PTC (PTC) 10-K risk factor changes: FY2018 vs FY2017

Holders of the 6.00% Senior Notes due 2024 (the “2024 6% Notes”) that we issued in May 2016 should also consider the risk factors related to those notes described in the prospectus [added: supplement] we filed with the Securities and Exchange Commission on May 5, 2016, which are incorporated herein by reference.

We now offer our solutions as subscriptions, which has adversely affected, and may continue to adversely affect, our [removed: near-term] revenue and earnings in the transition period and make predicting our revenue and earnings more difficult.

[removed: Under] [added: Through 2018, under] a subscription, revenue is recognized ratably over the term of the subscription while under a perpetual license, revenue is generally recognized upon purchase.

We [removed: intend to discontinue] [added: discontinued] sales of perpetual licenses [added: for most of our products] in the Americas and Western Europe as of January 1, [removed: 2018,] [added: 2018 and intend to discontinue sales of such perpetual licenses in all remaining geographic regions as of January 2019,] which will likely accelerate these effects on our [removed: revenue until we complete the subscription transition.][added: revenue.]

Customer renewal rates may decline or fluctuate due to a number of factors, including offering pricing, competitive offerings, customer satisfaction, and reductions in customer spending levels or customer activity due to economic [removed: downturns] [added: downturns, the adverse impact of import tariffs,] or other market uncertainty.

Our projections are based on the expected growth potential in the IoT [removed: market,] [added: and AR markets,] as well as more modest growth in our core [removed: CAD, PLM] [added: CAD] and [removed: SLM] [added: PLM] markets.

Our long-term operating margin improvement targets are predicated on operating leverage as [removed: long range] [added: long-range] revenue increases and on improved operating efficiencies, particularly within our sales organization, and on service margin improvements.

Future projected improvements in our operating margin as a percent of revenue are based in part on our ability to improve services margins by reducing the amount of direct services that we perform through expansion of our service partner [removed: program,] [added: program] and improving the profitability of services that we perform.

We have made significant investments in recent years in our IoT business, including [removed: five] acquisitions totaling approximately $550 million.

Our [removed: pace of growth] [added: success] in this emerging market will depend on our ability to engage with customers to ensure that their investment moves beyond planning to broader deployment and yields value at their desired speed and expected costs.

If we are unable to attract and retain technical personnel with the requisite skills, our product development efforts could be delayed, which could adversely affect our ability to compete and thereby adversely [added: affect] our revenues and profitability.

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 [removed: contracts.][added: contracts or if manufacturers are adversely affected by other economic factors.]

Increased competition could result in price reductions, reduced [removed: net] revenue and profit [removed: margins] [added: margin] and loss of market share, any of which would likely harm our business.

Despite efforts to create security barriers to such threats, it is impossible for us to eliminate this [removed: risk.][added: risk, and, in fact, we deal with security issues on a regular basis and have experienced security incidents from time to time.]

A significant breach of the security and/or integrity of our products or systems, or those of our third-party service providers, could prevent our products from functioning properly, could enable access to sensitive, proprietary or confidential information, including that of our customers, [removed: without authorization,] or could disrupt our business operations or those of our customers.

This could require us to incur significant costs of [added: investigation,] remediation, harm our reputation, cause customers to stop buying our products, and cause us to face lawsuits and potential liability, which could have a material adverse effect on our financial condition and results of operations.

Moreover, business combinations [removed: also] involve a number of risks and uncertainties that can adversely affect our operations and operating results, including:

| • | failure to achieve the expected return on our [removed: investments] [added: investments,] which could adversely affect our business or operating results and impair the assets that we recorded as a part of an [removed: acquisition] [added: acquisition,] including intangible assets and goodwill; |

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 [removed: 2010)] [added: 2010), data privacy laws] and [added: regulations (including the European Union's General Data Privacy Regulation), and] trade and economic sanctions laws and regulations (including laws administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities).

Our compliance risks with these laws are heightened due to the global nature of our business, our [removed: new] go-to-market approach for our IoT business that relies heavily on expanding our partner ecosystem, the fact that we operate in, and are expanding into, countries with a higher incidence of corruption and fraudulent business practices than others, [removed: and] the fact that we deal with governments and state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA and the UK Bribery [removed: Act.][added: Act, and the fact global enforcement of anti-corruption laws, data privacy laws, and other laws has significantly increased.]

Accordingly, while we strive to maintain a comprehensive compliance program, we cannot guarantee that an employee, agent or business partner will not act in violation of our policies or U.S. or other applicable [added: laws or that we may inadvertently violate such] laws.

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 [removed: operations] [added: operations,] and also cause business and reputation [removed: loss.][added: loss, which could adversely affect our financial results and/or stock price.]

Sophisticated software can sometimes contain errors, [removed: defects] [added: defects, security vulnerabilities] or other performance problems.

If [removed: errors or defects] [added: such items] are discovered in our products, we may need to expend significant financial, technical and management resources, or divert some of our development resources, in order to resolve or work around those [removed: defects,] [added: items,] and we may not be able to correct them in a timely manner or provide an adequate response to our customers.

Errors, [removed: defects] [added: defects, security vulnerabilities] or other performance problems in our products could also cause us to lose revenue, lose customers and lose market share, and could subject us to liability.

Such [removed: defects or problems] [added: items] could also damage our business reputation and cause us to lose new business opportunities.

On September 7, 2017, [removed: PTC] [added: we] entered into a lease for a new worldwide headquarters [removed: location] in the Boston Seaport District, beginning in January 2019.

Because our current headquarters lease will not expire until November 2022, [removed: our rent obligations for those premises will overlap, which could adversely affect our financial condition if] we are [removed: unable] [added: seeking] to [removed: successfully] exit our current headquarters lease or sublease that [removed: space.][added: space, but have not yet done so.]

Under our current headquarters lease, we pay approximately $7.4 million in annual base rent plus operating expenses [removed: (together,] [added: (together "rent obligations,"] an [added: aggregate] annual total of approximately $12.0 million).

The base rent will increase by $0.3 million [removed: each year over the term of the lease.]

Accordingly, we will be required to pay rent for both locations from July 1, 2020 until November 30, 2022 unless we can successfully negotiate [removed: to] [added: an] exit [added: to] our current lease or sublease our current premises.

We may be unable to negotiate a financially desirable termination of our current lease or to sublease our current premises for an amount at least equal to our rent obligations under the current lease, which [added: would require us to bear the overlapping rent obligations and to record a charge related to such shortfall, and] could adversely affect our cash flow and financial condition.

As of November [removed: 29, 2017,] [added: 15, 2018,] our total debt outstanding was approximately [removed: $768] [added: $728] million, approximately [removed: $268] [added: $228] million of which was under our [removed: $600] [added: $700] million secured credit facility (which matures in September [removed: 2019)] [added: 2023)] and $500 million of which was associated with the 6% Senior Notes issued May 2016, which mature in May 2024 and are unsecured (see Liquidity and Capital Resources-Outstanding Notes in Item 7.

As of November [removed: 29, 2017,] [added: 15, 2018,] we had unused commitments under our credit facility of approximately [removed: $319] [added: $472] million.

[added: 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.

Also, a large percentage of our common stock is held by institutional [removed: investors.][added: investors and by Rockwell Automation.]

Purchases and sales of our common stock by these [removed: institutional] investors could have a significant impact on the market price of the stock.

| • | our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers: Topic 606 in 2019 will create significant quarterly revenue volatility; |

As described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, Revenue Sources and Recognition, and in Note B.

Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, we adopted ASC 606 effective October 1, 2018, which will change how we account for revenue transactions and will affect the timing of our revenue period to period.

Further, U.S. manufacturers have been adversely affected by tariffs recently imposed on certain imported goods, which could cause them to reduce their purchases of our software, which would adversely affect our revenue and earnings.

Changes in accounting principles and guidance, or their interpretation or implementation, may materially adversely affect our reported results of operations or financial position.

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. These principles are subject to interpretation by the U.S. Securities and Exchange Commission and various bodies formed to create and interpret appropriate accounting

principles and guidance.

A change in these principles or guidance, or in their interpretations, may have a significant effect on our reported results, as well as our processes and related controls.

For example, in May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers: Topic 606 (ASC 606).

This new standard is both technical and complex.

ASC 606 became effective for us on October 1, 2018.

We are adopting ASC 606 using the modified retrospective transition method.

The adoption of this new standard will have a material impact on our consolidated financial statements, including the way we account for arrangements involving our term-based subscription licenses, deferred revenue and sales commissions.

In connection with the adoption of ASC 606, we are implementing new processes, systems and internal controls.

Such changes and any difficulties implementing such changes could materially adversely affect our reported financial results, our ability to comply with regulatory reporting requirements, and the effectiveness of our internal controls over financial reporting.

For a discussion of the potential impact that the implementation of ASC 606 is expected to have on our consolidated financial statements and related disclosures, see Note B.

Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Accordingly, there is a risk that we might encounter a material event or issue and that such an event or issue may occur.

Our inability to maintain or develop our strategic and technology relationships could adversely affect our business.

We have many strategic and technology relationships with other companies with which we work to offer complementary solutions and services, that market and sell our solutions, and that provide technologies that we embed in our solutions.

We may not realize the expected benefits from these relationships and such relationships may be terminated by the other party.

If these companies fail to perform or if a company terminates or substantially alters the terms of the relationship, we could suffer delays in product development, reduced sales or other operational difficulties and our business, results of operations and financial condition could be materially adversely affected.

If we are unable to do so, or unable to do so for an amount at least equal to our rent obligations under the current headquarters lease, we will bear overlapping rent obligations for those premises and will be required to record a charge related to any rent shortfall, which could adversely affect our financial condition.

each year over the term of the lease.

A charge for such shortfall will be recorded in the earlier of the period that we cease using the existing space (which will likely occur in the second quarter of our fiscal 2019) or the period we exit the lease contract.

| | |

| --- | --- |

Our revenue and earnings targets are based on assumptions about the mix of revenue that will be attributable to subscription and perpetual license revenue.

If a greater percentage of our customers elect to purchase our solutions as subscriptions in a period than we assumed, our revenue and earnings will likely fall below our expectations for that period (as occurred in 2017 and 2016), which could cause our stock price to decline.

Our IoT business provides technology solutions that enable customers to transform their businesses and leverage the opportunities created by the IoT.

In 2016 and 2015, the manufacturing sector was weak worldwide, which we believe adversely impacted our sales and

operating results.

Although conditions improved during 2017, if manufacturing economic conditions do not continue to improve, or if they deteriorate, our revenue and earnings could be adversely affected.

Because we have substantial cash requirements in the United States and a significant portion of our cash is generated and held outside of the United States, if our cash available in the United States and the cash available under our credit facility is insufficient to meet our operating expenses and debt repayment obligations in the United States, we may be required to raise cash in ways that could negatively affect our financial condition, results of operations and the market price of our securities.

We have significant operations outside the United States.

