Company Quick10K Filing
PTC
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 118 $10,318
10-Q 2020-01-27 Quarter: 2019-12-28
10-K 2019-11-18 Annual: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-29
10-Q 2019-05-09 Quarter: 2019-03-30
10-Q 2019-02-07 Quarter: 2018-12-29
10-K 2018-11-16 Annual: 2018-09-30
10-Q 2018-08-01 Quarter: 2018-06-30
10-Q 2018-05-02 Quarter: 2018-03-31
10-Q 2018-02-06 Quarter: 2017-12-30
10-K 2017-11-29 Annual: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-07-01
10-Q 2017-05-11 Quarter: 2017-04-01
10-Q 2017-02-09 Quarter: 2016-12-31
10-K 2016-11-18 Annual: 2016-09-30
10-Q 2016-08-11 Quarter: 2016-07-02
10-Q 2016-05-11 Quarter: 2016-04-02
10-Q 2016-02-10 Quarter: 2016-01-02
10-K 2015-11-23 Annual: 2015-09-30
10-Q 2015-08-11 Quarter: 2015-07-04
10-Q 2015-05-11 Quarter: 2015-04-04
10-Q 2015-02-10 Quarter: 2015-01-03
10-K 2014-11-26 Annual: 2014-09-30
10-Q 2014-08-05 Quarter: 2014-06-28
10-Q 2014-05-06 Quarter: 2014-03-29
10-Q 2014-02-04 Quarter: 2013-12-28
10-K 2013-11-22 Annual: 2013-09-30
10-Q 2013-08-07 Quarter: 2013-06-29
10-Q 2013-05-08 Quarter: 2013-03-30
10-Q 2013-02-06 Quarter: 2012-12-29
10-K 2012-11-16 Annual: 2012-09-30
10-Q 2012-07-30 Quarter: 2012-06-30
10-Q 2012-05-09 Quarter: 2012-03-31
10-Q 2012-02-08 Quarter: 2011-12-31
10-K 2011-11-23 Annual: 2011-09-30
10-Q 2011-08-10 Quarter: 2011-07-02
10-Q 2011-05-11 Quarter: 2011-04-02
10-Q 2011-02-09 Quarter: 2011-01-01
10-K 2010-11-23 Annual: 2010-09-30
10-Q 2010-08-12 Quarter: 2010-07-03
10-Q 2010-05-13 Quarter: 2010-04-03
10-Q 2010-02-11 Quarter: 2010-01-02
8-K 2020-02-12 Enter Agreement, Leave Agreement, Off-BS Arrangement, Shareholder Vote, Exhibits
8-K 2020-01-29 Other Events, Exhibits
8-K 2020-01-22 Earnings, Exhibits
8-K 2019-11-17 Officers, Exhibits
8-K 2019-11-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-11-01 M&A, Off-BS Arrangement, Exhibits
8-K 2019-09-04 Earnings, Regulation FD, Exhibits
8-K 2019-07-24 Earnings, Exhibits
8-K 2019-06-11 Regulation FD
8-K 2019-04-29 Regulation FD
8-K 2019-04-24 Earnings, Officers, Exhibits
8-K 2019-04-15 Officers
8-K 2019-03-06 Shareholder Vote, Exhibits
8-K 2019-01-23 Earnings, Exhibits
8-K 2019-01-16 Officers
8-K 2018-11-20 Other Events
8-K 2018-10-24 Earnings, Other Events, Exhibits
8-K 2018-09-12 Enter Agreement, Leave Agreement, Off-BS Arrangement, Officers, Exhibits
8-K 2018-07-20 Other Events
8-K 2018-07-19 Enter Agreement, Officers, Other Events, Exhibits
8-K 2018-07-18 Earnings, Regulation FD, Exhibits
8-K 2018-06-18 Regulation FD
8-K 2018-06-11 Enter Agreement, Sale of Shares, Regulation FD, Other Events, Exhibits
8-K 2018-04-20 Regulation FD
8-K 2018-04-18 Earnings, Regulation FD, Exhibits
8-K 2018-03-08 Shareholder Vote
8-K 2018-01-30 Officers, Regulation FD
8-K 2018-01-17 Earnings, Exhibits
PTC 2019-12-28
Part I-Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1A. Risk Factors
Item 6. Exhibits
EX-10.1 a1012016employeestockpur.htm
EX-10.2 a102ceoexecutiveagreemen.htm
EX-10.3 a103evpexecutiveagreemen.htm
EX-31.1 ptc12282019ex311q1.htm
EX-31.2 ptc12282019ex312q1.htm
EX-32 ptc12282019ex32q1.htm

