PTC (PTC) 10-K risk factor changes: FY2019 vs FY2018

The following are important factors we have identified that could affect our future [removed: results.][added: results and your investment in our securities.]

You should consider them carefully when evaluating an investment in PTC securities or any forward-looking statements made by us, including those contained in this Annual Report, because these factors could cause actual results to differ materially from historical results or the performance projected in [removed: forward-looking] [added: forward- looking] statements.

[removed: Our] [added: Our] operating results fluctuate from quarter to quarter, making future operating results difficult to predict; failure to meet market expectations could cause the price of our securities to [removed: decline.][added: decline.]

Our quarterly operating results historically have fluctuated and are likely to continue to fluctuate depending on [removed: a number of] [added: many] factors, including:

| • | a high percentage of our orders historically have been generated in the third month of each fiscal quarter and any failure to receive, complete or process orders at the end of any quarter could cause us to fall short of our [removed: revenue] [added: financial] and [removed: bookings] [added: operating] targets; |

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

| • | [added: because] our operating expenses are largely fixed in the short term and are based on expected revenues, [removed: so] any failure to achieve our revenue targets could cause us to miss our earnings [removed: targets as well;] [added: targets;] |

Accordingly, our quarterly results are difficult to predict prior to the end of the quarter and we may be unable to confirm or adjust expectations with respect to our operating results for a [removed: particular] quarter until that quarter has closed.

[removed: Our long range] [added: Our long-range] financial targets are predicated on [removed: bookings and] [added: expanding our portfolio of recurring] revenue [removed: growth and] [added: contracts (ARR growth),] operating margin improvements [added: and cash flow growth] that we may fail to achieve, which could reduce our expected earnings and cause us to fail to meet the expectations of analysts or investors and cause the price of our securities to [removed: decline.][added: decline.]

We are projecting long-term [removed: bookings, revenue] [added: ARR, operating margin] and [removed: earnings] [added: cash flow] growth.

We may not achieve the expected [removed: bookings and revenue] [added: ARR] growth if the markets we serve do not grow at expected rates, if customers do not purchase, renew, or expand subscriptions as we expect, if we are not able to deliver solutions desired by customers and potential customers, and/or if acquired businesses do not generate the revenue growth that we expect.

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

If [added: we are unable to reduce] our [removed: services revenue increases] [added: sales and marketing expenses] as a percentage of [removed: total] revenue [removed: and/or if] [added: through productivity initiatives, or to reduce the amount of services] we [removed: are unable] [added: provide and/or] to improve our services margins, [added: we may not achieve] our [removed: overall] operating margin [removed: may not increase to the levels we expect or may decrease.][added: targets.]

[removed: We] [added: We] depend on sales within the discrete manufacturing sector and our business could be adversely affected if manufacturing activity does not [removed: grow] [added: grow,] or if it [removed: contracts] [added: contracts,] or if manufacturers are adversely affected by other economic [removed: factors.][added: factors.]

[removed: If this economic] [added: Although the decline in Manufacturing PMI did not have a significant adverse affect on our business in 2019, if the manufacturing] sector does not [removed: grow,] [added: improve] or [removed: if it contracts,] [added: continues to decline,] our customers in this sector may, as they have in the past, reduce or defer purchases of our products and services, which [added: could] adversely [removed: affects] [added: affect] our [removed: business.][added: financial results.]

[removed: We] [added: We] face significant competition, which may reduce our [removed: profits] [added: profitability] and limit or reduce our market [removed: share.][added: share.]

[removed: A] [added: A] breach of security in our products or computer systems, or those of our third-party service providers, could compromise the integrity of our products, [added: cause loss of data,] harm our reputation, create additional liability and adversely impact our financial [removed: results.][added: results.]

In addition, we offer cloud services to our customers and some of our products are hosted by third-party service providers, which expose us to additional risks as those repositories of our customers’ proprietary data may be targeted by [removed: such] hackers.

A significant breach of the security [removed: and/or] [added: and/ or] integrity of our products or systems, or those of our third-party service providers, could prevent our products from functioning properly, could enable access to sensitive, proprietary or confidential information, including that of our customers, or could disrupt our business operations or those of our customers.

This could require us to incur significant costs of investigation, remediation, [added: and further protection,] 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.

[removed: We] [added: We] may be unable to hire or retain personnel with the [removed: technical skills] necessary [added: skills] to [removed: further develop] [added: operate and grow] our [removed: software products,] [added: business,] which could adversely affect our ability to [removed: compete.][added: compete.]

Our success depends upon our ability to attract and retain highly skilled [removed: technical] [added: managerial, sales and marketing, technical, financial and administrative] personnel to [removed: develop] [added: operate and grow] our [removed: products.][added: business.]

[removed: Competition for such] [added: The technical] personnel [removed: in] [added: required to develop] our [removed: industry is intense, especially for] [added: products and solutions are in high demand, particularly technical] personnel with augmented and virtual reality and analytics expertise as there are comparatively fewer persons with those skills.

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

[removed: Our] [added: Because our] sales and operations are globally dispersed, [removed: which exposes us to] [added: we face] additional compliance [removed: risks, which] [added: risks and any compliance risk] could adversely affect our business and financial [removed: results.][added: results.]

[removed: Managing these geographically dispersed operations requires significant attention and resources to] ensure compliance with laws of those countries and those of the U.S. governing our activities in non-U.S. countries.

Our compliance risks [removed: with these laws] are heightened due to the [removed: global nature of our business, our] go-to-market approach for our [removed: IoT business] [added: businesses] that relies heavily on [removed: expanding our] [added: a] partner ecosystem, the fact that we operate in, and are expanding into, countries with a higher incidence of corruption and fraudulent business practices than others, the fact that we deal with governments and state-owned business enterprises, the [removed: employees and representatives of which may be considered foreign officials for purposes of the FCPA] [added: fact that cyber attacks] and [removed: the UK Bribery Act,] [added: intrusions that could expose sensitive information have increased,] and the fact [added: that] global enforcement of [removed: 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 [removed: laws] [added: laws, that a cyber attack] or [added: intrusion would not be successful, or] that we may inadvertently violate such laws.

Investigations of alleged violations of those laws [added: and cyber intrusions] can be expensive and disruptive.

[removed: Our] [added: Our] international businesses present economic and operating risks, which could adversely affect our business and financial [removed: results.][added: results.]

[removed: Our] [added: Our] inability to maintain or develop our strategic and technology relationships could adversely affect our [removed: business.][added: business.]

[removed: We] [added: We] may be unable to adequately protect our proprietary rights, which could adversely affect our business and our ability to compete [removed: effectively.][added: effectively.]

[removed: Intellectual] [added: Intellectual] property infringement claims could be asserted against us, which could be expensive to defend and could result in limitations on our use of the claimed intellectual [removed: property.][added: property.]

The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property [removed: rights, as well as improper disclosure of confidential or proprietary information.][added: rights.]

[removed: Businesses] [added: Businesses] we acquire may not generate the revenue and earnings we anticipate and may otherwise adversely affect our [removed: business.][added: business.]

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

[removed: We] [added: We] may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net [removed: income.][added: income.]

[removed: Our] [added: Our] substantial indebtedness could adversely affect our business, financial condition and results of operations, as well as our ability to meet our payment obligations under our [removed: debt.][added: debt.]

As of November 15, [removed: 2018,] [added: 2019,] our total debt outstanding was approximately [removed: $728 million,] [added: $1.1 billion,] approximately [removed: $228] [added: $628] million of which was under our [removed: $700 million] [added: $1 billion] secured credit facility (which matures in September 2023) and $500 million of which was associated with the 6% Senior Notes issued May 2016, which mature in May 2024 and are [removed: unsecured (see Liquidity and Capital Resources-Outstanding Notes in Item 7.][added: unsecured.]

As of November 15, [removed: 2018,] [added: 2019,] we had unused commitments under our credit facility of approximately [removed: $472] [added: $357] million.

I.Risks Related to Our Business Operations and Industry

The markets for our products and solutions are rapidly changing and characterized by intense competition, disruptive technology developments, evolving distribution models and increasingly lower barriers to entry.

If we are unable to provide products and solutions that address customers’ needs as well as our competitors’ products and solutions do, or to align our pricing, licensing and delivery models with customer preferences, we could lose customers and/or fail to attract new customers, which could cause us to lose revenue and market share.

Competitive pressures could also cause us to reduce our prices, which could reduce our revenue and margins.

Our current and potential competitors range from large and well-established companies to emerging start-ups.

Some of our competitors and potential competitors have greater name recognition in the markets we serve and greater financial, technical, sales and marketing, and other resources, which could limit our ability to gain customer recognition and confidence in our products and solutions and successfully sell our products and solutions, which could adversely affect our ability to grow our business.

