PTC INC. Business Overview
PTC is a global software and services company that enables industrial companies
to improve growth and profitability with a portfolio of innovative digital
solutions that work together to transform how physical products are engineered,
manufactured, and serviced. Our award-winning technology portfolio spans the
computer-aided design (CAD), product lifecycle management (PLM), Industrial
Internet of Things (IIoT), and Augmented Reality (AR) markets.
Our customer base includes some of the world's most innovative manufacturers in
the aerospace and defense, automotive, electronics and high tech, industrial
machinery and equipment, life sciences, oil and gas, retail and consumer
products industries. Our solutions enable industrial companies to create a
closed loop of information shared across their organization's entire value
chain. This "digital thread" can drive excellence in engineering, efficiency in
manufacturing operations and service delivery, and innovation across product
offerings and business models. With our solutions, digital transforms physical.
We generate revenue through the sale of software subscriptions, which include
license access and support (technical support and software updates); support for
existing perpetual licenses; professional services (consulting, implementation,
and training); and cloud services (hosting for our software and Software as a
Service (SaaS)).
Forward-Looking Statements
Statements in this document that are not historic facts, including statements
about our future financial and growth expectations and targets, and potential
stock repurchases, are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
projected. These risks include: the macroeconomic and/or global manufacturing
climates may not improve when or as we expect, or may deteriorate, due to, among
other factors, the COVID-19 pandemic, which could cause customers to delay or
reduce purchases of new software, reduce the number of subscriptions they carry,
or delay payments to us, all of which would adversely affect ARR and/or our
financial results, including cash flow; our businesses, including our SaaS
businesses, may not expand and/or generate the revenue or ARR we expect if
customers are slower to adopt our technologies than we expect or if they adopt
competing technologies; our strategic initiatives and investments, including our
restructuring and our accelerated investments in our transition to SaaS, may not
deliver the results when or as we expect; we may be unable to generate
sufficient operating cash flow to repay amounts under our credit facility or to
return 50% of free cash flow to shareholders, and other uses of cash or our
credit facility limits or other matters could preclude such repayment and/or
repurchases; and foreign exchange rates may differ materially from those we
expect. In addition, our assumptions concerning our future GAAP and non-GAAP
effective income tax rates are based on estimates and other factors that could
change, including the geographic mix of our revenue, expenses and profits, as
well as other risks and uncertainties described below throughout or referenced
in Part II, Item 1A. Risk Factors of this report.
Operating and Non-GAAP Financial Measures
Our discussion of results includes discussion of our ARR (Annual Run Rate )
operating measure, 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 of $1.50 billion at the end of Q1'22 represents 12% growth (16% on a
constant currency basis) compared to Q1'21 driven by strength in new bookings.
Organic constant currency ARR growth year over year was 11%. Q1'22 revenue of
$458 million was up 7% (8% constant currency) over Q1'21, driven by increased
revenue from our recurring revenue business lines, including the revenue
contribution from the Arena acquisition, and an increase in professional
services revenues. Q1'22 operating margin was 14% compared to 21% in Q1'21,
primarily due to $34 million of restructuring charges recorded in Q1'22. Q1'22
non-GAAP operating margin was 35% compared to 36% in Q1'21 due to lower up-front
license revenue recognized in the quarter as a result of the mix of contract
types and contract durations in Q1'22 compared to Q1'21, which also impacted
Q1'22 EPS compared to Q1'21 EPS.
