2023 Annual Report
Table of Contents
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Annual Report on Form 10-K for the period ended September 30, 2023
Stock Performance Graph
Corporate Information
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, 2023
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. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 $14,078,377,983 on March 31, 2023 based on the last reported
sale price of our common stock on the Nasdaq Global Select Market on that date. There were 118,333,823 shares of our common stock outstanding on that day
and 119,244,754 shares of our common stock outstanding on November 16, 2023.
Portions of the definitive Proxy Statement in connection with the 2024 Annual Meeting of Stockholders (2024 Proxy Statement) are incorporated by
reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
PTC Inc.
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 2023
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
(PricewaterhouseCoopers LLP, Boston, MA, PCAOB ID: 238)
Consolidated Financial Statements
Notes to Consolidated Financial Statements
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F-1
F-4
F-9
Cautionary Note About Forward-Looking Statements
This Annual Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
We intend such forward-looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Litigation Reform Act of 1995. In particular,
statements that are not historical facts, including but not limited to, statements 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. These forward-looking statements are generally
identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or
similar expressions, whether in the negative or affirmative. Forward-looking statements are based on our
current plans, expectations and assumptions and are not guarantees of future performance. Factors that
may cause our actual results to differ materially from these statements include, but are not limited to, the
risks and uncertainties discussed in Item 1A. “Risk Factors” and elsewhere throughout this Annual Report.
Such factors, among others, could have a material adverse effect upon our business, results of operations
and financial condition. We caution readers not to place undue reliance on any forward-looking
statements, which only speak as of the date made. We undertake no obligation to update any forward-
looking statement to reflect events or circumstances after the date on which such statement is made.
Unless otherwise indicated, all references to a year reflect our fiscal year that ends on September 30.
References to our PTC.com website in this Annual Report and to our 2023 Impact Report are
provided for convenience. The content on PTC.com and in our 2023 Impact Report is not incorporated by
reference into this Annual Report unless expressly stated.
Website References
ITEM 1. Business
PART I
Our Business
PTC is a global software company that provides a portfolio of innovative digital solutions that work
together to transform how physical products are engineered, manufactured, and serviced.
Our software portfolio includes award-winning offerings that enable companies to author product
data (our computer-aided design (CAD) portfolio solutions) and to manage product data and
orchestrate processes (our product lifecycle management (PLM) portfolio solutions).
Our software can be delivered on premises, in the cloud, or in a hybrid model. Our customers include
some of the world's most innovative companies in the aerospace and defense, automotive, electronics
and high tech, industrial machinery and equipment, life sciences, retail and consumer products industries.
We generate revenue through the sale of subscriptions, which include term-based on-premises
software licenses and related support, Software-as-a-Service (SaaS), and hosting services; perpetual
licenses; support for perpetual licenses; and professional services (consulting, implementation, and
training).
Recent Developments
We acquired the ServiceMax® cloud-native field service management business in Q2’23,
broadening our PLM solution set to encompass the service phase of the product lifecycle. We paid the
first purchase payment installment of $835 million, as adjusted for working capital, indebtedness, cash,
and transaction expenses, in January 2023, and the second and final installment of $650 million in
October 2023. Refer to Note 6. Acquisitions and Disposition of Businesses of Notes to Consolidated
Financial Statements in this Annual Report for additional discussion about the ServiceMax transaction.
1
We pursue multiple strategic initiatives designed to create value for our customers, increase our
Annual Run Rate (ARR) and free cash flow, and deliver long-term value for stockholders.
Our Strategy
Subscription Business Model
Our transition from a perpetual and maintenance model to a subscription business model continues
to be key to driving growth. Our subscription model offers greater benefits of scale and growth potential,
drives higher customer engagement and retention, and provides better business predictability, with over
90% of our annual revenues being recurring in nature. This, in turn, enables us to make steady and
sustained investments to pursue mid-to-long-term growth opportunities.
Customer Expansion
Our solutions portfolio encompasses the entire product life cycle, from design to manufacture to
service, enabling companies to adopt a “digital thread” strategy to drive innovation and productivity. A
digital thread manages product data and makes it accessible and useful to the right people, at the right
time, and in the right context. The digital thread is particularly valuable for customers with complex
products that tend to have longer life cycles. We seek to drive value for our customers by offering new
and enhanced features and products that enable our customers to pursue and expand their digital
thread strategies.
Our acquisition strategy targets companies with products that complement ours and that we believe
will appeal to our existing customer base, allowing us to pursue cross-selling opportunities. The addition of
ServiceMax in 2023 for the SLM part of our PLM portfolio further extends what was already a unique
portfolio of interconnected digital thread capabilities across the full product life cycle. The addition of
Codebeamer in 2022 for the ALM part of our PLM portfolio strengthened our offerings in the ALM space as
software becomes integral to more and more products, especially in regulated industries where
traceability is safety-critical.
PLM Expansion
PLM is at the heart of digital transformation and has become essential technology at industrial
companies. No longer confined to the Engineering department, PLM data is driving decision-making
across organizations, enabling them to improve how products are designed, manufactured, and
serviced.
Our goal is to be the category leader in PLM and to provide our customers with best-in-class solutions
to drive innovation and productivity.
SaaS Transition
We continue to invest in the transformation of our technology portfolio to include more SaaS
offerings. Our acquisitions of Onshape, Arena, and ServiceMax brought cloud-native solutions to our
portfolio, and we continue to work towards creating and expanding SaaS offerings for our existing
products. We believe that SaaS products represent a strong value proposition for our customers, offering
reduced complexity; lower costs to implement, upgrade and administer; better user collaboration and
mobility; and scalability. This is a longer-term strategy as we expect that SaaS adoption in the CAD and
PLM markets will be gradual at first, then accelerate significantly, given constraints such as the length and
cost of conversion projects and budgeting timelines of our customers.
2
Our Principal Products and Services
Our Principal Product Groups
PLM Software Products
For Product Data Management
and Process Orchestration
CAD Software Products
For Product Data Authoring
PLM
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 to elevate their product development, manufacturing, and field service processes. With its
open architecture that integrates with other enterprise systems, Windchill provides a solid foundation for a
product-driven digital thread.
Our ThingWorx® platform is flexible and purpose-built for Industrial Internet of Things (IIoT). It 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. Primary use cases include remote asset
monitoring, remote maintenance and service, predictive maintenance and asset management, and
optimized equipment effectiveness. Our ThingWorx Digital Performance Management solution enables
manufacturers to identify, prioritize, and overcome their most significant production bottlenecks.
Our ServiceMax® field service management (FSM) solutions enable companies to improve asset
uptime with optimized in-person and remote service, boost technician productivity with the latest mobile
tools, and deliver metrics for confident decision making.
Our Arena® SaaS PLM solution enables product teams to collaborate virtually anytime and anywhere,
making it easier to share the latest product and quality information with internal teams and supply chain
partners and 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.
Our Codebeamer® application lifecycle management (ALM) and model-based systems engineering
capabilities enable companies to accelerate the development of software-intensive products through
system modeling, software configuration, and requirements, risk, and test management.
Our Servigistics® service parts management solution enables companies to effectively manage their
service parts inventory, enabling them to optimize equipment availability and uptime, and increase
customer satisfaction.
Our FlexPLM® solution provides retailers with a single platform for merchandising and line planning,
materials management, sampling, and more.
Our Kepware® portfolio of industrial connectivity solutions helps companies connect diverse
automation devices and software applications.
Our Creo® 3D CAD technology enables the digital design, testing, and modification of product
models. With its design simulation, additive manufacturing, and generative 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 innovative tools to efficiently create better products, faster.
CAD
3
Our Onshape® SaaS product development platform unites computer-aided design with 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 Vuforia® augmented reality (AR) technology enables the visualization of digital information in a
physical context and the creation of AR and mixed reality experiences, enabling companies to drive
results in manufacturing, service, engineering, and operations. Vuforia solutions equip frontline workers
with focused and effective step-by-step instructions, procedural guidance, skill development and remote
assistance that enable enterprises to improve workforce productivity, reduce errors, increase asset
utilization and drive higher profitability.
Our Arbortext® dynamic publishing solution streamlines how organizations create, manage, and
publish technical documentation.
Our Markets and How We Address Them
The markets we serve present different growth opportunities for us. The PLM market is undergoing
expansion as PLM plays a larger role in industrial companies. Within PLM, we've extended our reach in the
growing SLM and ALM spaces through our acquisitions of ServiceMax and Codebeamer. Across all our
solutions, we see opportunity for further market growth with a new generation of SaaS solutions we are
developing to bring to market over the next few years.
We derive most of our sales from products and services sold directly by our sales force to end-user
customers. Approximately 25% 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
and transition to SaaS.
Additional financial information about our international and domestic operations may be found in
Note 3. Revenue from Contracts with Customers of Notes to Consolidated Financial Statements in this
Annual Report, 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. For enterprise CAD and PLM solutions, we compete with large established
companies including Autodesk, Dassault Systèmes SA, and Siemens AG. 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 our AR products, our primary competitors include Microsoft, TeamViewer
SE, and Scope Technologies US Inc. For our ALM products, we compete with IBM, Jama Software, Inc. and
Siemens AG. For our SLM products, we compete with enterprise software companies such as Oracle, SAP
and IFS AB, and with companies that offer point solutions.
4
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
technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of
our products.
Our proprietary rights are subject to the risks and uncertainties described under Item 1A. Risk Factors
below, which is incorporated into this section by reference.
Environmental Sustainability
At PTC, we’re motivated to become an impactful contributor to the dematerialization and
decarbonization of global manufacturing. While we have a climate action plan committed to reduce our
company’s “footprint,” we believe far larger benefits will flow from our “handprint” stemming from our
software offerings. Our software solutions enable manufacturers to design, build, and service their
products more sustainably.
Footprint
In 2023, we announced our footprint reduction commitment via the Science Based Target initiative
(SBTi) and submitted near-term and net-zero targets for validation by SBTi. Our submitted near-term
commitment is to reduce combined Scope 1 (direct emissions from owned/controlled operations) and
Scope 2 (indirect energy use) emissions by 50% and reduce Scope 3 - Category 1 (Purchased Goods and
Services) 25% compared to our 2022 baseline by 2030. Our long-term net-zero commitment is to reach
net-zero across all scope emissions by 2050, with absolute reductions of over 90% across Scopes 1-3, with
accredited carbon removal offsets for the remaining <10% as needed.
While we await SBTi approval of our near-term and net-zero targets, we have already begun to
implement programs and pursue initiatives to reduce our emissions and carbon footprint, including:
• prioritizing energy efficiency and accessibility to public transportation when selecting office
space;
•
•
increasing our subsidy for employee’s public transportation commute costs; and
consolidating our data center operations with providers committed to mid-decade 100%
renewable energy and advancing circular outcomes.
Environmental sustainability is integral to our product offerings. With our software, manufacturers can
drive sustainability improvement, including by designing with less material, enhancing product
repairability and circularity, improving factory efficiency, and enabling remote service.
Handprint
5
People and Culture
At PTC, we don’t just imagine a better world, we help create it. Within our work environment we seek
to create an equitable and inclusive culture in which all employees can thrive. This is a key aspect of our
talent strategy. Our approach is focused on promoting an agile culture, an increased sense of belonging,
engaged work environments, and high-performing teams.
6
PTC at-a-Glance
As of September 30, 2023, PTC had 7,231 full-time employees. Our employee population is
geographically diverse and serves a geographically diverse customer and partner network.
Worldwide Employee Representation
United States Employee Representation
7
Compensation and Benefits
PTC provides a comprehensive and competitive compensation and benefits package designed to
attract, retain, motivate, and engage talent around the world.
We provide employees with competitive compensation packages, including base salaries, and, for
eligible roles, incentive and equity compensation. Employees also have the opportunity to purchase PTC
stock at a discount through our Employee Stock Purchase Plan.
Our benefits offerings are designed to meet the needs of our employees and their families around
the world. Specific offerings differ country by country due to cultural norms, market dynamics, and legal
requirements, but we provide a wide variety of core health and financial programs such as healthcare,
life and disability insurance, employee assistance plans, retirement savings and pension benefit plans,
and generous paid family leave and vacation time.
Talent Development & Employee Engagement
As we focus on enhancing the employee experience, we are increasing our efforts to invest in our
people and create meaningful opportunities to learn, grow, develop, and advance their careers. We
have specific development programs and coaching programs, as well as numerous other self-led
learning paths. The variety of options means that employees have the ability to focus on the
development path most meaningful to them.
Diversity, Equity, and Inclusion (DEI)
Commitment to our values and diversity in our workforce is supported by various ongoing efforts. We
mitigate bias by coaching managers and leaders in fostering psychologically safe environments. We also
review and revise our processes based on feedback and engagement scores from employee pulse
surveys. We embed equitable practices into the planning and execution of how we attract, select,
develop, and retain talent. Meanwhile, our DEI ambassadors are aligned with functions across the
business to amplify and enhance our efforts in these areas. Finally, to cultivate a community of belonging,
our 12 Employee Resource Groups foster an inclusive culture and facilitate safe spaces for employees to
navigate social issues and challenges.
Additional Information About Our Employee Initiatives
You can find more information about our employee initiatives in our 2023 Impact Report, which we
expect to release in December 2023.
Available Information
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.
PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts.
Corporate Information
8
ITEM 1A. Risk Factors
The following are important factors we have identified that could affect an investment in our
securities. You should consider them carefully when evaluating an investment in PTC securities, because
these factors could cause actual results to differ materially from historical results or any 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, operating results, and prospects.
I. Risks Related to Our Business Operations and Industry
We face significant competition, which could adversely affect our business, financial condition, operating
results, and prospects if we are unable to successfully compete.
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
adversely affect our business, financial condition, operating results, and prospects.
For example, customer demand for SaaS solutions is increasing. While our Arena, ServiceMax, and
Onshape solutions are cloud-native SaaS solutions, and we have introduced our Windchill+, Creo+, and
Kepware+ SaaS solutions, customers may not 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 adversely affect our business, financial condition, operating results, and
prospects.
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 affect our business, financial condition, operating results, and prospects.
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 – particularly 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. It is impossible for us to eliminate the risk of a successful
cyberattack or intrusion, and, in fact, we regularly deal with security issues 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
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.
9
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, security breaches that have not had
a material effect on our business or that of our customers have occurred, and we will continue to face
cybersecurity threats and exposure. A significant breach of the security and/or integrity of our products or
systems, or those of our third-party service providers, whether intentional or by human error by our
employees or others, could disrupt our business operations or those of our customers, could prevent our
products from functioning properly, could enable access to sensitive, proprietary or confidential
information of our customers, or could enable access to our sensitive, proprietary or confidential
information. 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, any of which could have a material adverse effect on our business,
financial condition, operating results, and prospects.
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, financial condition, operating results, and prospects.
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
that 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 adversely impact our business, financial condition, results of operations, and
prospects.
If we are unable to renew our agreements with our cloud service providers on commercially
reasonable terms, or any of our agreements are 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, results of operations, and prospects.
We may be unable to hire or retain employees with the necessary skills to operate and grow our business,
which could adversely affect our ability to compete and adversely affect our business, financial
condition, results of operations, and prospects.
Our success depends upon our ability to attract and retain highly skilled employees to develop our
products and solutions and to operate and grow our business. Competition for such employees in our
industry is intense worldwide, and particularly in the Boston, Massachusetts area where our global
headquarters is located.
If we are unable to attract and retain employees with the requisite skills to develop our products and
solutions, or to guide, operate and support our business, we may be unable to compete successfully,
which would adversely affect our business, financial condition, results of operations, and prospects.
10
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 macroeconomic factors.