As of September 30, 2017, approximately 90% of our cash and cash equivalents balance was held by subsidiaries outside the United States, with the remainder of the balance held by the U.S. parent company or its subsidiaries in the United States.

We believe that the combination of our existing United States cash and cash equivalents, future United States operating cash flows and cash available under our credit facility, are sufficient to meet our ongoing United States operating expenses and known capital requirements.

However, if these sources of cash are insufficient to meet our future financial obligations in the United States, we will be required to seek other available funding sources or repatriate cash to the United States with potentially incremental tax costs, which could negatively impact our results of operations, financial position and the market price of our securities.

Our failure to comply with any of these covenants or to meet any debt

For example, covenant limitations under our credit facility, specifically, our leverage ratio, as a result of lower earnings due to our subscription transition, limited our ability to repurchase shares in 2017 and 2016.

[removed: We use certain operating measures, including our Subscription Measures, and non-GAAP financial measures when discussing our business] [added: Operating] and [removed: results.][added: Non-GAAP Financial Measures]

[removed: ][added: ]

| | | [removed: Year Ended] | | | | | | | | | | | Constant Currency Change | | |

| | [removed: | September 30, 2017 | | |] [added: 2018] | [removed: September 30, 2016] | | | [added: 2017] | | | | [added: 2016] | | |

| Revenue | | [added: 2018] | | [removed: Change] | | [added: 2017] | | | | [added: Change] | | | | | |

| Subscription | [added: $] | [added: 482.0 | | |] $ | 279.2 | | | [added: 73 | % | | 69 | % | |] $ | 118.3 | | | 136 | % | | 135 | % | [removed: |]

| Support | [added: 496.8] | [added: | | |] 574.7 | | | | [added: (14 | )% | | (16 | )% | |] 651.8 | | | | (12 | )% | | (12 | )% | [removed: |]

| Total recurring revenue | [added: 978.9] | [added: | | |] 853.9 | | | | [added: 15 | % | | 12 | % | |] 770.1 | | | | 11 | % | | 11 | % | [removed: |]

| Perpetual license | [added: 109.6] | [added: | | |] 133.4 | | | | [added: (18 | )% | | (20 | )% | |] 173.5 | | | | (23 | )% | | (23 | )% | [removed: |]

| Total subscription, support and license revenue | [added: 1,088.5] | [added: | | |] 987.3 | | | | [added: 10 | % | | 8 | % | |] 943.6 | | | | 5 | % | | 5 | % | [removed: |]

| Professional services | [added: 153.3] | [added: | | |] 176.7 | | | | [added: (13 | )% | | (16 | )% | |] 196.9 | | | | (10 | )% | | (11 | )% | [removed: |]

| Total revenue | [added: 1,241.8] | [removed: $] | [added: | |] 1,164.0 | | | [removed: $] | [added: 7 | % | | 4 | % | |] 1,140.5 | | | [added: |] 2 | % | | 2 | % | [removed: |]

[removed: ][added: ]

[removed: ][added: ]

The increase in subscription revenue relative to perpetual license revenue has resulted in an increase in our recurring software revenue, with approximately [removed: 73%] [added: 90%] of our [added: software revenue and 79% of our] total revenue in [removed: 2017] [added: 2018] from recurring software revenue streams, compared to [removed: 68%] [added: 86% and 73%] in [removed: 2016] [added: 2017] and [removed: 59%] [added: 82% and 68%] in [removed: 2015.][added: 2016.]

| | | Year Ended [added: September 30,] | | | | | | | | | | | [added: | | |]

| | [removed: | September 30, 2017] [added: 2018] | | | | [removed: September 30, 2016] [added: 2017] | | | | [added: 2016] | | |

| Earnings Measures | | [added: 2018] | | [removed: Change] | | [added: 2017] | | | | [added: Change] | | |

| Operating [removed: Margin] [added: margin] | [added: 5.9] | [added: | % | |] 3.5 | | % | | [added: | | | | | |] (3.2 | | )% | | [removed: 208] | [removed: %] | | [added: | |]

| [removed: Earnings (Loss) Per Share] [added: Diluted earnings (loss) per share (2)] | [added: $] | [added: 0.44 | | |] $ | 0.05 | | | [added: | | | | | |] $ | (0.48 | ) | | [removed: 111] | [removed: %] | | [added: | |]

| Non-GAAP [removed: Operating Margin(1)] [added: operating margin (1)] | [added: 18.4] | [added: | % | |] 16.1 | | % | | [added: | | | | | |] 15.1 | | % | | [removed: 7] | [removed: %] | | [added: | |]

| Non-GAAP EPS(1) | | $ | [removed: 1.17] [added: 1.45] | | | $ | [removed: 1.19] [added: 1.17] | | | [removed: (2] [added: 24] | [removed: )%] [added: %] | |

[removed: GAAP and non-GAAP operating income in 2017 reflect an] [added: An] increase in gross margin [added: is] associated with higher [added: subscription] revenue and a lower mix of professional services revenue, which has lower margins than our software [removed: revenue, partially offset by higher costs associated with our cloud services] revenue.

We ended [removed: 2017] [added: 2018] with cash, cash equivalents and marketable securities of [removed: $330] [added: $316] million, [removed: up] [added: down] from [removed: $328] [added: $330] million at the end of [removed: 2016.][added: 2017.]

We [added: also] used cash from operations to repurchase [removed: $51] [added: another $100] million of common stock and to repay [removed: $40] [added: a net $70] million of borrowings under our credit facility in [removed: 2017.][added: 2018.]

At September 30, [removed: 2017,] [added: 2018,] the balance outstanding under our credit facility was [removed: $218] [added: $148] million and total debt outstanding was [removed: $718] [added: $648] million.

[added: A] higher mix of subscription bookings is expected to benefit us over the long term, but results in lower revenue and lower earnings in the near term.

As we move into [removed: 2018,] [added: 2019,] our three overriding goals continue to be:

| [removed: ] [added: ] | Sustainable Growth | Our goals [removed: for overall growth] are predicated on continuing to [removed: grow] [added: drive bookings growth both] in the [added: high-growth] IoT market and [removed: continuing to drive improvements] in [removed: operational performance in] our core [removed: CAD, PLM] [added: CAD] and [removed: SLM Solutions business.] [added: PLM markets.] |

| [removed: ] [added: ] | Cost Controls and Margin Expansion | [added: Our goal is to drive continued margin expansion over the long term.] We continue to proactively manage our cost structure and invest in what we believe are high return opportunities in our business. [removed: Our goal is to drive continued margin expansion over the long term.] We expect to deliver continued operating margin expansion in [removed: 2018, and we expect further margin expansion in] 2019 and beyond, [removed: when we expect] [added: as] we [removed: will] realize the compounding benefit of our maturing subscription [removed: model.] [added: business.] |

These non-GAAP financial measures exclude [added: the effect of a professional services revenue write-down and subscription revenue associated with the settlement of a previously disclosed disputed customer receivable,] fair value adjustments related to acquired deferred revenue, acquired deferred costs, stock-based compensation expense, amortization of acquired intangible assets expense, acquisition-related and pension plan termination costs, restructuring charges, certain identified gains or charges included in non-operating other income (expense) and the related tax effects of the preceding items, as well as the tax items identified.

Management uses, and investors should use, non-GAAP financial measures [added: only] in conjunction with our GAAP results.

| | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | Percent change [removed: 2016 to] 2017 [added: to 2018] | | | | | | [removed: 2015] [added: 2016] | | | | Percent change [removed: 2015 to] 2016 [added: to 2017] | | | | |

| Support | [removed: 574.7] | [removed: | |] [added: 496.8] | [removed: 651.8] | | | [added: 574.7] | [removed: (12] | [removed: )%] | | [removed: (12] [added: (14] | )% | | [removed: 681.5 | | | | (4] [added: (16] | )% | | [removed: (2 | )% |]

| Total recurring revenue | [removed: 853.9] | [removed: | |] [added: 978.9] | [removed: 770.1] | | | [added: 853.9] | [removed: 11] | [removed: %] | | [removed: 11] [added: 15] | % | | [removed: 746.8 | | | | 3] [added: 12] | % | | [removed: 5 | % |]

| Perpetual license | [removed: 133.4] | [removed: | |] [added: 109.6] | [removed: 173.5] | | | [added: 133.4] | [removed: (23] | [removed: )%] | | [removed: (23] [added: (18] | )% | | [removed: 282.8 | | | | (39] [added: (20] | )% | | [removed: (37 | )% |]

| Total subscription, support and license revenue | [removed: 987.3] | [removed: | |] [added: 1,088.5] | [removed: 943.6] | | | [added: 987.3] | [removed: 5] | [removed: %] | | [removed: 5] [added: 10] | % | | [removed: 1,029.5 | | | | (8 | )% |] [added: 8] | [removed: (6] [added: %] | [removed: )%] |

| Professional services | [removed: 176.7] | [removed: | | | 196.9 | | | | (10 | )% |] [added: 153.3] | [removed: (11] | [removed: )%] | | [removed: 225.7] [added: 176.7] | | | | (13 | )% | | [removed: (10] [added: (16] | )% | [added: |]

| Total revenue | [removed: 1,164.0] | [removed: | |] [added: $] | [removed: 1,140.5] [added: 1,241.8] | | | [added: $] | [removed: 2] [added: 1,164.0] | [removed: %] | | [removed: 2] [added: 7] | % | | [removed: 1,255.2 | | | | (9 | )% |] [added: 4] | [removed: (7] [added: %] | [removed: )%] |

| Total cost of revenue | [removed: 329.0] [added: 326.2] | | | | [removed: 325.7] [added: 329.0] | | | | [removed: 1] [added: (1] | [removed: %] [added: )%] | | | | | [removed: 334.7] [added: 325.7] | | | | [removed: (3] [added: 1] | [removed: )%] [added: %] | | | |

Our discussion of results includes discussion of our operating measures (including “license and subscription bookings” and other subscription-related measures) and non-GAAP financial measures.

Our operating measures and non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measures and Results of Operations - Non-GAAP Financial Measures, respectively.

You should read those sections to understand those operating and non-GAAP financial measures.

Revenue Sources and Recognition

We sell subscription and perpetual licenses to our software, support for perpetual licenses, cloud services and professional services.

Support revenue is comprised

Our subscription revenue includes an immaterial amount of Software as a Service (SaaS) and cloud services for which revenue is generally recognized ratably over the term of the contract.

Our revenue recognition practices are described below in “Critical Accounting Policies and Estimates” and in Note B.

Beginning with 2019, we will recognize revenue under the Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASC 606) revenue recognition standard, which differs significantly from the previous accounting rules.

Under ASC 606, all performance obligations under the product that can be separately identified are, and revenue is recognized for each performance obligation.

Accordingly, our on-premise subscription contracts will be unbundled into multiple performance obligations (i.e., license, cloud and support).

The license portion of such subscription contracts (approximately 50% to 55%) will be recognized upfront and the cloud and support portions (approximately 45% to 50%) of such subscription contracts will be recognized ratably over the term.

