,959
478,231
(377,994)
100,237
$
$
330,392
30,251
99,883
460,526
(359,027)
101,499
Depreciation expense was $26.1 million, $24.7 million and $26.7 million in 2021, 2020 and 2019,
respectively.
6. Acquisitions
Acquisition-related costs were $15.0 million, $8.6 million and $3.1 million in 2021, 2020 and 2019,
respectively. Acquisition-related costs include direct costs of potential and completed acquisitions (e.g.,
investment banker fees and professional fees, including legal and valuation services) and expenses
related to acquisition integration activities (e.g., professional fees and severance). In addition,
subsequent adjustments to our initial estimated amount of contingent consideration associated with
specific acquisitions are included within acquisition-related charges. These costs are classified in general
and administrative expenses in the accompanying Consolidated Statements of Operations.
Our results of operations include the results of acquired businesses beginning on their respective
acquisition date. For all acquisitions made in 2021, our results of operations, 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 an Agreement and
Plan of Merger dated as of December 12, 2020 by and among PTC, Arena, Astronauts Merger Sub, Inc.,
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 $11.1 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 added revenue of approximately $29.8 million in 2021, which is
net of approximately $9.1 million in fair value adjustments related to purchase accounting for the
acquisition.
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 $562.8 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.
F-21
Onshape
On November 1, 2019, we acquired Onshape Inc. pursuant to an Agreement and Plan of Merger
dated as of October 23, 2019 by and among PTC, 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. The acquisition of Onshape did not add material revenue in 2020.
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 judgment 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 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 the expected acceleration of CAD and PLM growth, especially in the low end of the
market, and participation in expected future growth of the CAD and PLM SaaS market. In addition, over
the longer term, we anticipate building products based on the Onshape SaaS technology platform.
Frustum
On November 19, 2018, we acquired Frustum Inc. for $69.5 million (net of cash acquired of $0.7
million). We financed the acquisition with borrowings under our credit facility. Frustum engaged in next-
generation computer-aided design, including generative design, an approach that leverages artificial
intelligence to generate design options. At the time of the acquisition, Frustum had approximately 12
employees and historical annualized revenues were not material. The acquisition of Frustum did not add
material revenue in 2019.
The acquisition of Frustum 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 $53.7 million of goodwill, $17.9 million of purchased software
and $2.1 million of other net liabilities. The acquired technology is being amortized over a useful life of 15
years based on the expected 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 integrating Frustum generative design
technology into our CAD solutions.
Other Acquisitions
In the fourth quarter of 2020, we completed an acquisition for $15.0 million (net of cash acquired of
$0.1 million). At the time of acquisition, the company had approximately 20 employees and historical
annualized revenues were not material. This acquisition did not add material revenue in 2020.
The acquisition was accounted for as a business combination. Assets acquired and liabilities assumed
have been recorded at their estimated fair values as of the acquisition dates. 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
F-22
price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as
goodwill.
The purchase price allocation resulted in $12.3 million of goodwill, $3.4 million of purchased software,
$0.7 of customer relationships and $1.4 million of other net liabilities. The purchased software and
customer relationships are being amortized over useful lives of 7 years and 10 years, respectively, based
on the expected benefit pattern of the assets. The acquired goodwill was allocated to our software
segment and will not be deductible for income tax purposes.
7. Goodwill and Acquired Intangible Assets
We have two 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 September 30, 2021, goodwill and acquired intangible assets in the aggregate attributable to
our Software Products segment was $2,525.7 million and attributable to our Professional Services segment
was $45.2 million. As of September 30, 2020, goodwill and acquired intangible assets in the aggregate
attributable to our Software Products segment was $1,818.1 million and attributable to our Professional
Services segment was $45.3 million.
Goodwill and acquired intangible assets consisted of the following:
(in thousands)
September 30, 2021
September 30, 2020
Goodwill (not amortized)
Intangible assets with finite lives (amortized)(1):
Purchased software
Capitalized software
Customer lists and relationships
Trademarks and trade names
Other
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
$ 2,191,887
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
$ 1,625,786
$ 483,771 $
22,877
574,516
26,906
4,000
$ 1,112,070 $
338,542 $ 145,229 $ 443,275 $
309,124 $ 134,151
22,877
350,648
17,036
4,000
223,868
9,870
22,877
418,953
22,687
4,017
22,877
322,092
16,129
4,017
96,861
6,558
733,103 $ 378,967 $ 911,809 $
674,239 $ 237,570
$ 1,863,356
Total goodwill and acquired intangible assets
$ 2,570,854
(1)
The weighted-average useful lives of purchased software, customer lists and relationships, and trademarks and trade names
with a remaining net book value are 10 years, 11 years, and 12 years, respectively.
The changes in the carrying amounts of goodwill from September 30, 2020 to September 30, 2021 are
due to the impact of acquisitions and to foreign currency translation adjustments related to those asset
balances that are recorded in non-U.S. currencies.
Changes in goodwill presented by reportable segment were as follows:
(in thousands)
Balance, September 30, 2019
Onshape Acquisition
Other acquisitions
Foreign currency translation adjustments
Balance, September 30, 2020
Arena acquisition
Other acquisitions
Foreign currency translation adjustments
Balance, September 30, 2021
Software
Products
Professional
Services
$
$
$
1,196,064
364,910
12,262
10,080
1,583,316
563,620
181
1,851
2,148,968
$
$
$
42,115
$
355
42,470
400
49
42,919
$
$
Total
1,238,179
364,910
12,262
10,435
1,625,786
563,620
581
1,900
2,191,887
F-23
The aggregate amortization expense for intangible assets with finite lives recorded for the years
ended September 30, 2021, 2020 and 2019 was reflected in our Consolidated Statements of Operations as
follows:
(in thousands)
Amortization of acquired intangible assets
Cost of software revenue
Total amortization expense
Year ended September 30,
2020
2019
2021
$
$
29,396
29,769
59,165
$
$
28,713
27,391
56,104
$
$
23,841
27,307
51,148
The estimated aggregate future amortization expense for intangible assets with finite lives remaining
as of September 30, 2021 is $57.9 million for 2022, $49.5 million for 2023, $40.8 million for 2024, $34.6 million
for 2025, $31.0 million for 2026 and $165.2 million thereafter.
8. Income Taxes
Our income (loss) before income taxes consisted of the following:
(in thousands)
Domestic
Foreign
Total income before income taxes
Year ended September 30,
2020
2019
2021
$
$
41,199
350,556
391,755
$
$
(73,865)
208,571
134,706
$
$
(112,077)
132,377
20,300
Our provision (benefit) for income taxes consisted of the following:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Total provision (benefit) for income taxes
Year ended September 30,
2020
2019
2021
$
$
4,774
1,609
66,554
72,937
(152,311)
(27,228)
21,434
(158,105)
(85,168)
$
$
2,187
1,266
25,199
28,652
(26,811)
(4,063)
6,233
(24,641)
4,011
$
$
13,130
(945 )
33,867
46,052
22,911
1,759
(22,962)
1,708
47,760
Taxes computed at the statutory federal income tax rates are reconciled to the provision (benefit) for
income taxes as follows:
(in thousands)
Statutory federal income tax rate
Change in valuation allowance
State income taxes, net of federal tax benefit
Federal research and development credits
Uncertain tax positions
Foreign tax credit
Foreign rate differences
Foreign tax on U.S. provision
Excess tax benefits from restricted stock
Audits and settlements
U.S. permanent items
BEAT
GILTI, net of foreign tax credits
Foreign-Derived Intangible Income (FDII)
Other, net
Provision (benefit) for income taxes
2021
Year ended September 30,
2020
2019
28,288
(16,489)
(2,998)
(5,483)
3,072
21% $
(34)%
(8)%
(2)%
1%
(9)%
(9)% $ (22,074)
4,523
2%
(2)%
(1,743)
9%
5%
1%
4%
(1)%
6,590
(1,759)
14,899
(2,461)
(354 )
4,011
(22)% $
21% $
(12)%
(2)%
(4)%
2%
4,263
66,417
607
(3,731)
2,611
3%
(1)%
(16)% $ (26,952)
6,547
(5,940)
51
2,483
1,759
6,170
(6,409)
(116 )
47,760
5%
(1)%
11%
(2)%
(1)%
3% $
21 %
327 %
3 %
(18)%
13 %
(133 )%
32 %
(29)%
12 %
9 %
31 %
(32)%
(1 )%
235 %
$
82,268
(134,695)
(28,768)
(5,764)
3,398
(35,368)
(34,584)
5,931
(6,141)
33,370
18,389
2,936
18,217
(4,428)
71
$ (85,168)
F-24
In 2021, 2020, and 2019, our tax rate differed from the U.S. statutory federal income tax rate due to
our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate.