A large amount of our sales are to customers in the discrete manufacturing sector. Manufacturers
worldwide continue to face uncertainty about the global macroeconomic environment due to, among
other factors, the effects of earlier and ongoing supply chain disruptions, rising interest rates and inflation,
volatile foreign exchange rates and the current relative strength of the U.S. Dollar, and the U.S.
government’s focus on technology transactions with non-U.S. entities. Customers may delay, reduce, or
forego purchases of our solutions due to these challenges and concerns, which could adversely affect
our business, financial condition, results of operations, and prospects.
If we fail to successfully transform our operations to support the sale of SaaS solutions and to develop
competitive SaaS solutions, our business and prospects could be adversely affected.
Transforming our business to offer and support SaaS solutions requires considerable additional
investment in our organization. Whether we will be successful and will accomplish our business and
financial objectives is subject to risks and 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, our
ability and the ability of our partners to transition existing customer implementations and subscriptions to
SaaS, and our costs. If we are unable to successfully establish these new offerings and navigate our
business transition, our business, financial condition, results of operations, and prospects could be
adversely affected.
Because our sales and operations are globally dispersed, we face additional compliance risks, and any
compliance failure could adversely affect our business and prospects.
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 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 some of the
countries we operate in have a higher incidence of corruption and fraudulent business practices, the fact
that we sell to 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, an employee,
agent or business partner may violate our policies or U.S. or other applicable laws or 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 loss and
reputational harm, which could adversely affect our business, financial condition, results of operations,
and prospects.
11
II. Risks Related to Acquisitions and Strategic Relationships
Businesses we acquire may not generate the sales and earnings we anticipate and may otherwise
adversely affect our business and prospects.
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 or return a level of sales as we expect, or if a business we acquire has
unexpected legal or financial liabilities, our business, financial condition, results of operations, and
prospects could 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 sales of the acquired entity;
complications relating to the assumption of pre-existing contractual relationships of an acquired
company that we would not have otherwise entered into, the termination or modification of
which may be costly or disruptive to our business;
litigation arising from the transaction, including potential intellectual property claims or disputes
following an acquisition;
• diversion of management and employee attention;
•
challenges with implementing adequate and appropriate controls, procedures and policies in an
acquired business;
• potential loss of key personnel in connection with an acquisition; 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, business and prospects.
If we were to incur a significant amount of debt—whether by borrowing funds under our credit
facility or otherwise 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 constrain our ability to operate as we might otherwise or to borrow additional
amounts and could adversely affect our business, financial condition, results of operations, and prospects.
If we were to issue a significant amount of equity securities in connection with an acquisition, existing
stockholders would be diluted and our stock price could decline.
Our inability to maintain or develop our strategic and technology relationships could adversely affect our
business and prospects.
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
12
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, financial
condition, results of operations, and prospects 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 prospects.
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 adversely
affect our business, financial condition, operating results, and prospects.
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 could adversely affect our business,
financial condition, operating results, and prospects.
Intellectual property infringement claims could be asserted against us, which could be expensive to
defend, could result in limitations on our use of the claimed intellectual property, and could adversely
affect our business and prospects.
The software industry is characterized by frequent litigation regarding copyright, patent and other
intellectual property rights. We have faced such lawsuits from time to time. Any such claim 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.
IV. Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our business, financial condition, results of
operations, and prospects, as well as our ability to meet our payment obligations under our debt.
We have a substantial amount of indebtedness. As of November 17, 2023, our total debt outstanding
was approximately $2,307 million and €85 million, $1 billion of which was associated with the 3.625% Senior
Notes and 4.000% Senior Notes (together, “Senior Notes”) issued in February 2020, which mature in
February 2025 and 2028, respectively, and are unsecured; $807 million and €85 million of which was
borrowed under our credit facility revolving line, which matures in January 2028; and $500 million of which
was borrowed under our credit facility term loan, which begins amortizing in March 2024. 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 17, 2023, we had unused commitments under our credit
facility of approximately $350 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.
13
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 adverse economic and industry conditions;
• amplify the risk of increased interest rates as certain of our borrowings, including borrowings
under our 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; and
• place us at a competitive disadvantage compared to other, less leveraged competitors.
Any of the above-listed factors could have an adverse effect on our business, financial condition,
results of operations, and prospects, 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 business, financial
condition, and prospects 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 our
Senior Notes due 2025 and 2028, 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.
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, and could
harm our business and prospects.
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.
14
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
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 to pursue certain corporate initiatives, including strategic acquisitions, which could adversely affect
our business and prospects.
V. Risks Related to Our Common Stock
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. 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.
Also, a large percentage of our common stock is held by institutional investors. Purchases and sales
of our common stock by these investors could have a significant impact on the market price of our stock.
If our results of operations do not meet market or analysts’ expectations, our stock price could decline.
Our quarterly operating results fluctuate depending on many factors, including the effect of ASC 606
on revenue recognition for the on-premises software subscriptions we offer, variability in the timing of start
dates for our subscription and SaaS offerings, length of contracts, and renewals, and significant
unexpected expenses in a quarter. Accordingly, our quarterly results are difficult to predict and we may
15
be unable to confirm or adjust expectations with respect to our operating results for a quarter until that
quarter has closed. If our quarterly operating results do not meet market or analysts’ expectations, our
stock price could decline.
VI. General Risk Factors
Our international businesses present economic and operating risks, which could adversely affect our
business and prospects.
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;
•
•
•
•
exposure of our operations and employees to political instability and armed conflict in the
countries and regions in which we operate, including Israel;
increased financial accounting and reporting burdens and complexities;
increased regulatory and compliance risks;
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, reduce our net income, and increase our tax payment
obligations.
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 and tax payment obligations can be adversely affected by several factors,
many of which are outside of our control, including:
•
changes in tax laws (for example, the introduction of an amendment to Section 174 of the U.S.
tax legislation), 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;
unanticipated changes in tax rates; and
changes to a valuation allowance on net deferred tax assets, if any.
16
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
We currently have 83 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 1,076,000 square feet of leased facilities used in operations, approximately 421,000 square
feet are located in the U.S., including approximately 250,000 square feet at our headquarters facility
located in Boston, Massachusetts, and approximately 267,000 square feet are located in India, where a
significant amount of our research and development is conducted.
ITEM 3. Legal Proceedings
None.
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, 2023, the close of our fiscal year, and on November 13, 2023, our common stock
was held by 952 and 950 shareholders of record, respectively.
ITEM 6. [Reserved]
17
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 grew 26% (23% constant currency) to $1.98 billion as of the end of FY'23 compared to FY’22.
Organic ARR, which excludes contributions from the ServiceMax business we acquired in Q2'23, grew 15%
(13% constant currency) year over year to $1.81 billion. Organic ARR growth was driven by double-digit
growth across all product groups and geographies.
We generated $611 million of cash from operations in FY’23 compared to $435 million in FY’22, an
increase of 40%. Free cash flow of $587 million in FY'23 increased 41% from $416 million in FY'22. Our cash
flow growth is attributable to strong collections driven by our solid top-line growth from our subscription
business model and operational discipline. Interest payments were $41 million higher in FY'23 compared to
FY'22, while restructuring payments decreased $39 million year-over-year. We ended FY’23 with cash and
cash equivalents of $288 million and gross debt of $1.70 billion, with an aggregate weighted average
interest rate of 5.2%.
Revenue growth of 8% (12% constant currency) in FY'23 compared to FY'22 was primarily due to the
contributions from ServiceMax and Codebeamer. The timing of revenue recognition for on-premises
subscription revenue can vary significantly, impacting reported revenue and growth rates. Interest
expense was $75 million higher in FY'23 compared to FY'22, which adversely affected our net income and
earnings per share results. The increase was driven by debt and liabilities related to the ServiceMax
acquisition.
Results of Operations
The following table shows the 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 our ARR operating measure and
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. Our non-GAAP financial measures exclude the items described in Non-GAAP Financial
Measures below. Investors should use our non-GAAP financial measures only in conjunction with our GAAP
results.
18
For discussion of our FY'22 results and comparison to our FY'21 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 year ended September 30, 2022.
(Dollar amounts in millions, except per share data)
Year ended September 30,
Percent Change
ARR as of September 30
Total recurring revenue(2)
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)
Cash flow from operations(3)
Capital expenditure
Free cash flow
Constant
Currency(1)
23%
13%
17%
(5)%
12%
16%
11%
11%
10%
8%
26%
10%
13%
(8)%
8%
14%
7%
9%
2%
4%
2023
1,978.6
1,907.9
38.6
150.5
2,097.1
441.0
1,656.0
1,197.6
458.5
758.9
21.9%
36.2%
2.06
4.34
610.9
(23.8)
587.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2022
1,572.0
Actual
1,736.2
34.1
163.1
1,933.3
386.0
1,547.4
1,100.0
447.4
732.2
23.1%
37.9%
2.65
4.58
435.3
(19.5)
415.8
(1)
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.
Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and cloud revenue.
(2)
(3) Cash flow from operations for FY'23 and FY'22 includes $1.5 million and $40.8 million of restructuring payments, respectively.
Cash from operations for FY'23 and FY'22 includes $19.6 million and $11.8 million of acquisition and transaction-related
payments, respectively.
Impact of Foreign Currency Exchange on Results of Operations
Approximately 50% of our revenue and 35% 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.
Changes in foreign currency exchange rates were a headwind to reported income statement results in
FY’23. However, ARR was positively impacted by improvements in currency exchange rates, particularly
the Euro to U.S. Dollar exchange rate, as of September 30, 2023 compared to September 30, 2022.
The results of operations in the table above, and the tables and discussions below about revenue by
line of business and product group present both actual percentage changes year over year and
percentage changes on a constant currency basis. Our constant currency disclosures are calculated by
multiplying the results in local currency for FY'23 and FY'22 by the exchange rates in effect on September
30, 2022. If FY'23 reported results were converted into U.S. Dollars using the rates in effect as of September
30, 2022, ARR would have been lower by $38 million, revenue would have been lower by $59 million, and
expenses would have been lower by $26 million. If FY'22 reported results were converted into U.S. Dollars
using the rates in effect as of September 30, 2022, ARR would have been the same, revenue would have
been lower by $112 million, and expenses would have been lower by $50 million.
19
Revenue
Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, on-premises
subscription) starting or renewing in any given period can have a material impact on revenue in the
period, and as a result can impact the comparability of reported revenue period over period. We
recognize revenue for the license portion of on-premises subscription contracts up front when we deliver
the licenses to the customer, typically on the start date, and we recognize revenue on the support portion
of on-premises subscription contracts and stand-alone support contracts ratably over the term. We
continue to convert existing perpetual support contracts to on-premises subscriptions, resulting in a shift to
up-front recognition of on-premises subscription license revenue in the period converted compared to
ratable recognition for a perpetual support contract. Revenue from our cloud services (primarily SaaS)
contracts is recognized ratably. We expect that over time a higher portion of our revenue will be
recognized ratably as we continue to expand our SaaS offerings, release additional cloud functionality
into our products, and migrate customers from on-premises subscriptions to SaaS. Given the different mix,
duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue
can vary significantly.
Revenue by Line of Business
(Dollar amounts in millions)
Year ended September 30,
Percent Change
License(1)
Support and cloud services(2)
Total software revenue
Professional services
Total revenue
2023
2022
Actual
Constant
Currency
$
$
747.0
1,199.5
1,946.6
150.5
2,097.1
$
$
782.7
987.6
1,770.3
163.1
1,933.3
(5)%
21%
10%
(8)%
8%
(1)%
25%
13%
(5)%
12%
(1)
(2)
Includes perpetual licenses and the license portion of on-premises subscription sales.
Includes support on perpetual licenses, the support portion of on-premises subscription sales, SaaS, and cloud services.
Software revenue in FY'23 benefited from contributions from ServiceMax, acquired early in Q2'23, and
Codebeamer, acquired in Q3'22. Changes in foreign currency exchange rates were a headwind to year-
over-year revenue growth.
Within software revenue, license revenue is impacted by the quantity and size of expiring and
renewing multi-year on-premises subscription contracts, along with the duration of those contracts that
start in the period. In FY'23, the weighted-average duration of contracts starting in the year decreased
compared to FY'22 primarily due to a few high-value renewal contracts in FY'22 that had longer than
typical durations. Because longer duration contracts typically have a higher total contract value, which
drives the amount of upfront license revenue recognized for on-premises contracts, this year-over-year
duration decrease represented a headwind to license revenue growth in FY'23.
Professional services revenue decreased in FY'23 as we continue to execute on our strategy of
leveraging partners to deliver services rather than contracting to deliver services ourselves, including the
Q3'22 sale of a portion of our PLM services business to ITC Infotech (which branded the business DxP
Services). Changes in foreign currency exchange rates also contributed to the year-over-year revenue
decline. These decreases were partially offset by ServiceMax professional services revenue.
Our expectation is that professional services revenue will continue to trend down over time as we
execute on our partner strategy and deliver products that require less consulting and training services.
20
Software Revenue by Product Group
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Product lifecycle management (PLM)
Computer-aided design (CAD)
Software revenue
2023
2022
Actual
$
$
1,186.0
760.6
1,946.6
$
$
980.5
789.8
1,770.3
Constant
Currency
24%
0%
13%
21%
(4)%
10%
PLM software revenue growth in FY'23 benefited from contributions from ServiceMax and
Codebeamer. Changes in foreign currency exchange rates were a headwind to year-over-year revenue
growth. Excluding contributions from ServiceMax and Codebeamer, constant currency revenue growth
was driven by Windchill and IIoT in the Americas.
PLM ARR grew 36% (34% constant currency) from Q4’22 to Q4'23, driven by ServiceMax, which
contributed $171 million of ARR; Windchill; IIoT; and Codebeamer.
CAD software revenue was negatively impacted by changes in foreign currency exchange rates.
Constant currency revenue growth was flat due to decreases in Creo revenue in Europe due to shorter
durations of on-premises subscription contracts, offset by Creo revenue growth in the Americas and Asia
Pacific.
CAD ARR grew 12% (10% constant currency) in FY'23 compared to FY'22, driven by Creo.
Gross Margin
(Dollar amounts in millions)
License gross margin
License gross margin percentage
Support and cloud services gross margin
Support and cloud services gross margin percentage
Professional services gross margin
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,
2023
2022
Percent
Change
$
$
$
$
$
693.8
93%
954.5
80%
7.7
5%
1,656.0
79%
1,712.6
82%
$
$
$
$
$
733.4
94%
802.8
81%
11.1
7%
1,547.4
80%
1,595.7
83%
(5)%
19%
(31)%
7%
7%
(1)
Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.
License gross margin decreased in FY’23 compared to FY’22 due to lower license revenue and higher
royalty expense.
Support and cloud services gross margin increased in FY’23 compared to FY’22 due to higher support
and cloud services revenue, partially offset by increases in cost of support and cloud services, which were
driven by higher royalty expenses, compensation costs, higher intangible amortization expense due to the
ServiceMax acquisition, and cloud hosting costs.
21
Professional services gross margin decreased in FY’23 compared to FY’22 due to lower professional
services revenue, offset by lower professional services costs. The decrease in professional services revenue
is mainly due to the sale of a portion of our PLM services business in FY'22 and continued execution on our
strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves.
Operating Expenses
(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 (credits), net
% of total revenue
Total operating expenses
Year ended September 30,
2023
2022
Percent
Change
$
530.1
$
25%
394.4
19%
233.5
11%
40.0
2%
(0.5)
0%
485.2
25%
338.8
18%
204.7
11%
35.0
2%
36.2
2%
$
1,197.6
$
1,100.0
9%
16%
14%
14%
(101)%
9%
Total headcount increased by 11% between FY'22 and FY'23, primarily driven by our acquisition of
ServiceMax.
Operating expenses in FY'23 compared to FY'22 increased primarily due to the following:
• a $90 million increase in compensation expense (including stock-based compensation and
benefit costs), primarily due to our acquisition of ServiceMax;
• a $12 million increase in marketing expense, primarily due to our Q3'23 LiveWorx event;
• an $11 million increase in software subscriptions and internal hosting costs;
• a $10 million increase in travel expenses;
partially offset by:
• a $38 million decrease in restructuring charges, primarily due to the restructuring plan initiated
and substantially completed in FY'22.