Competition for such personnel in our industry is intense, particularly in the Boston, Massachusetts area where our global headquarters is located.

The managerial, sales and marketing, financial and administrative personnel necessary to guide our operations, market and sell our solutions and support our business operations are also in high demand due to the intense competition in our industry.

If we are unable to attract and retain the personnel we need to develop compelling products and solutions, and guide, operate and support our business, we may be unable to successfully compete in the marketplace, which would adversely affect our revenues and profitability.

The global Manufacturing Purchasing Managers' Index (PMI) has declined significantly over the past year and remained below the 50% level in September 2019, with a particularly large recent decline in Europe.

In addition, manufacturers worldwide are facing increasing uncertainty about the global economic climate due to, among other factors, the geopolitical environment and ongoing trade tensions and tariffs.

In addition, within the technology industry the U.S. Administration’s focus on technology transactions with non-U.S. entities and potential expanded prohibitions has created additional uncertainty.

In light of these concerns and challenges, including the potential enactment or expansion of laws that restrict our ability to sell our solutions to customers, customers may delay, reduce or forego purchases of our solutions, which would adversely affect our business and financial results.

If we fail to successfully manage our transition to a subscription-based licensing company, our business and financial results could be adversely affected.

We completed our transition from offering perpetual licenses for our products to offering only subscription-based licenses worldwide in January 2019 (excluding Kepware).

While we expect our subscription base, recurring revenue and cash flow to increase over time as a result of this licensing model transition, our ability to achieve these financial objectives is subject to risks and uncertainties.

Becoming a subscription-based licensing company requires a considerable investment of technical, financial, legal and sales resources, and a scalable organization.

Whether our transition will be successful and will accomplish our business and financial objectives is subject to uncertainties, including but not limited to: customer demand, attach and renewal rates, channel acceptance, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, and our costs.

If we are unable to successfully establish these new offerings and navigate our business transition due to the foregoing risks and uncertainties, our business and financial results could be adversely impacted.

Managing these geographically dispersed operations requires significant attention and resources to

For example, we have an open tax dispute in South Korea with respect to which we paid $12 million in 2017 to accommodate the potential tax liability through 2015, which we are disputing.

If we do not prevail in that challenge, we could be subject to additional liabilities for periods after 2015, which we estimate could be $13 million.

II.Risks Related to Acquisitions and Strategic Relationships

III.Risks Related to Our Intellectual Property

IV.Risks Related to Our Indebtedness

Of the $628 million outstanding under our secured credit facility, $455 million was borrowed on November 1, 2019 to finance our acquisition of Onshape.

In November 2019, we also amended the credit facility to increase the revolving loan commitment from $700 million to $1 billion (see *Liquidity and Capital Resources-Outstanding Notes* in Item 7.

of which are beyond our control.

Our credit facility has variable interest tied to LIBOR and we could become subject to higher interest rates if the replacement rate we agree on with our banks is higher.

Borrowings under our revolving credit facility use the London Interbank Offering Rate (LIBOR) as a benchmark for establishing the interest rate.

LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform.

These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past.

Although we believe the recent discussions about alternative rates will not materially increase the interest rates on our credit facility, the final agreed rate may increase the cost of our variable rate indebtedness.

V.Risks Related to Our Common Stock and Debt Securities

| • | variability in our contracts, including timing of start dates, length of contracts, and mix of on-premise and cloud-based purchases, which would impact our revenue and earnings; |

If we fail to achieve our long-range financial targets, or if analysts and investors expect that we will not achieve our long-range financial targets, the price of our securities could decline.

The market, if any, for

I.

Operational Considerations

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| • | our mix of license, subscription and service revenues can vary from quarter to quarter, creating variability in our financial results; |

| • | one or more industries that we serve may have weak or negative growth; |

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

We began offering most of our solutions under a subscription option in 2015, in addition to a perpetual license option.

Under a subscription, customers pay a periodic fee for the right to use our software and receive support, or to use our cloud services and have us manage the application for a specified period.

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.

A significant number of our customers have elected to purchase our solutions as subscriptions rather than under perpetual licenses.

As a result, our license revenues have declined.

Our support revenue (which comprises a significant portion of our revenue) has also decreased due to support services being included in the subscription offering and to customers converting their support contracts into subscriptions.

We discontinued sales of perpetual licenses for most of our products in the Americas and Western Europe as of January 1, 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 revenue.

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.

We may not be able to predict subscription renewal rates and their impact on our future revenue and operating results.

Although our subscription solutions are designed to increase the number of customers that purchase our solutions as subscriptions and create a recurring revenue stream that increases and is more predictable over time, our customers are not required to renew their subscriptions for our solutions and they may elect not to renew when or as we expect.

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 downturns, the adverse impact of import tariffs, or other market uncertainty.

If our customers do not renew their subscriptions when or as we expect, or if they renew on less favorable terms, our revenues and earnings may decline.

Services margins are significantly lower than license and support margins.

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 program and improving the profitability of services that we perform.

Additionally, if we do not achieve lower sales and marketing expenses as a percentage of revenue through productivity initiatives, we may not achieve our operating margin targets.

If operating margins do not improve, our earnings could be adversely affected and the price of our securities could decline.

Our significant investment in our IoT business may not generate the revenues we expect, which could adversely affect our business and financial results.

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

The Internet of Things is a relatively new market and there are a significant number of competitors in the market.

If the market does not expand as rapidly as we or others expect or if customers adopt competitive solutions rather than our solutions, our IoT business may not generate the revenues we expect.

Further, our customers and potential customers often begin the process of implementing IoT with a proof-of-concept evaluation, in some cases with multiple different technology vendors.

Our 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.

Further, one market for our IoT business is as a platform provider to a broad ecosystem of application and solutions providers.

This market relies on an extensive and differentiated partner ecosystem to enable us to access markets and customers beyond our traditional markets, customers and buyers.

We may be unable to expand our partner ecosystem as we expect and developers may not adopt our IoT solutions as we expect, which would adversely affect our ability to realize revenue from our investments in this business.

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.

[removed: Forward-Looking Statements][added: Forward-Looking Statements]

[removed: Statements] [added: *Statements] in this Annual Report about anticipated financial results and growth, as well as about the development of our products and markets, are forward-looking statements that are based on our current plans and assumptions.

“Risk Factors” of this Annual [removed: Report.][added: Report.*]

[removed: Unless] [added: *Unless] otherwise indicated, all references to a year reflect our fiscal year that ends on September [removed: 30.][added: 30.*]

[removed: Operating] [added: Operating] and Non-GAAP Financial [removed: Measures][added: Measures]

Our discussion of results includes discussion of our operating measures (including [added: "ARR,"] “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 [removed: Results] [added: *Results] of Operations - Operating [removed: Measures] [added: Measures*] and [removed: Results] [added: *Results] of Operations - Non-GAAP Financial [removed: Measures,] [added: Measures,*] respectively.

You should read those sections to understand [removed: those] [added: our] operating and non-GAAP financial measures.

[removed: Revenue] [added: Revenue] Sources and [removed: Recognition][added: Recognition]

We sell [added: software] subscription and perpetual [removed: licenses to our software,] [added: licenses,] support for perpetual licenses, cloud services and professional services.

Subscription revenue is comprised of time-based licenses whereby customers use our software and receive related support for a specified [removed: term, and for which through 2018 revenue is recognized ratably over the term of the contract.][added: term.]

[added: Support revenue is comprised] of contracts to maintain new and/or previously purchased [removed: perpetual] licenses, for which revenue is recognized ratably over the [removed: term of the contract.]

[removed: 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 [removed: contract.][added: contract are included in subscription revenue and have been immaterial to date.]

[removed: Consulting and training professional] [added: Professional] services engagements typically result from sales of new [removed: licenses, and for which] [added: licenses;] revenue is recognized over the term of the engagement.

[removed: Summary of Significant Accounting Policies] [added: Acquisitions* included] in the Notes to Consolidated Financial Statements in this Annual Report.

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

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

The license portion of [removed: such] [added: our on-premise] subscription contracts (approximately 50% to 55%) [removed: will be] [added: is] recognized upfront and the cloud and support portions (approximately 45% to 50%) [removed: of such subscription contracts will be] [added: are] recognized ratably over the term.

The effects of our adoption of ASC 606, including [removed: expected] [added: the] adjustments to [removed: retained earnings] [added: accumulated deficit] related to billed and unbilled deferred revenue, are described [removed: below] in [removed: “Recent Accounting Pronouncements” and in Note B.][added: *Note 3.]