PTC Earnings 2019-12-28

PTC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
OKTA 12,154 1,027 776 487 352 -155 -148 11,936 72% -80.6 -15%
DOCU 10,891 1,762 1,195 828 617 -233 -158 10,667 75% -67.5 -13%
ULTI 10,595 2,716 1,890 1,199 742 57 128 10,495 62% 81.9 2%
MOMO 10,572 18,966 7,943 0 0 0 0 8,104 0%
PTC 10,318 2,649 1,433 1,233 915 -24 111 10,752 74% 96.9 -1%
MIXT 10,257 2,391 640 0 0 0 0 10,257 0%
TYL 10,185 1,949 528 1,000 471 130 219 10,174 47% 46.4 7%
DBX 9,885 2,365 1,635 1,147 1,137 -44 44 8,912 99% 201.2 -2%
BKI 9,021 3,985 2,146 1,145 0 157 484 10,656 0% 22.0 4%
GWRE 8,756 2,167 593 720 395 21 82 8,819 55% 107.0 1%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-Q
____________________________________________________
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 2019
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
 
04-2866152
(State or other jurisdiction of incorporation or organization)
 
(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)
__________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer
  
Accelerated filer
  
Non-accelerated filer
  
Smaller reporting company
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No   

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value per share
PTC
NASDAQ Global Select Market

There were 115,494,475 shares of our common stock outstanding on January 23, 2020.



PTC Inc.
INDEX TO FORM 10-Q
For the Quarter Ended December 28, 2019

 
 
Page
Number
Part I—FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Part II—OTHER INFORMATION
 
Item 1A.
Item 6.




PART I—FINANCIAL INFORMATION

ITEM 1.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PTC Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(unaudited)
 
December 28,
2019
 
September 30,
2019
ASSETS

 
 
Current assets:

 
 
Cash and cash equivalents
$
237,017

 
$
269,579

Short-term marketable securities
29,260

 
27,891

Accounts receivable, net of allowance for doubtful accounts of $668 and $744 at December 28, 2019 and September 30, 2019, respectively
344,412

 
372,743

Prepaid expenses
70,323

 
52,701

Other current assets
58,157

 
59,707

Total current assets
739,169

 
782,621

Property and equipment, net
105,171

 
105,531

Goodwill
1,606,050

 
1,238,179

Acquired intangible assets, net
266,009

 
169,949

Long-term marketable securities
28,220

 
29,544

Deferred tax assets
207,865

 
198,634

Lease assets, net
165,484

 

Other assets
161,859

 
140,130

Total assets
$
3,279,827

 
$
2,664,588

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
42,452

 
$
42,442

Accrued expenses and other current liabilities
87,156

 
104,028

Accrued compensation and benefits
86,027

 
88,769

Accrued income taxes
22,472

 
17,407

Deferred revenue
359,496

 
385,509

Short-term lease obligations
33,909

 

Total current liabilities
631,512

 
638,155

Long-term debt
1,124,345

 
669,134

Deferred tax liabilities
20,568

 
41,683

Deferred revenue
8,593

 
11,123

Long-term lease obligations
191,354

 

Other liabilities
55,638

 
102,495

Total liabilities
2,032,010

 
1,462,590

Commitments and contingencies (Note 15)

 

Stockholders’ equity:

 

Preferred stock, $0.01 par value; 5,000 shares authorized; none issued

 

Common stock, $0.01 par value; 500,000 shares authorized; 115,494 and 114,899 shares issued and outstanding at December 28, 2019 and September 30, 2019, respectively
1,155

 
1,149

Additional paid-in capital
1,508,030

 
1,502,949

Accumulated deficit
(157,507
)
 
(191,390
)
Accumulated other comprehensive loss
(103,861
)
 
(110,710
)
Total stockholders’ equity
1,247,817

 
1,201,998

Total liabilities and stockholders’ equity
$
3,279,827

 
$
2,664,588





The accompanying notes are an integral part of the condensed consolidated financial statements.

1


PTC Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

 
Three months ended
 
December 28,
2019
 
December 29,
2018
Revenue:
 
 
 
License
$
123,430

 
$
105,322

Support and cloud services
190,936

 
187,921

Total software revenue
314,366

 
293,243

Professional services
41,744

 
41,446

Total revenue
356,110

 
334,689

Cost of revenue:

 

Cost of license revenue
13,173

 
12,563

Cost of support and cloud services revenue
38,928

 
31,197

Total cost of software revenue
52,101

 
43,760

Cost of professional services revenue
35,304

 
33,592

Total cost of revenue
87,405

 
77,352

Gross margin
268,705

 
257,337

Operating expenses:


 


Sales and marketing
107,604

 
104,218

Research and development
65,308

 
60,782

General and administrative
44,557

 
37,864

Amortization of acquired intangible assets
6,777

 
5,936

Restructuring and other charges, net
14,034

 
18,493

Total operating expenses
238,280

 
227,293

Operating income
30,425

 
30,044

Interest expense
(12,098
)
 
(10,276
)
Other income (expense), net
704

 
655

Income before income taxes
19,031

 
20,423

Benefit from income taxes
(16,424
)
 
(562
)
Net income
$
35,455

 
$
20,985

Earnings per share—Basic
$
0.31

 
$
0.18

Earnings per share—Diluted
$
0.31

 
$
0.18

Weighted-average shares outstanding—Basic
115,190

 
118,323

Weighted-average shares outstanding—Diluted
115,691

 
119,638








The accompanying notes are an integral part of the condensed consolidated financial statements.