22
(Dollar amounts in millions)
Interest Expense
Year ended September 30,
2023
2022
Percent
Change
Interest and debt premium expense
$
(129.4)
$
(54.3)
138%
Interest expense includes interest on our revolving credit facility and term loan, our Senior Notes due
2025 and 2028, and imputed interest on the deferred payment of a portion of the ServiceMax purchase
price. The increase in interest expense was driven by higher total debt and higher interest rates in FY'23
compared to FY'22, as well as $30 million of imputed interest associated with the ServiceMax deferred
acquisition payment.
Other Income
(Dollar amounts in millions)
Interest income
Other income (expense), net
Other income, net
Year ended September 30,
2023
2022
$
$
5.4
(1.9)
3.5
$
$
2.5
1.5
4.0
Percent
Change
116%
(227)%
(13)%
Other income (expense), net in FY'23 was related to foreign currency exchange losses. Other income
(expense), net in FY’22 included $36 million of recognized gains from the sale of assets, primarily related to
the sale of a portion of our PLM services business, offset by a $35 million loss associated with an equity
investment in a publicly traded company.
(Dollar amounts in millions)
Year ended September 30,
Income Taxes
Income before income taxes
Provision for income taxes
Effective income tax rate
$
2023
2022
$
332.6
87.0
26%
397.1
84.0
21%
Percent
Change
(16)%
4%
The effective tax rate for FY’23 was higher than the effective rate for FY’22, primarily due to tax
expense of $21.8 million related to an uncertain tax position regarding transfer pricing in a foreign
jurisdiction where we are currently under audit. Our rate was also impacted by tax expense of $6.3 million
related to non-deductible imputed interest related to the deferred payment on the acquisition of
ServiceMax Inc. Additionally, in FY'22, our rate included $8.1 million of tax expense arising from the basis
difference on goodwill related to the sale of a portion of our PLM services business.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities,
including the IRS in the United States. 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 including Germany, Ireland, and Italy. Audits by tax authorities typically involve
examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating
losses, and tax credits.
Liquidity and Capital Resources
(in millions)
Cash and cash equivalents
Restricted cash
Total
September 30,
2023
2022
$
$
288.1
0.7
288.8
$
$
272.2
0.7
272.9
23
(in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Cash, Cash Equivalents and Restricted Cash
Year ended September 30,
2023
2022
$
$
$
610.9
(866.1)
268.3
$
$
$
435.3
(201.2)
(264.1)
We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.
A significant portion of our cash is generated and held outside the U.S. As of September 30, 2023, we
had cash and cash equivalents of $35 million in the U.S., $111 million in Europe, $121 million in Asia Pacific
(including India), and $21 million in other non-U.S. countries. We have substantial cash requirements in the
U.S., but believe that the combination of our existing U.S. cash and cash equivalents, our ability to
repatriate cash to the U.S., future U.S. operating cash flows, and cash available under our revolving 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 increased by $175.6 million in FY'23 compared to FY'22. This
increase was driven by higher collections, including contributions from ServiceMax, offset by higher
vendor disbursements and higher interest payments due to a higher debt burden and higher interest
rates. Cash from operations in FY'23 includes $1.5 million of restructuring payments and $19.6 million of
acquisition and transaction-related payments compared to $40.8 million of restructuring payments and
$11.8 million of acquisition and transaction-related payments in FY'22.
Cash Used in Investing Activities
Cash used in investing activities in FY'23 was driven by the acquisition of ServiceMax, with $828.2
million paid in Q2'23. Cash used in investing activities in FY'22 was driven by the acquisition of the
Codebeamer business for $278.1 million, offset by $46.9 million of proceeds from the sale of an investment
and $32.5 million of proceeds from the sale of a portion of our PLM services business.
Cash Provided by (Used in) Financing Activities
Cash provided by financing activities in FY’23 was primarily related to net new borrowings of $771.0
million (a $500.0 million term loan and a $271.0 million incremental revolving line) to fund the ServiceMax
acquisition and net repayments of $428.0 million on the new revolving facility. Cash used in financing
activities in FY’22 includes repayments of $355.0 million under our credit facility and repurchases of
common stock of $125.0 million, offset by borrowings of $264.0 million to fund our acquisition of the
Codebeamer business.
Outstanding Debt
(in millions)
4.000% Senior Notes due 2028
3.625% Senior Notes due 2025
Credit facility revolver line
Credit facility term loan
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
24
September 30, 2023
500.0
500.0
202.0
500.0
1,702.0
(6.2)
1,695.8
1,048.0
384.6
$
$
$
$
In addition to the debt shown in the above table, as of September 30, 2023, we had a $620 million
deferred acquisition payment liability related to the fair value of the $650 million installment paid in
October 2023 for the ServiceMax acquisition. Of the $650 million paid, $620 million has been recorded as
a financing outflow and the $30 million of imputed interest has been recorded as an operating cash
outflow in our Q1'24 financials. To finance this payment and the payment for the acquisition of pure-
systems in Q1'24, we borrowed $740 million under the revolving line of our credit facility. This is described in
Note 18. Subsequent Events of Notes to the Consolidated Financial Statements in this Annual Report.
As of September 30, 2023, we were in compliance with all financial and operating covenants of the
credit facility and the Senior 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 failure to comply with such covenants under the Senior Note indentures, could constitute a default
that could cause all amounts outstanding to become due and payable immediately. Loans under the
credit facility bear interest at variable rates which reset every 30 to 180 days. As of September 30, 2023,
the annual rates for borrowings outstanding under the credit facility revolver line and term loan were both
7.2%.
Our credit facility and our Senior Notes are described in Note 9. Debt of Notes to the Consolidated
Financial Statements in this Annual Report.
Expectations for 2024
We believe that existing cash and cash equivalents, together with cash generated from operations
and amounts available under our credit facility, will be sufficient to meet our working capital and capital
expenditure requirements (which we expect to be approximately $20 million in FY’24) through at least the
next twelve months and to meet our known long-term capital requirements.
For the remainder of FY'24, we expect to use substantially all our cash generated from operating
activities to repay debt outstanding under our credit facility revolving line.
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 other 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, 2023, our future contractual obligations were related to debt, deferred acquisition
payments, leases, pension liabilities, unrecognized tax benefits, and purchase obligations. See Note 6.
Acquisitions and Disposition of Businesses, Note 9. Debt, Note 17. 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 $164.7 million, with $75.9 million expected to be paid in FY'24 and $88.8 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 or 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, 2023 Consolidated Balance Sheet.
As of September 30, 2023, we had letters of credit and bank guarantees outstanding of
approximately $13.1 million (of which $0.5 million was collateralized).
25
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. We calculate ARR as
follows:
• We consider a contract to be active when the product or service contractual term commences
(the “start date”) until the right to use the product or service ends (the “expiration date”). Even if
the contract with the customer is executed before the start date, the contract will not count
toward ARR until the customer right to receive the benefit of the products or services has
commenced.
•
•
•
For contracts that include annual values that increase over time, which we refer to as ramp
contracts, we include in ARR only the annualized value of components of the contract that are
considered active as of the date of the ARR calculation. We do not include any future
committed increases in the contract value as of the date of the ARR calculation.
As ARR includes only contracts that are active at the end of the reporting period, ARR does not
reflect assumptions or estimates regarding future customer renewals or non-renewals.
Active contracts are annualized by dividing the total active contract value by the contract
duration in days (expiration date minus start date), then multiplying that by 365 days (or 366 days
for leap years).
We believe ARR is a valuable operating measure to assess the health of a subscription business
because it is aligned with the amount that we invoice the customer on an annual basis. We generally
invoice customers annually for the current year of the contract. A customer with a one-year contract will
typically be invoiced for the total value of the contract at the beginning of the contractual term, while a
customer with a multi-year contract will be invoiced for each annual period at the beginning of each
year of the contract.
ARR increases by the annualized value of active contracts that commence in a reporting period and
decreases by the annualized value of contracts that expire in the reporting period.
As ARR is not annualized recurring revenue, it is not calculated based on recognized or unearned
revenue and is not affected by variability in the timing of revenue under ASC 606, particularly for on-
premises license subscriptions where a substantial portion of the total value of the contract is recognized
as revenue at a point in time upon the later of when the software is made available, or the subscription
term commences.
ARR should be viewed independently of recognized and unearned revenue and is not intended to
be combined with, or to replace, either of those items. Investors should consider our ARR operating
measure only in conjunction with our GAAP financial results.
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
non-GAAP gross margin—GAAP gross margin
non-GAAP operating income—GAAP operating income
non-GAAP operating margin—GAAP operating margin
26
•
•
non-GAAP net income—GAAP net income
non-GAAP diluted earnings per share—GAAP diluted earnings 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 and transaction-related
charges included in General and administrative expenses; restructuring and other charges (credits), net;
non-operating charges (credits), net; 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. We do not include these
items, which can vary significantly from period to period, when reviewing our operating results internally
because we do not consider them to be part of our core operating results. Excluding them facilitates
evaluation of our ongoing performance, our earnings trends, and comparisons to the performance of
other companies in our industry. 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 and transaction-related 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 and transaction-related charges. Other transactional
charges include third-party costs related to structuring merger and acquisition transactions outside of
ordinary business operations. 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 and transactions.
Restructuring and other charges (credits), 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; severance charges 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), net are gains or losses associated with sales or changes in value of
assets or liabilities that are generally investing or financing in nature and are not indicative of our ongoing
ordinary operating activities. In FY'23, we recognized a financing charge for a debt commitment
agreement associated with our acquisition of ServiceMax. In FY'22, we recorded gains associated with
the sale of assets, including the sale of a portion of our PLM services business, and we recorded a loss
associated with the reduction in value of an equity investment in a publicly-traded company.
27
Income tax adjustments include the tax impact of the items above. Additionally, we exclude other
material tax items that we do not include when reviewing our operating results internally. For example, in
FY’23, adjustments include a charge related to an uncertain tax position in a foreign jurisdiction.
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)
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
Acquisition and transaction-related charges
Restructuring and other charges (credits), net
Non-GAAP operating income
GAAP net income
Stock-based compensation
Amortization of acquired intangible assets
Acquisition and transaction-related charges
Restructuring and other charges (credits), net
Non-operating charges (credits), net(1)
Income tax adjustments(2)
Non-GAAP net income
GAAP diluted earnings per share
Stock-based compensation
Total amortization of acquired intangible assets
Acquisition and transaction-related charges
Restructuring and other charges (credits), net
Non-operating charges (credits), net(1)
Income tax adjustments(2)
Non-GAAP diluted earnings per share
Cash flow from operations
Capital expenditure
Free cash flow
Year ended September 30,
2022
2023
$
$
$
$
$
$
$
$
$
$
1,656.0
20.9
35.7
1,712.6
458.5
206.5
75.7
18.7
(0.5)
758.9
245.5
206.5
75.7
18.7
(0.5)
5.1
(33.5)
517.6
2.06
1.73
0.63
0.16
—
0.04
(0.28)
4.34
610.9
(23.8)
587.0
$
$
$
$
$
$
$
$
$
$
1,547.4
22.8
25.6
1,595.7
447.4
174.9
60.5
13.2
36.2
732.2
313.1
174.9
60.5
13.2
36.2
(1.4)
(55.1)
541.5
2.65
1.48
0.51
0.11
0.31
(0.01)
(0.47)
4.58
435.3
(19.5)
415.8
(1)
(2)
In FY'23, we recognized $4.2 million of financing charges for a debt commitment agreement associated with our acquisition of
ServiceMax. Net credits for FY'22 include a $29.8 million gain on the sale of a portion of our PLM services business, a $3.4 million
gain on the sale of an asset, and a $3.0 million gain on the sale of an investment, offset by a $34.8 million charge from the
reduction in value of an equity investment in a publicly-traded company.
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. In FY'23, non-GAAP expense excludes $21.8 million related to
uncertain tax positions in a foreign jurisdiction.
28
Operating margin impact of non-GAAP adjustments:
GAAP operating margin
Stock-based compensation
Total amortization of acquired intangible assets
Acquisition and transaction-related charges
Restructuring and other charges (credits), net
Non-GAAP operating margin
Year ended September 30,
2022
2023
21.9%
9.8%
3.6%
0.9%
(—)%
36.2%
23.1%
9.0%
3.1%
0.7%
1.9%
37.9%
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.
29
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 and related
support, 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, for certain
offerings, cloud services over the same term. Significant judgment is used in determining the performance
obligations related to these bundled products and services. On-premises software is typically determined
to be a distinct performance obligation and is thus recognized separately from the support and 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 ratably 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 versus support and cloud.
Right to exchange. Our multi-year, non-cancellable subscription contracts provide customers with an
annual right to exchange software within the original subscription with other software. When it applies to
on-premises licenses, we account for this right as a liability. For most contracts, we use the expected value
method to determine the 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 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.
30
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
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.
We have unrecognized tax benefits as of September 30, 2023 of $50.7 million. Although we believe
our tax estimates are appropriate, the final determination of tax audits and any related litigation could
result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within
the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional
tax positions could be reduced by up to $26 million as audits close and statutes of limitations expire.
As of September 30, 2023, we have a valuation allowance of $17.4 million against net deferred tax
assets in the U.S. and a valuation allowance of $4.3 million against net deferred tax assets in certain
foreign jurisdictions. The valuation allowance recorded in the U.S. relates to Massachusetts tax credit
carryforwards that 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 further restrict the recognition of
any tax benefits. We will continue to reassess our valuation allowance requirements each financial
reporting period.
Prior to the passage of the U.S. Tax Act, we 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 purchased software, tradenames, customer lists
and contracts, and software support agreements and related relationships. Purchased software consists
of products that have reached technological feasibility and the 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
31
generally valued intangible assets using discounted cash flow models. Critical estimates in valuing certain
of the intangible assets include but are not limited to:
•
future expected revenues and costs related to 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.
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. For acquisitions completed prior to FY'22, 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. During FY'22, we adopted ASU 2021-08, whereby deferred revenue for acquisitions completed
in FY'22 and thereafter reflect the amounts that would have been deferred as of the acquisition date in
accordance with ASC 606.
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. 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.
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.
Off-Balance Sheet Arrangements
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
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.
32
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 Eurozone countries, Japan,
Sweden, Switzerland, China and India. We enter into foreign currency forward contracts and options 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.
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 50% of our revenue and 35% 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 $30 million and $6 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 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 and options to manage the foreign currency exposures that exist as part
of our ongoing business operations. The contracts are primarily denominated in the Euro, Swedish Krona,
and Swiss Franc currencies, and have maturities of less than four months.
The majority of our foreign currency forward contracts and options are not designated as hedges for
accounting purposes, and changes in the fair value of these instruments are recognized immediately in
earnings. Because we enter into these derivative 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 derivative
contract. Gains and losses on these derivatives and foreign currency denominated receivables and
payables are included in Other income, net.
33
As of September 30, 2023 and 2022, we had outstanding forward contracts for derivatives not
designated as hedging instruments with notional amounts equivalent to the following:
Currency Hedged (in thousands)
Canadian Dollar / 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
Korean Won / U.S. Dollar
Danish Krone / U.S. Dollar
Australian Dollar / U.S. Dollar
All other
Total
Debt
September 30,
2023
2022
5,135
383,227
6,058
11,852
4,770
32,766
35,085
—
16,660
11,855
6,157
6,731
452
2,888
523,636
$
$
2,731
316,869
7,368
12,052
25,566
25,559
35,713
3,637
23,965
13,906
4,919
3,192
3,269
4,432
483,178
$
$
In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2023, we
had $702 million outstanding under our credit facility. We also had a $620 million deferred acquisition
payment liability related to the fair value of the $650 million installment for the ServiceMax acquisition,
which we paid in October 2023 leveraging financing from 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, 2023, the annual rate on the credit
facility loans was 7.18%. If there were a 100 basis point change in interest rates, the annual net impact to
earnings and cash flows would be $7 million. This change in cash flows and earnings has been calculated
based on the borrowings outstanding at September 30, 2023 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, 2023, 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, 2023, we had cash and cash equivalents of $35 million in the United States, $111
million in Europe, $121 million in Asia Pacific (including India), and $21 million in other non-U.S. countries.
Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2023, 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
exchange rate 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 a favorable impact
of $2.9 million and an unfavorable impact of $24.2 million on our consolidated cash balances in FY'23 and
FY'22, respectively. The impact in FY'23 was due in particular to changes in the Euro and the Korean Won.
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, 2023.
Management excluded ServiceMax from its assessment of internal control over financial reporting as
of September 30, 2023 because it was acquired in a business combination in the current fiscal year.
ServiceMax's total assets and total revenues represent approximately 1% (excluding the impact of
goodwill and intangibles from the acquisition) and 7%, respectively, of our total assets and total revenues,
as of and for the year ended September 30, 2023.
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.
35
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, 2023 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
and those criteria, our management concluded that, as of September 30, 2023, our internal control over
financial reporting was effective.
The effectiveness of our internal control over financial reporting as of September 30, 2023 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in
their report, which appears under Item 8.
Changes 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, 2023 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. Other Information
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
On November 16, 2023, Michael DiTullio, President and Chief Operating Officer of the Company,
Kristian Talvitie, Executive Vice President, Chief Financial Officer, Catherine Kniker, Executive Vice
President, Chief Strategy and Marketing Officer, and Aaron von Staats, Executive Vice President, General
Counsel entered into new Executive Agreements with PTC Inc. (the “Company”). The new Executive
Agreements replace the executives’ existing Executive Agreements with the Company.
The Executive Agreements provide certain compensation and employment protections to the
executives. Each Executive Agreement provides that, upon a change in control of the Company, (i) all
performance measures under any outstanding equity award held by the executive will be deemed to
have been met at the target level, and (ii) the executive will receive a payment in an amount equal to
the pro-rata portion of the executive’s target incentive bonus for the current year. Upon any termination
of the executive’s employment after a change in control of the Company, (i) all equity awards held by
the executive will accelerate and vest in full, (ii) the executive will receive a payment in an amount equal
to: (a) 100% of the executive’s highest base salary in the six months preceding the termination date, plus
(b) 100% of the executive’s highest applicable target bonus, and (iii) the executive will be entitled to
continued participation in the Company’s medical, dental and vision benefit plans (the “Benefit Plans”)
for one year, or payment of an amount sufficient to purchase substantially equivalent benefits if
continued participation is not permitted under the applicable Benefit Plan or if the Benefit Plan is
terminated. The Executive Agreement also provides that, upon termination of the executive’s
employment by the Company without cause (i) the executive will receive a payment in an amount equal
to 100% of the executive’s highest base salary in the six months preceding the termination date plus 100%
of the executive’s target bonus for the year in which the termination occurs, (ii) all equity awards held by
the executive that would have vested in the twelve months following the termination date will vest, and
(iii) the executive will be entitled to continued participation in the Benefit Plans or payment in lieu thereof
as described above. The Executive Agreement also provides that upon termination of the executive’s
employment by the Company due to the executive’s death or disability, all equity held by the executive
will vest in full. Mr. DiTullio’s Executive Agreement also provides that if he voluntarily terminates his
employment after September 30, 2025, or if he is terminated without cause, all outstanding equity held by
him will continue to vest after such termination in accordance with its terms, which continued equity
vesting after termination without cause replaces the equity acceleration described above in the event of
termination without cause. To receive the payments and benefits under the Executive Agreement, the
36
executive must execute a release of claims in favor of the Company and continue to comply with the
terms of the executive’s Proprietary Information Agreement with the Company. The preceding description
of the Executive Agreements is qualified by reference to the full text of such agreements, copies of which
are filed as Exhibits 10.5 and 10.6 of this Form 10-K.
Insider Trading Arrangements
Our Section 16 officers and directors may enter into plans or arrangements for the purchase or sale of
our securities that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the
Exchange Act. Such plans and arrangements must comply in all respects with our insider trading policies,
including our policy governing entry into and operation of 10b5-1 plans and arrangements.
During the quarter ended September 30, 2023, the following Section 16 officers and directors
adopted Rule 10b5-1 trading arrangements (as defined in Item 408 of Regulation S-K of the Exchange
Act). All plans adopted covered only sales of PTC common stock. No plans were modified or terminated.
Name and Title of Director
or Section 16 Officer
Date of Adoption,
Modification, or Termination
Duration of the Plan
Aggregate Number of Shares of
Common Stock that may be Sold under
the Plan
James Heppelmann,
Chairman and Chief
Executive Officer
Kristian Talvitie,
Executive Vice President,
Chief Financial Officer
Catherine Kniker,
Executive Vice President,
Chief Strategy and
Marketing Officer
Adopted
August 7, 2023
Adopted
August 31, 2023
Ends
February 12, 2024
Ends
February 29, 2024
35,000
22,240
Adopted
August 15, 2023
Ends
August 8, 2024
Aaron von Staats,
Executive Vice President,
General Counsel
Adopted
August 24, 2023
Ends
May 31, 2024
(1)
(2)
(3)
The total number of shares that would be issued for the FY2023 Corporate Incentive Plan could not be known when the plan
was adopted as the FY2023 performance period had not yet ended and attainment of the performance measure was not
known.
The total number of shares that will be purchased under the 2016 Employee Stock Purchase Plan for the offering periods
ending January 31, 2024 and July 31, 2024 could not be known when the plan was adopted.
The total number of shares that would be earned and vested under the performance-based RSU awards for the FY2023
performance period could not be known when the plan was adopted as the FY2023 performance period had not yet ended
and attainment of the performance measures was not known.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
37
4,857, plus all net vested shares issued
for the FY2023 Corporate Incentive
Plan, plus all shares purchased under
the 2016 Employee Stock Purchase
Plan for the offering periods ending on
January 31, 2024 and July 31, 2024(1)(2)
3,835, plus all net vested shares issued
for the FY2023 Corporate Incentive
Plan, plus 40.5% of total shares that vest
on November 15, 2023 under the
performance-based RSU awards
granted on November 17, 2020,
November 17, 2021, and November 16,
2022(1)(3)
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 under the headings “Proposal 1: Election of Directors,” “Corporate Governance,” "Information
About Our Executive Officers," and “Transactions with Related Persons” appearing in our 2024 Proxy
Statement. Such information is incorporated herein 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,” “Compensation Committee Report,”
“Compensation Tables,” and “Pay Ratio Disclosure” appearing in our 2024 Proxy Statement. Such
information is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information about our common stock ownership may be found under the heading “Information
about PTC Common Stock Ownership” appearing in our 2024 Proxy Statement. Such information is
incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
as of September 30, 2023
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price
of outstanding
options, warrants
and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
2,580,222
—
2,580,222
—
—
—
7,257,075
2,223,947
9,481,022
Plan Category
Equity compensation plans approved by security holders:
2000 Equity Incentive Plan(1)
2016 Employee Stock Purchase Plan(2)
Total
(1)
(2)
All of the shares issuable upon vesting are restricted stock units, which have no exercise price.
This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which
105,794 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”
appearing in our 2024 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 2024 Proxy Statement. Such information is incorporated herein by
reference.
38
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 (PricewaterhouseCoopers LLP,
Boston, MA, PCAOB ID: 238)
Consolidated Balance Sheets as of September 30, 2023 and 2022
Consolidated Statements of Operations for the years ended September 30, 2023, 2022 and
2021
Consolidated Statements of Comprehensive Income for the years ended September 30,
2023, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and
2021
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2023,
2022 and 2021
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.
39
Exhibit
Number
Exhibit
EXHIBIT INDEX
1.1 — Share Purchase Agreement dated as of November 17, 2022, by and among PTC Inc., ServiceMax JV, LP, and
ServiceMax, Inc. (filed as Exhibit 1.1 to our Current Report on Form 8-K filed on November 17, 2022 (File No. 0-18059)
and incorporated herein by reference).
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 year ended September 30, 2015 (File No. 0-18059) and incorporated herein by reference).
3.2 — Amended and Restated By-Laws of PTC Inc., as amended through June 24, 2021(filed as Exhibit 3.2 to our Annual
Report on Form 10-K for the year ended September 30, 2022 (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* — 2000 Equity Incentive Plan (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on February 21, 2023 (File No. 0-
18059) and incorporated herein by reference).
10.1.1 — 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).
10.1.2* — 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).
10.1.3 — 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).
10.1.4 — 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).
10.1.5 — 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).
10.1.6 — 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).
10.1.7* — 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).
10.1.8 — 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).
10.1.9 — 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).
10.1.10* — 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).
10.1.11* — 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).
10.1.12*
Form of Restricted Stock Unit Certificate (U.S.).
10.1.13*
Form of Restricted Stock Unit Certificate (U.S. Section 16 and U.S. EVP).
10.1.14*
Form of Restricted Stock Unit Certificate (U.S. Section 16 and U.S. EVP).
10.2* — 2016 Employee Stock Purchase Plan (filed as Exhibit 10.2 to our Current Report on Form 8-K filed on February 21, 2023
(File No. 0-18059) and incorporated herein by reference).
40
10.3.1* — Executive Agreement by and between the Company and James Heppelmann 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).
10.3.2*
10.4.1*
10.4.2*
10.5*
Amendment No. 1 to Executive Agreement by and between the Company and James Heppelmann dated February
16, 2023 (filed as Exhibit 10.3 to our Current Report on Form 8-K filed on February 21, 2023 (File No. 0-18059) and
incorporated herein by reference).
Offer Letter dated July 24, 2023 by and between the Company and Neil Barua (filed as Exhibit 10.1 to our Current
Report on Form 8-K filed on July 26, 2023 (File No. 0-18059) and incorporated herein by reference).
Executive Agreement between the Company and Neil Barua dated July 24, 2023 (filed as Exhibit 10.2 to our Current
Report on Form 8-K filed on July 26, 2023 (File No. 0-18059) and incorporated herein by reference).
Form of Executive Agreement dated November 16, 2023 by and between PTC Inc. and each of Kristian Talvitie,
Catherine Kniker, and Aaron von Staats.
10.6*
Executive Agreement dated November 16, 2023 by and between Michael DiTullio and PTC Inc.
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).
10.16 — Fourth Amended and Restated Credit Agreement dated January 3, 2023 by and among PTC, PTC (IFSC) Limited,
JPMorgan Chase Bank, N.A., as administrative agent, and the Lenders named therein (filed as Exhibit 4.4 to our
Current Report on Form 8-K filed on January 3, 2023 (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, 2023, formatted
in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2023
and 2022; (ii) Consolidated Statements of Operations for the years ended September 30, 2023, 2022 and 2021; (iii)
Consolidated Statements of Comprehensive Income for the years ended September 30, 2023, 2022 and 2021; (iv)
Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and 2021; (v) Consolidated
Statements of Stockholders’ Equity for the years ended September 30, 2023, 2022 and 2021; 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.
41
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 17th day of November, 2023.
SIGNATURES
PTC Inc.
By:
/s/ JAMES HEPPELMANN
James Heppelmann
Chairman of the Board and Chief Executive Officer
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
17th day of November, 2023.
Signature
(i) Principal Executive Officer:
/s/ JAMES HEPPELMANN
James Heppelmann
(ii) Principal Financial and Accounting Officer:
/s/ KRISTIAN TALVITIE
Kristian Talvitie
(iii) Board of Directors:
/s/ JAMES HEPPELMANN
James Heppelmann
/s/ JANICE CHAFFIN
Janice Chaffin
/s/ NEIL BARUA
Neil Barua
/s/ MARK BENJAMIN
Mark Benjamin
/s/ MICHAL KATZ
Michal Katz
/s/ PAUL LACY
Paul Lacy
/s/ CORINNA LATHAN
Corinna Lathan
/s/ JANESH MOORJANI
Janesh Moorjani
/s/ ROBERT SCHECHTER
Robert Schechter
Title
Chief Executive Officer
Executive Vice President and Chief Financial Officer
Chairman of the Board
Lead Independent Director
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, 2023 and 2022, and the related consolidated statements of operations,
of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the
period ended September 30, 2023, 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, 2023, 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, 2023 and 2022, and the results of its
operations and its cash flows for each of the three years in the period ended September 30, 2023 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, 2023, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
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
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 ServiceMax, Inc. from its assessment of internal control over financial reporting as of
F-1
September 30, 2023 because it was acquired by the Company in a purchase business combination
during fiscal 2023. We have also excluded ServiceMax, Inc. from our audit of internal control over financial
reporting. ServiceMax, 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 1%
and 7%, respectively, of the related consolidated financial statement amounts as of and for the year
ended September 30, 2023.
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 Recognition - 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 licenses, (3) support for perpetual licenses and (4) professional
services. Revenue is derived from the licensing of computer software products, cloud-based offerings,
and related support and professional services contracts. During the year ended September 30, 2023, the
Company recognized revenue from contracts with customers of $2,097 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. As disclosed by management, significant judgment is used
in determining the performance obligations related to these bundled products and services. 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 - identification of distinct performance obligations, is a critical audit matter are the (i)
significant judgment by management when identifying the distinct performance obligations, and (ii) 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.
F-2
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 controls over 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 ServiceMax, Inc. – Valuation of the Customer Relationships and Purchased Software
Intangible Assets
As described in Note 6 to the consolidated financial statements, the Company completed its acquisition
of ServiceMax, Inc. on January 3, 2023, for purchase consideration of $1,448.2 million, net of cash
acquired. The Company has accounted for the acquisition of ServiceMax, Inc. 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 $512.7 million of customer relationships and
$106.9 million of purchased software being recorded. Management estimated the fair value of the
customer relationships and purchased software intangible assets using discounted cash flow models
which included significant estimates and assumptions related to future revenues, costs and an applicable
discount rate.
The principal considerations for our determination that performing procedures relating to the valuation of
the customer relationships and purchased software intangible assets in the acquisition of ServiceMax, Inc.
is a critical audit matter are (i) the significant judgment by management when developing the fair value
estimate of the customer relationships and purchased software acquired, (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating management’s significant
assumptions related to future revenues, costs and the discount rate for the customer relationships and
future revenues and the discount rate for the purchased software intangible assets; and (iii) 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 the acquisition accounting, including controls over
management’s valuation of the customer relationships and purchased software acquired. These
procedures also included, among others (i) reading the purchase agreement; (ii) testing management’s
process for developing the fair value estimate of the customer relationships and purchased software
acquired; (iii) evaluating the appropriateness of the discounted cash flow models used by management
to develop the fair value estimates; (iv) testing the completeness and accuracy of the underlying data
used in the discounted cash flow models used by management to develop the fair value estimates; and
(v) evaluating the reasonableness of the significant assumptions used by management related to future
revenues, costs and the discount rate for the customer relationships and future revenues and the discount
rate for the purchased software intangible assets. Evaluating management’s assumptions related to
future revenues, costs and the discount rate for the customer relationships intangible asset and the future
revenues and the discount rate for the purchased software intangible asset involved considering (i) the
consistency with external economic and industry data, (ii) the past performance of the acquired business,
and (iii) 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 models and the reasonableness of the discount rate assumptions.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 17, 2023
We have served as the Company’s auditor since 1992.