A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and the
Cayman Islands. In 2021, 2020, and 2019, the foreign rate differential predominantly relates to these
earnings.
In 2021, in addition to the foreign rate differential, our tax rate differed from the U.S. statutory federal
income tax rate due to the release of the valuation allowance on the majority of our U.S. net deferred tax
assets, the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible
Income (FDII) regimes (together referred to as U.S. Tax reform), and the excess tax benefit related to
stock-based compensation.
In 2020, in addition to the foreign rate differential, our tax rate differed from the statutory federal
income tax rate due to U.S. tax reform, the excess tax benefit related to stock-based compensation and
the indirect effects of the adoption of ASC 606. Additionally, we recorded benefits for the reduction of
the U.S. valuation allowance as a result of the Onshape acquisition. A further reduction to the valuation
allowance was also recorded to reflect the impact from the scheduling of the reversal of existing
temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets.
In 2019, our effective tax rate was higher than the statutory federal income tax rate due in large part
to the scheduling of the reversal of existing temporary differences resulting in deferred tax liabilities that
cannot be offset against deferred tax assets requiring an increase to the U.S. valuation allowance, U.S. tax
reform and foreign withholding taxes, an obligation of the U.S. parent. This is offset by foreign rate
differences, the excess tax benefit related to stock-based compensation and the indirect effects of the
adoption of ASC 606.
At September 30, 2021 and 2020, income taxes payable and income tax accruals recorded on the
accompanying Consolidated Balance Sheets were $15.7 million ($5.0 million in accrued income taxes,
$0.8 million in other current liabilities and $9.9 million in other liabilities) and $15.4 million ($7.0 million in
accrued income taxes, $1.0 million in other current liabilities and $7.4 million in other liabilities),
respectively. At September 30, 2021 and 2020, prepaid taxes recorded in prepaid expenses on the
accompanying Consolidated Balance Sheets were $15.4 million and $17.3 million, respectively. We made
net income tax payments of $56.0 million, $52.6 million and $38.9 million in 2021, 2020 and 2019,
respectively.
F-25
The significant temporary differences that created deferred tax assets and liabilities are shown
below:
(in thousands)
Deferred tax assets:
Net operating loss carryforwards
Foreign tax credits
Capitalized research and development
Pension benefits
Prepaid expenses
Deferred revenue
Stock-based compensation
Other reserves not currently deductible
Amortization of intangible assets
Research and development and other tax credits
Lease liabilities
Fixed assets
Capital loss carryforward
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Acquired intangible assets not deductible
Lease assets
Pension prepayments
Deferred revenue
Depreciation
Unbilled accounts receivable
Deferred income
Prepaid commissions
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2021
2020
$
$
65,383
36,287
27,546
14,097
12,540
2,274
15,822
16,796
147,385
74,846
51,471
53,025
35,156
2,269
554,897
(52,085)
502,812
(108,746)
(37,273)
(2,834)
(2,662)
(7,121)
(6,391)
(21,744)
(16,990)
(5,427)
(209,188)
293,624
$
$
61,495
8,074
30,109
14,370
13,579
6,021
13,630
15,130
162,426
70,695
52,224
47,457
35,851
1,849
532,910
(205,423)
327,487
(65,894)
(35,885)
(1,155)
(594 )
(7,481)
(12,699)
(5,821)
(17,124)
(2,302)
(148,955)
178,532
We reassess our valuation allowance requirements each financial reporting period. We assess
available positive and negative evidence to estimate whether sufficient future taxable income will be
generated to use its existing deferred tax assets. In the assessment for the period ended September 30,
2021, we have concluded it is more likely than not that our deferred tax assets related to United States
federal and state income will be realizable, and therefore, the United States federal and the majority of
the state valuation allowances were released, which resulted in non-cash federal and state tax benefits
of $109.4 million and $24.8 million, respectively, to earnings in this period. That determination was based, in
part, on the Company’s cumulative profits before tax and permanent differences from the past three
years, which became profitable during 2021, and projections of profits before tax and permanent
differences in future years.
For U.S. tax return purposes, net operating loss (NOL) carryforwards and tax credits are generally
available to be carried forward to future years, subject to certain limitations. At September 30, 2021, we
had U.S. federal NOL carryforwards from acquisitions of $190.3 million, of which $32.5 million expire in 2023
to 2036. The remaining carryforwards of $157.8 million do not expire. The utilization of these NOL
carryforwards is limited as a result of the change in ownership rules under Internal Revenue Code Section
382.
As of September 30, 2021, we had Federal R&D credit carryforwards of $54.1 million, which expire
beginning in 2027 and ending in 2041, and Massachusetts R&D credit carryforwards of $24.2 million, which
expire beginning in 2022 and ending in 2036. We also had foreign tax credits of $36.3 million, which expire
beginning in 2025 and ending in 2031.
We also have NOL carryforwards in non-U.S. jurisdictions totaling $49.8 million, the majority of which
do not expire, and non-U.S. tax credit carryforwards of $4.7 million that expire beginning in 2030 and
ending in 2040. Additionally, we have amortization carryforwards of $1,084.6 million in a foreign
F-26
jurisdiction. There are limitations imposed on the utilization of such attributes that could restrict the
recognition of any tax benefits.
As of September 30, 2021, we have a valuation allowance of $17.7 million against net deferred tax
assets in the U.S. and a valuation allowance of $34.4 million against net deferred tax assets in certain
foreign jurisdictions. The $17.7 million U.S. valuation allowance relates to Massachusetts tax credit
carryforwards which we do not expect to realize a benefit from prior to expiration. The valuation
allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily
for our capital loss carryforwards, the majority of which do not expire. However, there are limitations
imposed on the utilization of such capital losses that could restrict the recognition of any tax benefits.
The changes to the valuation allowance were primarily due to the following:
(in thousands)
Valuation allowance, beginning of year
Net release of valuation allowance(1)
Net increase (decrease) in deferred tax assets with a full valuation
allowance(2)
Valuation allowance, end of year
Year ended September 30,
2020
2019
2021
$
$
205,423
(134,235)
(19,103)
52,085
$
$
177,663
$
27,760
205,423
$
141,950
(1,772)
37,485
177,663
(1)
(2)
In 2021, this is attributable to the release in the U.S and in 2019, this is attributable to the release in foreign jurisdictions.
In 2021, this change includes the loss of state attributes a upon merger of two wholly-owned subsidiaries. In 2020, this change is
largely attributed to the Onshape acquisition, the adoption of ASC 842 and the impact to the change in scheduling of the
reversal of existing temporary differences. In 2019, this is due in large part to a change in method of accounting for federal
income tax purposes resulting in deferred tax liabilities that cannot be offset against available tax attributes in the scheduling
of the reversal of existing temporary differences, and by the adoption of ASC 606.
Our policy is to record estimated interest and penalties related to the underpayment of income taxes
as a component of our income tax provision. In 2021, 2020 and 2019 we recorded interest expense of $2.2
million, $0.3 million and $0.1 million, respectively. In 2021, we had penalty expenses of $2.0 million. In 2020
and 2019 we had no tax penalty expense in our income tax provision. As of September 30, 2021 and 2020,
we had accrued $0.7 million and $0.6 million of net estimated interest expense related to income tax
accruals, respectively. We had no accrued tax penalties as of September 30, 2021, 2020 or 2019.