[removed: Summary] [added: The accounting policies, methods and estimates used to prepare our financial statements are described generally in *Note 2.* *Summary] of Significant Accounting [removed: Policies in the] [added: Policies* of] Notes to Consolidated Financial Statements in this Annual Report.

[removed: Executive Overview][added: Executive Overview]

[removed: Subscription] [added: Under ASC 605, total] revenue, software revenue and [removed: total] [added: subscription] revenue [removed: were all up over fiscal 2017,] [added: grew in 2019 compared to 2018,] despite an 800 basis point increase in subscription mix [removed: year over year.][added: in 2019.]

[removed: ][added: ]

| [added: Revenue *(in thousands)*] | | [added: 2019] | | | | [added: 2019] | | | | [added: 2018] | | | [removed: Constant Currency Change] | [added: Change] | | [added: | Constant Currency | |]

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

| [removed: Revenue] | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2019] | | | | [removed: Change] [added: 2018] | | | | [added: 2017] | | [added: |]

| Subscription | [added: $] | [added: 602.2 | | |] $ | [added: 667.6 | | | $ |] 482.0 | | | $ | 279.2 | | | [added: 38 | % | | 41 | % | |] 73 | % | | 69 | % | [removed: |]

| [removed: Support] [added: Perpetual support] | [added: 415.2] | [added: | | | 411.0 | | | |] 496.8 | | | | 574.7 | | | | [added: (17 | )% | | (15 | )% | |] (14 | )% | | (16 | )% | [removed: |]

| Total recurring revenue | [added: 1,017.4] | [added: | | | 1,078.6 | | | |] 978.9 | | | | 853.9 | | | | [added: 10 | % | | 13 | % | |] 15 | % | | 12 | % | [removed: |]

| Perpetual license | [added: 70.7] | [added: | | | 72.2 | | | |] 109.6 | | | | 133.4 | | | | [added: (34 | )% | | (32 | )% | |] (18 | )% | | (20 | )% | [removed: |]

[removed: | Total] [added: Software revenue consists of] subscription, [removed: support] [added: support,] and [added: perpetual] license [removed: revenue | | 1,088.5 | | | | 987.3 | | | | 10 | % | | 8 | % | |][added: revenue.]

| Professional services | [added: 167.5] | [added: | | | 160.7 | | | |] 153.3 | | | | 176.7 | | | | [added: 5 | % | | 9 | % | |] (13 | )% | | (16 | )% | [removed: |]

| Total revenue | [added: 1,255.6] | [removed: $] | [added: | | 1,311.5 | | | |] 1,241.8 | | | [removed: $] | 1,164.0 | | | [added: | 6 | % | | 8 | % | |] 7 | % | | 4 | % | [removed: |]

As our mix of subscription sales relative to perpetual license sales has increased, perpetual license revenue and support revenue have [removed: declined.][added: declined and are expected to continue to decline as customers purchase our solutions as subscriptions and convert existing perpetual licenses with support contracts to]

[removed: Our 2018] [added: Professional services] revenue [removed: results include the impact of] [added: in 2018 includes] a [added: $14.5 million write-down related to a] settlement of a customer dispute concerning a [removed: professional services] receivable.

[removed: Additionally,] [added: We expect that] professional services revenue [removed: has declined in accordance with] [added: will trend flat-to-down over time due to] our strategy to [removed: migrate more] [added: expand margins by migrating] services engagements to our partners and [removed: to deliver] [added: delivering] products that require less consulting and training services.

[removed: ][added: ]

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

| [removed: Earnings Measures] [added: Earnings Measures] | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2019] | | | | [removed: Change] [added: 2018] | | | [added: | Change | |]

| [removed: Earnings Per Share] [added: Diluted earnings (loss) per share (2)] | [added: $] | [added: (0.23 | ) | |] $ | [added: 0.03 | | | $ |] 0.44 | | | $ | 0.05 | | | [removed: 780] | [removed: %] | | [added: | | | | | | | |]

Results for reporting periods beginning on or after October 1, 2018 are presented under the Accounting Standards Update No. 2014-09, *Revenue from Contracts with Customers: Topic 606* (ASC 606), while prior period amounts are not adjusted and continue to be reported 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* (ASC 605).

Through 2018, revenue for our subscription contracts was recognized ratably over the term of the contract under ASC 605; this differs from how revenue for such contracts is recognized under ASC 606.

Our contracts with customers may include multiple goods and services.

Determining whether the software licenses and the cloud services are distinct from each other, and therefore performance obligations to be accounted for separately, or not distinct from each other, and therefore part of a single performance obligation, may require significant judgment.

To date, for the majority of our products, we have concluded that the on-premise software licenses and cloud services provided in our subscription offerings are distinct from each other such that revenue from each performance obligation within the offering should be recognized separately.

We will continue to review this conclusion as the cloud services that we deliver in combination with our on-premise subscriptions continue to evolve, which could result in changes to how we recognize revenue for such products.

term of the contract.

Professional services engagements typically result from sales of new licenses, and for which revenue is recognized as the services are performed.

Summary of Significant Accounting Policies* and in *Note 3.

Our adoption of ASC 606 has increased the volatility of our revenue results as a significant portion of subscription revenue is recognized at the time of delivery, rather than being recognized ratably over the contract period.

ARR increased 10% to $1,116 million ($1,134 million and 12% at the guidance rate) as of the end of 2019 reflecting solid growth for this metric across all our businesses, particularly in our IoT and AR businesses.

Operating cash flow was $285 million, up 15% in 2019 compared to 2018.

We made $22 million more in restructuring payments in 2019 compared to 2018 related to our workforce realignment and headquarters relocation.

Our 2019 results reflect continued demand for our PLM and CAD products as well as growing demand for our IoT and Augmented Reality (AR) products.

License and subscription bookings in the fourth quarter of 2019 were $150 million, higher than anticipated, driven by strong bookings in IoT and AR, including a mega deal (bookings greater than $5 million) with our strategic alliance partner, Rockwell Automation.

License and subscription bookings were $472 million, up 1% (4% constant currency) in 2019 compared to 2018, primarily driven by strong IoT and AR bookings growth, offset by declines in PLM and CAD bookings.

Under ASC 605, recurring software revenue was $1,079 million, an increase of 10% (13% constant currency) in 2019 compared to 2018.

Under ASC 605, recurring revenue as a percentage of software revenue was 94% in 2019 compared to 90% in 2018.

Under ASC 605, perpetual license and support revenue decreased year over year because we discontinued offering perpetual licenses for most of our solutions effective January 1, 2019.

Operating margin under ASC 605 increased 200 basis points in 2019 resulting from the compounding effect of subscription licenses and lower operating expenses due to effective cost discipline.

EPS declined under ASC 605 in 2019 primarily due to a higher tax provision.

Summary Revenue and Earnings Results

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| | | | | | | | | | | | | | | ASC 605 | | | | |

| | | As Reported ASC 606 | | | | ASC 605 | | | | As Reported ASC 605 | | | | 2019 vs 2018 | | | | |

| Subscription license | | $ | 253.7 | | | | | | | | | | | | | | | |

| Subscription support & cloud services | | 348.5 | | | | | | | | | | | | | | | | |

| Total subscription | | 602.2 | | | | 667.6 | | | | 482.0 | | | | 38 | % | | 41 | % |

| Perpetual support | | 415.2 | | | | 411.0 | | | | 496.8 | | | | (17 | )% | | (15 | )% |

| Total software revenue (1) | | 1,088.1 | | | | 1,150.8 | | | | 1,088.5 | | | | 6 | % | | 8 | % |

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

| License (2) | | $ | 324.4 | | | $ | 666.8 | | | $ | 529.3 | | | 26 | % | | 29 | % |

| Support and cloud services | | 763.7 | | | | 484.0 | | | | 559.2 | | | | (13 | )% | | (11 | )% |

| Total software revenue | | $ | 1,088.1 | | | $ | 1,150.8 | | | $ | 1,088.5 | | | 6 | % | | 8 | % |

(2) Under ASC 605, we have classified all subscription revenue as subscription license revenue.

| | | As Reported ASC 606 | | | | ASC 605 | | | | As Reported ASC 605 | | | | ASC 605 | |

| Operating Margin | | 5.0 | | % | | 7.7 | | % | | 5.8 | | % | | 33 | % |

| Non-GAAP Earnings Per Share(1) | | $ | 1.64 | | | $ | 1.74 | | | $ | 1.45 | | | 20 | % |

Support revenue is comprised

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.

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.

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.

| | | (in millions) | | | | | | | | | | | | | |

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

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.

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

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

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

| Operating Margin | | 5.9 | | % | | 3.5 | | % | | 68 | % | |

| Non-GAAP EPS(1) | | $ | 1.45 | | | $ | 1.17 | | | 24 | % | |

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

An increase in gross margin is associated with higher subscription revenue and a lower mix of professional services revenue, which has lower margins than our software revenue.