F-3
PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $429 and $362 at
September 30, 2023 and September 30, 2022, respectively
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Goodwill
Acquired intangible assets, net
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
Current portion of long-term debt
Deferred acquisition payments
Deferred revenue
Short-term lease obligations
Total current liabilities
Long-term debt
Deferred tax liabilities
Long-term 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; 118,846 and 117,472
shares issued and outstanding at September 30, 2023 and September 30, 2022,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
September 30,
2023
2022
$
288,103
$
272,182
$
$
811,398
96,016
81,849
1,277,366
88,391
3,358,511
941,249
123,319
143,028
356,978
6,288,842
43,480
132,841
160,431
14,919
9,375
620,040
665,362
24,737
1,671,185
1,686,410
29,508
16,188
168,455
39,806
3,611,552
636,556
88,854
71,065
1,068,657
98,101
2,353,654
382,718
256,091
137,780
390,267
4,687,268
40,153
117,158
104,022
5,142
—
—
503,781
22,002
792,258
1,350,628
28,396
16,552
167,573
35,827
2,391,234
—
—
1,188
1,820,905
973,277
(118,080)
2,677,290
6,288,842
$
1,175
1,720,580
727,737
(153,458)
2,296,034
4,687,268
$
$
$
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 (credits), 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
Earnings per share—Basic
Earnings per share—Diluted
Weighted-average shares outstanding—Basic
Weighted-average shares outstanding—Diluted
Year ended September 30,
2022
2021
2023
$
$
$
$
747,022
1,199,536
1,946,558
150,495
2,097,053
53,200
245,027
298,227
142,779
441,006
1,656,047
530,125
394,370
233,516
40,022
(460)
1,197,573
458,474
(129,417)
3,509
332,566
87,026
245,540
2.07
2.06
118,341
119,334
$
$
$
$
782,680
987,573
1,770,253
163,094
1,933,347
49,240
184,789
234,029
151,951
385,980
1,547,367
485,247
338,822
204,732
34,970
36,234
1,100,005
447,362
(54,268)
4,004
397,098
84,017
313,081
2.67
2.65
117,194
118,233
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
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss), net of tax:
Hedge gain (loss) arising during the period, net of tax of $2.5 million,
$(5.8) million, and $(0.4) million in 2023, 2022, and 2021, respectively
Foreign currency translation adjustment, net of tax of $0 for each period
Unrealized loss on marketable securities, net of tax of $0 for each period
Amortization of net actuarial pension loss included in net income, net of
tax of $(0.1) million, $(0.4) million, and $(1.2) million in 2023, 2022, and
2021, respectively
Pension net gain (loss) and plan amendments arising during the period,
net of tax of $1.3 million, $(6.1) million, and $(0.7) million in 2023, 2022, and
2021, respectively
Change in unamortized pension loss during the period related to
changes in foreign currency, net of tax of $0.1 million, $(0.6) million, and
$0.0 million in 2023, 2022, and 2021, respectively
Other comprehensive income (loss)
Comprehensive income
Year ended September 30,
2022
2021
2023
$
245,540
$
313,081
$
476,923
(7,516)
45,692
—
17,556
(92,768)
—
1,248
1,613
(307)
161
1,010
2,930
(2,642)
15,027
1,891
(317)
35,378
280,918
$
1,581
(57,594)
255,487
$
135
7,510
484,433
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended September 30,
2022
2021
2023
Cash flows from operating activities:
Net income
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
Loss (gain) on investment
Gain on divestiture of business
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
Accrued 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
Proceeds from sale of investments
Purchases of investments
Purchase of intangible assets
Settlement of net investment hedges
Divestitures of businesses and assets, net
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Borrowings under credit facility
Repayments of borrowings under credit facility
Repurchases of common stock
Proceeds from issuance of common stock
Payments of withholding taxes in connection with stock-based awards
Payments of principal for financing leases
Credit facility origination costs
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
$
245,540
$
313,081
$
476,923
104,760
32,402
206,459
—
—
(4,065)
16,676
(98,607)
15,918
7,845
56,572
4,639
6,974
(1,929)
17,677
610,861
(23,814)
—
—
—
(828,271)
349
(5,823)
(800)
(7,602)
(154)
—
(866,115)
1,540,000
(1,197,000)
—
21,652
(82,448)
(536)
(13,355)
268,313
2,851
15,910
272,888
288,798
$
$
87,694
34,346
174,863
31,854
(29,808)
(4,560)
42,963
(165,006)
6,957
(6,645)
57,586
(15,329)
(40,643)
(13,610)
(38,417)
435,326
(19,496)
—
—
—
(282,943)
46,906
—
(6,451)
24,857
32,518
3,408
(201,201)
264,000
(355,000)
(125,000)
21,207
(68,991)
(297)
—
(264,081)
(24,203)
(54,159)
327,047
272,888
$
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
(52,957)
(354)
—
370,264
(127)
51,087
275,960
327,047
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PTC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balance as of September 30, 2020
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
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
Balance as of September 30, 2021
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
Gain on net investment hedges, net of tax
Foreign currency translation adjustment
Change in pension benefits, net of tax
Balance as of September 30, 2022
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
Loss on net investment hedges, net of tax
Foreign currency translation adjustment
Change in pension benefits, net of tax
Balance as of September 30, 2023
Common Stock
Shares
Amount
116,125
1,490
$
1,161
15
Additional
Paid-In
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
$1,602,728 $
(15)
(62,267) $
—
(103,374) $
—
Total
Stockholders’
Equity
1,438,248
—
(466)
240
—
—
(226)
—
—
—
—
117,163
1,737
(597)
215
—
—
(1,046)
—
—
—
117,472
1,798
(620)
196
—
—
—
—
—
118,846
$
$
$
(4)
2
—
—
(2)
—
—
—
—
1,172
18
(6)
2
—
—
(11)
—
—
—
1,175
18
(7)
2
—
—
—
—
—
1,188
(53,073)
21,573
177,289
—
(29,998)
—
—
—
—
$1,718,504 $
(18)
(68,985)
21,205
174,863
—
(124,989)
—
—
—
$1,720,580 $
(18)
(82,761)
21,650
161,454
—
—
—
—
$1,820,905 $
—
—
—
476,923
—
—
—
—
—
414,656
—
—
—
—
313,081
—
—
—
—
727,737
—
—
—
—
245,540
—
—
—
973,277
$
$
$
—
—
—
—
—
1,248
1,613
(307)
4,956
(95,864) $
—
—
—
—
—
—
17,556
(92,768)
17,618
(153,458) $
—
—
—
—
—
(7,516)
45,692
(2,798)
(118,080) $
(53,077)
21,575
177,289
476,923
(30,000)
1,248
1,613
(307)
4,956
2,038,468
—
(68,991)
21,207
174,863
313,081
(125,000)
17,556
(92,768)
17,618
2,296,034
—
(82,768)
21,652
161,454
245,540
(7,516)
45,692
(2,798)
2,677,290
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 company that provides a portfolio of innovative digital solutions that work together to transform
how physical products are engineered, manufactured, and serviced.
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 United States.
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 United
States 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
Other income, net 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
Nature of Products and Services
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 and related
support, Software-as-a-Service (SaaS), and hosting services. Revenue is derived from the licensing of
computer software products, cloud-based offerings, and related support and professional services
contracts. In accordance with ASC 606, Revenue from Contracts with Customers, 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.
F-9
We enter into contracts that include combinations of licenses, support, cloud-based offerings, and
professional services, each of 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 (including
SaaS)
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-premises software licenses bundled with support and/or cloud services. Significant judgment is used in
determining the performance obligations related to these bundled products and services. On-premises
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-premises
licenses, we assess whether the cloud component is highly interrelated with the on-premises term-based
software licenses. Other than a limited population of subscriptions, the cloud component is not currently
deemed to be interrelated with the on-premises 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-premises
software and support only, we determined that approximately 55% of the estimated standalone selling
price for subscriptions is attributable to software licenses and approximately 45% is attributable to support
for those licenses. Some of our subscription offerings include a combination of on-premises and cloud-
based technology. In such cases, the cloud-based technology is generally considered distinct and
receives an allocation of approximately 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 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, for on-premises licenses, this right to exchange previously delivered software for different software
represents variable consideration to be accounted for as a liability. We have identified a standard
portfolio of contracts with common characteristics and applied the expected value method of
determining variable consideration associated with this right. Additionally, in 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, 2023 and 2022, the total liability was $23.7 million and $34.2 million,
respectively, primarily associated with the annual right to exchange on-premises subscription software.
F-10
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, 2023, we did not hold any marketable securities. 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
In July 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, which were restricted from sale
until January 2022. For the year ended September 30, 2021, we recorded an unrealized gain of $68.8
million on the appreciation of the value of the shares in Other income, net in the Consolidated Statement
of Operations. In 2022, we sold all shares held for a total of $42.7 million. The shares sold included those
held as of September 30, 2021, as well as additional shares that we earned based on contingent earn-
outs. In the year ended September 30, 2022, we recognized a net loss of $34.8 million in Other income, net
in the Consolidated Statements of Operations. The aggregate realized gain from the original investment
of $8.7 million was $34.0 million. As of and subsequent to September 30, 2022, PTC held no shares in
Matterport.
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, 2023 or 2022 or more
than 10% of our revenue for the years ended September 30, 2023, 2022 or 2021.
F-11
Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer
a liability in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. When determining the fair value measurements
for assets and liabilities required to be recorded at fair value, we consider assumptions that market
participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance.
The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs
for such valuations into three broad levels:
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: quoted prices for similar assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument; 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. The hierarchy requires us to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. In determining the adequacy of the allowance for doubtful
accounts, we analyze specific individual accounts receivable, historical bad debts, customer
concentrations, customer credit-worthiness, current economic conditions, and accounts receivable
aging trends.
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 Eurozone countries, Japan, Sweden, Switzerland, China and India. 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 derivatives transactions, specifically foreign currency forward contracts and options, to manage our
exposure to foreign currency exchange risk in order 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 16. 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 four 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 and losses on forward
contracts and foreign denominated receivables and payables are included in Other income, net.
F-12
We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that
they will be adversely affected by changes in Euro or Japanese Yen exchange rates. We did not hold any
foreign currency option contracts as of September 30, 2023. We do not designate these foreign currency
options as hedges for accounting purposes and changes in the fair value of these instruments are
recognized immediately in earnings. Because we enter into options as an economic hedge, currency
impacts on the Euro or Japanese Yen-denominated operations as compared to the forecasted plan rate
may be partially offset by gains on the options. Gains and losses on foreign exchange options are
included in Other income, net.
Net Investment Hedges
We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S.
Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are
reported as a component of Accumulated other comprehensive loss on the Consolidated Balance
Sheets. We designate certain foreign exchange forward contracts as net investment hedges against
exposure on translation of balance sheet accounts of Euro and Japanese Yen functional subsidiaries. Net
investment hedges partially offset the impact of foreign currency translation adjustment recorded in
Accumulated other comprehensive loss on the Consolidated Balance Sheets. All foreign exchange
forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum
duration of net investment hedge 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 and Japanese Yen 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
upon contract maturity reclassify them to Foreign currency translation adjustment in Accumulated other
comprehensive loss. 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.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in Operating
right-of-use lease assets, Short-term lease obligations, and Long-term lease obligations on our
Consolidated Balance Sheets. Our operating leases are primarily for office space, automobiles, 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.
F-13
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. 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
software and 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 internal development costs for software to be sold externally were capitalized
in 2023, 2022 or 2021. We purchased software of $1.0 million, $6.0 million, and $0.6 million in 2023, 2022,
and 2021, respectively. Additionally, we acquired capitalized software through business combinations (for
further detail, see Note 6. Acquisitions and Disposition of Businesses). These assets are included in Acquired
intangible assets, net 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.
Segments
In the third quarter of 2023, we reevaluated our operating segments to better align with how our
chief operating decision maker ("CODM"), who is our Chief Executive Officer, evaluates performance and
allocates resources, which resulted in a change from two operating segments—Software Products and
Professional Services—to a single operating segment. The key factors evaluated included our organization
structure, financial results reviewed by the CODM, and compensation structure, among others. This
change reflects our strategy to focus our professional services business on high-value services and to
F-14
leverage partners to provide services, while delivering products that require fewer consulting and training
services. Based on this change, we determined we have a single reportable segment.
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; 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.
In the third quarter of 2023, we reevaluated our operating segments to better align with how our
CODM evaluates performance and allocates resources, which resulted in a change from two operating
segments—Software Products and Professional Services—to a single operating segment. As part of this
reevaluation, we determined that our reporting unit is the same as our operating segment.
Before combining the reporting units, we performed a step zero qualitative assessment of the
Software Products reporting unit and a step one quantitative assessment of the Professional Services
reporting unit. As of June 30, 2023 (prior to the reporting unit change), goodwill attributable to the
Software Products segment was $3,367.5 million and to the Professional Services segment was $9.8 million.
Based on our qualitative assessment, we concluded it was more likely than not that the fair value of our
Software Products reporting unit exceeded its carrying value and no further impairment testing was
required. Based on a comparison of the estimated fair value to the carrying value of the Professional
Services reporting unit as of June 30, 2023, no impairment was required.
After combining the reporting units, we performed a step zero qualitative assessment on the
combined goodwill balance and determined that it is more likely than not that the fair value of the
combined reporting unit exceeds its carrying value and no further impairment testing is required. Through
September 30, 2023, there were no events or changes in circumstances that indicated that the carrying
values of goodwill or acquired intangible assets may not be recoverable.
F-15
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 20 years and trademarks are
amortized over periods up to 15 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
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 $11.7 million,
$8.6 million and $7.1 million in 2023, 2022 and 2021, 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 Provision (benefit) for income taxes in
the Consolidated Statements of Operations.
Comprehensive Income
Comprehensive income consists of Net income 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 comprised the following as of September 30, 2023: cumulative
translation adjustment losses of $114.5 million, unrecognized actuarial losses related to pension benefits of
$9.6 million ($6.7 million net of tax), and accumulated net gains from net investment hedges of $6.9 million
($3.1 million net of tax). As of September 30, 2022, Accumulated other comprehensive loss comprised the
following: cumulative translation adjustment losses of $160.2 million, unrecognized actuarial losses related
to pension benefits of $5.4 million ($3.9 million net of tax), and accumulated net gains from net investment
hedges of $16.9 million ($10.6 million net of tax).
Earnings 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, 2023, 2022, and 2021.
F-16
The following table presents the calculation for both basic and diluted EPS:
(in thousands, except per share data)
Net income
Weighted average shares outstanding
Dilutive effect of employee stock options, restricted shares and restricted
stock units
Diluted weighted average shares outstanding
Earnings per share—Basic
Earnings per share—Diluted
Stock-Based Compensation
Year ended September 30,
2022
2021
2023
$
$
$
245,540
$
313,081
$
118,341
993
119,334
117,194
1,039
118,233
2.07
2.06
$
$
2.67
2.65
$
$
476,923
116,836
1,531
118,367
4.08
4.03
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 Plans 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.
3. Revenue from Contracts with Customers
Receivables, Contract Assets, and Contract Liabilities
(in thousands)
Short-term and long-term receivables
Contract asset
Deferred revenue
September 30,
2023
2022
$
$
$
997,490
16,465
681,550
$
$
$
870,962
21,096
520,333
As of September 30, 2023, $16.1 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 assets and expected to be transferred within the next 24 months. As of September 30,
2022, $16.9 million of our contract asset balance was included in Other current assets with the remainder
included in Other assets.
Approximately $14.7 million of the September 30, 2022 contract asset balance was transferred to
receivables during the year ended September 30, 2023 as a result of the right to payment becoming
unconditional. Additions to contract asset of approximately $10.0 million primarily related to revenue
recognized in the period, net of billings. There were no impairments of contract assets in the year ended
September 30, 2023.
During the year ended September 30, 2023, we recognized $509.1 million of revenue that was
included in deferred revenue as of September 30, 2022. There were additional deferrals of $572.5 million,
primarily related to new billings. In addition, the acquisition of ServiceMax added $97.8 million of deferred
revenue. For subscription contracts, we generally invoice customers annually.