Unrecognized tax benefits (in thousands)
Unrecognized tax benefit, beginning of year
Tax positions related to current year:
Additions
Tax positions related to prior years:
Additions
Reductions
Settlements
Unrecognized tax benefit, end of year
Year ended September 30,
2020
2019
2021
$
16,107
$
11,484
$
4,844
30,130
(478 )
(29,437)
21,166
$
2,173
2,452
(2 )
$
16,107
$
9,812
1,466
1,375
(9)
(1,160)
11,484
If all of our unrecognized tax benefits as of September 30, 2021 were to become recognizable in the
future, we would record a benefit to the income tax provision of $21.2 million (which would be partially
offset by an increase in the U.S. valuation allowance of $4.5 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 $1 million as audits close and statutes of limitations expire.
F-27
Our results for the year ended September 30, 2021 include a charge of $37.3 million related to the
effects of a tax matter in the Republic of Korea (South Korea) of $34.4 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 issues,
primarily foreign withholding taxes, that was 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 to an
intermediate appellate court. In December 2020, our appeal to that court - the Seoul High Court - was
rejected. We appealed this decision to the Supreme Court of the Republic of Korea. In May 2021, the
Supreme Court denied our request for a review of the case. Therefore, the decision of the Seoul High
Court was deemed final. We made additional payments of approximately $20 million to the tax
authorities in South Korea in FY’21 for the years 2016 to 2021 in settlement of the amounts previously
accrued.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities,
including the IRS 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, transfer pricing, 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 September 30, 2021, we remained subject to
examination in the following major tax jurisdictions for the tax years indicated:
Major Tax Jurisdiction
United States
Germany
France
Japan
Ireland
Open Years
2017 through 2021
2015 through 2021
2018 through 2021
2016 through 2021
2017 through 2021
Additionally, net operating loss and tax credit carryforwards from certain earlier periods in these
jurisdictions may be subject to examination to the extent they are utilized in later periods.
We incurred expenses related to stock-based compensation in 2021, 2020 and 2019 of $177.3 million,
$115.1 million and $86.4 million, respectively. Accounting for the tax effects of stock-based awards
requires that we establish a deferred tax asset as the compensation is recognized for financial reporting
prior to recognizing the tax deductions. The tax benefit recognized in the Consolidated Statements of
Operations related to stock-based compensation totaled $39.9 million, $13.4 million and $16.6 million in
2021, 2020 and 2019, respectively. Upon the settlement of the stock-based awards (i.e., vesting), the
actual tax deduction is compared with the cumulative financial reporting compensation cost and any
excess tax deduction is considered a windfall tax benefit and is recorded to the tax provision. In 2021,
2020 and 2019, windfall tax benefits of $9.9 million, $1.3 million and $6.7 million were recorded to the tax
provision. Prior to the adoption of ASU 2016-09, windfall tax benefits were recorded to APIC when they
resulted in a reduction in taxes payable.
Prior to the passage of the U.S. Tax Cuts and Jobs Act in December of 2017 (the Tax Act), we asserted
that substantially all of the undistributed earnings of our foreign subsidiaries were considered indefinitely
reinvested and accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax
Act, these earnings were subjected to U.S. federal taxation via a one-time transition tax, and there is
therefore no longer a material cumulative basis difference associated with the undistributed earnings. We
maintain our assertion of our intention to permanently reinvest these earnings outside the U.S. unless
repatriation can be done substantially tax-free, with the exception of a foreign holding company formed
in 2018 and our Taiwan subsidiary. If we decide to repatriate any additional non-U.S. earnings in the
future, we may be required to establish a deferred tax liability on such earnings. The amount of
unrecognized deferred tax liability on the undistributed earnings would not be material.
F-28
9. Debt
As of September 30, 2021 and 2020, we had the following long-term borrowing obligations:
(in thousands)
4.000% Senior notes due 2028
3.625% Senior notes due 2025
Credit facility revolver(1)
Total debt
Unamortized debt issuance costs for the senior notes(2)
Total debt, net of issuance costs(3)
September 30,
2021
2020
$
$
500,000
500,000
450,000
1,450,000
(10,529)
1,439,471
$
$
500,000
500,000
18,000
1,018,000
(12,686)
1,005,314
(1)
Unamortized debt issuance costs related to the credit facility were $3.8 million and $4.9 million as of September 30, 2021 and
2020, respectively, and were included in other assets on the Consolidated Balance Sheets.
(2) Of the $14.1 million in financing costs incurred in connection with the issuance of the 2028 and 2025 notes, unamortized debt
issuance costs were $10.5 million and $12.7 million as of September 30, 2021 and 2020, respectively, and were included in long-
term debt on the Consolidated Balance Sheet.
As of September 30, 2021, and 2020, all debt was classified as long term.
(3)
Senior Unsecured 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).
As of September 30, 2021, the total estimated fair value of the 2028 and 2025 senior notes was
approximately $513.7 million and $508.6 million respectively, based on quoted prices for the notes on that
date.
We were in compliance with all the covenants for all of our senior notes as of September 30, 2021.
Terms of the 2028 and 2025 Notes
Interest on the 2028 and 2025 notes is payable semi-annually on February 15 and August 15. The debt
indenture for the 2028 and 2025 notes includes covenants that limit our ability to, among other things,
incur additional debt, grant liens on our properties or capital stock, enter into sale and leaseback
transactions or asset sales, and make capital distributions.
We may, on one or more occasions, redeem the 2025 and 2028 notes in whole or in part at specified
redemption prices. In certain circumstances constituting a change of control, we would be required to
make an offer to repurchase the notes at a purchase price equal to 101% of the aggregate principal
amount of the notes, plus accrued and unpaid interest. Our ability to repurchase the notes upon such
event may be limited by law, by the indenture associated with the notes, by our then-available financial
resources or by the terms of other agreements to which we may be party at such time. If we fail to
repurchase the notes as required by the indenture, it would constitute an event of default under the
indenture which, in turn, may also constitute an event of default under other obligations.
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. We expect to use the credit facility for general corporate purposes, including
acquisitions of businesses, share repurchases and working capital requirements.
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. As of September 30, 2021, unused commitments under our credit facility were
approximately $550.0 million. 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
F-29
date at our option without penalty or premium. As of September 30, 2021, the fair value of our credit
facility approximates its book value.
PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. Any
borrowings by PTC Inc. under the credit facility would be guaranteed by PTC Inc.’s material domestic
subsidiaries that become parties to the subsidiary guaranty, if any. As of the filing of this Form 10-K, there
are no subsidiary guarantors of the obligations under the credit facility. Any borrowings by eligible foreign
subsidiary borrowers would be guaranteed by PTC Inc. and any subsidiary guarantors. As of the filing of
this Form 10-K, no funds were borrowed by an eligible foreign subsidiary borrower. In addition, owned
property (including equity interests) of PTC and certain of its material domestic subsidiaries' owned
property is subject to first priority perfected liens in favor of the lenders under this credit facility. 100% of the
voting equity interests of certain of PTC’s domestic subsidiaries and 65% of its material first-tier foreign
subsidiaries are pledged as collateral for the obligations under the credit facility.
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 September 30, 2021, the
annual rate for borrowing outstanding was 1.69%. Interest rates on borrowings outstanding under the
credit facility range from 1.25% to 1.75% above an adjusted London Interbank Offering Rate (LIBOR) 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 LIBOR 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 LIBOR 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.