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Q1'22 EPS reflects a lower tax rate compared to the prior year as Q1'21 included
a charge of
We generated a first quarter record of$138 million of cash from operations in Q1'22 compared to$114 million in Q1'21, with the increase driven by strong operational execution. Cash from operations in Q1'22 included$11 million of payments related to restructuring, compared to$7 million of restructuring payments made in Q1'21. We repurchased$120 million of our common stock in Q1'22 and ended Q1'22 with cash and cash equivalents of$296 million . In addition, we held an equity investment in Matterport, Inc., which was valued at$87 million and subject to trading restrictions as of the end of Q1'22. We sold our investment in Matterport near the end ofJanuary 2022 (in Q2'22) for an aggregate of$39 million . Results of Operations The following table shows the financial measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude the items described in Non-GAAP Financial Measures below. Investors should use these non-GAAP financial measures only in conjunction with our GAAP results. (Dollar amounts in millions, except per share data) Three months ended Percent Change December 31, December 31, Constant 2021 2020 Actual Currency(1) ARR(1)$ 1,496.3 $ 1,336.1 12 % 16 % Total recurring revenue(2)$ 405.1 $ 385.0 5 % 6 % Perpetual license 8.5 8.5 0 % 0 % Professional services 44.1 35.6 24 % 26 % Total revenue 457.7 429.1 7 % 8 % Total cost of revenue 95.1 86.8 10 % 10 % Gross margin 362.6 342.2 6 % 7 % Operating expenses 300.4 251.9 19 % 19 % Total costs and expenses 395.5 338.7 17 % 17 % Operating income$ 62.2 $ 90.3 (31 )% (29 )% Non-GAAP operating income(3)$ 158.1 $ 153.4 3 % 6 % Operating margin 13.6 % 21.1 % Non-GAAP operating margin(3) 34.5 % 35.8 % Diluted earnings per share$ 0.39 $ 0.20 Non-GAAP diluted earnings per share(3)(4)$ 0.95 $ 0.97 Cash flow from operations(5)$ 137.7 $ 113.8 Free cash flow(6)$ 134.4 $ 110.9
(1) For go-forward comparability purposes,
period ended
no longer intend to sell on a recurring basis beginning in FY'22.
(2) Recurring revenue is comprised of subscription, perpetual support, and SaaS
revenue.
(3) See Non-GAAP Financial Measures below for a reconciliation of our GAAP
results to our non-GAAP financial 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.
(4) 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. In Q1'21 we had recorded a full valuation allowance
against our
basis, the Q1'21 tax provision was calculated assuming there was no valuation
allowance. Additionally, our Q1'21 non-GAAP financial measures excluded tax
expense of
related to foreign withholding taxes.
(5) Cash flow from operations for Q1'22 includes
payments. Cash flow from operations for Q1'21 includes
restructuring payments and
(6) Free cash flow is cash from operations net of capital expenditures of
million and $2.9 million in Q1'22 and Q1'21, respectively.
Impact of Foreign Currency Exchange on Results of Operations
Approximately 55% 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. Our constant currency disclosures are calculated by multiplying the
results in local currency for the quarterly periods for FY'22 and FY'21 by the
exchange rates in effect on September 30, 2021 . We anticipate foreign currency
exchange rates will be a headwind for FY'22.
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The results of operations in the table above and revenue by line of business,
product group, and geographic region in the tables that follow present both
actual percentage changes year over year and percentage changes on a constant
currency basis.
Revenue
Under ASC 606, the volume, mix, and duration of contract types (support, SaaS,
subscription) starting or renewing in any given period may have a material
impact on revenue in the period. Subscription contracts have up-front
recognition of subscription license revenue, with the support element of the
contract recognized ratably over the term. Perpetual support contracts are
recognized ratably over the term of the contract, however we continue to convert
to subscription contracts resulting in a shift to up-front recognition of
subscription license revenue in the period converted compared to ratable
recognition for a perpetual support renewal. Revenue from our SaaS contracts is
recognized ratably. We are expanding our SaaS offerings and are releasing
additional cloud functionality into our products and customers are migrating
from subscription to SaaS products. As a result, over time a higher portion of
our revenue will be recognized ratably. Given the different mix, duration and
volume of new and renewing contracts in any period, year of year or sequential
revenue comparisons can have significant variability.
Revenue by Line of Business
(Dollar amounts in millions) Three months ended Percent Change
December 31, December 31, Constant
2021 2020 Actual Currency
License $ 169.1 $ 177.2 (5 )% (4 )%
Support and cloud services 244.5 216.2 13 % 14 %
Software revenue 413.6 393.4 5 % 6 %
Professional services 44.1 35.6 24 % 26 %
Total revenue $ 457.7 $ 429.1 7 % 8 %
Software revenue in Q1'22 increased over Q1'21 primarily due to contribution
from the acquisition of Arena, as well as subscription support growth in Digital
Thread - Core, offset by a decline in perpetual support revenue due to
conversions of support contracts to subscriptions. Subscription license revenue
decreased in Q1'22 compared to Q1'21 due to the duration and mix of contract
types for new and renewal contracts started in the quarter. Under ASC 606,
shorter duration contracts result in less up-front license revenue, even if the
annualized values are consistent.
Professional services revenue increased in Q1'22 over Q1'21 by 24% (26% constant
currency) as Q1'21 revenue was negatively impacted by challenges with project
scoping and implementation activities and performance due to social distancing
measures and facility closures implemented to address the COVID-19 pandemic.