F-17
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, 2023 and September
30, 2022, deferred costs of $41.8 million and $40.7 million, respectively, were included in Other current
assets and $78.7 million and $77.0 million, respectively, were included in Other assets. Amortization
expense related to costs to obtain a contract with a customer was $53.4 million and $50.9 million in the
years ended September 30, 2023 and 2022, respectively. There were no substantial impairments of the
contract cost asset in the years ended September 30, 2023 and 2022.
Remaining Performance Obligations
Our contracts with customers include transaction price amounts allocated to performance
obligations that will be satisfied and recognized as revenue at a later date. As of September 30, 2023, the
transaction price amounts include additional performance obligations of $681.6 million recorded in
deferred revenue and $1,369.4 million that are not yet recorded in the Consolidated Balance Sheets. We
expect to recognize approximately 59% of the total $2,051.0 million over the next 12 months, with the
remaining amount thereafter.
Disaggregation of Revenue
(in thousands)
Recurring revenue(1)
Perpetual license
Professional services
Total revenue
$
$
Year ended September 30,
2022
1,736,188
34,065
163,094
1,933,347
2023
1,907,918
38,640
150,495
2,097,053
$
$
$
$
(1)
Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and cloud services revenue.
We report revenue by the following two product groups:
(in thousands)
Product lifecycle management (PLM)
Computer-aided design (CAD)
Total revenue
$
Year ended September 30,
2022
1,137,016
796,331
1,933,347
2023
1,330,316
766,737
2,097,053
$
$
2021
1,616,328
33,013
157,818
1,807,159
2021
1,012,120
795,039
1,807,159
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. 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)
Americas(1)
Europe(2)
Asia Pacific
Total revenue
$
$
Year ended September 30,
2022
$
$
895,095
714,216
324,036
1,933,347
$
$
2023
1,023,273
753,796
319,984
2,097,053
2021
766,021
722,977
318,161
1,807,159
(1)
(2)
Includes revenue in the United States totaling $993.8 million, $864.7 million, and $741.3 million for 2023, 2022 and 2021,
respectively.
Includes revenue in Germany totaling $292.0 million, $318.5 million, and $290.7 million for 2023, 2022 and 2021, respectively.
F-18
4. Restructuring and Other Charges (Credits), Net
Restructuring and other charges (credits), net includes restructuring charges (credits) and impairment
and accretion expense charges related to the lease assets of exited facilities.
In 2023, Restructuring and other charges (credits), net and related payments were immaterial.
In 2022, Restructuring and other charges (credits), net totaled $36.2 million, of which $32.4 million is
attributable to restructuring charges primarily related to employee termination benefits, $5.1 million is
attributable to other charges for professional fees included in restructuring related to our SaaS
transformation, offset by a $1.3 million credit attributable to sublease income and the reversal of lease
liabilities related to exited lease facilities. These charges substantially relate 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-premises customers to move
to the cloud. We made cash payments related to restructuring charges of $40.8 million ($34.0 million
related to employee charges, $2.5 million in payments for other professional fees, and $4.3 million in net
payments for variable costs related to restructured facilities).
In 2021, Restructuring and other charges (credits), net totaled $2.2 million, of which $2.1 million was
attributable to restructuring charges and $0.1 million was 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).
The following table summarizes restructuring accrual activity for the three years ended September 30,
2023:
(in thousands)
Balance, September 30, 2020
Charges to operations, net
Cash disbursements
Foreign exchange impact
Balance, September 30, 2021
Charges (credits) to operations, net
Cash disbursements
Foreign exchange impact
Balance, September 30, 2022
Credits to operations, net
Cash disbursements
Foreign exchange impact
Balance, September 30, 2023
$
$
Employee severance
and related benefits
Facility closures
and other costs
Consolidated total
3,992
1,887
(3,925)
27
1,981
32,971
(34,023)
(583)
346
(143)
(121)
21
103
$
$
5,995
249
(2,756)
17
3,505
(561)
(2,355)
—
589
(281)
(304)
—
4
$
$
9,987
2,136
(6,681)
44
5,486
32,410
(36,378)
(583)
935
(424)
(425)
21
107
As of September 30, 2023 and 2022, the accrual for employee severance and related benefits was
included in Accrued compensation and benefits in the Consolidated Balance Sheets.
As of September 30, 2023 and 2022, the accrual for facility closures and related costs was included in
Accrued expenses and other current liabilities in the Consolidated Balance Sheets.
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
F-19
September 30,
2023
2022
$
$
304,045
20,042
77,703
401,790
(313,399)
88,391
$
$
364,762
29,744
95,383
489,889
(391,788)
98,101
Depreciation expense was $29.0 million, $27.1 million and $26.1 million in 2023, 2022 and 2021,
respectively.
Property and equipment additions which were accrued and unpaid as of September 30, 2023, 2022,
and 2021 were $1.8 million, $6.8 million, and $0.6 million, respectively.
Our material long-lived assets primarily reside in the United States in 2023, 2022 and 2021.
6. Acquisitions and Disposition of Businesses
Acquisition and transaction-related costs were $18.7 million, $13.2 million and $15.0 million in 2023,
2022 and 2021, respectively. Acquisition and transaction-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). Other transactional charges include third-party costs related to structuring unusual
transactions, such as the divestiture of a portion of our business. These costs are classified in General and
administrative expenses in the accompanying Consolidated Statements of Operations.
Our results of operations include or exclude, as applicable, the results of acquired or sold businesses
beginning on their respective acquisition or sale date.
The acquisitions described below have been accounted for as business combinations. Assets
acquired and liabilities assumed have been recorded at their estimated fair values as of the respective
acquisition date. The fair values of intangible assets were based on valuations using discounted cash flow
models which require the use of significant estimates and assumptions, including estimating future
revenues, future costs, and an applicable discount rate. The excess of the purchase price over the
tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.
ServiceMax
On January 3, 2023, we acquired ServiceMax, Inc. pursuant to a Share Purchase Agreement dated
November 17, 2022 by and among PTC, ServiceMax, Inc., and ServiceMax JV, LP. ServiceMax develops
and licenses cloud-native, product-centric field service management (FSM) software, which is included
within our PLM product group. The purchase price of $1,448.2 million, net of cash acquired, was payable
in two installments. Upon closing of the transaction, PTC paid the first installment of $828.2 million, as
adjusted for working capital, indebtedness, cash, and transaction expenses as set forth in the Share
Purchase Agreement. The remaining installment of $650.0 million, of which $620.0 million represents the fair
value as of the acquisition date and $30.0 million is imputed interest, was paid in October 2023. The fair
value of the deferred acquisition payment was calculated based on our borrowing rate at the time of the
acquisition.
PTC borrowed $630 million under the revolving line of our new credit facility and $500 million under
the term loan of the new credit facility to repay amounts under the prior credit facility and to pay the
closing purchase price and transaction expenses related to the acquisition. ServiceMax had
approximately 500 employees on the close date. In the year ended September 30, 2023, ServiceMax
revenue was $137.6 million and ServiceMax earnings were immaterial.
F-20
The following table sets forth the purchase price allocation for ServiceMax. The purchase price
allocation includes the finalization of measurement period adjustments related to intangibles and
deferred tax liabilities that resulted in a $3.5 million increase in customer relationships, a $3.2 million
increase in net tax liability, and a $0.3 million decrease in goodwill compared to the balances reported as
of March 31, 2023. We have also recorded a liability of $620.0 million related to the fair value of the $650.0
million deferred purchase price payment.
(in thousands)
Goodwill
Customer relationships
Purchased software
Accounts receivable
Trademarks
Other net assets
Net tax liability
Deferred revenue
Total
$
$
974,850
512,700
106,900
58,722
9,000
5,540
(121,656)
(97,829)
1,448,227
The acquired customer relationships, purchased software, and trademarks are being amortized over
useful lives of 20 years, 10 years, and 10 years, respectively, based on the expected economic benefit
pattern of the assets. The acquired goodwill will not be deductible for income tax purposes. The amount
of goodwill resulting from the purchase price allocation reflects expected future growth as ServiceMax
expands our closed-loop product lifecycle management (PLM) strategy.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of
operations for PTC and ServiceMax. The unaudited pro forma financial information for all periods
presented includes adjustments to reflect certain business combination effects, including: amortization of
acquired intangible assets and the elimination of related ServiceMax expenses; acquisition-related costs
incurred by both parties; reversal of certain costs incurred by ServiceMax which would not have been
incurred had the acquisition occurred at the beginning of fiscal 2022; interest expense under the new
combined capital structure; stock-based compensation charges; and the related tax effects as though
ServiceMax was acquired as of the beginning of fiscal 2022. The unaudited pro forma financial
information as presented below is for informational purposes only and is not necessarily indicative of the
results of operations that would have been achieved if the acquisition had taken place at the beginning
of fiscal 2022.
The unaudited pro forma financial information for the years ended September 30, 2023 and 2022
presented below combines the historical results of PTC for those periods, the historical results of
ServiceMax for the year ended October 31, 2022 and the three months ended January 31, 2023, and the
effects of the pro forma adjustments listed above.
(in thousands)
Revenue
Net income
Pro forma year ended
September 30,
2023
2022
$
$
2,140,738
239,437
$
$
2,101,796
230,655
The impact from acquisitions other than ServiceMax for the reported periods if presented on a pro
forma basis would not differ materially from our reported results.
Intland Software
On April 29, 2022, we acquired Intland Software, GmbH, and Eger Invest GmbH (together, “Intland
Software”) pursuant to a Share Sale and Purchase Agreement. Intland Software developed and
marketed the Codebeamer Application Lifecycle Management (ALM) family of software products. The
purchase price of the acquisition was $278.1 million, net of cash acquired, which was financed with cash
F-21
on hand and $264 million borrowed under our existing credit facility. Intland Software had approximately
150 employees on the close date.
The following table sets forth the purchase price allocation for Intland Software. The purchase price
allocation includes the finalization of measurement period adjustments, which resulted in a $0.9 million
increase in goodwill from $240.0 million as of June 30, 2022, driven by completion of working capital
adjustments.
(in thousands)
Goodwill
Customer relationships
Purchased software
Accounts receivable
Trademarks
Net tax liability
Deferred revenue
Other net liabilities
Total
$
$
240,971
38,800
19,100
6,506
1,300
(20,811)
(6,925)
(818)
278,123
The acquired customer relationships, purchased software, and trademarks are being amortized over
useful lives of 11 years, 10 years, and 10 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 expanding our ALM offerings, which are complementary to our PLM offerings.
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. We 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 FY'21, which was net of approximately $9.1 million
in fair value adjustments related to purchase accounting for the acquisition.
The following table sets forth the purchase price allocation for Arena.
(in thousands)
Goodwill
Customer relationships
Purchased software
Accounts receivable
Trademarks
Net tax liability
Deferred revenue
Other net liabilities
Total
$
$
562,838
155,000
38,300
11,392
4,200
(41,256)
(15,500)
(369)
714,605
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-22
PLM Services Business Disposition
On June 1, 2022, we sold a portion of our PLM services business to ITC Infotech India Limited pursuant
to a Strategic Partner Agreement dated as of April 20, 2022 by and between PTC and ITC Infotech.
Consideration received from ITC Infotech for the sale was approximately $60.4 million, consisting of $32.5
million cash paid on closing and $28.0 million of services to be provided by ITC Infotech to PTC for no
additional charge.
We recognized a gain on the sale of $29.8 million, which is included within Other income, net. The
recognized gain consists of $60.4 million of consideration received, less net assets of the business of $30.6
million. Net assets include $33.0 million of goodwill allocated to the business, less $2.4 million of liabilities
associated with approximately 160 employees who transferred to ITC Infotech. Goodwill was allocated to
the sold business based on a relative fair value allocation of total goodwill of the Professional Services
segment.
Additional future contingent consideration of up to $20 million may be received by PTC based on
certain performance milestones. We have elected to defer the recognition of gains associated with
contingent consideration until they become realizable.
7. Goodwill and Acquired Intangible Assets
Goodwill and acquired intangible assets consisted of the following:
(in thousands)
September 30, 2023
September 30, 2022
Goodwill (not amortized)
Intangible assets with finite lives
(amortized)(1):
Purchased software
Capitalized software
Customer lists and relationships
Trademarks and trade names
Other
Total goodwill and acquired intangible
assets
Gross
Carrying
Amount
Accumulated
Amortization
$
615,915
22,877
1,116,117
36,851
3,867
$ 1,795,627
$
$
395,109
22,877
413,125
19,400
3,867
854,378
Net Book
Value
$3,358,511
$ 220,806
—
702,992
17,451
—
$ 941,249
$4,299,760
Gross
Carrying
Amount
Accumulated
Amortization
Net Book
Value
$ 2,353,654
$
502,859
22,877
594,970
27,546
3,766
$ 1,152,018
$
$
355,857
22,877
369,390
17,410
3,766
769,300
$
$
147,002
—
225,580
10,136
—
382,718
$ 2,736,372
(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 11 years, 17 years, and 11 years, respectively. The weighted-average useful life for all
intangible assets in total is 15 years.
The changes in the carrying amounts of goodwill from September 30, 2022 to September 30, 2023 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 were as follows:
(in thousands)
Balance, September 30, 2021
Intland Software acquisition
Other acquisitions
Divestiture of business
Foreign currency translation adjustments
Balance, September 30, 2022
ServiceMax acquisition
Other acquisitions
Foreign currency translation adjustments
Balance, September 30, 2023
F-23
$
$
$
2,191,887
240,971
691
(32,992)
(46,903)
2,353,654
974,850
—
30,007
3,358,511
The aggregate amortization expense for intangible assets with finite lives recorded for the years
ended September 30, 2023, 2022 and 2021 was reflected in our Consolidated Statements of Operations as
follows:
(in thousands)
Amortization of acquired intangible assets
Cost of revenue
Total amortization expense
Year ended September 30,
2022
2021
2023
$
$
40,022
35,694
75,716
$
$
34,970
25,578
60,548
$
$
29,396
29,769
59,165
The estimated aggregate future amortization expense for intangible assets with finite lives remaining
as of September 30, 2023 is $79.8 million for 2024, $76.6 million for 2025, $76.5 million for 2026, $75.9 million
for 2027, $72.8 million for 2028 and $559.6 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,
2022
2021
2023
$
$
(49,193)
381,759
332,566
$
$
97,460
299,638
397,098
$
$
41,199
350,556
391,755
Our Provision (benefit) for income taxes consisted of the following:
(in thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision (benefit) for income taxes
Year ended September 30,
2022
2021
2023
$
$
7,311
10,020
53,019
70,350
(11,821)
(10,028)
38,525
16,676
87,026
$
$
767
6,675
33,612
41,054
25,730
(3,177)
20,410
42,963
84,017
$
$
4,774
1,609
66,554
72,937
(152,311)
(27,228)
21,434
(158,105)
(85,168)
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
Non-deductible compensation
Base Erosion Anti-Abuse Tax (BEAT)
GILTI, net of foreign tax credits
Foreign-Derived Intangible Income (FDII)
Non-deductible imputed interest
Sale of a portion of the PLM services business
Other, net
Provision (benefit) for income taxes
2023
Year ended September 30,
2022
2021
21% $
—
0%
(2)%
7%
(3)%
(6)%
3%
(2)%
—
2%
3%
—
5%
(3)%
2%
—
(1)%
26% $
83,391
—
6,518
(7,477)
2,418
(9,078)
(8,982)
9,078
(8,278)
—
3,453
11,851
—
2,705
(6,848)
—
6,844
(1,578)
84,017
$
$
69,839
—
577
(7,751)
23,302
(11,415)
(20,829)
11,415
(6,963)
—
5,341
8,344
—
17,861
(8,987)
6,292
—
—
87,026
F-24
82,268
21% $
(134,695)
—
(28,768)
2%
(5,764)
(2)%
3,398
1%
(35,368)
(2)%
(34,584)
(2)%
5,931
2%
(6,141)
(2)%
33,370
—
7,449
—
10,940
3%
2,936
—
18,217
1%
(4,428)
(2)%
—
—
—
2%
(1)%
71
21% $ (85,168)
21%
(34)%
(8)%
(2)%
1%
(9)%
(9)%
2%
(2)%
9%
2%
3%
1%
4%
(1)%
—
—
—
(22)%
In 2023, 2022, and 2021, our effective tax rate is impacted by 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 2023, 2022, and
2021, the foreign rate differential predominantly relates to these earnings. In addition to the foreign rate
differential, our tax rate differed from the U.S. statutory federal income tax due to 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.