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.

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.

We also used cash from operations to repurchase another $100 million of common stock and to repay a net $70 million of borrowings under our credit facility in 2018.

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.

Annualized Recurring Revenue (ARR)

ARR was approximately $1,012 million as of the fourth quarter of 2018, an increase of 12% compared to the fourth quarter of 2017 and the seventh consecutive quarter of double-digit year-over-year growth.

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

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

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

Unbilled deferred revenue grew 44% year over year due to the high volume of new subscription bookings.

Many of our subscription bookings are for multiple years and are typically billed annually at the start of each annual subscription period.

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

We expect a further increase in our subscription mix of 1100 to 1300 basis points, which will result in a further headwind for revenue and earnings in fiscal 2019.

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.

This realignment will result in a restructuring charge of approximately $18 million in 2019, which consists principally of termination benefits, substantially all of which we expect will be paid in 2019.

Because our current headquarters lease will not expire until November 2022, we are seeking to sublease that space, but have not yet done so.

If we are unable to sublease our current headquarters space 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 such rent shortfall.

We currently pay approximately $12 million in annual base rent and operating expenses for our current headquarters.

[removed: Foreign] [added: *Foreign] currency exchange [removed: risk][added: risk*]

[removed: In 2018, 2017, and 2016, approximately] [added: Historically] two-thirds of our revenue and half of our expenses were transacted in currencies other than [removed: the] U.S. [removed: dollar.][added: Dollars.]

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 the Yen to USD exchange rate would impact operating income by approximately [removed: $16] [added: $17] million and [removed: $6] [added: $7] million, respectively.

[removed: Gains and] losses on forward contracts and foreign denominated receivables and payables are included in foreign currency net losses.

As of September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:

| | [removed: September 30,] | [added: September 30,] | | | | | | [added: |]

| [removed: Currency Hedged] [added: Currency Hedged *(in thousands)*] | [removed: 2018] | [added: 2019] | | | [removed: 2017] | [added: 2018] | | [added: |]

| Canadian / U.S. Dollar | [added: |] $ | [removed: 7,334] [added: 9,408] | | | $ | [removed: 12,809] [added: 7,334] | |

| Euro / U.S. Dollar | [removed: 297,730] | [added: 308,282] | | | [removed: 244,000] | [added: 297,730] | | [added: |]

| British Pound / U.S. Dollar | [removed: 7,074] | [added: 3,756] | | | [removed: 907] | [added: 7,074] | | [added: |]

| Israeli Sheqel / U.S. Dollar | [removed: 9,778] | [added: 10,272] | | | [removed: 8,820] | [added: 9,778] | | [added: |]

| Japanese Yen / U.S. Dollar | [removed: 37,456] | [added: 37,462] | | | [removed: 3,198] | [added: 37,456] | | [added: |]

| Swiss Franc / U.S. Dollar | [removed: 11,944] | [added: 12,001] | | | [removed: 605] | [added: 11,944] | | [added: |]

| Swedish Krona / U.S. Dollar | [removed: 18,207] | [added: 20,636] | | | [removed: 4,627] | [added: 18,207] | | [added: |]

| Singapore Dollar / U.S. Dollar | [removed: 1,314] | [added: 34,585] | | | [removed: 1,186] | [added: 1,314] | | [added: |]

| Chinese Renminbi/U.S. Dollar | [removed: 9,010] | [added: 9,079] | | | [removed: —] | [added: 9,010] | | [added: |]

| Total | [added: |] $ | [removed: 405,956] [added: 498,355] | | | $ | [removed: 318,519] [added: 405,956] | |

As of September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] we had outstanding forward contracts designated as cash flow hedges with notional amounts equivalent to the following:

| | [removed: September 30,] | [added: September 30,] | | | | | | [added: |]

| [removed: Currency Hedged] [added: Currency Hedged *(in thousands)*] | [removed: 2018] | [added: 2019] | | | [removed: 2017] | [added: 2018] | | [added: |]

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

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

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

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

[removed: Debt][added: *Debt*]

In addition to [removed: amounts] [added: the $500 million] due under our 2024 6% [removed: Notes as described above,] [added: Notes,] as of September 30, [removed: 2018,] [added: 2019,] we had [removed: $148.1] [added: $173] million outstanding under our [removed: variable-rate] credit facility.

As of September 30, [removed: 2018,] [added: 2019,] the annual rate on the credit facility loans was [removed: 3.8%.][added: 3.44%.]

If there was a hypothetical 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be [removed: $1.5] [added: $1.7] million.

This hypothetical change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, [removed: 2017] [added: 2019] and a 100 basis point per annum change in interest rate applied over a one-year period.

[removed: Cash] [added: *Cash] and cash [removed: equivalents][added: equivalents*]

As of September 30, [removed: 2018,] [added: 2019,] cash equivalents were invested in highly liquid investments with maturities of three months or less when purchased.

At September 30, [removed: 2018,] [added: 2019,] we had cash and cash equivalents of [removed: $29.6] [added: $40.0] million in the United States, [removed: $88.5] [added: $83.0] million in Europe, [removed: $95.6] [added: $122.0] million in [removed: the] [added: Asia] Pacific Rim (including India), [removed: $14.8 million in Japan] and [removed: $31.4] [added: $25.0] million in other non-U.S. countries.

Given the short maturities and investment grade quality of the portfolio holdings at September 30, [removed: 2018,] [added: 2019,] a hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash equivalents.

[removed: The] opposite holds true in a rising interest rate environment.

Our consolidated cash balances were impacted favorably by [removed: $7.8] [added: $2.6] million and [removed: $1.1] [added: $7.8] million in [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] respectively and unfavorably by [removed: $6.8] [added: $1.1] million in [removed: 2016,] [added: 2017,] due to changes in foreign currencies relative to the U.S. dollar, particularly the Euro and the Japanese Yen.

In 2019, approximately 60% of our revenue and 40% of our expenses were transacted in currencies other than the U.S. dollar.

Gains and

| | | | | | | | | |

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

| | | | | | | | | |

| Chinese Yuan offshore / U.S. Dollar | | 43,387 | | | | 116 | | |

| All other | | 9,487 | | | | 5,993 | | |

| | | | | | | | | |

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

| | | | | | | | | |

As of November 15, 2019, we have $628 million outstanding under our credit facility due to the Onshape acquisition.

The

| | | | | | | | |

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

| | | | | | | | |

| | (in thousands) | | | | | | |

| Japanese Yen / Euro | — | | | | 17,694 | | |

| Swiss Franc / Euro | — | | | | 7,157 | | |

| Chinese Yuan offshore / Euro | — | | | | 10,423 | | |

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

| | | | | | | | |

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

| | | | | | | | |

| | (in thousands) | | | | | | |

[removed: Our] [added: Our] Principal Products and [removed: Services][added: Services]

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

Our principal [removed: IoT] [added: experience creation] products are described below.

Our principal [removed: Solutions products are] [added: 3D product is] described below.

[removed: CAD][added: 3D (CAD)]

Our [removed: CAD products enable] [added: 3D platform enables] users to create conceptual and detailed designs, analyze designs, perform engineering calculations and leverage the information created downstream using 2D, 3D, parametric and direct modeling.

Our principal [removed: CAD products are] [added: Lifecycle Management product is] described below.

Our PLM [removed: products enable] [added: platform enables] efficient and consistent product data management from inception through design, as well as communication and collaboration across the entire enterprise, including product development, manufacturing and the supply chain.

Our principal [removed: PLM products are] [added: data orchestration product is] described below.

[removed: Strategic Partners][added: Strategic Partners]

Building an ecosystem of [removed: strategic] partners [removed: will become] [added: is becoming] increasingly important as we expand the capabilities of our core solutions, and IoT offerings and as we expand our addressable markets by leveraging our partner sales [added: and services] distribution channels.

As part of this strategic alliance, we [removed: will align] [added: have aligned] our ThingWorx® IoT, Kepware® industrial connectivity, and Vuforia® augmented reality (AR) platforms with Rockwell Automation’s [added: FactoryTalk® MES, FactoryTalk Analytics, and Industrial Automation platforms, and we both offer these solutions in the market.]

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

[removed: Our] [added: Our] Markets and How We Address [removed: Them][added: Them]

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

Additional financial information about our segments and international and domestic operations may be found in Note [removed: Q.][added: 18.]

Segment [added: and Geographic] Information of Notes to Consolidated Financial Statements in this Annual Report, which information is incorporated herein by reference.