The effects of our adoption of ASC 606, including expected adjustments to retained earnings related to billed and unbilled deferred revenue, are described below in “Recent Accounting Pronouncements” and in Note B.

Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this Annual Report.

Our revenue results for the year reflect the adoption of subscription licensing by our customers and the compounding effect of the subscription business model as subscription revenue recurs and new subscription revenue is added in the year.

Subscription revenue, software revenue and total revenue were all up over fiscal 2017, despite an 800 basis point increase in subscription mix year over year.

Recurring software revenue represented approximately 90% of our software revenue in 2018, up from 86% a year ago.

Our revenue results also drove our operating margin improvements for the year.

Despite increases in sales and marketing and research and development expenses, operating margins and EPS were up over the prior year.

Our CAD and PLM businesses performed well in the year, our IoT business continued to grow as we added new customers and existing customers expanded their implementations, and interest in our augmented reality solutions increased.

We made important strides in extending our market reach and further differentiating our technology with strategic relationships we entered into in 2018, including those with Rockwell Automation, Microsoft and ANSYS.

| Subscription | | $ | 482.0 | | | $ | 279.2 | | | 73 | % | | 69 | % | |

The increase in total revenue, subscription revenue and EPS reflects our transformation into a subscription software company.

Our 2018 revenue results include the impact of a settlement of a customer dispute concerning a professional services receivable.

The settlement, reached in September 2018, included partial payment of the receivable and new software purchases.

The net revenue write-down recorded in the fourth quarter of 2018 was $9.3 million, comprised of a $14.5 million services revenue write-down, partially offset by subscription revenue of $5.2 million.

| | | Year Ended September 30, | | | | | | | | | | |

| Earnings Per Share | | $ | 0.44 | | | $ | 0.05 | | | 780 | % | |

GAAP and non-GAAP operating income in 2018 reflect maturity of our subscription program.

The increase in gross margins was partially offset by higher sales and marketing and research and development costs.

Our GAAP and non-GAAP earnings reflect a combination of revenue growth due to the strength of our subscription model and strong new bookings, as well as continued cost and expense discipline.

We generated $248 million of cash from operations in 2018 compared to $135 million in 2017.

In the fourth quarter of 2018, Rockwell Automation made a $1 billion equity investment in PTC as part of a strategic partnership.

Using the cash proceeds from this investment, PTC entered into a $1,000 million accelerated share repurchase.

Operating Measures

We provide these measures to help investors understand the progress of our subscription transition.

These measures are not necessarily indicative of revenue for the period or any future period.

Over the past two years, CAD, core PLM and IoT have delivered bookings CAGRs at the high end of market growth rates, as CAD and PLM customers have converted existing license contracts to subscriptions and customers have adopted and expanded IoT implementations.

Subscription ACV

Unbilled deferred revenue (backlog) is the aggregate of booked orders for license, support and subscription (including multi-year subscription contracts with start dates after October 1, 2018 that are subject to a limited annual cancellation right, of which approximately $50 million was cancellable at September 30, 2018) for which the associated revenue has not been recognized and the customer has not yet been invoiced.

Information about Our Financial Reporting

We discuss these measures, how we use them and how they are calculated in “Subscription Measures” and “Non-GAAP Financial Measures” below.

We executed well across our key strategic and operational objectives in 2017.

Bookings grew year over year, reflecting broad-based strength across our IoT, CAD and PLM businesses and strength in Europe, the Americas and our global channel.

Our subscription transition initiative also progressed well throughout 2017, with subscription bookings constituting 69% of all software license bookings for the year and subscription revenue up 136% over 2016.

Finally, we improved our operating margins over 2016, despite a higher than expected subscription mix for the year.

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

The increase in total revenue and subscription revenue reflects our exit from the trough in revenue and EPS growth that occurs when transitioning from a perpetual to subscription business model.

License and subscription bookings grew 4% in 2017 over 2016, to $419 million, and grew 21% over 2015.

Excluding a $20 million SLM mega deal from the fourth quarter of 2016, license and subscription bookings grew 10% in 2017 over 2016.

Annualized Recurring Revenue was approximately $905 million as of the fourth quarter of 2017, an increase of 12% compared to the fourth quarter of 2016.

Additionally, operating margin improved due to lower restructuring charges in 2017, which were $68.3 million lower in 2017 compared to 2016.

Our GAAP and non-GAAP earnings reflect an additional $12.5 million in interest expense due to our 2016 issuance of $500 million of 6.0% senior, unsecured long-term notes and a higher GAAP and non-GAAP tax rate in 2017 compared to 2016.

We generated $135 million of cash from operations in 2017, which included $37 million of restructuring payments and a $3 million legal settlement payment.

Our transition to a subscription model has been a headwind for revenue and earnings in 2017, the effect of which is moderating as the subscription business matures and we exit the subscription trough.

|  | Expand Subscription | Through 2014, the majority of our software licenses were sold as perpetual licenses, under which customers own the software license and revenue is recognized at the time of sale. We began offering subscription licensing for our core Solutions Group products in 2015 and expanded our subscription program in 2016. Under a subscription, customers pay a periodic fee to license our software and access technical support over a specified period of time. As part of our expanded subscription program, we also launched a program for our existing customers to convert their support contracts to subscription contracts. A number of customers converted their support contracts to subscriptions in 2016 and 2017, and we expect there will be continued opportunities to convert existing support contracts to subscription contracts in 2018 and beyond. Given the subscription adoption rates we have seen in the Americas and Western Europe, effective January 1, 2018, new software licenses for our core solutions and ThingWorx solutions will be available only by subscription in the Americas and Western Europe. We plan to continue to offer both perpetual and subscription licenses to customers outside the Americas and Western Europe until such time as we believe a change may be appropriate. This could affect customer purchasing decisions, particularly in the affected regions, as customers may accelerate purchases of perpetual licenses before January 1, 2018 or, conversely, may delay purchases. |

Revenue, Operating Margin, Earnings per Share and Cash Flow

| Subscription | $ | 279.2 | | | $ | 118.3 | | | 136 | % | | 135 | % | | $ | 65.2 | | | 81 | % | | 83 | % |

| | |

| --- | --- |

| (1) | Costs and expenses in 2017 included $7.9 million of restructuring charges. Costs and expenses in 2016 included $76.3 million of restructuring charges, a $3.2 million legal accrual, and $3.5 million of acquisition-related costs. Costs and expenses in 2015 included $73.2 million of pension plan termination-related costs, $43.4 million of restructuring charges, a $28.2 million legal accrual, and $8.9 million of acquisition-related costs. These restructuring, acquisition-related, pension plan termination and legal accrual costs have been excluded from non-GAAP operating income, non-GAAP operating margin and non-GAAP diluted EPS. |

| (2) | Income taxes for non-GAAP diluted earnings per share reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments described in Non-GAAP Financial Measures, and also exclude certain non-operating income and tax items. The GAAP diluted earnings per share in 2015 reflect a tax benefit of |

$18.7 million related to the reversal of a portion of the U.S. valuation allowance related to reducing deferred tax assets in connection with settling the U.S. pension plan.

Subscription Measures

Bookings

Excluding a $20 million booking from a mega-deal in 2016, bookings increased 10% over 2016.

CAD and PLM bookings grew 14% and 6%, respectively, for the full year and our IoT bookings grew above the market growth rate of 30%-40% organically and in total.

We believe that over time the revenue from these contracts will exceed the initial booking value as we expect customers will renew their subscriptions for more than two years and will expand their subscriptions as well.

Changes in currency exchange rates, particularly for the Yen and the Euro, compared to the prior year decreased revenue and decreased expenses in 2017 and 2016.

Acquisitions

There were no significant acquisitions in 2017.

In 2017, we had a full year of revenue for Kepware, which we acquired on January 12, 2016.

Kepware contributed $16.1 million to 2016 revenue.

In 2016, we also acquired Vuforia (on November 3, 2015) and in 2015, we acquired ColdLight (on May 7, 2015).

Prior to their acquisitions, Vuforia and ColdLight revenues were not material.

Reclassifications

Effective with the beginning of the third quarter of 2017, we report cost of license and subscription revenue separately from cost of support revenue and are presenting cost of revenue in three categories: 1) cost of license and subscription revenue, 2) cost of support revenue, and 3) cost of professional services revenue.

The discussion that follows reflects our revised reporting structure.

Unbilled deferred revenue (backlog) consists of contractually committed orders for license, subscription and support with a customer for which the customer has not yet been invoiced and the associated revenue has not been recognized.

Our most significant foreign currency exposures relate to Western European countries, Japan, [added: Israel,] China and Canada.

In [added: 2018,] 2017, [removed: 2016,] and [removed: 2015,] [added: 2016,] approximately two-thirds of our revenue and half of our expenses were transacted in currencies other than 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 European exchange rates and a 10 Yen change in [added: the Yen to USD exchange rate would impact operating income by approximately $16 million and $6 million, respectively.]

As of September 30, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:

| Currency Hedged | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| [removed: Canadian/U.S.] [added: Canadian / U.S.] Dollar | $ | [removed: 12,809] [added: 7,334] | | | $ | [removed: 14,685] [added: 12,809] | |

| [removed: Euro/U.S.] [added: Euro / U.S.] Dollar | [removed: 244,000] [added: 297,730] | | | | [removed: 174,120] [added: 244,000] | | |

| Israeli [removed: Sheqel/U.S.] [added: Sheqel / U.S.] Dollar | [removed: 8,820] [added: 9,778] | | | | [removed: 7,271] [added: 8,820] | | |

| Japanese [removed: Yen/Euro] [added: Yen / Euro] | [removed: 17,694] [added: —] | | | | [removed: 32,782] [added: 17,694] | | |

| Japanese [removed: Yen/U.S.] [added: Yen / U.S.] Dollar | [removed: 3,198] [added: 37,456] | | | | [removed: 6,716] [added: 3,198] | | |

| Swiss Franc / Euro | [removed: 7,157] [added: —] | | | | [removed: —] [added: 7,157] | | |

| Swedish Krona / U.S. Dollar | [removed: 4,627] [added: 18,207] | | | | [removed: 3,852] [added: 4,627] | | |

| Chinese Yuan offshore / Euro | [removed: 10,423] [added: —] | | | | [removed: —] [added: 10,423] | | |

| Singapore Dollar / U.S. Dollar | [removed: 1,186] [added: 1,314] | | | | [removed: 1,448] [added: 1,186] | | |

| Total | $ | [removed: 318,519] [added: 405,956] | | | $ | [removed: 249,534] [added: 318,519] | |

As of September 30, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] we had outstanding forward contracts designated as cash flow hedges with notional amounts equivalent to the following:

| Currency Hedged | [removed: September 30, 2017] [added: 2018] | | | | [removed: September 30, 2016] [added: 2017] | | |

| Euro / U.S. Dollar | $ | [removed: 64,831] [added: 8,495] | | | $ | [removed: 26,181] [added: 64,831] | |

| Japanese Yen / U.S. Dollar | [removed: 22,675] [added: 2,193] | | | | [removed: 8,800] [added: 22,675] | | |

| SEK / U.S. Dollar | [removed: 14,091] [added: 1,708] | | | | [removed: 4,078] [added: 14,091] | | |

| Total | $ | [removed: 101,597] [added: 12,396] | | | $ | [removed: 39,059] [added: 101,597] | |

In addition to amounts due under our 2024 6% Notes as described above, as of September 30, [removed: 2017,] [added: 2018,] we had [removed: $218.1] [added: $148.1] million outstanding under our variable-rate credit facility.