The credit facility limits PTC’s and its subsidiaries’ ability to, among other things: incur additional
indebtedness; incur liens or guarantee obligations; pay dividends (other than to PTC) and make other
distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions
with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic
subsidiaries may not invest cash or property in, or loan to, PTC’s foreign subsidiaries in aggregate amounts
exceeding $100 million for any purpose and an additional $200 million for acquisitions of businesses. In
addition, under the credit facility, PTC and its subsidiaries must maintain the following financial ratios:
• a total leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four
quarters EBITDA, not to exceed 4.50 to 1.00 as of the last day of any fiscal quarter;
• a senior secured leverage ratio, defined as senior consolidated total indebtedness (which
excludes unsecured indebtedness) to the consolidated trailing four quarters EBITDA, not to
exceed 3.00 to 1.00 as of the last day of any fiscal quarter; and
• an interest coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA to
consolidated trailing our quarters of cash basis interest expense, of not less than 3.00 to 1.00 as of
the last day of any fiscal quarter.
As of September 30, 2021, our total leverage ratio was 2.23 to 1.00, our senior secured leverage ratio
was 0.71 to 1.00, our interest coverage ratio was 13.64 to 1.00 and we were in compliance with all
financial and operating covenants of the credit facility.
Any failure to comply with the financial or operating covenants of the credit facility would prevent
PTC from being able to borrow additional funds, 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 in the
agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness
and terminate the credit facility.
We incurred $2.0 million in financing costs in connection with the February 2020 credit facility and
$1.0 million in connection with a November 2019 amendment to our prior credit facility. These origination
F-30
costs are recorded as deferred debt issuance costs and are included in other assets. Financing costs are
expensed over the remaining term of the obligations.
In 2021, 2020 and 2019, we incurred interest expense of $50.5 million, $76.4 million, and $43.0 million,
respectively, and paid $45.2 million, $60.6 million and $40.8 million, respectively, of interest on our debt.
Additionally, in the third quarter of 2020, we paid $15.0 million in penalties for the early redemption of the
2024 notes. The average interest rate on borrowings outstanding during 2021, 2020 and 2019 was
approximately 3.3%, 4.3% and 5.4%, respectively.
10. Commitments and Contingencies
As of September 30, 2021 and 2020, we had letters of credit and bank guarantees outstanding of
$16.3 million (of which $0.5 million was collateralized) and $16.4 million (of which $0.5 million was
collateralized), respectively, primarily related to our corporate headquarters lease.
Legal and Regulatory Matters
Legal Proceedings
With respect to legal proceedings and claims, we record an accrual for a contingency when it is
probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
401(k) Plan
On September 17, 2020, three 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 (collectively, 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. The plaintiffs and the PTC Defendants reached an agreement in principle to settle the lawsuit
on September 22, 2021. It is expected that the Plaintiffs will file a motion for preliminary approval of the
settlement on or before December 1, 2021. The ultimate outcome by judgment or settlement is not
expected to be material to 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. As of September 30, 2021, we estimate that the range of possible
outcomes for such matters is immaterial and we do not believe that resolving them 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.
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, we typically indemnify, hold harmless, and agree
to reimburse the indemnified party for losses suffered or incurred by the indemnified party, in connection
with patent, copyright or other intellectual property infringement claims by any third party with respect to
our products. Indemnification may also cover other types of claims, including claims relating to certain
data breaches. Except for intellectual property infringement indemnification, the liability for which is
uncapped, these agreements typically limit our liability with respect to other indemnification 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.
F-31
We warrant that our software products will perform in all material respects in accordance with our
standard published specifications during the term of the license/subscription. Additionally, we generally
warrant that our consulting services will be performed consistent with generally accepted industry
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 product or services warranties. As a result, we believe the estimated fair value of
these liabilities is immaterial.
11. Stockholders’ Equity
Preferred Stock
We may issue up to 5.0 million shares of our preferred stock in one or more series. 0.5 million of these
shares are designated as Series A Junior Participating Preferred Stock. Our Board of Directors is authorized
to fix the rights and terms for any series of preferred stock without additional shareholder approval.
Common Stock
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 billion of our common stock in the period
October 1, 2020 through September 30, 2023. We use cash from operations and borrowings under our
credit facility to make such repurchases. All shares of our common stock repurchased are automatically
restored to the status of authorized and unissued.
In 2021, we repurchased 0.2 million shares for $30 million. We did not repurchase any shares in 2020. In
2019, we repurchased 1.4 million shares for $115 million. In addition, in 2019, we repurchased 3.0 million
shares, under an accelerated share repurchase ("ASR") agreement. On July 20, 2018, we entered into an
ASR agreement with a major financial institution (“Bank”). The ASR allowed us to buy a large number of
shares immediately at a purchase price determined by an average market price over a period of time.
Under the ASR, we agreed to purchase $1 billion of our common stock, in total, with an initial delivery to us
in July 2018 of 8.2 million shares, which represented the number of shares at the current market price
equal to 80% of the total fixed purchase price of $1 billion. The remainder of the total purchase price of
$200 million reflected the value of the stock held by the Bank pending final settlement in May 2019 and,
accordingly, was recorded as a reduction to additional paid-in capital in 2018.
12. Equity Incentive Plans
Our 2000 Equity Incentive Plan (2000 Plan) provides for grants of nonqualified and incentive stock
options, common stock, restricted stock, restricted stock units and stock appreciation rights to employees,
directors, officers and consultants. We award restricted stock units (RSUs) as the principal equity incentive
awards, including certain performance-based awards that are earned based on achieving performance
criteria established by the Compensation Committee of our Board of Directors on or prior to the grant
date. Each restricted stock unit represents the contingent right to receive one share of our common
stock.
In the fourth quarter of 2020, we modified certain performance-based awards for executives by
adjusting the performance criteria for the current and future periods, as well as removing certain
provisions for catch up of unearned awards. There was not a material impact in 2020 due to the timing of
the modifications, but there was an increase in stock-based compensation in 2021.
The fair value of RSUs granted in 2021, 2020 and 2019 was based on the fair market value of our stock
on the date of grant for service- and certain performance- based RSUs and based on a Monte Carlo
simulation model for relative total shareholder return (TSR) performance RSUs. The weighted average fair
value per share of restricted stock units granted in 2021, 2020 and 2019 was $111.48, $77.57 and $82.77,
respectively.
We account for forfeitures as they occur, rather than estimate expected forfeitures.
F-32
The following table shows total stock-based compensation expense recorded from our stock-based
awards as reflected in our Consolidated Statements of Operations:
(in thousands)
Cost of license revenue
Cost of support and cloud services revenue
Cost of professional services revenue
Sales and marketing
Research and development
General and administrative
Total stock-based compensation expense
Year ended September 30,
2020
2019
2021
$
$
100
9,900
9,263
53,712
34,272
70,042
177,289
$
$
47
6,910
7,012
37,351
27,005
36,824
115,149
$
$
509
5,004
6,426
32,026
22,019
20,416
86,400
Stock-based compensation expense in 2021, 2020 and 2019 includes $7.3 million, $5.8 million, and
$6.2 million respectively, related to our employee stock purchase plan (ESPP).
As of September 30, 2021, total unrecognized compensation cost related to unvested restricted stock
units expected to vest was approximately $190.3 million and the weighted average remaining recognition
period for unvested awards was 17 months.
As of September 30, 2021, 4.1 million shares of common stock were available for grant under the 2000
Plan and 3.2 million shares of common stock were reserved for issuance upon vesting of restricted stock
units granted and outstanding.
Our ESPP allows eligible employees to contribute up to 10% of their base salary, up to a maximum
of $25,000 per year and subject to any other plan limitations, toward the purchase of our common stock
at a discounted price. The purchase price of the shares on each purchase date is equal to 85% of the
lower of the fair market value of our common stock on the first and last trading days of each offering
period. The ESPP is qualified under Section 423 of the Internal Revenue Code. We estimate the fair value
of each purchase right under the ESPP on the date of grant using the Black-Scholes option valuation
model and use the straight-line attribution approach to record the expense over the six-month offering
period.