2


PTC Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
 
 
Three months ended
 
December 28,
2019
 
December 29,
2018
Net income
$
35,455

 
$
20,985

Other comprehensive income (loss), net of tax:
 
 
 
Hedge gain (loss) arising during the period, net of tax of $1.1 million and $0 million in the first quarter of 2020 and 2019, respectively
(3,343
)
 
(2,129
)
Net hedge (gain) loss reclassified into earnings, net of tax of $0 million and $0.1 million in the first quarter of 2020 and 2019, respectively

 
(549
)
Realized and unrealized loss on hedging instruments
(3,343
)
 
(2,678
)
Foreign currency translation adjustment, net of tax of $0 for each period
10,147

 
(7,569
)
Unrealized gain (loss) on marketable securities, net of tax of $0 for each period
(7
)
 
13

Amortization of net actuarial pension loss included in net income, net of tax of $0.3 million and $0.2 million in the first quarter of 2020 and 2019, respectively
674

 
430

Change in unamortized pension loss during the period related to changes in foreign currency
(622
)
 
281

Other comprehensive income (loss)
6,849

 
(9,523
)
Comprehensive income
$
42,304

 
$
11,462




























The accompanying notes are an integral part of the condensed consolidated financial statements.

3


PTC Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Three months ended
 
December 28,
2019
 
December 29,
2018
Cash flows from operating activities:
 
 
 
Net income
$
35,455

 
$
20,985

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19,588

 
20,053

Stock-based compensation
27,936

 
29,407

Other non-cash items, net
(1,223
)
 
(5
)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
 
 
 
Accounts receivable
34,314

 
24,025

Accounts payable and accrued expenses
(11,959
)
 
(9,628
)
Accrued compensation and benefits
(3,563
)
 
(27,504
)
Deferred revenue
(34,952
)
 
(21,820
)
Accrued income taxes
(42,702
)
 
(21,668
)
Other current assets and prepaid expenses
1,680

 
849

Other noncurrent assets and liabilities
(17,062
)
 
6,520

Net cash provided by operating activities
7,512

 
21,214

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(4,707
)
 
(30,332
)
Purchases of short- and long-term marketable securities
(5,592
)
 
(6,736
)
Proceeds from maturities of short- and long-term marketable securities
5,499

 
7,007

Acquisitions of businesses, net of cash acquired
(467,749
)
 
(69,556
)
Settlement of net investment hedges
(870
)
 
(1,595
)
Net cash used in investing activities
(473,419
)
 
(101,212
)
Cash flows from financing activities:
 
 
 
Borrowings under credit facility
455,000

 
155,000

Repayments of borrowings under credit facility

 
(20,000
)
Proceeds (costs) from issuance of common stock

 
(4,640
)
Credit facility origination costs
(1,005
)
 

Contingent consideration

 
(1,575
)
Payments of withholding taxes in connection with stock-based awards
(22,849
)
 
(33,788
)
Net cash provided by financing activities
431,146

 
94,997

Effect of exchange rate changes on cash, cash equivalents and restricted cash
1,991

 
2,041

Net change in cash, cash equivalents, and restricted cash
(32,770
)
 
17,040

Cash, cash equivalents, and restricted cash, beginning of period
270,689

 
261,093

Cash, cash equivalents, and restricted cash, end of period
$
237,919

 
$
278,133


The accompanying notes are an integral part of the condensed consolidated financial statements.

4


PTC Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands) 
(unaudited)
 
Three months ended December 28, 2019
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance as of September 30, 2019
114,899

 
$
1,149

 
$
1,502,949

 
$
(191,390
)
 
$
(110,710
)
 
$
1,201,998

ASU 2016-02 (ASC 842) adoption






(1,572
)



(1,572
)
Common stock issued for employee stock-based awards
903

 
9

 
(9
)
 

 

 

Shares surrendered by employees to pay taxes related to stock-based awards
(308
)
 
(3
)
 
(22,846
)
 

 

 
(22,849
)
Compensation expense from stock-based awards

 

 
27,936

 

 

 
27,936

Net income

 

 

 
35,455

 

 
35,455

Unrealized loss on net investment hedges, net of tax

 

 

 

 
(3,343
)
 
(3,343
)
Foreign currency translation adjustment

 

 

 