Q1'22 saw an increase in revenue associated with large PLM consulting
engagements, particularly with automotive, aerospace and defense customers.
Q1'21 professional services revenue was also lower due to a prior-year extension
to complete work on a large fixed-price contract.
We expect that professional services revenue will be higher in FY'22 than FY'21
or FY'20 as we expect demand for services will increase to a level that is more
consistent with pre-pandemic levels. Our longer-term expectation is that
professional services revenue will trend flat-to-down over time due to our
strategy to expand margins by migrating more services engagements to our
partners and delivering products that require less consulting and training
services.
Software Revenue by
(Dollar amounts in millions) Three months ended Percent Change
December 31, December 31, Constant
2021 2020 Actual Currency
Digital Thread - Core $ 282.1 $ 289.5 (3 )% (2 )%
Digital Thread - Growth 62.0 55.3 12 % 13 %
Digital Thread - FSG 51.6 46.2 12 % 12 %
Digital Thread (Total) 395.7 391.0 1 % 2 %
Velocity 17.9 2.4 646 % 646 %
Software revenue $ 413.6 $ 393.4 5 % 6 %
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Digital Thread
Core Product software revenue declined in Q1'22 compared to Q1'21, driven by a
decline in subscription license revenue due to the duration and mix of contract
types for new and renewal contracts started in the quarter. Under ASC 606,
shorter duration contracts result in less up-front license revenue, even if the
annualized values are consistent. Subscription support revenues increased 19% in
Q1'22 compared to Q1'22 (21% constant currency), offset by a decrease in
perpetual support revenue as customers have continued to convert from perpetual
support to subscriptions.
ARR increased 7% (11% constant currency) for Q1'22 compared to Q1'21, reflecting
double-digit constant currency growth in both CAD and PLM driven by higher than
anticipated new bookings and a low rate of churn.
Growth Product software revenue increased in Q1'22 over Q1'21 due to subscription revenue growth of 16% (17% constant currency), resulting in recurring revenue growth of 15% (16% constant currency).
Growth Product ARR increased 11% (14% constant currency) for Q1'22 compared to Q1'21, reflecting double-digit growth in AR and IoT, primarily from expansion deals with existing customers. We anticipate continued improvement in IoT market conditions and the introduction of our new Digital Performance Management offering will continue to drive demand for our Growth Products. FSG Product software revenue growth in Q1'22 reflects subscription revenue growth of 26% (actual and constant currency) over Q1'21 due to a few large contracts with longer durations, offset by a 17% (actual and constant currency) decline in perpetual support revenue due to conversions of support contracts to subscriptions.
FSG product ARR increased by 4% (6% constant currency) for Q1'22 compared to Q1'21 driven primarily by new bookings.
Velocity
Velocity Product software revenue and ARR growth in Q1'22 compared to Q1'21 are
due to the acquisition and subsequent growth of the Arena business purchased in
January 2021 , as well as growth in Onshape .
Software Revenue by
A significant portion of our software revenue is generated outside theU.S. In the first three months of FY'22 and FY'21 approximately 45% to 50% of software revenue was generated in theAmericas , 30% to 35% inEurope , and 15% to 20% inAsia Pacific . (Dollar amounts in millions) Three months ended
Percent Change
December 31, December 31, Constant
2021 2020 Actual Currency
Americas $ 196.8 $ 191.0 3 % 3 %
Europe 140.8 144.8 (3 )% (1 )%
Asia Pacific 76.0 57.6 32 % 35 %
Software revenue $ 413.6 $ 393.4 5 % 6 %
Americas software revenue growth in Q1'22 was primarily driven by the
contribution of the Arena acquisition, offset by a decline in Digital Thread -
Core subscription license revenue due to the duration and mix of contract types
for new and renewal contracts started in the quarter. Under ASC 606, shorter
duration contracts result in less up-front license revenue, even if the
annualized values are consistent.
Q1'22 Americas ARR was up 19% over Q1'21, led by Arena's contribution and the Velocity business overall, as well as strength in our Core products.
Q1'22 ARR in
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Asia Pacific software revenue growth in Q1'22 was driven by subscription revenue growth of 51% (54% constant currency) over Q1'21 due to a few large multi-year renewal transactions resulting in higher up-front subscription license revenue under ASC 606.