Restricted stock unit activity for the year ended September 30, 2021
(in thousands, except grant date fair value data)
Balance of outstanding restricted stock units, October 1, 2020
Granted(1)
Vested
Forfeited or not earned
Balance of outstanding restricted stock units, September 30, 2021
Weighted
Average
Grant Date
Fair Value
79.13
111.48
80.64
90.99
92.46
Shares
3,509
1,480
(1,488)
(284 )
3,217
$
$
$
$
$
Aggregate
Intrinsic Value
$
385,311
(1) RSUs granted includes 33,000 shares from prior period Total Shareholder Return (TSR) awards that were earned upon
achievement of the performance criteria and vested in November 2020.
The following table presents the number of RSU awards granted by award type:
(in thousands)
Performance-based RSUs(1)
Service-based RSUs(2)
Total Shareholder Return RSUs(3)
Twelve months ended
September 30, 2021
90
1,267
90
(1)
(2)
(3)
The performance-based RSUs were granted to our executives and are eligible to vest based upon annual performance
measures over a three-year period. To the extent earned, those performance-based RSUs will vest in three substantially equal
installments on November 15, 2021, 2022 and 2023, or the date the Compensation Committee determines the extent to which
the applicable performance criteria have been achieved for each performance period. Up to a maximum of two times the
number of RSUs can be earned (a maximum aggregate of 179,000 RSUs).
The service-based RSUs were granted to employees, including our executive officers. Substantially all service-based RSUs will
vest in three substantially equal annual installments on or about the anniversary of the date of grant.
The Total Shareholder Return RSUs (TSR RSUs) were granted to our executives and are eligible to vest based on the
performance of PTC stock relative to the stock performance of an index of companies established as of the grant date, as
determined at the end of three measurement periods ending on September 30, 2021, 2022 and 2023, respectively. The RSUs
earned for each period will vest on November 15, 2021, 2022, and 2023. Up to a maximum of two times the number of TSR RSUs
eligible to be earned for the period (up to a maximum aggregate of 179,000 RSUs) may vest. If the return to PTC shareholders is
F-33
negative for a period but still meets or exceeds the group indexed return, a maximum of 100% of the eligible TSR RSUs may vest
for the measurement period.
As of September 30, 2021, weighted average remaining vesting term for outstanding awards is 1.0
year.
The weighted-average fair value of the TSR RSUs was $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 historical 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
Risk-free interest rate
Dividend yield
Total fair value of RSUs vested are as follows:
41.5 %
0.21 %
%
(in thousands)
Value of stock option and stock-based award activity
Total fair value of restricted stock unit awards vested
Year ended September 30,
2020
2021
2019
$
171,316
$
103,265
$
131,659
In 2021, shares issued upon vesting of restricted stock units were net of 0.5 million shares retained by
us to cover employee tax withholdings of $53.1 million. In 2020, shares issued upon vesting of restricted
stock units were net of 0.5 million shares retained by us to cover employee tax withholdings of $33.7
million. In 2019, shares issued upon vesting of restricted stock and restricted stock units were net of 0.5
million shares retained by us to cover employee tax withholdings of $44.4 million.
13. Employee Benefit Plan
We offer a savings plan to eligible U.S. employees. The plan is intended to qualify under
Section 401(k) of the Internal Revenue Code. Participating employees may defer a portion of their pre-tax
compensation, as defined, but not more than statutory limits. We contribute 50% of the amount
contributed by the employee, up to a maximum of 3% of the employee’s earnings. Our matching
contributions vest immediately. We made matching contributions of $7.8 million, $6.7 million, and $6.0
million in 2021, 2020 and 2019, respectively.
F-34
14. Pension Plans
We maintain several international defined benefit pension plans primarily covering certain
employees of Computervision, which we acquired in 1998, and CoCreate, which we acquired in 2008,
and covering employees in Japan. Benefits are based upon length of service and average
compensation with vesting after one to five years of service. The pension cost was actuarially computed
using assumptions applicable to each subsidiary plan and economic environment. We adjust our pension
liability related to our plans due to changes in actuarial assumptions and performance of plan
investments, as shown below. Effective in 1998, benefits under one of the international plans were frozen
indefinitely.
The following table presents the actuarial assumptions used in accounting for the pension plans:
Weighted average assumptions used to determine benefit obligations at
September 30 measurement date:
Discount rate
Rate of increase in future compensation
Weighted average assumptions used to determine net periodic pension
cost for fiscal years ended September 30:
Discount rate
Rate of increase in future compensation
Rate of return on plan assets
2021
2020
2019
1.0%
2.8%
1.1%
2.8%
5.0%
1.1%
2.8%
0.9%
2.8%
5.4%
0.9%
2.8%
1.9%
3.0%
5.4%
In selecting the expected long-term rate of return on assets, we considered the current investment
portfolio, and the investment return goals in the plans’ investment policy statements. We, with input from
the plans’ professional investment managers and actuaries, also considered the average rate of earnings
expected on the funds invested or to be invested to provide plan benefits. This process included
determining expected returns for the various asset classes that comprise the plans’ target asset
allocation. This basis for selecting the long-term asset return assumptions is consistent with the prior year.
Using generally accepted diversification techniques, the plans’ assets, in aggregate and at the individual
portfolio level, are invested so that the total portfolio risk exposure and risk-adjusted returns best meet the
plans’ long-term liabilities to employees. Plan asset allocations are reviewed periodically and rebalanced
to achieve target allocation among the asset categories when necessary. The discount rate is based on
yield curves for highly rated corporate fixed income securities matched against cash flows for each future
year.
The weighted long-term rate of return assumption, together with the assumptions used to determine
the benefit obligations as of September 30, 2021 in the table above, will be used to determine our 2022
net periodic pension income, which we expect to be approximately $0.7 million.
As of September 30, 2021, the weighted average interest crediting rate used in our only cash
balance pension plan is 6%.
All non-service net periodic pension costs are presented in other income, net on the Consolidated
Statement of Operations. The actuarially computed components of net periodic pension cost recognized
in our Consolidated Statements of Operations for each year are shown below:
(in thousands)
Interest cost of projected benefit obligation
Service cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss
Settlement loss
Net periodic pension cost
Year ended September 30,
2020
2019
2021
$
$
$
692
1,127
(3,643)
(5 )
4,139
$
527
1,426
(3,878)
(5 )
3,854
2,310
$
1,924
$
1,199
1,372
(3,728)
(5 )
2,390
(30)
1,198
F-35
The following tables display the change in benefit obligation and the change in the plan assets and
funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets:
(in thousands)
Change in benefit obligation:
Projected benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Foreign exchange impact
Participant contributions
Benefits paid
Curtailments
Projected benefit obligation, end of year
Change in plan assets and funded status:
Plan assets at fair value, beginning of year
Actual return on plan assets
Employer contributions
Participant contributions
Foreign exchange impact
Benefits paid
Plan assets at fair value end of year
Projected benefit obligation, end of year
Underfunded status
Accumulated benefit obligation, end of year
Amounts recognized in the balance sheet:
Non-current asset
Non-current liability
Current liability
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss
Year ended September 30,
2020
2021
$
$
$
$
$
$
$
$
$
97,832
1,127
692
1,100
(1,562)
109
(2,786)
96,512
72,063
7,383
3,049
109
(1,433)
(2,786)
78,385
96,512
(18,127)
95,090
855
(18,615)
(367)
30,213
$
$
$
$
$
$
$
$
$
94,983
1,426
527
(2,835)
6,452
86
(2,234)
(573 )
97,832
69,879
(2,990)
2,622
86
4,700
(2,234)
72,063
97,832
(25,769)
96,270
(25,437)
(332 )
37,175
As of September 30, 2021 and 2020 all of our pension plans had project benefit obligations and
accumulated benefit obligations in excess of plan assets.