Additionally in 2023, our results include tax expense of $21.8 million relating to an uncertain tax
position regarding transfer pricing in a foreign jurisdiction where we are currently under audit. Our rate
was also impacted by non-deductible imputed interest related to the deferred payment on the
acquisition of ServiceMax, Inc.
In 2022, our results include tax expense relating to the book over tax basis difference in goodwill
disposed of as part of the sale of a portion of the PLM services business.
In 2021, our tax rate includes a benefit due to the release of the valuation allowance on the majority
of our U.S. net deferred tax assets and the tax impact related to the effects of a tax matter in the
Republic of Korea (South Korea).
At September 30, 2023 and 2022, income taxes payable and income tax accruals recorded on the
accompanying Consolidated Balance Sheets were $30.4 million ($14.9 million in Accrued income taxes,
$4.8 million in Accrued expenses and other current liabilities and $10.7 million in Other liabilities) and $17.3
million ($5.1 million in Accrued income taxes, $5.6 million in Accrued expenses and other current liabilities
and $6.6 million in Other liabilities), respectively. At September 30, 2023 and 2022, prepaid taxes recorded
in Prepaid expenses on the accompanying Consolidated Balance Sheets were $22.7 million and $25.8
million, respectively. We made net income tax payments of $65.9 million, $55.0 million and $56.0 million in
2023, 2022 and 2021, 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
Deferred income
Prepaid commissions
Other
Total deferred tax liabilities
Net deferred tax assets
September 30,
2023
2022
$
$
$
$
22,272
3,750
83,748
5,327
15,040
5,902
19,684
19,604
90,888
64,618
50,102
83,796
3,700
2,279
470,710
(21,695)
449,015
(263,178)
(37,332)
(1,808)
(17,400)
(5,779)
(8,656)
(13,757)
(7,294)
(355,204)
93,811
$
$
$
$
40,419
14,527
23,274
7,639
15,886
2,146
19,486
14,689
130,825
78,862
46,672
78,249
3,955
1,256
477,885
(22,283)
455,602
(118,360)
(36,940)
(2,622)
(35,193)
(6,937)
(5,991)
(13,356)
(8,508)
(227,907)
227,695
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 our existing deferred tax assets.
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, 2023, we
had U.S. federal tax effected NOL carryforwards from acquisitions of $6.4 million, of which $1.2 million
expire in 2025 to 2034. The remaining carryforwards of $5.2 million do not expire. The use 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, 2023, we had federal R&D credit carryforwards of $46.7 million, which expire
beginning in 2025 and ending in 2043, and Massachusetts R&D credit carryforwards of $27.3 million, which
expire beginning in 2024 and ending in 2038. We also had foreign tax credits of $3.7 million, which expire
beginning in 2030 and ending in 2033.
We also have tax effected NOL carryforwards in non-U.S. jurisdictions totaling $6.8 million, the majority
of which do not expire, and non-U.S. tax credit carryforwards of $2.3 million that expire beginning in 2030
and ending in 2041. Additionally, we have tax effected amortization carryforwards of $85.3 million in a
foreign jurisdiction. There are limitations imposed on the use of such attributes that could restrict the
recognition of any tax benefits.
As of September 30, 2023, we have a valuation allowance of $17.4 million against net deferred tax
assets in the United States and a valuation allowance of $4.3 million against net deferred tax assets in
certain foreign jurisdictions. The $17.4 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
F-26
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 decrease in deferred tax assets with a full valuation allowance(2)
Valuation allowance, end of year
Year ended September 30,
2022
2021
2023
$
$
22,283
—
(588)
21,695
$
$
52,085
—
(29,802)
22,283
$
$
205,423
(134,235)
(19,103)
52,085
(1)
(2)
In 2021, this is attributable to the release in the United States.
In 2022, this change included the loss of foreign attributes upon liquidation of a foreign subsidiary. In 2021, this change includes
the loss of state attributes upon merger of two wholly-owned subsidiaries.
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 2023, 2022 and 2021 we recorded interest expense of $0.5
million, $0.2 million and $2.2 million, respectively. In 2023 and 2022 we had no penalty expenses in our
income tax provision. In 2021 we had $2.0 million tax penalty expense in our income tax provision. As of
September 30, 2023 and 2022, we had accrued $1.4 million and $0.9 million of net estimated interest
expense, respectively. We had no accrued tax penalties as of September 30, 2023, 2022 or 2021.
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
Statute expirations
Unrecognized tax benefit, end of year
Year ended September 30,
2022
2021
2023
$
23,923
$
21,166
$
16,107
7,075
20,855
—
—
(1,111)
50,742
$
3,144
785
(1,172)
—
—
23,923
$
4,844
30,130
(478)
(29,437)
—
21,166
$
If all of our unrecognized tax benefits as of September 30, 2023 were to become recognizable in the
future, we would record a benefit to the income tax provision of $50.7 million (which would be partially
offset by an increase in the U.S. valuation allowance of $5.7 million). Although we believe our tax
estimates are appropriate, the final determination of tax audits and any related litigation could result in
favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the
next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax
positions could be reduced by up to $26 million as audits close and statutes of limitations expire.
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, and additional payments of approximately $20 million to South Korea in
settlement of the amounts previously accrued.
F-27
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities,
including the IRS in the United States. 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, including Germany, Ireland, and Italy. 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,
2023, 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
2020 through 2023
2015 through 2023
2020 through 2023
2018 through 2023
2019 through 2023
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 used in later periods.
We incurred expenses related to stock-based compensation in 2023, 2022 and 2021 of $206.5 million,
$174.9 million and $177.3 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 $33.4 million, $27.1 million and $39.9 million in
2023, 2022 and 2021, respectively. Upon vesting of the stock-based awards, 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 2023, 2022 and 2021, net windfall
tax benefits of $7.8 million, $5.2 million and $9.9 million were recorded to the tax provision.
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 United States
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, 2023 and 2022, we had the following short- and long-term debt obligations:
(in thousands)
4.000% Senior Notes due 2028
3.625% Senior Notes due 2025
Credit facility revolver line(1)(2)
Credit facility term loan(1)(2)
Total debt
Unamortized debt issuance costs for the Senior Notes(3)
Total debt, net of issuance costs(4)
September 30,
2023
2022
500,000
500,000
202,000
500,000
1,702,000
(6,215)
1,695,785
$
$
500,000
500,000
359,000
—
1,359,000
(8,372)
1,350,628
$
$
(1) Unamortized debt issuance costs related to the credit facility were $2.3 million included in Other current assets and $7.5 million
included in Other assets on the Consolidated Balance Sheet as of September 30, 2023 and $2.7 million included in Other assets
on the Consolidated Balance Sheet as of September 30, 2022.
(2) Both the revolving line and the term loan will mature and all amounts then outstanding will become due and payable on
January 3, 2028, unless the 2025 notes have not been either refinanced to mature on or after April 3, 2028 or repaid, in which
case the amounts will become due on November 16, 2024. The term loan will begin amortizing in March 2024, with payments of
$9.4 million in 2024, $21.9 million in 2025, $25.0 million in 2026 and 2027, and $418.7 million in 2028.
(3) Unamortized debt issuance costs for the Senior Notes were included in Long-term debt on the Consolidated Balance Sheets.
(4) As of September 30, 2023, $9.4 million of debt associated with the credit facility term loan was classified as short term with the
remaining balance classified as long term. As of September 30, 2022, all debt was classified as long term.
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, 2023, the total estimated fair value of the 2028 and 2025 notes was
approximately $450.2 million and $480.6 million, respectively, based on quoted prices for the notes on that
date.
We were in compliance with all the covenants for all our Senior Notes as of September 30, 2023.
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 2028 and 2025 notes in whole or in part at specified
redemption prices. In certain circumstances constituting a change of control, we will 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 January 2023, we entered into an amended and restated credit agreement for a new secured
multi-currency bank credit facility with a syndicate of banks. Pursuant to the agreement, all revolving
commitments under the prior credit agreement were replaced with the revolving commitments under the
new credit facility. The new credit facility consists of (i) a $1.25 billion revolving credit facility, (ii) a $500
million term loan credit facility, and (iii) an incremental facility pursuant to which we may incur additional
term loan tranches or increase the revolving credit facility. As of September 30, 2023, unused
F-29
commitments under our credit facility were approximately $1,048.0 million and amounts available for
borrowing were $384.6 million.
As of September 30, 2023, the fair value of our credit facility approximates its book value.
PTC Inc. 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,
ServiceMax, Inc. was the only subsidiary guarantor. Any borrowings by eligible foreign subsidiary borrowers
would be guaranteed by PTC Inc. and any subsidiary guarantors and secured, subject to exceptions, by
a first priority perfected security interest in substantially all existing and after-acquired personal property
owned by PTC Inc. and its material domestic subsidiaries (except for certain indirect material domestic
subsidiaries). As of September 30, 2023, all funds borrowed under the revolving credit facility were
borrowed by an eligible foreign subsidiary borrower. Subsequent to September 30, 2023, we borrowed an
additional $739.8 million under the revolving credit facility, including $650.0 million to finance the deferred
payment related to the ServiceMax acquisition and $89.8 million borrowed by the subsidiary borrower for
our acquisition of pure-systems. Refer to Note 18. Subsequent Events for more detail.
Loans under the credit facility bear interest at variable rates that reset every 30 to 180 days
depending on the base rate (for USD borrowings, either the adjusted Daily Simple RFR or adjusted Term
SOFR) and period selected by us. The spread over the base rate depends on our total leverage ratio. As
of September 30, 2023, the annual rate for borrowings outstanding was 7.18%. A quarterly revolving
commitment fee on the undrawn portion of the revolving credit facility is required, ranging from 0.175% to
0.325% per annum, based upon our total leverage ratio.
The credit facility limits our ability to, among other things: incur additional indebtedness; incur liens or
guarantee obligations; pay dividends 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 Inc. and its material domestic subsidiaries may not invest cash or property in,
or loan amounts to, PTC Inc.’s foreign subsidiaries in aggregate amounts exceeding $100 million for
purposes other than acquisitions of businesses. The credit facility also requires that we maintain certain
financial ratios. As of September 30, 2023, we were in compliance with all financial and operating
covenants of the credit facility.
In 2023, we incurred $13.4 million in financing costs in connection with the January 2023 credit facility
and related arrangements, of which $4.2 million (related to a since-extinguished bridge loan) was
expensed in the period and $9.2 million was recorded as deferred debt issuance costs and included in
Other assets and Other current assets on the Consolidated Balance Sheet. Deferred debt issuance costs
are expensed over the term of the obligations.
Interest
In 2023, 2022 and 2021, we incurred interest expense of $129.4 million, $54.3 million, and $50.5 million,
respectively, and paid $89.8 million, $48.5 million and $45.2 million, respectively, of interest on our debt.
Interest expense in the year ended 2023 includes $30.0 million of interest imputed on the $650.0 million
deferred acquisition payment related to the ServiceMax acquisition. The average interest rate on
borrowings outstanding during 2023, 2022 and 2021 was approximately 4.9%, 3.4% and 3.3%, respectively.
F-30
10. Commitments and Contingencies
As of September 30, 2023 and 2022, we had letters of credit and bank guarantees outstanding of
$13.1 million (of which $0.5 million was collateralized) and $15.0 million (of which $0.5 million was
collateralized), respectively, primarily related to our corporate headquarters lease.
Legal and Regulatory Matters
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.
We are subject to legal proceedings and claims against us in the ordinary course of business. As of
September 30, 2023, 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. These agreements typically limit our liability with respect to indemnification claims other
than intellectual property infringement claims. Historically, our costs to defend lawsuits or settle claims
relating to such indemnity agreements have been minimal and, accordingly, we believe the estimated
fair value of liabilities under these agreements is immaterial.
We warrant that our software products will perform in all material respects in accordance with our
standard published specifications during the term of the license. 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. Of these shares, 0.5
million 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 had authorized us to repurchase up to $1 billion of our common stock in the period
October 1, 2020 through September 30, 2023. We used cash from operations and borrowings under our
credit facility to make such repurchases. All shares of our common stock repurchased were automatically
restored to the status of authorized and unissued.
We did not repurchase any shares in 2023. In 2022 and 2021, we repurchased 1.05 million shares for
$125 million and 0.23 million shares for $30 million, respectively.
F-31
12. Equity Incentive Plans
We have two equity incentive plans, our 2000 Equity Incentive Plan and our 2016 Employee Stock
Purchase Plan (ESPP).
Our 2000 Equity Incentive 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 RSU represents the contingent right to receive one share of our common stock.
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.
The following table shows total stock-based compensation expense recorded 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,
2022
2021
2023
$
$
145
12,801
7,928
56,394
58,931
70,260
206,459
$
$
272
11,022
11,481
49,467
41,944
60,677
174,863
$
$
100
9,900
9,263
53,712
34,272
70,042
177,289
Stock-based compensation expense in 2023, 2022 and 2021 includes $6.8 million, $6.4 million, and
$7.3 million respectively, related to our ESPP.
2000 Equity Incentive Plan Accounting and Stock-Based Compensation Expense
The fair value of RSUs granted in 2023, 2022 and 2021 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 (rTSR) performance RSUs. The weighted average fair
value per share of RSUs granted in 2023, 2022 and 2021 was $130.64, $114.31 and $111.48, respectively.
We account for forfeitures as they occur, rather than estimate expected forfeitures.
As of September 30, 2023, total unrecognized compensation cost related to unvested RSUs expected
to vest was approximately $204.4 million and the weighted average remaining recognition period for
unvested RSUs was 17 months. As of September 30, 2023, the weighted average remaining vesting term
for outstanding awards is 1.0 years.
As of September 30, 2023, 7.3 million shares of common stock were available for grant under the
equity incentive plan and 2.6 million shares of common stock were reserved for issuance upon vesting of
RSUs granted and outstanding.
F-32
The following table sets forth the restricted stock unit activity for the year ended September 30, 2023.
(in thousands, except grant date fair value data)
Balance of outstanding RSUs at October 1, 2022
Granted(1)
Vested
Forfeited or not earned
Balance of outstanding RSUs at September 30, 2023
Weighted
Average
Grant Date
Fair Value
105.07
130.64
104.00
114.67
122.82
Shares
2,754
1,767
(1,800)
(140)
2,581
$
$
$
$
$
Aggregate
Intrinsic Value
$
365,619
(1)
RSUs granted includes 38 shares from prior period rTSR awards that were earned upon achievement of the performance
criteria and vested in November 2022 and 61 shares from prior period performance-based awards that were earned upon
achievement of the performance criteria and vested in November 2022.
The following table presents the number of RSU awards granted by award type:
(in thousands)
Performance-based RSUs(1)
Service-based RSUs(2)
Relative Total Shareholder Return RSUs(3)
Year ended
September 30, 2023
69
1,530
69
(1)
(2)
(3)
The performance-based RSUs are primarily made up of RSUs 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, 2023, November 15, 2024, and November 15, 2025, 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.
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 rTSR 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 PTC peer companies established as of the grant date, as determined at the end of the
measurement period ending on September 30, 2025. The RSUs earned will vest on November 15, 2025. Up to a maximum of
two times the number of rTSR RSUs eligible to be earned for the period may vest. If the stock price as of the beginning of the
period is below the stock price at the end of the period, a maximum of 100% of the rTSR RSUs may vest.