Q1'22 ARR in
Gross Margin
(Dollar amounts in millions) Three months ended
December 31, December 31, Percent Change
2021 2020
License gross margin$ 159.3 $ 163.9 (3 )% License gross margin percentage 94 % 93 % Support and cloud services gross margin$ 198.6 $ 177.9 12 % Support and cloud services gross margin percentage 81 % 82 % Professional services gross margin $ 4.7$ 0.4 1078 % Professional services gross margin percentage 11 %
1 %
Total gross margin$ 362.6 $ 342.2 6 % Total gross margin percentage 79 %
80 %
Non-GAAP gross margin(1)$ 375.1 $ 352.9 6 % Non-GAAP gross margin percentage(1) 82 % 82 %
(1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP
Financial Measures below.
License gross margin decreased in Q1'22 compared to Q1'21 due to an $8.1 million
decrease in license revenue, partially offset by a $3.5 million decrease in cost
of license revenue.
Support and cloud services gross margin increased in Q1'22 compared to Q1'21 due
to increases in subscription support and cloud revenue, partially offset by a
decrease in perpetual support revenue, for a $28.2 million overall increase in
support and cloud services revenue. This was partially offset by an increase of
$7.5 million in cost of support and cloud services in Q1'22 compared to Q1'21.
Professional services gross margin increased in Q1'22 compared to Q1'21,
primarily due to the impact of the COVID-19 pandemic on Q1'21 revenue, as well
as a large fixed-price contract requiring a prior-year extension that impacted
Q1'21 margins.
Operating Expenses
(Dollar amounts in millions) Three months ended
December 31, December 31, Percent Change
2021 2020
Sales and marketing $ 125.5 $ 124.7 1 %
% of total revenue 27 % 29 %
Research and development $ 80.5 $ 70.8 14 %
% of total revenue 18 % 17 %
General and administrative $ 51.9 $ 49.5 5 %
% of total revenue 11 %
12 %
Amortization of acquired intangible assets $ 8.5
30 %
% of total revenue 2 % 2 %
Restructuring and other charges, net $ 34.0 $ 0.2 13662 %
% of total revenue 7 % 0 %
Total operating expenses $ 300.4 $ 251.9 19 %
Headcount increased 1% between Q1'22 and Q1'21.
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Operating expenses in Q1'22 compared to operating expenses in Q1'21 increased primarily due to the following:
• a
primarily driven by:
• a
million in salary costs for Arena employees,
• a
health insurance costs,
• a
• a
• partially offset by a
expense.
• a $34 million increase in restructuring charges primarily due to therestructuring plan initiated in the quarter. We expect to incur an
additional
fiscal 2022. The anticipated cost savings resulting from the 2022
restructuring action are expected to help align our customer facing and
product-related functions with the SaaS industry best practices and
accelerate the opportunity for our on-premise customers to move to the
cloud;
• a
of Arena];
• a $2 million (24%) increase in equipment subscriptions;
• a $2 million (36%) increase in internal hosting costs;
partially offset by:
• a$3 million decrease in acquisition-related charges. Interest Expense (Dollar amounts in millions) Three months ended December 31, December 31, Percent Change 2021 2020 Interest and debt premium expense$ (13.0 ) $ (11.5 ) 13 % Interest expense includes interest on our credit facility and senior notes. We had$1.5 billion of total debt at the end of Q1'22, compared to$1.0 billion at the end of Q1'21. We borrowed$600 million under our credit facility to acquire Arena in Q2'21,$450 million of which remains outstanding. The average interest rate on borrowings outstanding was 3.2% during Q1'22, compared to 3.8% during Q1'21. Other Income (Expense) (Dollar amounts in millions) Three months ended December 31, Percent Change December 31, 2021 2020 Interest income $ 0.5 $ 0.6 (15 )% Other income (expense), net 5.7 (2.0 ) (386 )% Other income (expense), net $ 6.2$ (1.4 ) (538 )% 28
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Table of Contents The$7.6 million increase in other income (expense), net, for Q1'22 compared to Q1'21 is driven by a$9.8 million unrealized gain related to an equity investment in Matterport, Inc., calculated and recorded at the end of Q1'22, offset by foreign currency losses in the quarter. We sold our investment in Matterport near the end ofJanuary 2022 (in Q2'22) for an aggregate of$39.1 million and recognized a loss of$48.2 million . Income Taxes (Dollar amounts in millions) Three months
ended
December 31, 2021 December 31, 2020 Percent Change
Income before income taxes $ 55.4 $ 77.4 (28 )%
Provision for income taxes $ 9.3 $ 53.9 (83 )%
Effective income tax rate 17 % 70 %
In Q1'22 and Q1'21, our effective tax rate differed from the statutory federal
income tax rate of 21% due to U.S. tax reform, our corporate structure in which
our foreign taxes are at a net effective tax rate lower than the U.S. rate and
the excess tax benefit related to stock-based compensation. A significant amount
of our foreign earnings is generated by our subsidiaries organized in Ireland
and the Cayman Islands . In Q1'22 and Q1'21, the foreign rate differential
predominantly relates to these earnings.