The following table shows the change in accumulated other comprehensive loss:
(in thousands)
Accumulated other comprehensive loss, beginning of year
Recognized during year - net actuarial losses
Occurring during year - net actuarial losses
Foreign exchange impact
Accumulated other comprehensive loss, end of year
Year ended September 30,
2020
2021
$
$
37,175
(4,135)
(2,640)
(187)
30,213
$
$
34,920
(3,850)
3,460
2,645
37,175
In 2021, our net actuarial gains were driven by the asset performance. In 2020 our net actuarial losses
occurring during the year were primarily driven by poor asset performance due to COVID-19 pandemic,
offset by favorable impact on liabilities due primarily to a higher assumed discount rate.
The following table shows the percentage of total plan assets for each major category of plan assets:
Asset category
Equity securities
Fixed income securities
Commodities
Insurance company funds
Options
Cash
September 30,
2021
2020
35%
34%
11%
12%
1%
7%
100%
33 %
34 %
11 %
13 %
1 %
8 %
100 %
F-36
We periodically review the pension plans’ investments in the various asset classes. For the CoCreate
plan in Germany, assets are actively allocated between equity and fixed income securities to achieve
target return. For the other international plans, assets are allocated 100% to fixed income securities. The
fixed income securities for the other international plans primarily include investments held with insurance
companies with fixed returns. The plans’ investment managers are provided specific guidelines under
which they are to invest the assets assigned to them. In general, investment managers are expected to
remain fully invested in their asset class with further limitations on risk as related to investments in a single
security, portfolio turnover and credit quality.
The German CoCreate plan's investment policy prohibits the use of derivatives associated with
leverage and speculation or investments in securities issued by PTC, except through index-related
strategies and/or commingled funds. An investment committee oversees management of the pension
plans’ assets. Plan assets consist primarily of investments in equity and fixed income securities.
In 2021, 2020 and 2019 our actual return on plan assets was $7.4 million, $(3.0) million and $3.5 million,
respectively.
Based on actuarial valuations and additional voluntary contributions, we contributed $3.0 million,
$2.6 million, and $2.6 million in 2021, 2020 and 2019, respectively, to the plans. We expect to pay $3.8
million in contributions in 2022, of which $0.8 million will be paid directly to the plans.
As of September 30, 2021, benefit payments expected to be paid over the next ten years are as
follows:
(in thousands)
2022
2023
2024
2025
2026
2027 to 2031
$
Future Benefit Payments
4,297
4,216
4,860
4,558
4,638
24,407
Fair Value of Plan Assets
The international plan assets are comprised primarily of investments in a trust and an insurance
company. The underlying investments in the trust are primarily publicly-traded equities and governmental
fixed income securities. They are classified as Level 1 because the underlying units of the trust are traded
in open public markets. The fair value of the underlying investments in equity securities and fixed income
are based upon publicly-traded exchange prices.
(in thousands)
Fixed income securities:
Government
Corporate investment grade
Large capitalization stocks
Commodities
Insurance company funds(1)
Options
Cash
Total plan assets
Level 1
Level 2
Level 3
Total
September 30, 2021
$
$
24,013
2,924
27,078
8,558
1,122
5,585
69,280
$
$
9,105
$
9,105
$
$
$
24,013
2,924
27,078
8,558
9,105
1,122
5,585
78,385
F-37
(in thousands)
Fixed income securities:
Government
Corporate investment grade
Large capitalization stocks
Commodities
Insurance company funds(1)
Options
Cash
Total plan assets
Level 1
Level 2
Level 3
Total
September 30, 2020
$
$
20,663
3,599
23,878
7,750
1,126
5,916
62,932
$
$
9,131
$
9,131
$
$
$
20,663
3,599
23,878
7,750
9,131
1,126
5,916
72,063
(1)
These investments are comprised primarily of funds invested with an insurance company in Japan with a guaranteed rate of
return. The insurance company invests these assets primarily in government and corporate bonds.
15. Fair Value Measurements
Money market funds, 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.
Certificates of deposit, commercial paper and certain U.S. government agency securities are
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.
The principal market in which we execute our foreign currency forward contracts is the institutional
market in an over-the-counter environment with a relatively high level of price transparency. The market
participants usually are large financial institutions. Our foreign currency forward contracts’ valuation
inputs are based on quoted prices and quoted pricing intervals from public data sources and do not
involve management judgment. These contracts are typically classified within Level 2 of the fair value
hierarchy.
Our investment in a non-marketable convertible note and shares of Matterport are classified within
Level 3 of the fair value hierarchy as they are valued using inputs with little to no market activity. Refer to
Note 2. Summary of Significant Accounting Policies for additional information about Matterport
investment.
Our significant financial assets and liabilities measured at fair value on a recurring basis as of
September 30, 2021 and 2020 were as follows:
(in thousands)
Financial assets:
Cash equivalents(1)
Convertible note
Equity securities
Forward contracts
Financial liabilities:
Forward contracts
Level 1
Level 2
Level 3
Total
September 30, 2021
$
114,375
$
$
$
114,375
$
$
$
$
$
5,363
5,363
3,318
3,318
$
2,000
77,540
79,540
$
114,375
2,000
77,540
5,363
199,278
3,318
3,318
$
F-38
(in thousands)
Financial assets:
Cash equivalents(1)
Marketable securities:
Corporate notes/bonds
Forward contracts
Financial liabilities:
Forward contracts
(1) Money market funds and time deposits.
Level 3 Investments
Convertible Note
Level 1
Level 2
Level 3
Total
September 30, 2020
$
105,299
$
59,099
164,398
$
$
$
$
$
$
$
903
903
1,073
1,073
105,299
59,099
903
165,301
1,073
1,073
$
$
In the fourth quarter of 2021, we invested $2.0 million in a non-marketable convertible note. This debt
security is classified as available-for-sale and is included in other assets on the Consolidated Balance
Sheet.
In the first quarter of 2021, we invested $1.0 million into a non-marketable convertible note, which
converted to preferred stock in the fourth quarter of 2021. At the time of conversion an unrealized gain of
$0.2 million was recognized. This preferred stock investment is classified as non-marketable equity
investment and is included in other assets on the Consolidated Balance Sheet.
Equity Securities
As of September 30, 2021, we owned 4,316,301 common shares of Matterport, Inc., which are
classified as Level 3 in the fair value hierarchy and are recognized at fair value of $77.5 million in other
current assets on the Consolidated Balance Sheets. For the three months ended September 30, 2021, we
recognized a gain of $68.8 million related to the shares in other income, net on the Consolidated
Statements of Operations, which includes a gain of $72.9 million of gain on investment and a $4.1 million
valuation adjustment due to lack of marketability.
The following table presents changes in fair value of our Level 3 investment in the Matterport, Inc.
shares:
(in thousands)
Balance, July 22, 2021
Unrealized gains
Discount due to lack of marketability
Balance, September 30, 2021
16. Marketable Securities
September 30, 2021
Fair Values
$
$
8,711
72,910
(4,081)
77,540
We did not hold any marketable securities as of September 30, 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 September 30, 2020 were as follows:
(in thousands)
Amortized
cost
September 30, 2020
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate notes/bonds
$
58,793
$
323
$
(17) $
59,099
F-39
The following tables summarize the fair value and gross unrealized losses aggregated by category
and the length of time that individual securities had been in a continuous unrealized loss position as of
September 30, 2020.
(in thousands)
Corporate notes/bonds
Less than twelve
months
September 30, 2020
Greater than twelve
months
Total
Gross
unrealized
loss
Gross
unrealized
loss
Fair value
$
(17) $
$
Fair value
9,841
$
Gross
unrealized
loss
$
(17)
Fair value
9,841
$
The following table presents our available-for-sale marketable securities by contractual maturity date
as of September 30, 2020.