[removed: Competition][added: Competition]

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

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

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

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

[removed: Proprietary Rights][added: Proprietary Rights]

[removed: Deferred] [added: Deferred] Revenue and Backlog (Unbilled Deferred [removed: Revenue)][added: Revenue)]

[removed: Employees][added: Employees]

As of September 30, [removed: 2018,] [added: 2019,] we had [removed: 6,110] [added: 6,055] employees, including [removed: 2,084] [added: 1,889] in product development; [removed: 1,676] [added: 1,674] in customer support, training, consulting, cloud services and product distribution; [removed: 1,642] [added: 1,777] in sales and marketing; and [removed: 708] [added: 715] in general and administration.

Of these employees, [removed: 2,151] [added: 2,203] were located in the United States and [removed: 3,959] [added: 3,852] were located outside the United States.

[removed: Website] [added: Website] Access to Reports and Code of Business Conduct and [removed: Ethics][added: Ethics]

[removed: Executive Officers][added: Executive Officers]

Information about our executive officers is incorporated by reference from our [removed: 2019] [added: 2020] Proxy Statement.

[removed: Corporate Information][added: Corporate Information]

PTC was incorporated in Massachusetts in 1985 and is headquartered in [removed: Needham,] [added: Boston,] Massachusetts.

PTC is a global software and services company that, together with a partner ecosystem, drives digital transformation for industrial companies.

We serve a broad range of these companies, including discrete manufacturers (industrial machinery & components, aerospace & defense, automotive, and electronics & high technology), process/continuous manufacturers (life sciences, energy & resources, and consumer packaged goods), and operators.

Our technology enables customers to improve operational efficiency, accelerate product and service innovation, and increase workforce productivity.

We go to market with four technology platforms, consisting of and supported by products that enable 3D modeling (CAD), lifecycle management (PLM), data orchestration (IIoT), and experience creation (AR).

Together, these technologies power the digital thread across industrial enterprises.


We continue to expand our solution offerings to address the most pressing business problems our customers confront.

These solutions are being designed to aggregate products and technology from our portfolio as well as from other companies, including our key partners.

Our business is based on a subscription business model, which provides flexibility to customers and increases predictability and consistency of billings to PTC.

Our customer success program partners with customers to enable successful deployment and utilization of our solutions.

Recent Events

On November 1, 2019, we acquired Onshape, creators of the first Software as a Service (SaaS) product development platform that unites robust CAD with powerful data management and collaboration tools, for approximately $470 million, net of cash acquired.

The acquisition is expected to accelerate our ability to attract new customers with a SaaS-based product offering and position the company to capitalize on an industry transition to SaaS.

In connection with the acquisition, we borrowed $455 million under our existing credit facility.

On November 13, 2019, we also increased the revolving loan commitment under the credit facility to $1 billion and made other amendments to the credit facility.


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® augmented reality (AR) solution.

With every seat of Creo, our customers can create and publish AR experiences and share their design instantly to collaborate with anyone across the entire enterprise around the world on any device.

Creo also now includes the Discovery Live real-time simulation technology from ANSYS.

This solution offers customers a unified modeling and simulation environment and provides design engineers with an interactive design experience that will enable them to create higher quality products, while reducing product and development costs.

Lifecycle Management (PLM)


Our Windchill® suite of PLM software provides product lifecycle management capabilities - from design to service.

Windchill offers a single repository for all product information, thus providing 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.

As the “single source of truth,” Windchill provides the digital thread that connects the full product lifecycle.

Our Windchill product now also includes augmented reality (AR) capabilities, enabling customers to build a digital product definition and publish the representation of the resulting product in AR.

Using AR in the product development process connects 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.

Data Orchestration (IIoT)

Our data orchestration platform delivers tools, technologies, and solutions that empower companies to rapidly develop and deploy powerful industrial IoT applications, enabling them to transform their operations, products, and services - and unlock new business models.


Our ThingWorx® product enables customers to reduce the time, cost, and risk required to build and deploy IoT applications; connect devices, systems, and applications; manage connected products; and analyze industrial IoT data.

ThingWorx includes 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.

ThingWorx Solution Central is a centralized portal in the cloud that allows users of ThingWorx to efficiently discover, deploy, and manage ThingWorx applications across the enterprise from a single location, which allows for cost-effective, efficient, and version controlled management of applications.

ThingWorx contains integral communications connectivity to industrial automation environments through our ThingWorx Kepware® product, which enables users to connect, manage,

monitor, and control disparate devices and software applications.

ThingWorx also 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.

ThingWorx also includes AR capabilities that superimpose IoT digital information on a human’s view of the physical world, enabling valuable insights.

Experience Creation (AR)

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.

Our Solutions portfolio of innovative Computer-Aided Design (CAD) and Product Lifecycle Management (PLM) solutions enable manufacturers to create, innovate, operate, and service products.

| | | | |

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

| | | | |

| PTC | | | |

| IoT | | Solutions | |

| Internet of Things (IoT) | Augmented Reality (AR) | Computer Aided Design (CAD) | Product Lifecycle Management (PLM) |

| 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 |

We report revenue by line of business (subscription, support, perpetual license and professional services), by geographic region, and by segment (Software Products and Professional Services).

IoT

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 ThingWorx® industrial innovation platform delivers tools, technologies, and solutions that empower companies to rapidly develop and deploy powerful industrial IoT applications, enabling customers to transform their operations, products and services and unlock new business models. ThingWorx enables customers to reduce the time, cost, and risk required to build and 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. |

| | 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. |

|  | Our Vuforia Studio™ solution is a powerful, 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, including for example 3D step-by-step operating or repair instructions or a dashboard of analytics data. |

Solutions

| | |

| --- | --- |

| | |

|  | 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. |

PLM

Our PLM products are designed to address common challenges that companies face over the life of their products, from concept to retirement.

| | |

| --- | --- |

| | |

|  | 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. 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. |

| | |

| --- | --- |

| | |

| | 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. |

| | 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. |

Other Solutions

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| --- | --- |

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: | FORM 10-K |][added: FORM 10-K]

[removed: ANNUAL] [added: | ☑ | ANNUAL] REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE [added: SECURITIES EXCHANGE ACT OF 1934 |]

[added: | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE] SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934 |]

For the Fiscal Year Ended: September 30, [removed: 2018][added: 2019]

[removed: PTC Inc.][added: PTC Inc.]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: Massachusetts] [added: Massachusetts] | | [removed: 04-2866152] [added: 04-2866152] |

| [removed: (State] [added: (State] or other jurisdiction [removed: of incorporation] [added: of incorporation] or [removed: organization)] [added: organization)] | | [removed: (I.R.S. Employer Identification Number)] [added: (I.R.S. Employer Identification Number)] |

[removed: (Address] [added: (Address] of principal executive offices, including zip [removed: code)][added: code)]

[removed: (781) 370-5000][added: (781) 370-5000]

[removed: (Registrant’s] [added: (Registrant’s] telephone number, including area [removed: code)][added: code)]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of each [removed: class] [added: class] | [added: Trading Symbol] | [removed: Name] [added: Name] of each exchange on which [removed: registered] [added: registered] |

| [removed: Common] [added: Common] Stock, $.01 par value per [removed: share] [added: share] | [added: PTC] | [removed: NASDAQ] [added: NASDAQ] Global Select [removed: Market] [added: Market] |

[removed: Securities] [added: Securities] registered [removed: pursuant][added: pursuant]

[removed: to] [added: to] Section 12(g) of the Act: [added: None]

[removed: YES þ NO] [added: Yes ☑ No] ¨

[removed: YES] [added: Yes] ¨ [removed: NO þ][added: No ☑]

[removed: YES þ NO] [added: Yes ☑ No] ¨

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

[removed: YES þ NO] [added: Yes ☑ No] ¨

| Large Accelerated Filer [removed: þ] | [added: ☑ |] Accelerated Filer [removed: o] | [added: ☐ |] Non-accelerated Filer [removed: o] | [added: ☐ |] Smaller Reporting Company [removed: o] | [added: ☐ |]

| | | | [added: | | |] Emerging growth company [removed: o] | [added: ☐ |]

[removed: YES ¨ NO þ][added: Yes ☐ No ☑]

The aggregate market value of our voting stock held by non-affiliates was approximately [removed: $8,976,658,598] [added: $10,784,576,792] on April 1, [removed: 2018] [added: 2019] based on the last reported sale price of our common stock on the Nasdaq Global Select Market on March 29, [removed: 2018.][added: 2019.]

There were [removed: 116,337,920] [added: 118,097,684] shares of our common stock outstanding on that day and [removed: 118,675,240] [added: 115,492,735] shares of our common stock outstanding on November 15, [removed: 2018.][added: 2019.]