In Q1'22 and Q1'21, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.
In Q1'21, our results also include a charge of$35.3 million related to the effects of an unrecognized tax benefit in theRepublic of Korea (South Korea ), primarily related to foreign withholding taxes, as well as the effects of the full valuation allowance which was maintained against ourU.S. net deferred tax assets at that time. Operating MeasureARR ARR (AnnualRun Rate ) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR includes orders placed under ourStrategic Alliance Agreement with Rockwell Automation, including orders placed to satisfy contractual minimum commitments. We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers. Because this measure represents the annualized value of customer contracts as of a point in time, it does not represent revenue for any particular period or remaining revenue that will be recognized in future periods. Non-GAAP Financial Measures Our non-GAAP financial measures and the reasons we use them and the reasons we exclude the items identified below are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedSeptember 30, 2021 .
The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:
• free cash flow-cash flow from operations • non-GAAP gross margin-GAAP gross margin • non-GAAP operating income-GAAP operating income • non-GAAP operating margin-GAAP operating margin • non-GAAP net income-GAAP net income
• non-GAAP diluted earnings or loss per share-GAAP diluted earnings or loss
per share
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Table of Contents Free cash flow is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations. The non-GAAP financial measures other than free cash flow exclude, as applicable, stock-based compensation expense; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; non-operating charges (credits); and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 . In Q1'21, we incurred tax expense related to a reserve for a South Korean tax exposure established in the quarter which is excluded from our non-GAAP financial measures as it was related to prior periods and not included in management's view of Q1'21 results for comparative purposes. 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, certain of those items are recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements. (in millions, except per share amounts) Three months ended December 31, 2021 December 31, 2020 GAAP gross margin $ 362.6 $ 342.2 Stock-based compensation 6.0 4.4 Amortization of acquired intangible assets included in cost of revenue 6.5 6.3 Non-GAAP gross margin $ 375.1 $ 352.9 GAAP operating income $ 62.2 $ 90.3 Stock-based compensation 45.9 46.1 Amortization of acquired intangible assets 15.0 12.8
Acquisition-related and other transactional charges included in general and administrative expenses
1.1 3.9
Restructuring and other charges, net 34.0 0.2
Non-GAAP operating income $ 158.1 $ 153.4
GAAP net income $ 46.1 $ 23.5
Stock-based compensation 45.9 46.1
Amortization of acquired intangible assets 15.0 12.8
Acquisition-related and other transactional charges included in general and administrative expenses
1.1 3.9
Restructuring and other charges, net 34.0 0.2
Non-operating charges (credits) (1) (9.8 ) 0.0
Income tax adjustments (2) (19.2 ) 27.2
Non-GAAP net income $ 113.1 $ 113.7
GAAP diluted earnings per share $ 0.39 $ 0.20
Stock-based compensation 0.39 0.39
Amortization of acquired intangible assets 0.13 0.11
Acquisition-related and other transactional charges included in general and administrative expenses
0.01 0.03
Restructuring and other charges, net 0.29 -
Non-operating charges (credits) (1) (0.08 ) 0.00
Income tax adjustments (2) (0.16 ) 0.23
Non-GAAP diluted earnings per share $ 0.95 $ 0.97
(1) In the first quarter of 2022, we recorded a
investment in Matterport, Inc.
(2) 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 2021 we had recorded a full valuation
allowance against our
a non-GAAP basis, the 2021 tax provision was calculated assuming there was no
valuation allowance. Additionally, our 2021 non-GAAP results excluded tax
expense of
related to foreign withholding taxes.