(in thousands)
Due in one year or less
Due after one year through three years
17. Derivative Financial Instruments
Non-Designated Hedges
September 30, 2020
Amortized
cost
Fair value
$
$
27,727
31,066
58,793
$
$
27,899
31,200
59,099
As of September 30, 2021 and 2020, we had outstanding forward contracts for derivatives not
designated as hedging instruments with notional amounts equivalent to the following:
Currency Hedged (in thousands)
Canadian / U.S. Dollar
Euro / U.S. Dollar
British Pound / U.S. Dollar
Israeli Shekel / U.S. Dollar
Japanese Yen / U.S. Dollar
Swiss Franc / U.S. Dollar
Swedish Krona / U.S. Dollar
Singapore Dollar / U.S. Dollar
Chinese Renminbi / U.S. Dollar
New Taiwan Dollar / U.S. Dollar
Russian Ruble/ U.S. Dollar
All other
Total
September 30,
2021
2020
$
$
4,894
387,466
23,141
10,475
46,450
18,039
34,196
3,498
23,297
3,369
2,614
6,482
563,921
$
$
6,847
390,673
6,328
9,503
50,379
12,874
18,871
3,281
5,415
1,483
309
6,499
512,462
The following table shows the effect of our non-designated hedges, all of which were forward
contracts, on the Consolidated Statements of Operations for the years ended September 30, 2021, 2020
and 2019:
(in thousands)
Net realized and unrealized gain (loss), excluding the underlying
foreign currency exposure being hedged
Location of gain (loss)
Year ended September 30,
2019
2020
2021
Other income, net
$ (3,758) $
3,518
$ (11,314)
Cash Flow Hedges
We stopped entering into cash flow hedges in the first quarter of 2019. We had no outstanding
forward contracts designated as cash flow hedges as of either September 30, 2021, 2020 or 2019. For the
year ended September 30, 2019, we had a gain of $0.2 million related to effective portion of the hedge
recognized in other comprehensive income on the Consolidated Balance Sheet, and $0.6 million
reclassified from other comprehensive income on the Consolidated Balance Sheet into software revenue
on the Consolidated Statements of Operations.
F-40
Net Investment Hedges
As of September 30, 2021 and 2020, we had outstanding forward contracts designated as net
investment hedges with notional amounts equivalent to the following:
Currency Hedged (in thousands)
Euro / U.S. Dollar
September 30,
2021
2020
$
128,103
$
164,885
The following table shows the effect of our derivative instruments designated as net investment
hedges, all of which were forward contracts, on the Consolidated Statements of Operations for the years
ended September 30, 2021, 2020, and 2019:
(in thousands)
Gain (loss) recognized in OCI effective portion
Gain (loss) reclassified from OCI effective portion
Gain recognized portion excluded from effectiveness testing
OCI
OCI
Other income, net
Location of gain (loss)
Year ended September 30,
2019
2020
2021
$
$
$
695
2,723
1,249
$ (5,483) $ (2,925)
$ (7,630)
$
4,598
$
$
109
3,506
As of September 30, 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.
The following table shows our derivative instruments measured at gross fair value as reflected in the
Consolidated Balance Sheets:
(in thousands)
Derivative assets:(1)
Forward contracts
Derivative liabilities:(2)
Forward contracts
Fair Value of Derivatives
Designated As Hedging
Instruments
Fair Value of Derivatives
Not Designated As
Hedging Instruments
2021
2020
2021
2020
September 30,
$
$
1,641
$
$
3
306
$
$
3,722
3,318
$
$
900
767
(1) As of September 30, 2021 and 2020, current derivative assets of $5.4 million and $0.9 million, respectively, are recorded in other
current assets on the Consolidated Balance Sheets.
(2) As of September 30, 2021 and 2020, current derivative liabilities of $3.3 million and $1.1 million, respectively, are recorded in
accrued expenses and other current liabilities on the Consolidated Balance Sheets.
Offsetting Derivative Assets and Liabilities
We have entered into master netting arrangements which 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 September 30, 2021:
(in thousands)
As of September 30, 2021
Forward Contracts
Gross Amounts Offset in the
Consolidated Balance Sheets
Gross
Amount of
Recognized
Assets
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
$
5,363
$
Net Amounts
of Assets
Presented in
the
Consolidated
Balance
Sheets
$
5,363
Gross Amounts Not Offset in
the Consolidated Balance
Sheets
Financial
Instruments
$
(3,318)
$
Cash
Collateral
Received
Net Amount
2,045
$
F-41
The following table sets forth the offsetting of derivative liabilities as of September 30, 2021:
(in thousands)
As of September 30, 2021
Forward Contracts
Gross Amounts Offset in the
Consolidated Balance Sheets
Gross
Amount of
Recognized
Liabilities
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
$
3,318
$
Net Amounts
of Liabilities
Presented in
the
Consolidated
Balance
Sheets
$
3,318
Gross Amounts Not Offset in
the Consolidated Balance
Sheets
Financial
Instruments
$
(3,318)
$
Cash
Collateral
Pledged
Net Amount
$
Net gains and losses on foreign currency exposures, including realized and unrealized gains and
losses on forward contracts, included in foreign currency net losses, were net losses of $8.0 million, $1.7
million and $3.2 million in 2021, 2020 and 2019, respectively. Net realized and unrealized gains and losses
on forward contracts included in foreign currency net losses were a net loss of $4.9 million and $8.4 million
in 2021 and 2019, and net gain of $7.0 million in 2020.
18. 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 two operating and reportable
segments: (1) Software Products, which includes license, subscription 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.
F-42
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)
Software Products
Revenue
Operating costs(1)
Profit
Professional Services
Revenue
Operating costs(2)
Profit
Total segment revenue
Total segment costs
Total segment profit
Unallocated operating expenses:(3)
Sales and marketing expenses
General and administrative expenses
Intangibles amortization
Restructuring and other charges, net
Stock-based compensation
Other unallocated operating expenses(4)
Total operating income
Year ended September 30,
2020
2019
2021
$
$
1,649,341
451,734
1,197,607
$
1,314,617
393,803
920,814
1,088,100
377,464
710,636
157,818
135,981
21,837
1,807,159
587,715
1,219,444
464,067
120,954
59,165
2,211
177,289
15,010
380,748
143,798
128,678
15,120
1,458,415
522,481
935,934
398,100
114,386
56,104
32,716
115,149
8,616
210,863
167,531
133,846
33,685
1,255,631
511,310
744,321
385,423
104,393
51,147
51,114
86,400
2,802
63,042
(43,047)
305
20,300
Interest expense
Other income, net
Income before income taxes
(50,478)
61,485
391,755
$
(76,428)
271
134,706
$
$
(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. Operating costs for the Software Products segment
include depreciation of $4.0 million, $4.2 million and $4.6 million in 2021, 2020 and 2019, respectively.
(2) Operating costs for the Professional Services segment include all costs of professional services revenue, excluding stock-based
compensation, intangible amortization, and fair value adjustments for deferred services costs. The Professional Services
segment includes depreciation of $1.1 million, $1.1 million and $1.4 million in 2021, 2020 and 2019, respectively.
(3) Unallocated departments include depreciation of $21.0 million, $19.4 million and $20.6 million in 2021, 2020 and 2019,
respectively.
(4) Other unallocated operating expenses include acquisition-related and other transactional costs and fair value adjustments for
deferred services costs.
We report revenue by the following three product groups:
Year ended September 30,
2020
1,025,668
222,646
210,101
1,458,415
2021
1,257,827
316,074
233,258
1,807,159
$
$
$
$
2019
868,970
167,544
219,117
1,255,631
(in thousands)
Core
Growth
Focused Solutions Group (FSG)
Total revenue
$
$
F-43
We license products to customers worldwide. Our sales and marketing operations outside the United
States are conducted principally through our international sales subsidiaries throughout Europe and the
Asia Pacific region. Intercompany sales and transfers between geographic areas are accounted for at
prices that are designed to be representative of unaffiliated party transactions. Our material long-lived
assets primarily reside in the United States in 2021, 2020, and 2019. 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)
Revenue:
Americas(1)
Europe(2)
Asia Pacific
Total revenue
Year ended September 30,
2020
2019
2021
$
$
766,021
722,977
318,161
1,807,159
$
$
649,383
543,779
265,253
1,458,415
$
$
537,548
464,666
253,417
1,255,631
(1)
(2)
Includes revenue in the United States totaling $741.3 million, $621.8 million, and $514.4 million for 2021, 2020 and 2019,
respectively.