As of September 30, [removed: 2017,] [added: 2018,] the annual rate on the credit facility loans was [removed: 3.125%.][added: 3.8%.]

If there was a hypothetical 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be [removed: $2.2] [added: $1.5] million.

As of September 30, [removed: 2017,] [added: 2018,] cash equivalents were invested in highly liquid investments with maturities of three months or less when purchased.

At September 30, [removed: 2017,] [added: 2018,] we had cash and cash equivalents of [removed: $26.8] [added: $29.6] million in the United States, [removed: $128.1] [added: $88.5] million in Europe, [removed: $68.1] [added: $95.6] million in the Pacific Rim (including India), [removed: $30.2] [added: $14.8] million in Japan and [removed: $26.8] [added: $31.4] million in other non-U.S. countries.

Given the short maturities and investment grade quality of the portfolio holdings at September 30, [removed: 2017,] [added: 2018,] a hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash equivalents.

Our consolidated cash balances were impacted favorably by [removed: $1.1] [added: $7.8] million and [removed: $6.8] [added: $1.1] million in [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively and unfavorably by [removed: $17.9] [added: $6.8] million in [removed: 2015,] [added: 2016,] due to changes in foreign currencies relative to the U.S. dollar, particularly the Euro and the Japanese Yen.

| British Pound / U.S. Dollar | 7,074 | | | | 907 | | |

| Swiss Franc / U.S. Dollar | 11,944 | | | | 605 | | |

| Chinese Renminbi/U.S. Dollar | 9,010 | | | | — | | |

| All other | 6,109 | | | | 7,093 | | |

| | September 30, | | | | | | |

the Yen to USD exchange rate would impact operating income by approximately $14 million and $5 million, respectively.

| All other | 8,605 | | | | 8,660 | | |

Our Solutions [removed: Group offers a] portfolio of innovative Computer-Aided Design [removed: (CAD),] [added: (CAD) and] Product Lifecycle Management (PLM) [removed: and Service Lifecycle Management (SLM)] solutions [removed: that] enable manufacturers to create, innovate, operate, and service products.

| PTC | | | | [removed: |]

| IoT [removed: Group] | | Solutions [removed: Group] | | [removed: |]

| Internet of Things (IoT) | Augmented Reality (AR) | Computer Aided Design (CAD) | Product Lifecycle Management (PLM) | [removed: Service Lifecycle Management (SLM) |]

We see greater opportunity for market growth [removed: in] [added: for] our IIoT and Augmented Reality solutions for the enterprise, followed by more moderate market growth for our [removed: CAD, SLM] [added: CAD] and PLM solutions.

We generate revenue through the sale of software licenses, subscriptions (which include license [removed: access and] [added: access,] support [added: and cloud services] for a period of [removed: time and optional cloud services),] [added: time),] support (which includes technical support and software updates when and if available), and services (which include consulting and implementation and training).

We report revenue by line of business (subscription, support, perpetual license and professional services), by geographic region, and by segment [removed: (IoT Group] [added: (Software Products] and [removed: Solutions Group).][added: Professional Services).]

IoT [removed: Group]

| [removed: ] [added: ] | Our ThingWorx® industrial innovation platform delivers [removed: tools] [added: tools, technologies,] and [removed: technologies] [added: solutions] that empower companies to rapidly develop and deploy powerful industrial IoT [removed: applications and augmented reality (AR) experiences,] [added: applications,] enabling customers to transform their [added: operations,] products and services and unlock new business models. ThingWorx enables customers to reduce the time, cost, and risk required to build [removed: IoT applications] and [removed: AR experiences;] [added: deploy IoT applications;] connect devices, systems, and applications; manage connected products; and analyze industrial IoT data. Our ThingWorx solutions include cloud-based tools that allow customers to easily and more securely connect products and devices to the cloud, and intelligently process and store product and sensor data. Additionally, ThingWorx offers sophisticated artificial intelligence and machine learning technology that enables customers to simplify and automate complex analytical processes that enhance industrial IoT solutions through real-time insights, predictions and recommendations from information collected from smart, connected products. |

| [removed: ] | Our KEPServerEX® solution provides communications connectivity to industrial automation environments, enabling users to connect, manage, monitor, and control disparate devices and software applications, providing users with a single source of real-time industrial sensor and machine data to improve operations, accelerate troubleshooting, perform preventative maintenance, and improve productivity. |

| [removed: ] [added: ] | Our Vuforia Studio™ solution is a powerful, [removed: easy-to-use] [added: easy-to-use, cloud dependent] tool that enables industrial enterprises to rapidly author and publish augmented reality experiences. These augmented reality experiences overlay important digital information from IoT onto the view of the physical things on which the user is working, [removed: such as a dashboard of sensors and analytics data, or] [added: including for example] 3D step-by-step operating or repair [removed: instructions.] [added: instructions or a dashboard of analytics data.] |

Solutions [removed: Group]

Our PLM products are designed to address common challenges that [removed: companies, particularly manufacturing companies,] [added: companies] face over the life of their products, from concept to retirement.

| [removed: ] [added: ] | Our Windchill® suite of PLM software provides product lifecycle management capabilities - from design to service. Windchill offers a single repository for all product information. As such, it is designed to create a “single source of truth” for all product-related content such as CAD models, documents, technical illustrations, embedded software, calculations and requirement specifications for all phases of the product lifecycle to help companies streamline enterprise-wide communication and make informed decisions. Additionally, our Windchill product family includes solutions that allow manufacturers, distributors and retailers to collaborate across product development and the supply chain, including sourcing and procurement, to identify an optimal set of parts, materials and suppliers. This functionality provides automated cost modeling and visibility into supply chain risk information to balance cost and quality, and enables customers to design products that meet compliance requirements and performance targets. [added: With Windchill 11.1, we introduced augmented reality (AR) capabilities to Windchill customers. This cloud dependent functionality enables customers to build a digital product definition and publish the representation of the resulting product in AR. Using AR in the product development process enables companies to connect the digital model to the physical product to determine real-time behavior, conduct product design reviews in real-world environments, and share the product definition with disparate stakeholders.] |

| [removed: ] | Our ThingWorx Navigate™ solution, a ThingWorx-based PLM offering launched in 2016, is a collection of focused, role-based applications that provides complete, contextual, up-to-date and accurate product information from Windchill and other systems of record. Leveraging ThingWorx technology, ThingWorx Navigate applications can easily be tailored and deployed to roles across an enterprise, and extended to include data from other systems of record and even data from smart, connected products. |

| [removed: ] | Our Integrity™ solution provides a set of Application Lifecycle Management and Model Based Systems Engineering capabilities that enable users to manage system models, software configurations, test plans and defects. With Integrity, engineering teams can improve productivity and quality, streamline compliance, and gain greater product visibility, ultimately enabling them to bring more innovative products to market. |

Our principal [removed: SLM] [added: Solutions] products are described below.

| [removed: ] [added: ] | Our Servigistics® suite [removed: of SLM software products integrates service planning, delivery and analysis to optimize service outcomes. Servigistics products enable a systematic approach to service lifecycle management by providing a single view of service throughout the] [added: enables more effective] service [removed: network,] [added: parts management,] enabling customers to continuously improve their products and services and increase customer satisfaction. |

[removed: Financial information about our segments and international and domestic operations may be found in Note O] Segment Information of [removed: “Notes] [added: Notes] to Consolidated Financial [removed: Statements”] [added: Statements] in this Annual Report, which information is incorporated herein by reference.

Additional [added: financial] information about our [removed: research] [added: segments] and [removed: development expenditures] [added: international and domestic operations] may be found in [removed: Item 7.][added: Note Q.]

“Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations-Results of Operations-Costs and Expenses-Research and Development.”][added: Operations - Executive Overview” below.]

As we grow our [removed: IoT] [added: IIoT] business, we expect our go-to-market strategy will rely more on [added: partners, including the types of strategic] partners [added: described above,] and marketing directly to end users and developers.

Building an ecosystem of strategic partners will become increasingly important as we expand [added: the capabilities of] our [added: core solutions, and] IoT offerings and [removed: seek to improve the efficiency with which] [added: as] we [removed: deliver] [added: expand] our [removed: traditional products and services.][added: addressable markets by leveraging our partner sales distribution channels.]

With this in mind, [added: in 2018,] we [removed: have recently] entered into [added: the three] strategic partner relationships [added: below] to jointly [removed: market, sell,] [added: develop, market] and [removed: develop] [added: sell] integrated products and services.

For enterprise CAD and PLM solutions, we compete with companies including Dassault Systèmes SA and Siemens AG; for discrete desktop CAD products, we compete with Autodesk, Siemens and Dassault [removed: Systèmes, and for PLM solutions and SLM solutions, we compete with Oracle Corporation and SAP AG.][added: Systèmes.]

[removed: We] [added: For PLM solutions, we also compete with Oracle Corporation and SAP AG but we] believe our products are more specifically targeted toward the business process challenges of manufacturing companies and offer broader and deeper functionality for those processes than ERP-based solutions.

In our [removed: IoT] [added: IIoT] business, we compete with large established companies like Amazon, IBM Corporation, [removed: Microsoft,] Cisco, Oracle, SAP, and General Electric.

We believe our ThingWorx IoT platform is complementary to the offerings of many of our competitors and we have [removed: partnerships] [added: partnered] with many of the named competitors.

As of September 30, [removed: 2017,] [added: 2018,] we had [removed: 6,041] [added: 6,110] employees, including [removed: 2,052] [added: 2,084] in product development; [removed: 1,805] [added: 1,676] in customer support, training, consulting, cloud services and product distribution; [removed: 1,497] [added: 1,642] in sales and marketing; and [removed: 687] [added: 708] in general and administration.

Of these [removed: employees 2,183] [added: employees, 2,151] were located in the United States and [removed: 3,858] [added: 3,959] were located outside the United States.

Information about our executive officers is incorporated by reference from [removed: Part III, Item 10 of this Annual Report.][added: our 2019 Proxy Statement.]

PTC is a global software and services company that delivers solutions to enable our industrial customers' digital transformations, helping them to better design, manufacture, operate, and service their products.

Our Internet of Things (IoT) solutions are focused on Smart Connected Operations (SCO), Smart Connected Products (SCP), and Smart Connect Systems, that enable companies to connect factories and plants, smart products, and enterprise systems, bridging the physical and digital worlds, to transform their businesses.

| | | | |

| --- | --- | --- | --- |

| | | | |

| Industrial Innovation Platform enabling connectivity, rapid application development, and purpose-built solutions | Industrial AR solutions to increase efficiency and technical proficiency of skilled workers in manufacturing and service settings | Effective and collaborative product design across the globe | Efficient and consistent management of product information from concept to retirement across the enterprise processes and distributed teams |

Our IoT products and solutions are focused on Smart Connected Operations such as plants and factories, Smart Connected Products, and Smart Connected Systems.