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the definitive Proxy Statement in connection with the [removed: 2019] [added: 2020] Annual Meeting of Stockholders [removed: (2019] [added: (2020] Proxy Statement) are incorporated by reference into Part III.

[removed: PTC Inc.][added: PTC Inc.]

[removed: ANNUAL] [added: ANNUAL] REPORT ON FORM 10-K FOR FISCAL YEAR [removed: 2018][added: 2019]

[removed: Table] [added: Table] of [removed: Contents][added: Contents]

| | | [removed: Page] [added: Page] |

[removed: | [PART I.](#s83BD317A9DEE531EA3EF2184C34570A0) | | |][added: PART I]

| Item 1. | [removed: [Business](#s309DE7644D0F5951928790D305F65641)] [added: [Business](#sA17597908F3A5756B5A5731A82D54398)] | [removed: [1](#s309DE7644D0F5951928790D305F65641)] [added: [1](#sA17597908F3A5756B5A5731A82D54398)] |

| Item 1A. | [Risk [removed: Factors](#s5E59B7AB3AEC5775B68528A14032D8E5)] [added: Factors](#sC6E055DD24545EC388E501C9E767B24C)] | [removed: [6](#s5E59B7AB3AEC5775B68528A14032D8E5)] [added: [5](#sC6E055DD24545EC388E501C9E767B24C)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s5FD84A3FF24F51B2AFB301635185F4F9)] [added: Comments](#sE2AAE931B3265104A8D848E56CF6435D)] | [removed: [15](#s5FD84A3FF24F51B2AFB301635185F4F9)] [added: [12](#sE2AAE931B3265104A8D848E56CF6435D)] |

| Item 2. | [removed: [Properties](#s2FF83BFE001B534F82D78466ED8C964B)] [added: [Properties](#s2CAA1A2813665122837800F2E4188C7A)] | [removed: [15](#s2FF83BFE001B534F82D78466ED8C964B)] [added: [12](#s2CAA1A2813665122837800F2E4188C7A)] |

____________________________________________________

____________________________________________________

| | |

OR

| | |

| --- | --- |

| | |

For the transition period from_ to_

121 Seaport Boulevard, Boston, MA 02210

| | | | | | | | |

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

| | | | | | | | |

| [Signatures](#sCF742C0BC0735DC4A3599BAC89079230) | | [54](#sCF742C0BC0735DC4A3599BAC89079230) |

| [APPENDIX A](#s2B2113EFF5B6532497FD7FC0A1D8AE70) | | |

| | |

| --- | --- |

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

| |

| --- |

| |

140 Kendrick Street, Needham, MA 02494

None

(Title of Class)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| | | | |

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

| | | | |

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

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

We currently have [removed: 76] [added: 80] 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: 1,698,000] [added: 1,812,000] square feet of leased facilities used in operations, approximately [removed: 837,000] [added: 420,000] square feet are located in the U.S., including [removed: 321,000] [added: 250,000] square feet at our headquarters facility located in [removed: Needham,] [added: Boston,] Massachusetts, and approximately [removed: 297,000] [added: 289,000] square feet are located in India, where a significant amount of our research and development is conducted.

In addition, approximately 520,000 feet are associated with facilities that have been restructured, primarily our previous headquarters facility in Needham, Massachusetts.

In addition, we entered into a new lease in September 2017 for 250,000 square feet in the Boston Seaport District.

We expect to relocate our headquarters to this location in the second quarter of 2019.

[removed: PART II][added: PART II]

On September 30, [removed: 2018,] [added: 2019,] the close of our fiscal year, and on November 13, [removed: 2018,] [added: 2019,] our common stock was held by [removed: 1,138] [added: 1,107] and [removed: 1,137] [added: 1,104] shareholders of record, respectively.

The table below shows the shares of our common stock we repurchased in the fourth quarter of [removed: 2018.][added: 2019.]

| [removed: Period (1)] [added: Period (1)] | [removed: Total] [added: Total] Number of Shares (or Units) [removed: Purchased] [added: Purchased] | | [removed: Average] [added: Average] Price Paid per Share (or [removed: Unit)] [added: Unit)] | | | [removed: Total] [added: Total] Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or [removed: Programs] [added: Programs] | | [removed: Approximate] [added: Approximate] Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or [removed: Programs] [added: Programs] |

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

| June 30, 2019 - July 27, 2019 | — | | | $— | | — | | $310,005,304 (2) |

| July 28, 2019 - August 24, 2019 | 301,459 | | | $66.39 | | 301,459 | | $290,006,120 (2) |

| August 25, 2019 - September 30, 2019 | 76,705 | | | $65.19 | | 76,705 | | $285,006,347 (2) |

| Total | 378,164 | | | $66.15 | | 378,164 | | $285,006,347 (2) |

| 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.

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

Based on this evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, [removed: 2018.][added: 2019.]

[removed: Management’s] [added: Management’s] Annual Report on Internal Control over Financial [removed: Reporting][added: Reporting]

Projections of any evaluation of effectiveness to future periods are subject to the risk that [added: 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: 2018] [added: 2019] using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in [removed: Internal] [added: *Internal] Control-Integrated Framework [removed: (2013).][added: (2013)*.]

Based on this assessment and those criteria, our management concluded that, as of September 30, [removed: 2018,] [added: 2019,] our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of September 30, [removed: 2018] [added: 2019] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears under Item 8.

[removed: Change] [added: Change] in Internal Control over Financial [removed: Reporting][added: Reporting]

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, [removed: 2018] [added: 2019] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

[removed: PART III][added: PART III]

The information required by this item with respect to our directors and executive officers may be found in the sections captioned “Proposal 1: Election of Directors,” “Corporate Governance,” "Our Executive Officers," [removed: “Section 16(a) Beneficial Ownership Reporting Compliance,”] and “Transactions With Related Persons” appearing in our [removed: 2019] [added: 2020] Proxy Statement.

[removed: Code] [added: *Code] of Ethics for Senior Executive [removed: Officers][added: Officers*]

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: 2019] [added: 2020] Proxy Statement.

Information required by this item may be found under the headings “Information about PTC Common Stock Ownership” [removed: and "Equity Compensation Plan Information"] in our [removed: 2019] [added: 2020] Proxy Statement.

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

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

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

| EQUITY COMPENSATION PLAN INFORMATION as of SEPTEMBER 30, 2019 | | | | | | | | | | |

| 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) | | 3,230,724 | | | — | | (1) | 6,949,302 | | |

| 2016 Employee Stock Purchase Plan (2) | | — | | | — | | | 1,164,289 | | (2) |

| Total | | 3,230,724 | | | — | | | 8,113,591 | | |

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

| (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 165,909 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: 2019] [added: 2020] 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: 2019] [added: 2020] Proxy Statement.

[removed: PART IV][added: PART IV]

[removed: (a)] [added: *(a)] Documents Filed as Part of Form [removed: 10-K][added: 10-K*]

| | [Report of Independent Registered Public Accounting [removed: Firm](#s34ADB2992D4254488411B9F4ADBFC312)] [added: Firm](#s70BF33E2007F53268BA6A95B536EF520)] | [removed: [F-1](#s34ADB2992D4254488411B9F4ADBFC312)] [added: [F-1](#s70BF33E2007F53268BA6A95B536EF520)] |

| | [Consolidated Balance Sheets as of September 30, [removed: 2018] [added: 2019] and [removed: 2017](#s6153C52ED6D1597881EA2EEED0B1F418)] [added: 2018](#sA1BC22C098D25F158446D5104F68FF66)] | [removed: [F-3](#s6153C52ED6D1597881EA2EEED0B1F418)] [added: [F-4](#sA1BC22C098D25F158446D5104F68FF66)] |

| | [Consolidated Statements of Operations for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#s64BBC742E1175653AE6FFB01F2980253)] [added: 2017](#s2CB9D765C627574ABA524952A4950E3A)] | [removed: [F-4](#s64BBC742E1175653AE6FFB01F2980253)] [added: [F-5](#s2CB9D765C627574ABA524952A4950E3A)] |

| | [Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#s65A2C36DC96A53A19D7FDE029B44B04D)] [added: 2017](#sC2EE1947730E5BC08C651BF42FD0226B)] | [removed: [F-5](#s65A2C36DC96A53A19D7FDE029B44B04D)] [added: [F-6](#sC2EE1947730E5BC08C651BF42FD0226B)] |

| | [Consolidated Statements of Cash Flows for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#s8A3D23ACA8485809A59826836A76C221)] [added: 2017](#s6DEE6F4C5C7A599C85E69DD222A8D7DF)] | [removed: [F-6](#s8A3D23ACA8485809A59826836A76C221)] [added: [F-7](#s6DEE6F4C5C7A599C85E69DD222A8D7DF)] |

| | [Consolidated Statements of Stockholders’ Equity for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016](#sC810FEE3C361508CA92CC1802D56D5CE)] [added: 2017](#s32999232AFF652F483054E24875296AA)] | [removed: [F-7](#sC810FEE3C361508CA92CC1802D56D5CE)] [added: [F-8](#s32999232AFF652F483054E24875296AA)] |

| | [Notes to Consolidated Financial [removed: Statements](#s23C55827ECA45556BA8BAD41A430460E)] [added: Statements](#s3445458A9BE5561C823E7F5F0FF8B8E0)] | [removed: [F-8](#s23C55827ECA45556BA8BAD41A430460E)] [added: [F-9](#s3445458A9BE5561C823E7F5F0FF8B8E0)] |