 
10,147

 
10,147

Unrealized loss on available-for-sale securities, net of tax

 

 

 

 
(7
)
 
(7
)
Change in pension benefits, net of tax

 

 

 

 
52

 
52

Balance as of December 28, 2019
115,494

 
$
1,155

 
$
1,508,030

 
$
(157,507
)
 
$
(103,861
)
 
$
1,247,817

 
Three months ended December 29, 2018
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
Balance as of September 30, 2018
117,981

 
$
1,180

 
$
1,558,403

 
$
(599,409
)
 
$
(85,585
)
 
$
874,589

ASU 2016-16 adoption

 

 

 
72,261

 

 
72,261

ASC 606 adoption

 

 

 
367,378

 

 
367,378

Common stock issued for employee stock-based awards
1,056

 
11

 
(11
)
 

 

 

Shares surrendered by employees to pay taxes related to stock-based awards
(380
)
 
(4
)
 
(33,784
)
 

 

 
(33,788
)
Common stock issued


 


 
(140
)
 


 


 
(140
)
Compensation expense from stock-based awards

 

 
29,407

 

 

 
29,407

Net income

 

 

 
20,985

 

 
20,985

Unrealized loss on cash flow hedges, net of tax

 

 

 

 
(385
)
 
(385
)
Unrealized loss on net investment hedges, net of tax

 

 

 

 
(2,293
)
 
(2,293
)
Foreign currency translation adjustment

 

 

 

 
(7,569
)
 
(7,569
)
Unrealized gain on available-for-sale securities, net of tax

 

 

 

 
13

 
13

Change in pension benefits, net of tax

 

 

 

 
711

 
711

Balance as of December 29, 2018
118,657

 
$
1,187

 
$
1,553,875

 
$
(138,785
)
 
$
(95,108
)
 
$
1,321,169


The accompanying notes are an integral part of the condensed consolidated financial statements.

5


PTC Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
General
The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of our financial position, results of operations and cash flows at the dates and for the periods indicated. The September 30, 2019 Consolidated Balance Sheet included herein is derived from our audited consolidated financial statements.
Unless otherwise indicated, all references to a year mean our fiscal year, which ends on September 30. Our fiscal quarters end on a Saturday following a thirteen-week calendar and may result in different quarter end dates year to year. The first quarter of 2020 ended on December 28, 2019 and the first quarter of 2019 ended on December 29, 2018. The results of operations for the three months ended December 28, 2019 are not necessarily indicative of the results expected for the remainder of the fiscal year.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Leases
In February 2016, the FASB issued Accounting Standard Update (ASU) 2016-02, Leases (Topic 842) (ASC 842), which replaced the existing guidance in ASC 840, Leases. The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and to disclose important information about leasing arrangements. We adopted ASC 842 effective October 1, 2019 (the effective date). ASC 842 requires a modified retrospective transition method that could either be applied at the earliest comparative period in the financial statements or in the period of adoption. We elected to use the period of adoption (October 1, 2019) transition method and therefore did not recast prior periods. Since we adopted the new standard using the period of adoption transition method, we are not required to present 2020 comparative disclosures under ASC 842. However, we are required to present the required annual disclosures under the previous U.S. GAAP lease accounting standard (ASC 840).
We elected the package of practical expedients as permitted under the transition guidance, which allowed us: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and, (3) not to reassess the treatment of initial direct costs for existing leases. In addition, we elected an accounting policy to not recognize leases with an initial term of one year or less on the balance sheet.
Upon the adoption of this standard on October 1, 2019, we recognized an operating lease liability of $224.0 million, representing the present value of the minimum lease payments remaining as of the adoption date, and a right-of-use asset in the amount of $167.9 million. The right-of-use asset reflects adjustments for derecognition of deferred leasing incentives. We also recorded a $1.6 million decrease to retained earnings as a result of the change in scheduling of reversal of temporary tax differences due to the adoption of ASC 842.
Derivative Financial Instruments

6


In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities", which amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. We adopted ASU 2017-12 effective October 1, 2019 (the effective date). Adoption of this guidance in the first quarter of fiscal 2020 did not have an impact on our consolidated financial statements.
Pending Accounting Pronouncements
Goodwill and Other—Internal-Use Software
In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new standard will be effective for us in the first quarter of 2021. Entities can choose to adopt the new guidance prospectively or retrospectively. We plan to adopt this standard using the prospective adoption approach. We are currently evaluating the effects of this pronouncement on our consolidated financial statements.
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, modifies and adds disclosure requirements for fair value measurements. The new standard will be effective for us in the first quarter of 2021. We do not expect this ASU to have a material impact on our consolidated financial statements.
2. Revenue from Contracts with Customers
Contract Assets and Contract Liabilities
 (in thousands)
December 28, 2019
 