With these products and solutions, industrial companies can drive their digital transformations across the enterprise, transforming how they run their plants and factories, how they service their products, and how they better leverage information across their enterprise to increase productivity, improve factory and plant efficiency, reduce operational risk, and achieve better system interoperability.

Our solutions enable our customers to bridge their physical and digital worlds.

|  | Our Creo® interoperable suite of product design software provides a scalable set of packages for design engineers to meet a variety of specialized needs. Creo provides capabilities for design flexibility, advanced assembly design, piping and cabling design, advanced surfacing, comprehensive virtual prototyping and other essential design functions. Our Creo solutions include augmented and virtual reality through a native cloud dependent integration with our Vuforia® solution. With every seat of Creo, our customers can create and publish AR experiences and share their design instantly to collaborate with anyone in the world on any device. In 2019, we will launch a version of Creo that will include the Discovery Live real-time simulation technology from ANSYS. This solution will offer customers a unified modeling and simulation environment and provide design engineers with an interactive design experience that will enable them to create higher quality products, while reducing product and development costs. |

Other Solutions

We partnered with Rockwell Automation to align our respective smart factory technologies to address the market for smart, connected operations, with particular focus on the plant and factory setting.

As part of this strategic alliance, we will align our ThingWorx® IoT, Kepware® industrial connectivity, and Vuforia® augmented reality (AR) platforms with Rockwell Automation’s

FactoryTalk® MES, FactoryTalk Analytics, and Industrial Automation platforms, and we both will offer these solutions in the market.

During the term of the contract, Rockwell Automation has exclusive rights to resell certain of our solutions to certain customers and geographic regions.

In connection with this strategic alliance, Rockwell Automation made a $1 billion equity investment in PTC.

We partnered with Microsoft to make the ThingWorx® Industrial Innovation Platform available on the Microsoft Azure cloud platform as our preferred cloud platform.

By partnering with Microsoft, we are able to leverage the two companies’ complementary technologies and together pursue opportunities in industrial sectors.

This integration enables us to deliver a combined and connected solution for industrial IoT and digital product lifecycle management that enable companies to bring new products to market faster, enhance customer service, and introduce new revenue streams, while reducing operating costs.

We partnered with ANSYS to enable us to embed Ansys' Discovery Live real-time simulation within Creo, enabling us to offer a fully-integrated CAD and real-time simulation solution.

Our Markets and How We Address Them

We compete in the Industrial IoT (IIoT) and augmented reality markets and the CAD and PLM markets.

PTC is a global software and services company that delivers a technology platform and solutions to help companies design, manufacture, operate, and service things for a smart, connected world.

Our Internet of Things Group offers Industrial Internet of Things (IIoT) solutions that enable companies to connect smart things and environments, manage and analyze data generated by those things and environments, and create IIoT applications and Augmented Reality (AR) experiences that transform the way users create, operate, and service products.

| | | | | |

| --- | --- | --- | --- | --- |

| Enabling connectivity, application development. | Applications for smart, connected products and environments. | Effective and collaborative product design across the globe. | Efficient and consistent management of product development, including embedded software development, from concept to retirement across functional processes and distributed teams. | Planning and delivery of service, including product intelligence, connected service, predictive service, and remote diagnostics. |

Our Markets

The IIoT market is a nascent, high growth market in which we compete with a number of well-established large companies as well as many small companies.

Our IIoT products enable companies to connect, operate, analyze and service smart, connected products and environments and to create immersive augmented reality experiences for those smart, connected products.

|  | Our Vuforia® augmented reality technology platform enables users to build applications that see and interact with things in the physical world. Using computer vision technologies and building them for mobile platforms, the technology is accessible through an application programming interface and developer workflows. |

|  | Our Creo® interoperable suite of product design software provides a scalable set of packages for design engineers to meet a variety of specialized needs. Creo provides capabilities for design flexibility, advanced assembly design, piping and cabling design, advanced surfacing, comprehensive virtual prototyping and other essential design functions. |

|  | Our Mathcad® engineering math software enables users to solve, analyze and share vital engineering calculations. Mathcad combines the ease and familiarity of an engineering notebook with the powerful features of a dedicated engineering calculations application. |

|  | Our Creo® View™ solution allows users to share 3D CAD information internally and with partners and suppliers outside the organization and supports drawings and documents from a multitude of sources. Creo View provides access to designs and related data without requiring the original authoring tool. |

SLM

Our SLM products help manufacturers and their service providers improve service efficiency and quality.

These include capabilities to support product service and maintenance requirements, service information delivery, service parts planning and optimization, service knowledge management, service analytics, connected remote service, and predictive service.

| | Our Servigistics Arbortext® enterprise software suite enables manufacturers to create, illustrate, manage and publish technical and service parts information to improve the operation, maintenance, service and upgrade of equipment throughout its lifecycle. These products are available in stand-alone configurations as well as integrated with our Windchill products to deliver dynamic, product-centric service and parts information. |

Geographic and Segment Information

We have three operating and reportable segments: (1) the IoT Group, which includes license, subscription, support and cloud services revenue for our IoT, analytics and augmented reality solutions; (2) the Solutions Group, which includes license, subscription, support and cloud services revenue for our core CAD, PLM and SLM products, and (3) Professional Services, which includes consulting, implementation and training revenue.

Research and Development

We invest heavily in research and development to improve the quality and expand the functionality of our products.

Approximately one third of our employees are dedicated to research and development initiatives, conducted primarily in the United States, India and Israel.

Our research and development expenses were $236.1 million in 2017, $229.3 million in 2016, and $227.5 million in 2015.

Sales and Marketing

“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” below.

For the Fiscal Year Ended: September 30, [removed: 2017][added: 2018]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be [removed: submitted and] posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to [removed: submit and] post such files).

The aggregate market value of our voting stock held by non-affiliates was approximately [removed: $6,020,802,164] [added: $8,976,658,598] on April 1, [removed: 2017] [added: 2018] based on the last reported sale price of our common stock on the Nasdaq Global Select Market on March [removed: 31, 2017.][added: 29, 2018.]

There were [removed: 115,807,774] [added: 116,337,920] shares of our common stock outstanding on that day and [removed: 116,125,277] [added: 118,675,240] shares of our common stock outstanding on November [removed: 27, 2017.][added: 15, 2018.]

Portions of the definitive Proxy Statement in connection with the [removed: 2018] [added: 2019] Annual Meeting of Stockholders [removed: (2018] [added: (2019] Proxy Statement) are incorporated by reference into Part III.

ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR [removed: 2017][added: 2018]

| Item 1. | [removed: [Business](#sD3ECFA167F685B5AA1E02500F4002106)] [added: [Business](#s309DE7644D0F5951928790D305F65641)] | [removed: [1](#sD3ECFA167F685B5AA1E02500F4002106)] [added: [1](#s309DE7644D0F5951928790D305F65641)] |

| Item 1A. | [Risk [removed: Factors](#s4C2EFD47B99A5EFFBE4C2B13F2DF9D2B)] [added: Factors](#s5E59B7AB3AEC5775B68528A14032D8E5)] | [removed: [6](#s4C2EFD47B99A5EFFBE4C2B13F2DF9D2B)] [added: [6](#s5E59B7AB3AEC5775B68528A14032D8E5)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s082ABD84BF7E55FFBBD6C6FD80AF6F13)] [added: Comments](#s5FD84A3FF24F51B2AFB301635185F4F9)] | [removed: [14](#s082ABD84BF7E55FFBBD6C6FD80AF6F13)] [added: [15](#s5FD84A3FF24F51B2AFB301635185F4F9)] |

| Item 2. | [removed: [Properties](#s653198A1B6FE50EEB5558AB1951E14BC)] [added: [Properties](#s2FF83BFE001B534F82D78466ED8C964B)] | [removed: [15](#s653198A1B6FE50EEB5558AB1951E14BC)] [added: [15](#s2FF83BFE001B534F82D78466ED8C964B)] |

| Item 3. | [Legal [removed: Proceedings](#s2FB07C8CE520573E9D8FC9A9B2C30579)] [added: Proceedings](#s0795120EB0CB519594E5040DB948EDF5)] | [removed: [15](#s2FB07C8CE520573E9D8FC9A9B2C30579)] [added: [15](#s0795120EB0CB519594E5040DB948EDF5)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s57DEF553AD8B5119B31A6A0C0ADB932B)] [added: Disclosures](#s9A8B854DEC21552CAE3CA43FDA14C235)] | [removed: [15](#s57DEF553AD8B5119B31A6A0C0ADB932B)] [added: [15](#s9A8B854DEC21552CAE3CA43FDA14C235)] |

| [PART [removed: II.](#sA1E6BD53190E524782FBFFF4C8F24971)] [added: II.](#s56DAE4E3A7E25CBCB8D4E049B32427E9)] | | |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s97E8D19116DE5225B55EAB8893660768)] [added: Securities](#sFDADD95FD2F35AC2A5F4074228708B63)] | [removed: [15](#s97E8D19116DE5225B55EAB8893660768)] [added: [15](#sFDADD95FD2F35AC2A5F4074228708B63)] |

| Item 6. | [Selected Financial [removed: Data](#sFAF00D5C62FC55989CC98E6D2018A7EE)] [added: Data](#s9D2DCE3E72075EFDB6F2050A4C5FD4D4)] | [removed: [16](#sFAF00D5C62FC55989CC98E6D2018A7EE)] [added: [16](#s9D2DCE3E72075EFDB6F2050A4C5FD4D4)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sAD1B7DF522AB5F13BD1B0A9E8F561D4E)] [added: Operations](#s7B2D8A9A833A5BEAAE6E075015DA1FDF)] | [removed: [16](#sAD1B7DF522AB5F13BD1B0A9E8F561D4E)] [added: [16](#s7B2D8A9A833A5BEAAE6E075015DA1FDF)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#sD408B8CB950553A094A35F9D25C515C1)] [added: Risk](#sB354949DEB025CC0B25F152BBCDBF1F3)] | [removed: [49](#sD408B8CB950553A094A35F9D25C515C1)] [added: [52](#sB354949DEB025CC0B25F152BBCDBF1F3)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s87A28375DE7B5CCDBDE26DD448B82D09)] [added: Data](#sEB26DD25E63C58229571956014B68A51)] | [removed: [51](#s87A28375DE7B5CCDBDE26DD448B82D09)] [added: [54](#sEB26DD25E63C58229571956014B68A51)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s34868119EFE85E04871D695580A3D24C)] [added: Disclosure](#s18010D50B9D6577FB47BF15C7955A911)] | [removed: [51](#s34868119EFE85E04871D695580A3D24C)] [added: [54](#s18010D50B9D6577FB47BF15C7955A911)] |