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Operating margin impact of non-GAAP adjustments:
Three months ended
December 31, 2021 December 31, 2020
GAAP operating margin 13.6 % 21.1 %
Stock-based compensation 10.0 % 10.7 %
Amortization of acquired intangible assets 3.3 % 3.0 %
Acquisition-related and other transactional charges included in general and administrative expenses
0.2 % 0.9 %
Restructuring and other charges, net 7.4 % 0.1 %
Non-GAAP operating margin 34.5 % 35.8 %
Critical Accounting Policies and Estimates
The financial information included in Item 1 reflects no material changes in our
critical accounting policies and estimates as set forth under the heading
Critical Accounting Policies and Estimates in Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations of our
2021 Annual Report on Form 10-K.
Recent Accounting Pronouncements
In accordance with recently issued accounting pronouncements, we will be
required to comply with certain changes in accounting rules and regulations.
Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial
Statements of this Quarterly Report on Form 10-Q, which is incorporated herein
by reference, for all recently issued accounting pronouncements.
Liquidity and Capital Resources
(in millions) December 31, 2021 September 30, 2021
Cash and cash equivalents $ 296.1 $ 326.5
Restricted cash 0.5 0.5
Total $ 296.6 $ 327.0
(in millions) Three months ended
December 31, 2021 December 31, 2020
Net cash provided by operating activities $ 137.7 $ 113.8
Net cash provided by investing activities $ 2.7 $ 46.7
Net cash used in financing activities $ (169.1 ) $ (42.8 )
Cash, Cash Equivalents and Restricted Cash
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.
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A significant portion of our cash is generated and held outside theU.S. As ofDecember 31, 2021 , we had cash and cash equivalents of$55 million in theU.S. ,$75 million inEurope ,$139 million inAsia Pacific (includingIndia ) and$27 million in other non-U.S. countries. We have substantial cash requirements in theU.S. , but we believe that the combination of our existingU.S. cash and cash equivalents, our ability to repatriate cash to theU.S. more cost effectively with the recentU.S. tax law changes, futureU.S. operating cash flows and cash available under our credit facility will be sufficient to meet our ongoingU.S. operating expenses and known capital requirements.
Cash Provided by Operating Activities
Cash provided by operating activities was$138 million in Q1'22, compared to$114 million in Q1'21. The increase in cash from operations in Q1'22 compared to Q1'21 was primarily driven by an increase in collections, offset by higher salary and salary-related payments. Cash from operations for Q1'22 includes$11 million of restructuring payments, compared to$7 million of restructuring payments in the year-ago period. Q1'21 cash from operations also included$3 million of acquisition-related payments.
Cash Provided by Investing Activities
(in millions) Three
months ended
December 31, 2021 December 31, 2020
Additions to property and equipment $ (3.4 ) $ (2.9 )
Proceeds from (purchases of) short- and long-term
marketable securities, net - 58.5
Settlement of net investment hedges 6.5 (7.4 )
Other (0.4 ) (1.5 )
Net cash provided by investing activities $ 2.7 $ 46.7
Cash provided by investing activities in Q1'22 reflects settlement of net
investment hedges of
Cash Used in Financing Activities
(in millions) Three months ended
December 31, 2021 December 31, 2020
Borrowings on debt, net $ - $ (18.0 )
Repurchases of common stock (119.7 ) -
Payments of withholding taxes in connection with
stock-based awards (49.2 ) (24.5 )
Payment of principal for financing leases (0.2 ) (0.3 )
Net cash used in financing activities $ (169.1 ) $ (42.8 )
Net cash outflows related to financing activities in Q1'22 include the
repurchase of $120 million of common stock. We were committed to repurchasing an
additional $5 million of common stock as of December 31, 2021 , which settled in
early January 2022 (Q2'22).
Outstanding Debt
(in millions) December 31, 2021
4.000% Senior notes due 2028 $ 500.0
3.625% Senior notes due 2025 500.0
Credit facility revolver 450.0
Total debt $ 1,450.0
Unamortized debt issuance costs for the senior notes (10.0 )
Total debt, net of issuance costs $ 1,440.0
Undrawn under credit facility revolver $
550.0
Undrawn under credit facility revolver available to borrow $ 534.7
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Table of Contents As ofDecember 31, 2021 , we were in compliance with all financial and operating covenants of the credit facility and the note indentures. Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.
Our credit facility and our senior notes described in Note 13. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Future Expectations We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately$30 million in FY'22) through at least the next twelve months and to meet our known long-term capital requirements. In FY'22 we expect to pay approximately$45 million to$50 million in restructuring cash payments related to our recently announced restructuring charge as well as previous restructuring charges. Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.
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