September 30, 2019
Contract asset
$
20,917

 
$
21,038

Deferred revenue
$
368,089

 
$
396,632


As of December 28, 2019, our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. Approximately $6.8 million of the September 30, 2019 contract asset balance was transferred to receivables during the three months ended December 28, 2019 as a result of the right to payment becoming unconditional. The majority of the contract asset balance relates to two large professional services contracts with invoicing terms based on performance milestones. Additions to contract assets of approximately $6.7 million related to revenue recognized in the period, net of billings. There were no impairments of contract assets during the three months ended December 28, 2019.
During the three months ended December 28, 2019, we recognized $178.2 million of revenue that was included in deferred revenue as of September 30, 2019 and there were additional deferrals of $147.0 million during the three months ended December 28, 2019, primarily related to new billings. In addition, deferred revenue increased by $2.7 million as a result of the acquisition of Onshape. The balance of total short- and long-term receivables as of September 30, 2019 was $412.5 million, compared to total short- and long-term receivables as of December 28, 2019 of $400.8 million.
Our multi-year, non-cancellable on-premise subscription contracts provide customers with an annual right to exchange software within the subscription with other software. Although the exchange right is limited to software products within a similar product grouping, the exchange right is not limited to products with substantially similar features and functionality as those originally delivered. We determined that this right to exchange previously delivered software for different software represents variable consideration to be accounted for as a liability. We have identified a standard portfolio of contracts with common characteristics and applied the expected value method of determining variable consideration associated with this right. Additionally, where there are isolated situations that are outside of the standard portfolio of contracts due to contract size, longer contract duration, or other unique contractual terms, we use the most likely amount method to determine the amount of variable consideration. In both circumstances, the variable consideration included in the transaction price is constrained to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur

7


when the uncertainty associated with the variable consideration is subsequently resolved. As of December 28, 2019 and September 30, 2019, the total refund liability was $25.9 million and $22.9 million, respectively, primarily associated with the annual right to exchange on-premise subscription software.
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 five years, which is generally longer than the term of the initial contract because of anticipated renewals as commissions for renewals are not commensurate with commissions related to our initial contracts. As of December 28, 2019 and September 30, 2019, deferred costs of $29.8 million and $27.7 million, respectively, were included in other current assets and $67.3 million and $64.8 million, respectively, were included in other assets (non-current).
Remaining Performance Obligations
Our contracts with customers include amounts allocated to performance obligations that will be satisfied at a later date. As of December 28, 2019, the amounts include additional performance obligations of $368.1 million recorded in deferred revenue and $709.7 million that are not yet recorded in the consolidated balance sheets. We expect to recognize approximately 90% of the total $1,077.8 million over the next 24 months, with the remaining amount thereafter.
Disaggregation of Revenue
(in thousands)
Three months ended
 
December 28, 2019
 
December 29, 2018
Total recurring revenue
305,368

 
251,438

Perpetual license
8,998

 
41,805

Professional services
41,744

 
41,446

   Total revenue
$
356,110

 
$
334,689


For further disaggregation of revenue by geographic region and product group see Note 11. Segment and Geographic Information.
3. Restructuring and Other Charges
Restructuring and other charges, net includes restructuring charges (credits), headquarters relocation charges and impairment charges related to the lease assets of exited facilities.
For the three months ended December 28, 2019, restructuring charges and other charges, net totaled $14.0 million, of which $13.8 million is attributable to restructuring charges and $0.2 million is related to an impairment of an exited lease facility. For the three months ended December 29, 2018, restructuring and other charges totaled $18.5 million comprised of $16.6 million attributable to a workforce realignment and facility closures and $1.9 million attributable to headquarters relocation charges.
Restructuring Charges
During the first quarter of 2020, we initiated a voluntary restructuring program as part of a realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition. During the three months ended December 28, 2019, we incurred $13.6 million of an estimated $21.0 million charge in connection with this restructuring plan for termination benefits associated with approximately 175 employees. We are estimating $30 million of total restructuring charges in 2020.
During the first quarter of 2019, we initiated a restructuring plan to realign our workforce to shift investment to support Industrial Internet of Things and Augmented Reality strategic high growth opportunities. As this was a realignment of resources rather than a cost-savings initiative, it did not result in significant cost savings. The restructuring plan was completed in the first quarter of 2019 and resulted in restructuring charges of $16.3 million for termination benefits associated with approximately 240 employees, substantially all of which has been paid.