| Item 9A. | [Controls and [removed: Procedures](#sEB5F79946596593686EC57E81F384CFC)] [added: Procedures](#sD6F79AE88B565EA3B10F1C439ECA9909)] | [removed: [51](#sEB5F79946596593686EC57E81F384CFC)] [added: [54](#sD6F79AE88B565EA3B10F1C439ECA9909)] |

| Item 9B. | [Other [removed: Information](#sA5589220FB765BC29308B207B75A89EF)] [added: Information](#s6E3132785ACA56E48DD35595F2563E5C)] | [removed: [52](#sA5589220FB765BC29308B207B75A89EF)] [added: [55](#s6E3132785ACA56E48DD35595F2563E5C)] |

| [PART [removed: III.](#sB8C13A357C4E533CB53EC0B2E11044B0)] [added: III.](#s4DB97E02DDC257A599EAAD481BFCAEBC)] | | |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#sC5A962553CA455D09A08CA005B465A30)] [added: Governance](#s4BA2C5602AC15C258A02A4FBD1ABE0CD)] | [removed: [52](#sC5A962553CA455D09A08CA005B465A30)] [added: [55](#s4BA2C5602AC15C258A02A4FBD1ABE0CD)] |

| Item 11. | [Executive [removed: Compensation](#sC19A3F8E08C55D3A9465BD4A87A9A1A1)] [added: Compensation](#s26D148256AF35720B254F6868B94735A)] | [removed: [54](#sC19A3F8E08C55D3A9465BD4A87A9A1A1)] [added: [55](#s26D148256AF35720B254F6868B94735A)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s634F5AE7812356EBBF4EF564181F7A10)] [added: Matters](#s9438C210E8565B29BCDEE0D76200C573)] | [removed: [54](#s634F5AE7812356EBBF4EF564181F7A10)] [added: [55](#s9438C210E8565B29BCDEE0D76200C573)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sBDB5E8A73E895A8EB6172A6C8C7EF49F)] [added: Independence](#s99E9D45CF32C5B11810ECEFE4BB3DB0C)] | [removed: [54](#sBDB5E8A73E895A8EB6172A6C8C7EF49F)] [added: [55](#s99E9D45CF32C5B11810ECEFE4BB3DB0C)] |

| Item 14. | [Principal Accounting Fees and [removed: Services](#s13B713A649615D27B7EAC78DF2F7687B)] [added: Services](#sC1B9C13552325F8AAE63275F5743DA39)] | [removed: [54](#s13B713A649615D27B7EAC78DF2F7687B)] [added: [55](#sC1B9C13552325F8AAE63275F5743DA39)] |

| [PART [removed: IV.](#s7FABB6185EAA5EA5B22E87999B5C4F50)] [added: IV.](#sA1EEE4304A4D548C89D2F2943A8CAE64)] | | |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#s98722203D5DD5002873BA8B5952C520F)] [added: Schedules](#sA4B188351B9F5586BF6E735D5A53CC01)] | [removed: [55](#s98722203D5DD5002873BA8B5952C520F)] [added: [56](#sA4B188351B9F5586BF6E735D5A53CC01)] |

| Item 16. | [Form 10-K [removed: Summary](#s2FF0DE4633855B24BCA7546FA7C5DFC2)] [added: Summary](#sD6BC43955BAC5E329A91EAD34F32FE6F)] | [removed: [55](#s2FF0DE4633855B24BCA7546FA7C5DFC2)] [added: [56](#sD6BC43955BAC5E329A91EAD34F32FE6F)] |

| [Exhibit [removed: Index](#s3D83F85D39A75EA28101C9C05269834C)] [added: Index](#sB1D55C4FA6F8569380BB88AA765B96FD)] | | [removed: [56](#s3D83F85D39A75EA28101C9C05269834C)] [added: [57](#sB1D55C4FA6F8569380BB88AA765B96FD)] |

| | [Report of Independent Registered Public Accounting [removed: Firm](#s1217134C7C3350AA8B97442A2F8CF680)] [added: Firm](#s34ADB2992D4254488411B9F4ADBFC312)] | [removed: [F-1](#s1217134C7C3350AA8B97442A2F8CF680)] [added: [F-1](#s34ADB2992D4254488411B9F4ADBFC312)] |

| | [Consolidated Financial [removed: Statements](#s0A4747A7101A5B7EA34E2CD0E6107F6C)] [added: Statements](#s6153C52ED6D1597881EA2EEED0B1F418)] | [removed: [F-2](#s0A4747A7101A5B7EA34E2CD0E6107F6C)] [added: [F-3](#s6153C52ED6D1597881EA2EEED0B1F418)] |

| | [Notes to Consolidated Financial [removed: Statements](#s71820C381C5E59D69E572A24D377EBC1)] [added: Statements](#s23C55827ECA45556BA8BAD41A430460E)] | [removed: [F-7](#s71820C381C5E59D69E572A24D377EBC1)] [added: [F-8](#s23C55827ECA45556BA8BAD41A430460E)] |

| | [Selected [added: Consolidated] Financial [removed: Data](#sBA272BF8EA62524893EE85CDCB690917)] [added: Data](#sEDC12F3245AC5C37933B80DAED323A6C)] | [removed: [A-1](#sBA272BF8EA62524893EE85CDCB690917)] [added: [A-1](#sEDC12F3245AC5C37933B80DAED323A6C)] |

10-K 1 ptc9-30x1810xk.htm 10-K

| [PART I.](#s83BD317A9DEE531EA3EF2184C34570A0) | | |

| [Signatures](#s3888704B4D375E88B6906140197D23E0) | | [60](#s3888704B4D375E88B6906140197D23E0) |

| [APPENDIX A](#s2696D27922775FA2ABA5F5D84F25D4C2) | | |

10-K 1 ptc9-30x1710xk.htm 10-K

| | | (Do not check if a smaller reporting company) | |

| [PART I.](#sA85897443E1F58C386D589756AC20377) | | |

| [Signatures](#s624E9F9CAA4C5DB19A5311F92ADECD8E) | | [59](#s624E9F9CAA4C5DB19A5311F92ADECD8E) |

| [APPENDIX A](#s679FBE739EDF58ADB9340758553A88C2) | | |

We currently [removed: lease 94 offices] [added: have 76 primary 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 [removed: 1,367,000] [added: 1,698,000] square feet of leased facilities used in operations, approximately [removed: 541,000] [added: 837,000] square feet are located in the U.S., including 321,000 square feet at our headquarters facility located in Needham, Massachusetts, and approximately 297,000 square feet are located in India, where a significant amount of our research and development is conducted.

On September 30, [removed: 2017,] [added: 2018,] the close of our fiscal year, and on November [removed: 27, 2017,] [added: 13, 2018,] our common stock was held by [removed: 1,219] [added: 1,138] and [removed: 1,209] [added: 1,137] shareholders of record, respectively.

The table below shows the shares of our common stock we repurchased in the fourth quarter of [removed: 2017.][added: 2018.]

(2) [removed: In 2014, our] [added: Our] Board [added: of Directors has] authorized us to repurchase up to [removed: $600] [added: $1,500] million [removed: worth] of our [removed: shares in] [added: common stock for] the period [removed: August 4, 2014] [added: October 1, 2017] through September 30, [removed: 2017,] [added: 2020,] which [removed: repurchase] program we [added: initially] announced on [removed: August 4, 2014.][added: September 19, 2017 and expanded in July 2018.]

Our common stock is traded on the Nasdaq Global Select Market under the symbol "PTC."

| July 1, 2018 - July 28, 2018 | 8,244,873 | | | $97.03 | | 8,244,873 | | $400,000,000 (2)(3) |

| July 29, 2018 - August 25, 2018 | — | | | $— | | — | | $400,000,000 (2)(3) |

| August 26, 2018 - September 30, 2018 | — | | | $— | | — | | $400,000,000 (2)(3) |

| Total | 8,244,873 | | | $97.03 | | 8,244,873 | | $400,000,000 (2)(3) |

(3) In July 2018, we made a payment of $1,000 million to repurchase shares pursuant to an accelerated share repurchase agreement (ASR) with a major financial institution (Bank).

Of that amount, 8,244,873 shares valued at $800 million were repurchased in July 2018, with the remaining $200 million held back by the Bank pending final settlement of the ASR.

Information with respect to the market for our common stock is in Selected Consolidated Financial Data beginning on page F-1 of this Form 10-K and is incorporated herein by reference.

We do not pay cash dividends on our common stock and we retain earnings for use in our business or to repurchase our shares.

Although we review our dividend policy periodically, our review may not cause us to pay any dividends in the future.

Further, our debt instruments require us to maintain specified leverage and fixed-charge ratios that limit the amount of dividends that we could pay.

(See "Credit Agreements" and "Outstanding Notes" under Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.)

| July 2, 2017 - July 29, 2017 | — | | — | | | — | | $375,066,435 (2) |

| July 30, 2017 - August 26, 2017 | 73,000 | | $ | 54.59 | | 73,000 | | $371,081,478 (2) |

| August 27, 2017 - September 30, 2017 | 216,100 | | $ | 55.58 | | 216,100 | | $0 (2) |

| Total | 289,100 | | $ | 55.33 | | 289,100 | | $0 (2) |

On September 14, 2017, our Board of Directors authorized us to repurchase up to $500 million of our

common stock for the period October 1, 2017 through September 30, 2020, which program we announced on September 19, 2017.

Based on this evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, [removed: 2017.][added: 2018.]

[removed: 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, [removed: 2017] [added: 2018] 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, [removed: 2017,] [added: 2018,] our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of September 30, [removed: 2017] [added: 2018] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears under Item 8.

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, [removed: 2017] [added: 2018] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Projections of any evaluation of effectiveness to future periods are subject to the risk that

The information required by this item with respect to our directors and executive officers may be found in the sections captioned “Proposal 1: Election of Directors,” “Corporate Governance,” [added: "Our Executive Officers,"] “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Transactions With Related Persons” appearing in our [removed: 2018] [added: 2019] Proxy Statement.