[removed: (b) Exhibits][added: *(b) Exhibits*]

[removed: (c)] [added: *(c)] Financial Statement [removed: Schedules][added: Schedules*]

[removed: EXHIBIT INDEX][added: EXHIBIT INDEX]

| [removed: Exhibit Number] [added: Exhibit Number] | | [removed: Exhibit] [added: Exhibit] |

| [removed: 10.1.1*] [added: 10.2*] | — | [removed: [2000 Equity Incentive] [added: [2016 Employee Stock Purchase] Plan (filed as Exhibit [removed: 10.1.1] [added: 10.3] to our Annual Report on Form 10-K for the fiscal year ended September 30, [removed: 2017] [added: 2016] (File No. 0-18059) and incorporated herein by [removed: reference.](http://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc93017ex1011.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700516000071/ptc93016ex103.htm)] |

| [removed: 10.2*] [added: 10.5*] | — | [removed: [2009] [added: [Amendment to] Executive [removed: Cash Incentive Performance Plan] [added: Agreement by and between PTC Inc. and James Heppelmann dated May 13, 2013] (filed as Exhibit [removed: 10.5] [added: 10.9] to our Annual Report on Form 10-K for the fiscal year ended September 30, [removed: 2012] [added: 2013] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700512000031/ptc9302012ex105.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700513000038/ptc9302013ex109.htm)] |

| [removed: 10.3*] [added: 10.11] | — | [removed: [2016 Employee Stock Purchase Plan] [added: [Executive Agreement dated May 15, 2017 between PTC Inc. and Kathleen Mitford] (filed as Exhibit [removed: 10.3] [added: 10.13] to our Annual Report on Form 10-K for the fiscal year ended September 30, [removed: 2016] [added: 2018] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700516000071/ptc93016ex103.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc93018ex1013.htm)] |

| [removed: 10.4*] [added: 10.3*] | — | [Amended and Restated Executive Agreement with James Heppelmann, President and Chief Executive Officer, dated May 7, 2010 (filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2010 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312510118795/dex102.htm) |

| [removed: 10.5*] [added: 10.4*] | — | [Amendment to Executive Agreement dated as of November 18, 2011 by and between PTC Inc. and James Heppelmann to Amended and Restated Executive Agreement dated as of May 7, 2010 by and between PTC and James Heppelmann (filed as Exhibit 10.2 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/amendexec.htm) |

| 10.6* | — | [Amendment to Executive Agreement by and between PTC Inc. and James Heppelmann dated [removed: May 13, 2013] [added: August 4, 2015] (filed as Exhibit [removed: 10.9] [added: 10.1] to our [removed: Annual] [added: Current] Report on Form [removed: 10-K for the fiscal year ended September 30, 2013] [added: 8-K dated August 10, 2015] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700513000038/ptc9302013ex109.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700515000027/exec1.htm)] |

| [removed: 10.7*] [added: 10.10*] | — | [removed: [Amendment] [added: [Form of Amendment] to Executive Agreement [added: dated August 4, 2015] by and between PTC Inc. and [removed: James Heppelmann dated August 4, 2015] [added: each of Matthew Cohen and Aaron von Staats] (filed as Exhibit [removed: 10.1] [added: 10.2] to our Current Report on Form 8-K dated August 10, 2015 (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700515000027/exec1.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700515000027/exec2.htm)] |

| [removed: 10.8*] [added: 10.7*] | — | [Form of Amended and Restated Executive Agreement by and between PTC Inc. and [removed: each of Barry 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) |

| [removed: 10.9*] [added: 10.8*] | — | [Form of Amendment to Amended and Restated Executive Agreement entered into as of November 18, 2011 by and between PTC Inc. and [removed: each of Barry 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) |

| [removed: 10.10*] [added: 10.9*] | — | [Executive Agreement dated April 16, 2014 between PTC Inc. and Matthew Cohen (filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700514000010/ptc03292014ex101q2.htm) |

| [removed: 10.11*] [added: 10.21] | [removed: —] | [Executive Agreement dated [removed: February 11, 2015] [added: May 24, 2019] between PTC Inc. and [removed: Andrew Miller] [added: Kristian Talvitie] (filed as Exhibit [removed: 10.2] [added: 10.1] to [removed: our] [added: PTC’s] Quarterly Report on Form 10-Q for the [removed: fiscal quarter] [added: period] ended [removed: April 4, 2015] [added: June 29, 2019] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700515000021/ptc04042015ex102executivea.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700519000017/ptc6292019ex101q3.htm)] |

| [removed: 10.12*] [added: 10.18] | — | [removed: [Form of Amendment to Executive] [added: [Securities Purchase] Agreement [removed: dated August 4, 2015] by and between PTC Inc. and [removed: each] [added: Rockwell Automation, Inc., dated as] of [removed: Andrew Miller, Barry Cohen, Matthew Cohen and Aaron von Staats] [added: June 11, 2018] (filed as Exhibit [removed: 10.2] [added: 10.1] to our Current Report on Form 8-K [removed: dated August 10, 2015] [added: filed on June 11, 2018] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700515000027/exec2.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518188692/d599110dex101.htm)] |

| [removed: 10.14] [added: 10.12] | — | [Lease dated December 14, 1999 by and between PTC Inc. and Boston Properties Limited Partnership (filed as Exhibit 10.21 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000092701600004477/0000927016-00-004477-0009.txt) |

| [removed: 10.15] [added: 10.13] | — | [Third Amendment to Lease Agreement dated as of October 27, 2010 by and between Boston Properties Limited Partnership and PTC Inc. (filed as Exhibit 10.1 to our Current Report on Form 8-K dated November 8, 2010 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700510000023/lease.htm) |

| [removed: 10.16] [added: 10.14] | — | [Amended and Restated Credit Agreement dated as of 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 September 12, 2018 (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518275826/d626027d8k.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518275826/d626027dex10.htm)] |

| [removed: 10.22] [added: 10.16] | — | [Office Lease Agreement dated as of September 7, 2017 by and between PTC Inc. and SCD L2 Seaport Square LLC (filed as Exhibit 10 to our Current Report on Form 8-K filed on September 7, 2017 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312517278944/d454992dex10.htm) |

| [removed: 10.23] [added: 10.17] | — | [First Amendment to Lease dated as of October 5, 2017 by and between PTC Inc. and SCD L2 Seaport Square LLC (filed as Exhibit 10.23 to our Annual Report on Form 10-K for the period ended September 30, 2017 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700517000021/ptc93017ex1023.htm) |

| [removed: 10.24] [added: 10.20] | — | [removed: [Securities Purchase] [added: [Registration Rights] Agreement by and between [removed: PTC Inc.] [added: the Company] and Rockwell Automation, Inc., dated [removed: as of June 11,] [added: July 19,] 2018 (filed as Exhibit 10.1 to our Current Report on Form 8-K filed on [removed: June 11,] [added: July 19,] 2018 (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518188692/d599110d8k.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518221582/d360302dex101.htm)] |

| [removed: 10.25] [added: 10.19*] | — | [removed: [Amended] [added: [Second Amended] and Restated Strategic Alliance Agreement by and between PTC Inc. and Rockwell Automation, Inc. dated as of [removed: June 18, 2018.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc93018ex1025.htm)] [added: November 14, 2019.](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/rockwellagreement.htm)] |

| [removed: 10.26] [added: 10.15] | — | [removed: [Registration Rights Agreement by and between] [added: [Amendment No.1 dated as of November 13, 2019 to] the [removed: Company] [added: Amended] and [removed: Rockwell Automation, Inc.,] [added: Restated Credit Agreement] dated [removed: July 19,] [added: as of September 13,] 2018 [added: by and among PTC Inc., JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto] (filed as Exhibit [removed: 10.1] [added: 10] to our Current Report on Form 8-K [removed: filed on July 19, 2018] [added: dated November 13, 2019] (File No. 0-18059) and incorporated herein by [removed: reference).](http://www.sec.gov/Archives/edgar/data/857005/000119312518221582/d360302d8k.htm)] [added: reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700519000036/amendmentno113nov3019fin.htm)] |