8


The following table summarizes restructuring accrual activity for the three months ended December 28, 2019:
(in thousands)
Employee severance and related benefits
 
Facility closures and related costs
 
Total
September 30, 2019
$
298

 
$
30,788

 
$
31,086

ASC 842 adoption

 
(16,462
)

(16,462
)
Charges to operations, net
13,631

 
127

 
13,758

Cash disbursements
(58
)
 
(873
)
 
(931
)
Foreign exchange impact
156

 
(1
)
 
155

Accrual, December 28, 2019
$
14,027

 
$
13,579

 
$
27,606


The following table summarizes restructuring accrual activity for the three months ended December 29, 2018:
(in thousands)
Employee severance and related benefits
 
Facility closures and related costs
 
Total
October 1, 2018
$

 
$
2,415

 
$
2,415

Charges to operations, net
16,343

 
243

 
16,586

Cash disbursements
(8,019
)
 
(264
)
 
(8,283
)
Foreign exchange impact
32

 
(59
)
 
(27
)
Accrual, December 29, 2018
$
8,356

 
$
2,335

 
$
10,691


The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.
Upon adoption of ASC 842, $16.5 million of accrued expenses and other current liabilities, representing the present value of lease commitments net of estimated sublease income, were reclassified to lease assets and obligations: $7.6 million to lease assets, $9.2 million to short-term lease obligations and $14.9 million to long-term lease obligations.
In determining the amount of right-of-use assets and lease obligations for restructured facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. Updates to these estimates may result in revisions to the value of right of use assets recorded. The amounts recorded are based on the net present value of remaining lease commitments and estimated sublease income. As of December 28, 2019, we have net liabilities of $28.0 million related to excess facilities (compared to $30.8 million at September 30, 2019), representing discounted lease and non-lease commitments with agreements expiring at various dates through 2023 of approximately $35.1 million, net of committed sublease income of approximately $3.7 million and uncommitted sublease income of approximately $3.4 million. As a result of changes in our sublease income assumptions, in the three months ended December 28, 2019, we recorded a facility impairment charge of $0.2 million against the lease assets. For exited facilities we made $2.4 million in payments related to lease costs in the three months ended December 28, 2019.
As of December 28, 2019, the remaining restructuring facility accrual of $13.6 million relates to variable non-lease costs not subject to ASC 842, of which, $4.7 million is included in accrued expenses and other current liabilities and $8.8 million is included in other liabilities in the Consolidated Balance Sheets.
Of the accrual for facility closures and related costs, as of December 29, 2018, $1.3 million is included in accrued expenses and other current liabilities and $1.0 million is included in other liabilities in the Consolidated Balance Sheets.

9


Other - Headquarters Relocation Charges
Headquarters relocation charges represent other expenses associated with exiting our prior Needham headquarters facility and relocating to our new worldwide headquarters in the Boston Seaport District. In the first three months of 2019, we recorded $1.9 million of accelerated depreciation expense related to shortening the estimated useful lives of leasehold improvements related to the Needham location.
4. Stock-based Compensation
Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs as the principal equity incentive awards, including performance-based awards that are earned based on achievement of performance criteria established by the Compensation Committee of our Board of Directors. Each RSU represents the contingent right to receive one share of our common stock.
For performance-based awards, we recognize stock-based compensation based on expected achievement of performance criteria. We measure the cost of employee services received in exchange for RSU awards based on the fair value of the RSU awards on the date of grant. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. We account for forfeitures as they occur, rather than estimate expected forfeitures.
Our employee stock purchase plan (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 other plan limitations, toward the purchase of our common stock at a discounted price. The purchase price of the shares on each purchase date is equal to 85% of the lower of the fair market value of our common stock on the first and last trading days of each offering period. The ESPP is qualified under Section 423 of the Internal Revenue Code. We estimate the fair value of each purchase right under the ESPP on the date of grant using the Black-Scholes option valuation model and use the straight-line attribution approach to record the expense over the six-month offering period. 
Restricted stock unit activity for the three months ended December 28, 2019
Number of RSUs (in thousands)
 
Weighted-
Average
Grant Date
Fair Value
Per RSU
Balance of outstanding restricted stock units October 1, 2019
3,232

 
$
80.52

Granted
1,266

 
$
76.65

Vested
(903
)
 
$
67.64

Forfeited or not earned
(477
)
 
$
85.15

Balance of outstanding restricted stock units December 28, 2019
3,118

 
$
81.94



(in thousands)
Restricted Stock Units
Grant Period
Performance-based RSUs (1)
 
Service-based RSUs (2)
 
Total Shareholder Return RSUs (3)
First three months of 2020
89
 
1,088
 
89
_________________
(1)
The performance-based RSUs were granted to our executive officers and are eligible to vest based upon annual increasing performance measures over a three-year period. RSUs not earned for a period may be earned in the third period. To the extent earned, those performance-based RSUs will vest in three substantially equal installments on November 15, 2020, November 15, 2021 and November 15, 2022, or the date the Compensation Committee determines the extent to which the applicable performance criteria have been achieved for each performance period.
(2)
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.
(3)
The Total Shareholder Return (TSR) units were granted to our executive officers pursuant to the terms described below.