The weighted-average fair value of the rTSR RSUs was $179.60 per target RSU on the grant date. The
fair value of the rTSR 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 rTSR 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
Expected term (in years)
Total value on vest date of RSUs vested are as follows:
(in thousands)
2023
2022
2021
41.54%
4.12%
—%
2.87
34.67%
0.81%
—%
2.87
41.52%
0.21%
—%
2.87
Year ended September 30,
2022
2023
2021
Total value of restricted stock unit awards at vest
$
240,066
$
199,738
$
171,316
In 2023, shares issued upon vesting of restricted stock units were net of 0.6 million shares retained by
us to cover employee tax withholdings of $82.8 million. In 2022, shares issued upon vesting of restricted
stock units were net of 0.6 million shares retained by us to cover employee tax withholdings of $69.0
million. In 2021, 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 $53.1 million.
F-33
As of September 30, 2023, we had liability-classified awards related to stock-based compensation
based on a fixed monetary amount of $44.9 million.
13. Employee Benefit Plan
We offer a savings plan to eligible U.S. employees. The plan is qualified 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 $8.6 million, $7.8 million and $7.8 million in 2023, 2022
and 2021, respectively.
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
2023
2022
2021
4.2%
3.0%
3.7%
3.6%
4.8%
3.7%
3.6%
1.0%
2.8%
5.0%
1.0%
2.8%
1.1%
2.8%
5.0%
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, 2023 in the table above, will be used to determine our 2024
net periodic pension cost, which we expect to be approximately $0.1 million.
As of September 30, 2023, the weighted average interest credit rate used in our two cash balance
pension plans is 4.2%.
F-34
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 gain
Net periodic pension (benefit) cost
Year ended September 30,
2022
2021
2023
$
$
2,126
690
(3,541)
—
241
—
(484)
$
$
550
1,016
(3,712)
(4)
1,425
(82)
(807)
$
$
692
1,127
(3,643)
(5)
4,139
—
2,310
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 gain
Foreign exchange impact
Participant contributions
Benefits paid
Plan amendments
Divestiture of business
Settlements
Projected benefit obligation, end of year
Change in plan assets and funded status:
Plan assets at fair value, beginning of year
Actual return (loss) on plan assets
Employer contributions
Participant contributions
Foreign exchange impact
Settlements
Benefits paid
Plan amendments
Plan assets at fair value, end of year
Projected benefit obligation, end of year
Underfunded status
Overfunded 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,
2022
2023
58,129
690
2,126
(1,589)
3,714
96
(2,968)
235
—
—
60,433
67,581
(1,919)
1,343
96
4,593
—
(2,968)
149
68,875
60,433
(10,693)
19,135
59,602
19,135
(10,419)
(274)
9,573
$
$
$
$
$
$
$
$
$
$
96,512
1,016
550
(22,616)
(12,949)
96
(2,343)
—
(1,184)
(953)
58,129
78,385
2,348
3,007
96
(12,959)
(953)
(2,343)
—
67,581
58,129
(9,782)
19,234
57,310
19,234
(9,434)
(348)
5,408
$
$
$
$
$
$
$
$
$
$
As of September 30, 2023 and 2022, two of our pension plans had projected benefit obligations and
accumulated benefit obligations in excess of plan assets. Three international plans were overfunded.
F-35
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 - settlement gain
Occurring during year - net actuarial losses (gains)
Plan amendments
Foreign exchange impact
Accumulated other comprehensive loss, end of year
Year ended September 30,
2022
2023
5,408
(241)
—
3,871
91
444
9,573
$
$
30,213
(1,421)
82
(21,253)
—
(2,213)
5,408
$
$
In 2023, our actuarial losses were impacted by volatility in capital markets and the impact of rising
interest rates. In 2022, our actuarial gains were impacted by the change in discount rate from 1.0% in 2021
to 3.7% in 2022.
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,
2023
2022
31%
42%
7%
10%
0%
10%
100%
33%
33%
1%
10%
2%
21%
100%
We periodically review the pension plans’ investments in the various asset classes. For the CoCreate
plans 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 2023, 2022 and 2021, our actual return (loss) on plan assets was $(1.9) million, $2.3 million and $7.4
million, respectively.
Based on actuarial valuations and additional voluntary contributions, we contributed $1.3 million,
$3.0 million and $3.0 million in 2023, 2022 and 2021, respectively, to the plans. In 2024, we expect to
contribute $0.6 million to the plans and to directly pay $3.2 million in benefits.
As of September 30, 2023, benefit payments expected to be paid over the next ten years are as
follows:
(in thousands)
2024
2025
2026
2027
2028
2029 to 2033
$
Future Benefit Payments
4,158
3,782
3,898
4,485
4,694
23,443
F-36
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)
Cash
Total plan assets
(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, 2023
$
$
$
$
27,322
1,632
20,864
4,977
—
6,978
61,773
Level 1
20,430
2,038
22,379
599
—
1,430
13,882
60,758
$
$
$
$
— $
—
—
—
7,102
—
7,102
$
— $
—
—
—
—
—
— $
27,322
1,632
20,864
4,977
7,102
6,978
68,875
September 30, 2022
Level 2
Level 3
Total
— $
—
—
—
6,823
—
—
6,823
$
— $
—
—
—
—
—
—
— $
20,430
2,038
22,379
599
6,823
1,430
13,882
67,581
(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.
F-37
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.
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 derivatives’ 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 significant financial assets and liabilities measured at fair value on a recurring basis as of
September 30, 2023 and 2022 were as follows:
(in thousands)
Financial assets:
Cash equivalents(1)
Convertible note
Forward contracts
Financial liabilities:
Forward contracts
(in thousands)
Financial assets:
Cash equivalents(1)
Convertible note
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, 2023
$
$
$
$
$
$
72,754
—
—
72,754
$
$
—
— $
— $
—
7,340
7,340
$
3,158
3,158
$
— $
2,000
—
2,000
$
—
— $
72,754
2,000
7,340
82,094
3,158
3,158
Level 1
Level 2
Level 3
Total
September 30, 2022
102,313
—
—
102,313
$
$
—
— $
— $
—
9,058
9,058
$
2,908
2,908
$
— $
2,000
—
2,000
$
102,313
2,000
9,058
113,371
—
— $
2,908
2,908
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
Sheets. There were no changes in the fair value of this level 3 investment in the twelve months ended
September 30, 2023.
F-38
16. Derivative Financial Instruments
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
2023
2022
2023
2022
September 30,
$
$
3,770
$
1,960
$
3,570
— $
— $
3,158
$
$
7,098
2,908
(1) As of September 30, 2023 and 2022, current derivative assets of $7.3 million and $9.1 million, respectively, are recorded in Other
current assets on the Consolidated Balance Sheets.
(2) As of September 30, 2023 and 2022, current derivative liabilities of $3.2 million and $2.9 million, respectively, are recorded in
Accrued expenses and other current liabilities on the Consolidated Balance Sheets.
Non-Designated Hedges
As of September 30, 2023 and 2022, we had outstanding forward contracts not designated as
hedging instruments with notional amounts equivalent to the following:
Currency Hedged (in thousands)
Canadian Dollar / 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
Korean Won / U.S. Dollar
Danish Krone / U.S. Dollar
Australian Dollar / U.S. Dollar
All other
Total
September 30,
2023
2022
5,135
383,227
6,058
11,852
4,770
32,766
35,085
—
16,660
11,855
6,157
6,731
452
2,888
523,636
$
$
2,731
316,869
7,368
12,052
25,566
25,559
35,713
3,637
23,965
13,906
4,919
3,192
3,269
4,432
483,178
$
$
The following table shows the effect of our non-designated hedges, including forward contracts and
options, on the Consolidated Statements of Operations for the years ended September 30, 2023, 2022
and 2021:
(in thousands)
Net realized and unrealized gain (loss), excluding the underlying
foreign currency exposure being hedged
Location of Gain (Loss)
Year ended September 30,
2021
2022
2023
Other income, net
$ (11,757) $ 14,603
$ (6,055)
In 2023, 2022 and 2021, foreign currency losses, net were $2.1 million, $0.9 million and $8.0 million,
respectively.
Net Investment Hedges
As of September 30, 2023 and 2022, 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
Japanese Yen / U.S. Dollar
Total
September 30,
2023
2022
$
$
337,923
10,285
348,208
$
$
110,466
—
110,466
F-39
The following table shows the effect of our derivative instruments designated as net investment
hedges on the Consolidated Statements of Operations for the years ended September 30, 2023, 2022,
and 2021:
(in thousands)
Gain (loss) recognized in OCI
Gain (loss) reclassified from OCI to earnings
Gain recognized, excluded portion
Location of Gain (Loss)
OCI
n/a
Other income, net
Year ended September 30,
2021
2022
2023
$ (10,033) $ 23,379
-
$
1,797
$
-
4,241
$
$
$
$
$
1,660
-
1,249
As of September 30, 2023, 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.
Offsetting Derivative Assets and Liabilities
We have entered into master netting arrangements for our forward contracts that allow net
settlements under certain conditions. Although netting is permitted, it is currently our policy and practice
to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.
The following table sets forth the offsetting of derivative assets as of September 30, 2023:
(in thousands)
Gross Amounts Offset in the
Consolidated Balance Sheets
Gross Amounts Not Offset in
the Consolidated Balance
Sheets
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
Net Amounts
of Assets
Presented in
the
Consolidated
Balance
Sheets
Gross
Amount of
Recognized
Assets
$
7,340
$
— $
7,340
Financial
Instruments
$
(3,158)
$
As of September 30, 2023
Forward Contracts
Cash
Collateral
Received
Net Amount
4,182
— $
The following table sets forth the offsetting of derivative liabilities as of September 30, 2023:
(in thousands)
Gross Amounts Offset in the
Consolidated Balance Sheets
Gross Amounts Not Offset in
the Consolidated Balance
Sheets
Cash
Collateral
Pledged
Net Amount
—
— $
Gross
Amounts
Offset in the
Consolidated
Balance
Sheets
Net Amounts
of Liabilities
Presented in
the
Consolidated
Balance
Sheets
Gross
Amount of
Recognized
Liabilities
$
3,158
$
— $
3,158
Financial
Instruments
$
(3,158)
$
As of September 30, 2023
Forward Contracts
F-40
17. Leases
Our headquarters are located at 121 Seaport Boulevard, Boston, Massachusetts. The lease is for
approximately 250,000 square feet and runs through June 30, 2037. We have subleased a portion of the
leased space through January 31, 2024. Base rent for the first year of the lease was $11.0 million and
increases 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 $8.1 million.
The components of lease cost reflected in the Consolidated Statements of Operations for the years
ended September 30, 2023, 2022, and 2021 were as follows:
(in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
2023
Year ended September 30,
2022
2021
$
$
32,402 $
5,411
10,945
(4,749)
44,009 $
34,346 $
2,653
10,095
(4,600)
42,494 $
37,295
2,452
9,808
(4,438)
45,117
Supplemental cash flow information for the years ended September 30, 2023, 2022, and 2021 was as
follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from financing leases
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases(1)
Financing leases(2)
2023
2022
2021
$
$
$
$
36,038 $
$
536
28,257 $
40 $
38,709 $
$
297
15,431 $
— $
50,299
354
9,576
1,146
(1)
(2)
In the year ended September 30, 2023, operating lease additions included $4.0 million related to the ServiceMax acquisition.
In the year ended September 30, 2023, all financing lease additions related to the ServiceMax acquisition.
Supplemental balance sheet information related to the leases as of September 30, 2023 and 2022
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
Maturities of lease liabilities as of September 30, 2023 are as follows:
(in thousands)
2024
2025
2026
2027
2028
Thereafter
Total future lease payments
Less: imputed interest
Total lease liability
2023
10.9 years
1 year
5.2%
3.7%
2022
11.8 years
2 years
5.4%
3.0%
Operating Leases
$
$
34,247
28,490
23,523
19,738
17,874
134,033
257,905
(64,713)
193,192
As of September 30, 2023, we had operating leases that had not yet commenced. The leases will
commence in 2024 with a lease term of 7.75 years and we will make future lease payments of
approximately $2.4 million.
F-41
18. Subsequent Events
In October 2023, we made a payment of $650 million to settle the ServiceMax deferred acquisition
payment liability, of which $620 million is purchase consideration and $30 million is imputed interest. To
finance this payment, we borrowed the full amount under the revolving line of our existing credit facility.
In October 2023, we acquired pure-systems GmbH, a leading provider of product and software
variant management solutions, for approximately $98 million. We borrowed EUR 85 million, the USD
equivalent of which was approximately $90 million, under the revolving line of our existing credit facility to
fund the acquisition.
Subsequent to September 30, 2023, we have made aggregate payments of $45 million on the
revolving credit facility.
F-42
STOCK PERFORMANCE GRAPH
The Stock Performance Graph below compares the cumulative stockholder return on our common stock
from September 30, 2018 to September 30, 2023 with the cumulative return over the same period of:
the S&P 500 Index,
the NASDAQ Composite Index, and
S&P 500 Information Technology 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, 2018 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 stock
price performance.
COMPARISON OF 5 YE AR CUMULATIVE TO TAL RETURN*
$250
$200
$150
$100
$50
$0
9 / 1 8
9 / 1 9
9 / 2 0
9 / 2 1
9 / 2 2
9 / 2 3
PTC INC
S&P 500
NASDAQ Composite
S&P 500 Information Technology
9/30/2018
9/30/2019
9/30/2020
9/30/2021
9/30/2022
9/30/2023
PTC INC
S&P 500
NASDAQ Composite
S&P 500 Information Technology
$100.00
$100.00
$100.00
$100.00
$ 64.21
$104.25
$100.52
$108.60
$ 77.90
$120.05
$141.70
$159.88
$112.81
$156.07
$184.58
$206.09
$ 98.50
$131.92
$136.12
$164.87
$133.42
$160.44
$171.65
$232.63
Shareholders and Stock Listing
Our common stock is traded on the Nasdaq Global Select
Market under the symbol PTC. On September 30, 2023, our
common stock was held by 952 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: investor@ptc.com
Annual Meeting
The 2024 Annual Meeting of Stockholders will be held at the
time and location stated below.
Wednesday, February 14, 2024
10:00 a.m., local time
PTC Headquarters
121 Seaport Boulevard
Boston, Massachusetts 02210
Internet Address
www.ptc.com
Independent Accountants
PricewaterhouseCoopers LLP, Boston, Massachusetts
Transfer Agent and Registrar
Equiniti Trust Company, LLC, New York, New York
Directors
James Heppelmann
Chairman of the Board
Chief Executive Officer, PTC Inc.
Janice Chaffin
Lead Independent Director
Group President, Consumer Business Unit (Retired), Symantec
Corporation, an enterprise software company
Neil Barua
CEO-Elect, PTC Inc.
Mark Benjamin
Chief Executive Officer (Retired), Nuance Communications,
Inc., an enterprise software company
Amar Hanspal
CEO (Retired), Bright Machines, Inc., a factory automation
software company
Michal Katz
Head of Investment and Corporate Banking, Mizuho Americas,
a division of Mizuho Financial Group, a financial institution
Paul Lacy
President (Retired), Kronos Incorporated, an enterprise
software company
Corinna Lathan
Chief Executive Officer, Co-Founder and Board Chair (Retired),
AnthroTronix, Inc., a biomedical engineering research and
development company
Janesh Moorjani
Chief Financial Officer and Chief Operating Officer, Elastic N.V.,
a data analytics company for search-powered solutions
Robert Schechter
Chief Executive Officer (Retired), NMS Communications
Corporation, a software company
Executive Officers
James Heppelmann
Chief Executive Officer
Neil Barua
CEO-Elect
Michael DiTullio
President and Chief Operating Officer
Kristian Talvitie
Executive Vice President, Chief Financial Officer
Catherine Kniker
Executive Vice President, Chief Strategy and Marketing
Officer
Aaron von Staats
Executive Vice President, General Counsel and Secretary
© 2023 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.