| 21.1 | — | [Subsidiaries of PTC [removed: Inc.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc93018ex10211.htm)] [added: Inc.](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/ptc93019ex211.htm)] |

| 23.1 | — | [Consent of PricewaterhouseCoopers LLP, an independent registered public accounting [removed: firm.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc9302018ex231.htm)] [added: firm.](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/ptc9302019ex231.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/857005/000085700518000025/ptc9302018ex311.htm)] [added: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/ptc9302019ex311.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/857005/000085700518000025/ptc9302018ex312.htm)] [added: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/ptc9302019ex312.htm)] |

| 32 | — | [Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section [removed: 1350.](https://www.sec.gov/Archives/edgar/data/857005/000085700518000025/ptc9302018ex32.htm)] [added: 1350.](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/ptc9302019ex32.htm)] |

| 101 | — | The following materials from PTC Inc.'s Annual Report on Form 10-K for the year ended September 30, [removed: 2018,] [added: 2019,] formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, [removed: 2018] [added: 2019] and [removed: 2017;] [added: 2018;] (ii) Consolidated Statements of Operations for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016;] [added: 2017;] (iii) Consolidated Statements of Comprehensive Income for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016;] [added: 2017;] (iv) Consolidated Statements of Cash Flows for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016;] [added: 2017;] (v) Consolidated Statements of Stockholders’ Equity for the years ended September 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016;] [added: 2017;] and (vi) Notes to Consolidated Financial Statements. |

[removed: SIGNATURES][added: SIGNATURES]

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 15th day of November, [removed: 2018.][added: 2019.]

| | | [removed: James Heppelmann President] [added: James Heppelmann President] and Chief Executive [removed: Officer] [added: Officer] |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below, on the 15th day of November, [removed: 2018.][added: 2019.]

| [removed: Signature] [added: Signature] | | [removed: Title] [added: Title] |

| [removed: James Heppelmann] [added: James Heppelmann] | | |

| /s/ [removed: ANDREW MILLER] [added: Kristian Talvitie] | | Executive Vice President and Chief Financial Officer |

| [removed: Robert Schechter] [added: Robert Schechter] | | |

| [removed: Janice Chaffin] [added: Janice Chaffin] | | |

| [removed: Phillip Fernandez] [added: Phillip Fernandez] | | |

| [removed: Donald Grierson] [added: Donald Grierson] | | |

| [removed: James Heppelmann] [added: James Heppelmann] | | |

| 4.4 | — | [Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934](https://www.sec.gov/Archives/edgar/data/857005/000085700519000040/ptc93019ex44.htm) |

| 10.1.1* | — | [2000 Equity Incentive Plan (filed as Exhibit 10 to our Current Report on Form 8-K filed on March 8, 2019 (File No. 0-18059) and incorporated herein by reference.](http://www.sec.gov/Archives/edgar/data/857005/000165495419002484/exhibit10-2000eipplanamen.htm) |

| 104 | | The cover page of the Annual Report on Form 10-K formatted in Inline XBRL (included in Exhibit 101). |

| * | Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to the registrant if publicly disclosed. |

| Kristian Talvitie | | |

*Change in Accounting Principle*

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2019.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

*Revenue from Contracts with Customers - Identification of Distinct Performance Obligations and Estimate of Standalone Selling Price*

As described in Note 2 to the consolidated financial statements, the Company’s sources of revenue include: (1) subscription, (2) perpetual license, (3) support for perpetual licenses and (4) professional services.

Revenue is derived from the licensing of computer software products and from related support and/or professional services contracts.

During the year ended September 30, 2019, the Company recognized revenue from contracts with customers of $1,255.6 million.

The Company’s adoption of the accounting standard related to revenue recognition resulted in a decrease in accumulated deficit of $363.2 million, net of tax.

The Company’s contracts with customers for subscriptions typically include commitments to transfer term-based, on-premise software licenses bundled with support.

On-premise software is determined to be a distinct performance obligation from support.

Judgment is required by management to allocate the transaction price to each performance obligation.

Management uses the estimated standalone selling price method to allocate the transaction price for items that are not sold separately.

The estimated standalone selling price is determined using all information reasonably available to management, including market conditions and other observable inputs.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically related to management’s identification of distinct performance obligations and their estimate of standalone selling price, is a critical audit matter are there was significant judgment by management in both the identification of distinct performance obligations, specifically the determination that the on-premise software is determined to be a distinct performance obligation from support, and in estimating the standalone selling price using market pricing conditions and other observable inputs, such as historical pricing practices, for each distinct performance obligation.

This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s identification of distinct performance obligations within contracts with customers and the judgments made by management used to estimate the standalone selling price used to allocate the transaction price to the distinct performance obligations.

Due to this complexity, there

was a significant level of auditor judgment and effort in evaluating the Company’s adoption of the accounting standard related to revenue recognition including the completeness and accuracy of management’s cumulative adoption adjustments to accumulated deficit and deferred revenue.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over management’s adoption of the accounting standard related to revenue recognition, identification of distinct performance obligations and estimate of standalone selling prices used to allocate transaction price to distinct performance obligations in its contracts with customers.

These procedures also included, among others, (i) evaluating the Company’s revenue recognition accounting policy resulting from its adoption of the accounting standard related to revenue recognition and testing the completeness and accuracy of management’s cumulative adoption adjustments; (ii) testing management’s identification of distinct performance obligations in its contracts with customers; (iii) testing management’s process for estimating standalone selling price which included testing the completeness and accuracy of input data used and evaluating the reasonableness of significant assumptions used by management, principally market and pricing conditions and other observable inputs such as historical pricing practices; and (iv) evaluation of the accuracy of management’s allocation of transaction price to the performance obligations contained within a sample of contracts with customers.

November 15, 2019

| | 2019 | | | | 2018 | | |

| Long-term debt / Revolving credit facility | 669,134 | | | | 643,268 | | |

| License | $ | 324,400 | | | $ | 529,265 | | | $ | 356,326 | |

| Support and cloud services | 763,700 | | | | 559,222 | | | | 630,990 | | |

| Cost of license revenue | 51,936 | | | | 47,737 | | | | 66,841 | | |

| Cost of support and cloud services revenue | 133,478 | | | | 135,106 | | | | 110,931 | | |

| Total cost of software revenue | 185,414 | | | | 182,843 | | | | 177,772 | | |

| Cost of professional service revenue | 139,964 | | | | 143,659 | | | | 150,730 | | |

| Gross margin | 930,253 | | | | 915,322 | | | | 835,537 | | |

| Sales and marketing | 417,449 | | | | 414,764 | | | | 372,702 | | |

| Research and development | 246,888 | | | | 249,786 | | | | 236,028 | | |

| General and administrative | 127,919 | | | | 143,045 | | | | 144,991 | | |

| 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) |

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| Andrew Miller | | |

A company’s internal

November 15, 2018

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| Cost of license and subscription revenue | 94,108 | | | | 86,047 | | | | 69,710 | | |

| Cost of support revenue | 88,575 | | | | 92,202 | | | | 85,729 | | |

| Total cost of software revenue | 182,683 | | | | 178,249 | | | | 155,439 | | |

| Cost of professional services revenue | 143,511 | | | | 150,770 | | | | 170,226 | | |

| Gross margin | 915,630 | | | | 835,020 | | | | 814,868 | | |

| Sales and marketing | 414,524 | | | | 372,946 | | | | 367,465 | | |

| Research and development | 249,774 | | | | 236,059 | | | | 229,331 | | |

| General and administrative | 142,981 | | | | 145,067 | | | | 145,615 | | |

| Total operating expenses | 842,393 | | | | 794,122 | | | | 851,882 | | |

| Operating income (loss) | 73,237 | | | | 40,898 | | | | (37,014 | | ) |

| Foreign currency losses, net | (6,982 | | ) | | (5,686 | | ) | | (1,889 | | ) |

| Interest income | 3,819 | | | | 3,249 | | | | 3,437 | | |

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| Cash and cash equivalents, beginning of year | 280,003 | | | | 277,935 | | | | 273,417 | | |

| Cash and cash equivalents, end of year | $ | 259,946 | | | $ | 280,003 | | | $ | 277,935 | |

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| Balance as of October 1, 2015 | 113,745 | | | $ | 1,137 | | | $ | 1,553,390 | | | $ | (602,614 | ) | | $ | (91,742 | ) | | $ | 860,171 | |

| Unrealized loss on available-for-sale securities, net of tax | — | | | — | | | | — | | | | — | | | | (22 | | ) | | (22 | | ) |