10


In the first three months of 2020, we granted the target performance-based TSR units ("target RSUs") shown in the table above to our executive officers. These RSUs are eligible to vest based upon our total shareholder return relative to a peer group (the “TSR units”), measured annually over a three-year period. The number of TSR units to vest over the three-year period will be determined 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 three measurement periods ending on September 30, 2020, 2021 and 2022, respectively. The shares earned for each period will vest on November 15 following each measurement period, up to a maximum of two times the number of target RSUs (up to a maximum of 178 thousand shares). No vesting will occur in a period unless an annual threshold requirement is achieved. If the return to PTC shareholders is negative but still meets or exceeds the peer group indexed return, a maximum of 100% of the target RSUs will vest for the measurement period. TSR units not earned in either of the first two measurement periods are eligible to be earned in the third measurement period.
The weighted-average fair value of the TSR units was $106.69 per target RSU on the grant date. The fair value of the TSR units was determined using a Monte Carlo simulation model, a generally accepted statistical technique used to simulate a range of possible future stock prices for PTC and the peer group. The method uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each entity, and the pairwise correlations of each entity being modeled. The fair value for each simulation is the product of the payout percentage determined by PTC’s TSR rank against the peer group, the projected price of PTC stock, and a discount factor based on the risk-free rate.
The significant assumptions used in the Monte Carlo simulation model were as follows:
Average volatility of peer group
28.0
%
Risk free interest rate
1.59
%
Dividend yield
%

Compensation expense recorded for our stock-based awards was classified in our Consolidated Statements of Operations as follows:
(in thousands)

Three months ended
 
December 28,
2019
 
December 29,
2018
Cost of license revenue
$

 
$
322

Cost of support and cloud services revenue
1,486

 
975

Cost of professional services revenue
1,557

 
1,814

Sales and marketing
7,452

 
9,722

Research and development
6,932

 
4,900

General and administrative
10,509

 
11,674

Total stock-based compensation expense
$
27,936

 
$
29,407


Stock-based compensation expense includes $1.5 million in the first quarter of 2020, and $1.3 million in the first quarter of 2019, related to the ESPP.

11


5. Earnings per Share (EPS) and Common Stock
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 RSUs using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of unrecognized compensation expense as additional proceeds.
 
Three months ended
Calculation of Basic and Diluted EPS (in thousands, except per share data)
December 28,
2019
 
December 29,
2018
Net income
$
35,455

 
$
20,985

Weighted-average shares outstanding—Basic
115,190

 
118,323

Dilutive effect of restricted stock units
501

 
1,315

Weighted-average shares outstanding—Diluted
115,691

 
119,638

Earnings per share—Basic
$
0.31

 
$
0.18

Earnings per share—Diluted
$
0.31

 
$
0.18



There were 1.3 million anti-dilutive shares for the three months ended December 28, 2019 and no anti-dilutive shares for the three months ended December 29, 2018.
Common Stock Repurchases
Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $1,500 million of our common stock in the period October 1, 2017 through September 30, 2020. We did not repurchase any shares in the first quarter of 2020 or 2019. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.
6. Acquisitions
Acquisition-related costs in the first three months of 2020 totaled $7.1 million, compared to $0.4 million in the first three months of 2019. Acquisition-related costs include direct costs of potential and completed acquisitions (e.g., investment banker fees and professional fees, including legal and valuation services) and expenses related to acquisition integration activities (e.g., professional fees and severance). In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges. These costs are classified in general and administrative expenses in the accompanying Consolidated Statements of Operations.
Our results of operations include the results of acquired businesses beginning on their respective acquisition date. Our results of operations for the reported periods if presented on a pro forma basis would not differ materially from our reported results.
Onshape
On November 1, 2019, we completed our acquisition of Onshape Inc. pursuant to the Agreement and Plan of Merger dated as of October 23, 2019 by and among Onshape Inc., OPAL Acquisition Corporation and the Stockholder Representative named therein, the terms of which are described in the Form 8-K filed by PTC on October 23, 2019 and which is filed as Exhibit 1.1 to that Form 8-K. PTC paid approximately $468 million, net of cash acquired, for Onshape, which amount we borrowed under our existing credit facility. Onshape is not expected to be material to our 2020 results.
The acquisition of Onshape has been accounted for as a business combination. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