Our executive officers are:

| | |

| --- | --- |

| James Heppelmann, President and Chief Executive Officer, Age 53 | |

|  | Mr. Heppelmann has been our President and Chief Executive Officer since October 2010. Mr. Heppelmann was our President and Chief Operating Officer from March 2009 through September 2010. Prior to that, Mr. Heppelmann served as our Executive Vice President and Chief Product Officer from February 2003 to March 2009. Mr. Heppelmann joined PTC in 1998. |

| Craig Hayman, Chief Operating Officer, Age 54 | |

|  | Mr. Hayman has been our Solutions Group President since November 2015 when he joined PTC. Mr. Hayman was the President of eBay’s enterprise business, an e-commerce platform business, from July 2014 to November 2015. Before that, Mr. Hayman was the General Manager of the Software as a Service and Industry Solutions business at IBM, an information technology and services company, from August 2010 to June 2014. Before that, Mr. Hayman held a number of other executive positions at IBM. |

| Andrew Miller, Executive Vice President, Chief Financial Officer, Age 57 | |

|  | Mr. Miller has been our Executive Vice President, Chief Financial Officer since February 2015 when he joined PTC. Mr. Miller was Executive Vice President, Chief Financial Officer of Cepheid, a publicly-traded medical technology company from April 2008 to February 2015. Prior to that, Mr. Miller was employed by Autodesk Inc., a publicly-traded software company, where he was the Vice President of Finance and Chief Accounting Officer. |

| Barry Cohen, Executive Vice President, Chief Strategy Officer, Age 73 | |

|  | Mr. Barry Cohen has been our Executive Vice President, Strategy since October 2010. Mr. Cohen was our Executive Vice President, Strategic Services and Partners from August 2002 through September 2010. Mr. Cohen joined PTC in 1998. |

| Matthew Cohen, Executive Vice President, Customer Success, Age 41 | |

|  | Mr. Matthew Cohen has been our Executive Vice President, Global Services since April 2014. Mr. Cohen was a Divisional Vice President, Global Services from September 2010 to March 2014. Mr. Cohen joined PTC in 2001. |

| Anthony Dibona, Executive Vice President, Focused Solutions Group, Age 61 | |

|  | Mr. DiBona became our Executive Vice President, for our Focused Solutions Group in October 2017. Mr. DiBona was our Executive Vice President for Renewal Sales from October 2016 to September 2017 and our Executive Vice President, Global Support from April 2003 to September 2016. Mr. DiBona joined PTC in 1998. |

| Aaron Von Staats, Corporate Vice President, General Counsel and Secretary, Age 51 | |

|  | Mr. von Staats has been Corporate Vice President, General Counsel and Secretary since March 2008. Prior to that, he served as Senior Vice President, General Counsel and Clerk from February 2003 to February 2008. Mr. von Staats joined PTC in 1997. |

Information with respect to director and executive compensation may be found under the headings “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” and “Compensation Committee Report” appearing in our [removed: 2018] [added: 2019] Proxy Statement.

Information required by this item may be found under the [removed: heading] [added: headings] “Information about PTC Common Stock Ownership” [added: and "Equity Compensation Plan Information"] in our [removed: 2018] [added: 2019] Proxy Statement.

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| EQUITY COMPENSATION PLAN INFORMATION as of SEPTEMBER 30, 2017 | | | | | | | | | | |

| Plan Category | | 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 | | |

| Equity compensation plans approved by security holders: | | | | | | | | | | |

| 2000 Equity Incentive Plan (1) | | 3,486,669 | | | — | | (1) | 3,739,910 | | |

| 2016 Employee Stock Purchase Plan (2) | | — | | | — | | | 1,730,865 | | (2) |

| Total | | 3,486,669 | | | — | | | 5,470,775 | | |

| (1) All of the shares issuable upon vesting are restricted stock units, which have no exercise price. | | | | | | | | | | |

| (2) This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which 165,820 shares are subject to purchase during the current offering period. | | | | | | | | | | |

Information with respect to this item may be found under the headings “Independence of Our Directors,” “Review of Transactions with Related Persons” and “Transactions with Related Persons” in our [removed: 2018] [added: 2019] Proxy Statement.

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 [removed: 2018] [added: 2019] Proxy Statement.

| | [Report of Independent Registered Public Accounting [removed: Firm](#s1217134C7C3350AA8B97442A2F8CF680)] [added: Firm](#s34ADB2992D4254488411B9F4ADBFC312)] | [removed: [F-1](#s1217134C7C3350AA8B97442A2F8CF680)] [added: [F-1](#s34ADB2992D4254488411B9F4ADBFC312)] |

| | [Consolidated Balance Sheets as of September 30, [removed: 2017] [added: 2018] and [removed: 2016](#s0A4747A7101A5B7EA34E2CD0E6107F6C)] [added: 2017](#s6153C52ED6D1597881EA2EEED0B1F418)] | [removed: [F-2](#s0A4747A7101A5B7EA34E2CD0E6107F6C)] [added: [F-3](#s6153C52ED6D1597881EA2EEED0B1F418)] |

| | [Consolidated Statements of Operations for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#s3D774050B7E75DD894D0720F4503F43E)] [added: 2016](#s64BBC742E1175653AE6FFB01F2980253)] | [removed: [F-3](#s3D774050B7E75DD894D0720F4503F43E)] [added: [F-4](#s64BBC742E1175653AE6FFB01F2980253)] |

| | [Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#sF3AD5BA389045908B68265174A51C6DB)] [added: 2016](#s65A2C36DC96A53A19D7FDE029B44B04D)] | [removed: [F-4](#sF3AD5BA389045908B68265174A51C6DB)] [added: [F-5](#s65A2C36DC96A53A19D7FDE029B44B04D)] |

| | [Consolidated Statements of Cash Flows for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#s62D068E72DC75B2C9B06F9DB74C9D26E)] [added: 2016](#s8A3D23ACA8485809A59826836A76C221)] | [removed: [F-5](#s62D068E72DC75B2C9B06F9DB74C9D26E)] [added: [F-6](#s8A3D23ACA8485809A59826836A76C221)] |

| | [Consolidated Statements of Stockholders’ Equity for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015](#sDD12FC3F4B8252868CB4FEFB86D08D10)] [added: 2016](#sC810FEE3C361508CA92CC1802D56D5CE)] | [removed: [F-6](#sDD12FC3F4B8252868CB4FEFB86D08D10)] [added: [F-7](#sC810FEE3C361508CA92CC1802D56D5CE)] |

| | [Notes to Consolidated Financial [removed: Statements](#s71820C381C5E59D69E572A24D377EBC1)] [added: Statements](#s23C55827ECA45556BA8BAD41A430460E)] | [removed: [F-7](#s71820C381C5E59D69E572A24D377EBC1)] [added: [F-8](#s23C55827ECA45556BA8BAD41A430460E)] |

| 10.8* | — | [Form of Amended and Restated Executive Agreement by and between PTC Inc. and each of Barry [removed: Cohen, Anthony DiBona,] [added: Cohen] and Aaron von Staats (filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter dated April 3, 2010 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312510118795/dex103.htm) |

| 10.9* | — | [Form of Amendment to Amended and Restated Executive Agreement entered into as of November 18, 2011 by and between PTC Inc. and each of Barry [removed: Cohen, Anthony DiBona,] [added: Cohen] and Aaron von Staats (filed as Exhibit 10.3 to our Current Report on Form 8-K dated November 15, 2011 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700511000030/formamend.htm) |

| 10.12* | — | [Form of Amendment to Executive Agreement dated August 4, 2015 by and between PTC Inc. and each of Andrew Miller, Barry Cohen, Matthew [removed: Cohen, Anthony DiBona,] [added: Cohen] and Aaron von Staats (filed as Exhibit 10.2 to our Current Report on Form 8-K dated August 10, 2015 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700515000027/exec2.htm) |

| [removed: 10.13] [added: 10.23] | — | [removed: [Executive Agreement] [added: [First Amendment to Lease] dated [removed: December 2, 2015] [added: as of October 5, 2017 by and] between PTC Inc. and [removed: Craig Hayman] [added: SCD L2 Seaport Square LLC] (filed as Exhibit [removed: 10.14] [added: 10.23] to our Annual Report on Form 10-K for the [removed: fiscal year] [added: period] ended September 30, [removed: 2016] [added: 2017] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700516000071/ptc93016ex1014.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc93017ex1023.htm)] |

| 10.16 | — | [removed: [Credit] [added: [Amended and Restated Credit] Agreement dated as of [removed: November 4, 2015] [added: September 13, 2018] by and among PTC Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 10 to our Current Report on Form 8-K dated [removed: November 4, 2015] [added: September 12, 2018] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312515366087/d58407dex10.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518275826/d626027d8k.htm)] |

| [removed: 10.17] [added: 10.24] | — | [removed: [Amendment No. 1 dated April 18, 2016 to Credit] [added: [Securities Purchase] Agreement [removed: dated as of November 4, 2015] by and [removed: among] [added: between] PTC [added: Inc. and Rockwell Automation,] Inc., [removed: JP Morgan Chase Bank, N.A.,] [added: dated] as [removed: Administrative Agent, and the lenders party thereto] [added: of June 11, 2018] (filed as Exhibit [removed: 99.3] [added: 10.1] to our Current Report on Form 8-K filed on [removed: April 20, 2016] [added: June 11, 2018] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700516000056/amend.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518188692/d599110d8k.htm)] |

| [removed: 10.19] [added: 10.1.1*] | — | [removed: [Amendment No. 3 dated September 21, 2016 to Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto] [added: [2000 Equity Incentive Plan] (filed as Exhibit [removed: 10.20] [added: 10.1.1] to our Annual Report on Form 10-K for the fiscal year ended September 30, [removed: 2016] [added: 2017] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700516000071/ptc93016ex1020.htm)] [added: reference.](http://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc93017ex1011.htm)] |

| [removed: 10.21] [added: 10.26] | — | [removed: [Amendment No. 5 dated March 24, 2017 to Credit] [added: [Registration Rights] Agreement [removed: dated as of November 4, 2015] by and [removed: among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and] [added: between] the [removed: lenders party thereto] [added: Company and Rockwell Automation, Inc., dated July 19, 2018] (filed as Exhibit [removed: 10] [added: 10.1] to our Current Report on Form 8-K filed on [removed: March 30, 2017] [added: July 19, 2018] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000165495417002769/amendmentno5toarcreditagr.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518221582/d360302d8k.htm)] |

| 21.1 | — | [Subsidiaries of PTC [removed: Inc.](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc9302017ex211.htm)] [added: Inc.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc93018ex10211.htm)] |

| 23.1 | — | [Consent of PricewaterhouseCoopers LLP, an independent registered public accounting [removed: firm.](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc9302017ex231.htm)] [added: firm.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc9302018ex231.htm)] |

| 31.1 | — | [Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13(a)-14(a) and [removed: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc9302017ex311.htm)] [added: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc9302018ex311.htm)] |

| 31.2 | — | [Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13(a)-14(a) and [removed: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc9302017ex312.htm)] [added: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc9302018ex312.htm)] |

| 32 | — | [Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section [removed: 1350.](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc9302017ex32.htm)] [added: 1350.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc9302018ex32.htm)] |

| 101 | — | The following materials from PTC Inc.'s Annual Report on Form 10-K for the year ended September 30, [removed: 2017,] [added: 2018,] formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, [removed: 2017] [added: 2018] and [removed: 2016;] [added: 2017;] (ii) Consolidated Statements of Operations for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015;] [added: 2016;] (iii) Consolidated Statements of Comprehensive Income for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015;] [added: 2016;] (iv) Consolidated Statements of Cash Flows for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015;] [added: 2016;] (v) Consolidated Statements of Stockholders’ Equity for the years ended September 30, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015;] [added: 2016;] and (vi) Notes to Consolidated Financial Statements. |

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 [removed: 29th] [added: 15th] day of November, [removed: 2017.][added: 2018.]