Includes revenue in Germany totaling $290.7 million, $198.7 million, and $185.4 million for 2021, 2020 and 2019, respectively.
19. Leases
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, 2019 through June 30,
2037. Base rent for the first year of the lease is $11.0 million and will increase by $1 per square foot per year
thereafter ($0.3 million per year). Base rent first became 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”). Annual Additional Rent is estimated to be approximately $7.1 million. 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 year
ended September 30, 2021 were as follows:
(in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Year ended September 30, 2021
37,295
$
2,452
9,808
(4,438)
45,117
$
Supplemental cash flow and right-of use assets information for the year ended September 30, 2021
was as follows:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Right-of-use assets obtained in exchange for new financing lease liabilities
Year ended September 30, 2021
$
$
$
50,299
9,576
1,146
Supplemental balance sheet information related to the leases as of September 30, 2021 was as
follows:
Weighted-average remaining lease term - operating leases
Weighted-average remaining lease term - financing leases
Weighted-average discount rate - operating leases
Weighted-average discount rate - financing leases
As of September 30, 2021
11.9 years
4 years
5.5%
3.0%
F-44
Maturities of lease liabilities as of September 30, 2021 are as follows:
(in thousands)
2022
2023
2024
2025
2026
Thereafter
Total future lease payments
Less: imputed interest
Total
Exited (Restructured) Facilities
Operating Leases
44,132
28,988
24,956
21,760
17,872
157,358
295,066
(86,267)
208,799
$
$
As of September 30, 2021, we have net liabilities of $3.6 million related to excess facilities (compared
to $11.3 million at September 30, 2020), representing $1.2 million of right-of-use assets and $4.8 million of
lease obligations, of which $4.2 million is classified as short term and $0.6 million is classified as long term.
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 September 30, 2021,
the right-of-use assets for exited facilities reflect discounted committed sublease income of approximately
$1.2 million. There was no uncommitted sublease income as of September 30, 2021. 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 year ended September 30, 2021, we recorded a facility impairment
charge of $0.1 million.
In the year ended September 30, 2021, we made payments of $7.8 million related to lease costs for
exited facilities.
20. Subsequent Events
Equity Grants
In November 2021, we granted shares valued at approximately $20.5 million to our employees,
including our executive officers ($3.1 million), in payment of amounts earned under our annual Corporate
Incentive Plan. We also granted service-based restricted stock units (RSUs) valued at approximately $47.0
million to employees, including our executive officers ($11.1 million), and performance-based RSUs valued
at approximately $18.2 million to employees, including our executive officers ($11.1 million). The service-
based RSUs will generally vest in three substantially equal annual installments on November 15, 2022, 2023
and 2024. Half of the performance-based RSUs are eligible to vest based upon annual cash flow
performance measures, measured over a three-year period and will vest in three substantially equal
annual installments on November 15, 2022, 2023 and 2024. The other half are relative Total Shareholder
Return RSUs which are eligible to vest based on the performance of PTC stock relative to the stock
performance of an index of software and services companies for the period ending September 30, 2024
and will vest to the extent earned on November 15, 2024.
Restructuring
On November 3, 2021, we committed to a plan to restructure our workforce and consolidate select
facilities to align our customer facing and product-related functions with SaaS industry best practices and
accelerate the opportunity for our on-premise customers to move to the cloud. The expected savings
from the restructuring will be re-invested in the business. The restructuring is expected to result in a charge
and cash payments of approximately $45 million to $50 million in 2022. We anticipate additional cash
restructuring payments of approximately $5 million related to past restructurings.
F-45
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below compares the cumulative stockholder return on our common stock from
September 30, 2016 to September 30, 2021 with the cumulative return over the same period of:
the S&P 500 Index,
⬢
the NASDAQ Composite Index, and
⬢
the NASDAQ Computer & Data Processing Index.
⬢
The Stock Performance Graph assumes that the value of the investment in PTC common stock and each of the
comparison groups was $100 on September 30, 2016 and assumes the reinvestment of dividends. We have never
declared a cash dividend on our common stock.
The stock price performance depicted in the graph below is not necessarily indicative of future price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among PTC INC, the S&P 500 Index,
the NASDAQ Composite Index and the NASDAQ Computer & Data Processing Index
$600
$500
$400
$300
$200
$100
$0
9/16
9/17
9/18
9/19
9/20
9/21
PTC INC
S&P 500
NASDAQ Composite
NASDAQ Computer & Data Processing
*$100 invested on 9/30/16 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
PTC INC.
S&P 500
NASDAQ Composite
NASDAQ Computer & Data Processing
9/30/2016 9/30/2017 9/30/2018 9/20/2019 9/30/2020 9/30/2021
$270.35
$218.27
$285.75
$511.87
$100.00
$100.00
$100.00
$100.00
$186.68
$167.89
$219.37
$408.03
$239.65
$139.85
$154.82
$202.82
$153.87
$145.80
$155.63
$203.32
$127.01
$118.61
$123.68
$137.76
Directors
Shareholders and Stock Listing
Robert Schechter
Chairman of the Board
Chairman and Chief Executive Officer (Retired), NMS
Communications Corporation, a software company
Marc Benjamin
Chief Executive Officer, Nuance Communications, Inc.,
a software company
Janice Chaffin
Group President, Consumer Business Unit (Retired), Symantec
Corporation, an enterprise software company
James Heppelmann
President and Chief Executive Officer, PTC
Klaus Hoehn
Vice President, Advanced Technology and Engineering (Retired),
Deere & Company, a manufacturing company
Paul Lacy
President (Retired), Kronos Incorporated, an enterprise
software company
Corinna Lathan
Chief Executive Officer, Co-Founder and Chair of the Board
of AnthroTronix, Inc., a biomedical engineering research and
development company
Blake Moret
President and Chief Executive Officer and Chairman of the Board
of Rockwell Automation, Inc., a company focused on industrial
automation and information
Corporate Officers
James Heppelmann
President and Chief Executive Officer
Kristian Talvitie
Executive Vice President, Chief Financial Officer
Troy Richardson
President, Digital Thread Solutions
Michael DiTullio
President, Velocity Solutions
Aaron von Staats
Executive Vice President, General Counsel and Secretary
Our common stock is traded on the Nasdaq Global Select Market
under the symbol PTC. On September 30, 2021, our common
stock was held by 1,023 stockholders of record.
Dividends
We have not paid dividends on our common stock and have
historically retained earnings for use in our business. We review
our policy with respect to the payment of dividends from time to
time. However, there can be no assurance that we will pay any
dividends in the future.
Investor Information
You may obtain a copy of any of the exhibits to our Annual
Report on Form 10-K free of charge. These documents are
available on our website at www.ptc.com or by contacting
PTC Investor Relations.
Requests for information about PTC should be directed to:
Investor Relations
PTC
121 Seaport Boulevard
Boston, MA 02210
Telephone: 781.370.5000
Email: ir@ptc.com
Annual Meeting
The annual meeting of stockholders will be held at the time and
location stated below.
Monday, January 31, 2022
12:30 p.m., local time
PTC Headquarters
121 Seaport Boulevard
Boston, Massachusetts 02210
Internet Access
www.ptc.com
General Outside Counsel
Locke Lord LLP, Boston, Massachusetts
Independent Accountants
PricewaterhouseCoopers LLP, Boston, Massachusetts
Transfer Agent and Registrar
American Stock Transfer & Trust Company, New York, NY
© 2021 PTC Inc. All rights reserved. PTC, the PTC logo and all PTC product names and logos are trademarks or registered trademarks of
PTC Inc. or its subsidiaries in the United States and in other countries. All other companies and products referenced herein are trademarks
or registered trademarks of their respective holders.
PTC Worldwide Headquarters
121 Seaport Boulevard
Boston, MA 02210
PTC.com