12


The purchase price allocation is preliminary, pending finalization of the valuation and allocation of the acquired intangible assets, as well as related deferred tax liabilities. The preliminary purchase price allocation resulted in $363.2 million of goodwill, $61.6 million of customer relationships, $44.2 million of purchased software, $3.6 million of trademarks and $4.1 million of other net liabilities. The acquired customer relationships, purchased software, and trademark are being amortized over useful lives of10 years, 16 years, and 15 years, respectively, based on the expected benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by accelerating CAD and PLM growth, especially in the low-end of the market and participating in future growth in the CAD and PLM SaaS market.
Frustum
On November 19, 2018, we acquired Frustum Inc. for $69.5 million (net of cash acquired of $0.7 million). We financed the acquisition with borrowings under our credit facility. Frustum is engaged in next-generation computer-aided design, including generative design, an approach that leverages artificial intelligence to generate design options. At the time of the acquisition, Frustum had approximately 12 employees and historical annualized revenues were not material.
The acquisition of Frustum was accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. 
The purchase price allocation resulted in $53.7 million of goodwill, $17.9 million of purchased software and $2.1 million of other net liabilities. The acquired technology is being amortized over a useful life of 15 years based on the expected benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by integrating Frustum generative design technology into our CAD solutions.
7. Goodwill and Intangible Assets
We have two operating and reportable segments: (1) Software Products and (2) Professional Services. We assess goodwill for impairment at the reporting unit level. Our reporting units are determined based on the components of our operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Our reporting units are the same as our operating segments.
As of December 28, 2019, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $1,826.4 million and attributable to our Professional Services segment was $45.7 million. As of September 30, 2019, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $1,362.4 million and attributable to our Professional Services segment was $45.7 million. Acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
We completed our annual goodwill impairment review as of June 29, 2019 based on a qualitative assessment. Our qualitative assessment included company specific (financial performance and long-range plans), industry, and macroeconomic factors, and consideration of the fair value of each reporting unit relative to its carrying value at the last valuation date. Based on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units exceed their carrying values and no further impairment testing is required.

13


Goodwill and acquired intangible assets consisted of the following:
 (in thousands)
December 28, 2019
 
September 30, 2019
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Goodwill (not amortized)
 
 
 
 
$
1,606,050

 
 
 
 
 
$
1,238,179

Intangible assets with finite lives (amortized) (1):
 
 
 
 
 
 
 
 
 
 
 
Purchased software
$
422,922

 
$
286,307

 
$
136,615

 
$
377,359

 
$
278,144

 
$
99,215

Capitalized software
22,877

 
22,877

 

 
22,877

 
22,877

 

Customer lists and relationships
419,906

 
297,574

 
122,332

 
355,931

 
288,828

 
67,103

Trademarks and trade names
22,597

 
15,535

 
7,062

 
18,891

 
15,260

 
3,631

Other
3,946

 
3,946

 

 
3,910

 
3,910

 

 
$
892,248

 
$
626,239

 
$
266,009

 
$
778,968

 
$
609,019

 
$
169,949

Total goodwill and acquired intangible assets
 
 
 
 
$
1,872,059

 
 
 
 
 
$
1,408,128


Goodwill
Changes in goodwill presented by reportable segments were as follows: 
(in thousands)
Software Products
 
Professional Services
 
Total
Balance, October 1, 2019
$
1,196,064

 
$
42,115

 
$
1,238,179

Onshape acquisition
363,161

 

 
363,161

Foreign currency translation adjustment
4,550

 
160

 
4,710

Balance, December 28, 2019
$
1,563,775

 
$
42,275

 
$
1,606,050


Amortization of Intangible Assets
The aggregate amortization expense for intangible assets with finite lives was classified in our Consolidated Statements of Operations as follows:
(in thousands)
Three months ended
 
December 28,
2019
 
December 29,
2018
Amortization of acquired intangible assets
$
6,777

 
$
5,936

Cost of license revenue
6,799

 
6,717

Total amortization expense
$
13,576

 
$
12,653


8. Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. GAAP prescribes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs that may be used to measure fair value:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

14


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.
Money market funds, time deposits and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.
Certificates of deposit, commercial paper and certain U.S. government agency securities are classified within Level 2 of the fair value hierarchy. These instruments are valued based on quoted prices in markets that are not active or based on other observable inputs consisting of market yields, reported trades and broker/dealer quotes.
The principal market in which we execute our foreign currency 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 contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.
Our significant financial assets and liabilities measured at fair value on a recurring basis as of December 28, 2019 and September 30, 2019 were as follows:
(in thousands)
December 28, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
Cash equivalents
$
83,044

 
$

 
$

 
$
83,044

Marketable securities:

 


 

 

Corporate notes/bonds
57,480

 

 

 
57,480

Forward contracts

 
757

 

 
757

 
$
140,524

 
$
757

 
$

 
$
141,281

Financial liabilities:


 


 

 

Forward contracts

 
1,694

 

 
1,694

 
$

 
$
1,694

 
$

 
$
1,694

(in thousands)
September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
Cash equivalents
$
108,020

 
$

 
$

 
$
108,020

Marketable securities:

 


 

 

Commercial paper

 
999

 

 
999

Corporate notes/bonds
56,436

 

 

 
56,436

Forward contracts

 
3,064

 

 
3,064

 
$
164,456

 
$
4,063