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 [removed: 29th] [added: 15th] day of November, [removed: 2017.][added: 2018.]

In our opinion, the [removed: accompanying] consolidated [removed: balance sheets and the related consolidated] [added: financial] statements [removed: of operations, of comprehensive income (loss), of stockholders’ equity, and of cash flows] [added: referred to above] present fairly, in all material respects, the financial position of [removed: PTC Inc. and its subsidiaries] [added: the Company] as of September 30, [removed: 2017] [added: 2018] and September 30, [removed: 2016,] [added: 2017,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended September 30, [removed: 2017] [added: 2018] 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, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the [removed: Committee of Sponsoring Organizations of the Treadway Commission (COSO).][added: COSO.]

The Company's management is responsible for these [added: consolidated] financial statements, for maintaining effective internal control over financial [removed: reporting] [added: reporting,] and for its assessment of the effectiveness of internal control over financial reporting, included in [removed: “Management's] [added: Management’s] Annual Report on Internal Control over Financial [removed: Reporting”] [added: Reporting] appearing under Item 9A.

Our responsibility is to express opinions on [removed: these] [added: the Company’s consolidated] financial statements and on the Company's internal control over financial reporting based on our [removed: integrated] audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the [added: consolidated] financial statements are free of material [removed: misstatement] [added: misstatement, whether due to error or fraud,] and whether effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the financial statements] [added: also] included [removed: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing] [added: evaluating] the accounting principles used and significant estimates made by management, [removed: and] [added: as well as] evaluating the overall [added: presentation of the consolidated] financial [removed: statement presentation.][added: statements.]

[removed: 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.

| | [added: 2018 | | | |] 2017 | | | | 2016 | | |

| Cash and cash [removed: equivalents | $] [added: equivalents, beginning of year] | 280,003 | | | [removed: $] | 277,935 | | [added: | | 273,417 | | |]

| Short-term marketable securities | [removed: 18,408] [added: 25,836] | | | | [removed: 18,695] [added: 18,408] | | |

| Accounts receivable, net of allowance for doubtful accounts of [removed: $1,062] [added: $607] and [removed: $1,012] [added: $1,062] at September 30, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively | [removed: 152,299] [added: 129,297] | | | | [removed: 161,357] [added: 152,299] | | |

| Prepaid expenses | [removed: 49,913] [added: 48,997] | | | | [removed: 52,819] [added: 49,913] | | |

| Other current assets | [removed: 165,933] [added: 169,708] | | | | [removed: 131,783] [added: 165,933] | | |

| Total current assets | [removed: 666,556] [added: 633,784] | | | | [removed: 642,589] [added: 666,556] | | |

| Property and equipment, net | [removed: 63,600] [added: 80,613] | | | | [removed: 67,113] [added: 63,600] | | |

| Goodwill | [removed: 1,182,772] [added: 1,182,457] | | | | [removed: 1,169,813] [added: 1,182,772] | | |

| Acquired intangible assets, net | [removed: 257,908] [added: 200,202] | | | | [removed: 310,305] [added: 257,908] | | |

| Long-term marketable securities | [removed: 31,907] [added: 30,115] | | | | [removed: 30,921] [added: 31,907] | | |

| Deferred tax assets | [removed: 123,166] [added: 165,566] | | | | [removed: 89,692] [added: 123,166] | | |

| Other assets | [removed: 34,475] [added: 36,285] | | | | [removed: 35,296] [added: 34,475] | | |

| Total assets | $ | [removed: 2,360,384] [added: 2,329,022] | | | $ | [removed: 2,345,729] [added: 2,360,384] | |

| Accounts payable | $ | [removed: 35,160] [added: 53,473] | | | $ | [removed: 18,022] [added: 35,160] | |

| Accrued expenses and other current liabilities | [removed: 80,761] [added: 74,388] | | | | [removed: 84,141] [added: 80,761] | | |

| 10.13 | — | [Executive Agreement dated May 15, 2017 between PTC Inc. and Kathleen Mitford.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc93018ex1013.htm) |

| 10.25 | — | [Amended and Restated Strategic Alliance Agreement by and between PTC Inc. and Rockwell Automation, Inc. dated as of June 18, 2018.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc93018ex1025.htm) |

| /s/ BLAKE MORET | | Director |

| Blake Moret | | |

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, 2018 and September 30, 2017, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity, and of cash flows for each of the three years in the period ended September 30, 2018, 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, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Basis for Opinions

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.

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.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal

November 15, 2018

We have served as the Company’s auditor since 1992.

| | 2018 | | | | 2017 | | |

| Cash and cash equivalents | $ | 259,946 | | | $ | 280,003 | |

| Net income (loss) | $ | 51,987 | | | $ | 6,239 | | | $ | (54,465 | ) |

| Net income (loss) | $ | 51,987 | | | $ | 6,239 | | | $ | (54,465 | ) |

| Net cash provided by operating activities | 247,811 | | | | 135,234 | | | | 183,261 | | |

| Purchase of intangible asset | (3,000 | | ) | | — | | | | — | | |

| Common stock issued | 10,582 | | | 106 | | | | 995,394 | | | | — | | | | — | | | | 995,500 | | |

| Common stock issued for employee stock purchase plan | 292 | | | 2 | | | | 15,652 | | | | — | | | | — | | | | 15,654 | | |

| ASU 2016-09 adoption | — | | | — | | | | 681 | | | | (556 | | ) | | — | | | | 125 | | |

| Repurchases of common stock | (9,392 | ) | | (93 | | ) | | (1,099,907 | | ) | | — | | | | — | | | | (1,100,000 | | ) |

| Unrealized loss on hedging instruments, net of tax | — | | | — | | | | — | | | | — | | | | 1,928 | | | | 1,928 | | |

| Unrealized loss on available-for-sale securities, net of tax | — | | | — | | | | — | | | | — | | | | (269 | | ) | | (269 | | ) |

| Balance as of September 30, 2018 | 117,981 | | | $ | 1,180 | | | $ | 1,558,403 | | | $ | (599,409 | ) | | $ | (85,585 | ) | | $ | 874,589 | |

Effective at the beginning of fiscal 2018, in accordance with the adoption of ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, excess tax benefits are now classified as an operating activity on the statement of cash flows rather than as a financing activity.

The prior period excess tax benefits have been reclassified for comparability.

Segments

With a change in our organizational structure to streamline our operations, we merged our Solution Group segment with our IoT Group segment and revised the information that our chief executive officer, who is also our chief operating decision maker ("CODM"), regularly reviews for purposes of allocating resources and assessing performance.

As a result, effective with the beginning of the first quarter of fiscal 2018, we changed our operating and reportable segments from three to two: (1) Software Products, which includes license, subscription and related support revenue (including updates and technical support) for all our products; and (2) Professional Services, which includes consulting, implementation and training services.

Revenue and operating income in Note Q.

Segment Information have been reclassified to conform to the current period presentation.

foreign currency net losses in the Consolidated Statements of Operations.

Through 2018, we recorded revenues for software related deliverables in accordance with the guidance provided by ASC 985-605, Software-Revenue Recognition and revenues for non-software deliverables in accordance with ASC 605-25, Revenue Recognition, Multiple-Element Arrangements.

When sold in arrangements with other elements, VSOE of fair value is established for

of the consulting services as service revenue, and the residual portion as license revenue.

| | 2018 | | | | 2017 | | |

| | | |

| --- | --- | --- |

| 10.1.1* | — | [2000 Equity Incentive Plan.](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc93017ex1011.htm) |

| 10.18 | — | [Amendment No. 2 dated June 1, 2016 to Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2016 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700516000068/ptc07022016ex102.htm) |

| 10.20 | — | [Amendment No. 4 dated January 13, 2017 to Credit Agreement dated as of November 4, 2015 by and among PTC Inc., JP Morgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2016 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700517000004/ptc12312016ex101q1.htm) |

| 10.23 | — | [First Amendment to Lease dated as of October 5, 2017 by and between PTC Inc. and SCD L2 Seaport Square LLC.](https://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc93017ex1023.htm) |

| | |

| --- | --- |

As discussed in Note B to the consolidated financial statements, the Company changed the manner in which it accounts for debt issuance costs in 2017.

November 29, 2017

| Pension settlement loss | — | | | | — | | | | 66,332 | | |

| Net cash provided by operating activities | 134,590 | | | | 183,168 | | | | 179,903 | | |

| Excess tax benefits realized from stock-based awards | 644 | | | | 93 | | | | 24 | | |

| Cash and cash equivalents, beginning of year | 277,935 | | | | 273,417 | | | | 293,654 | | |

| Balance as of October 1, 2014 | 115,025 | | | $ | 1,150 | | | $ | 1,597,277 | | | $ | (650,171 | ) | | $ | (94,367 | ) | | $ | 853,889 | |

| Excess tax benefits from stock-based awards | — | | | — | | | | 24 | | | | — | | | | — | | | | 24 | | |

| Repurchases of common stock | (2,728 | ) | | (27 | | ) | | (64,913 | | ) | | — | | | | — | | | | (64,940 | | ) |

In 2015, we recorded an out of period correction of approximately $6.4 million of additional revenue that was deferred and should have been recognized previously.

Management believes this correction was not material to the then current period financial statements or any previously issued financial statements.

result in the revenue for license and service elements of an agreement being recorded separately; and

Generally, customers have the right to terminate a hosting services contract and take possession of the licenses without a significant penalty.

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | September 30, 2016 | | | | | | | | | | | | | | |

| Commercial paper | 11,945 | | | | — | | | | (20 | | ) | | 11,925 | | |

| | $ | 49,738 | | | $ | — | | | $ | (122 | ) | | $ | 49,616 | |

The longer the duration of these

As of September 30, 2016, all securities were held for less than twelve months.

| | $ | 50,458 | | | $ | 50,315 | | | $ | 49,738 | | | $ | 49,616 | |

of unobservable inputs when measuring fair value.

| Commercial paper | — | | | | 11,925 | | | | — | | | | 11,925 | | |

| | $ | 94,740 | | | $ | 15,275 | | | $ | — | | | $ | 110,015 | |

| | $ | — | | | $ | 3,170 | | | $ | 19,570 | | | $ | 22,740 | |

| Change in fair value of contingent consideration | — | | | | — | | | | 930 | | | | 930 | | |

| Payment of contingent consideration | — | | | | (2,500 | | ) | | (9,600 | | ) | | (12,100 | | ) |

If such targets were achieved within the defined 12 month, 18 month and 24 month earn-out periods.

As of September 30, 2017, our estimate of the liability was $8.4 million, net of $9.6 million in payments made in 2017.

In connection with our 2015 acquisition of ColdLight, the former shareholders were eligible to receive contingent consideration of up to $5.0 million.

In connection with accounting for the business combination, we recorded a liability of $3.8 million, representing the fair value of the contingent consideration.

In connection with our 2014 acquisition of ThingWorx, the former shareholders were eligible to receive contingent consideration of up to $18.0 million if certain profitability and bookings targets were achieved within two years of the acquisition.