PTC (PTC) 10-K risk factor changes: FY2021 vs FY2020

We have embarked on an effort to make our solutions available on a SaaS [removed: platform,] [added: platform;] however, this will require significant effort and investment and we cannot be sure that we will be able to make our solutions available as SaaS solutions as quickly as we [added: expect or that customers will adopt them as we] expect.

We have implemented and continue to implement measures intended to maintain the security and integrity of our products, source code and [removed: computer] [added: IT] systems.

The potential for a security breach or system disruption has significantly increased over time as the scope, number, intensity and sophistication of attempted cyberattacks and [removed: cyberintrusions] [added: cyber intrusions] have increased.

In addition, we offer cloud services to our customers and some of our [removed: products] [added: products, including our SaaS products,] are hosted by third-party service providers, which expose us to additional risks as those repositories of our customers’ proprietary data may be targeted and a cyberattack or intrusion may be [removed: successful and material.]

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

The extent to which the [removed: novel coronavirus] COVID-19 [added: pandemic] may impact our business is uncertain and it could materially adversely affect our financial condition and results of operations.

The COVID-19 pandemic [removed: has significantly impacted] [added: continues to impact] global economic activity and [removed: has created] [added: create] macroeconomic uncertainty.

Demand for our solutions [removed: has] declined and could decline further due to challenges associated with conducting in-person sales meetings and project scoping and implementation activities while social distancing measures are in place, which has deterred or prevented, and could further deter or prevent, customers from proceeding with new software purchases and deployments.

Reductions in new [removed: license] [added: subscription] sales and/or renewals and in professional services delivered could reduce our ARR growth or cause our ARR to decline, and would reduce our professional services revenue, all of [added: which would adversely affect our revenue, earnings and cash flow.]

If our business declines due to the [added: factors] above, we could be required to reduce our expenses, which could result in material restructuring charges and/or reduce or delay investments in our business, including hiring.

[removed: In addition, manufacturers] [added: Manufacturers] worldwide are facing increasing uncertainty about the global economic climate due to, among other factors, the COVID-19 [removed: pandemic,] [added: pandemic and] the geopolitical [removed: environment and ongoing trade tensions and tariffs.][added: environment.]

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

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

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 [removed: acceptance,] [added: adoption,] our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer [added: requirements, and our costs.]

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

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

As of November [removed: 20, 2020,] [added: 19, 2021,] our total debt outstanding was approximately [removed: $1.0] [added: $1,450] billion, [removed: all] [added: $1 billion] of which was associated with the 3.625% Senior Notes and 4.000% Senior Notes (together, “Senior Notes”) issued February 2020, which mature in February 2025 and 2028, respectively, and are [removed: unsecured.][added: unsecured, and $450 million of which was borrowed under our credit facility, which matures in February 2025.]

As of November [removed: 20, 2020,] [added: 19, 2021,] we had unused commitments under our credit facility of [removed: $1.0 billion.][added: $550 million.]

[removed: Our] [added: 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 [removed: higher.][added: higher.]

Although we believe the [removed: recent discussions about] alternative rates will not materially increase the [removed: 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 [added: and Common Stock of Public Companies We Own]

| | • | 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 financial [removed: and operating] targets; |

Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our [removed: ability to obtain cash from our subsidiaries.]

[removed: VII.General] [added: VII.General] Risk [removed: Factors][added: Factors]

successful and material.

Interception of data transmission, misappropriation or modification of data, corruption of data and attacks against our service providers may adversely affect our products or product and service delivery.

Malicious code, viruses or vulnerabilities that are undetected by our service providers may disrupt our business operations generally and may have a disproportionate effect on those of our products that are developed and delivered in the cloud environment.

We increasingly rely on third-party providers of cloud infrastructure services to deliver our offerings to users on our platform, and any disruption of or interference with our use of these services could adversely affect our business.

Our continued growth depends in part on the ability of our existing and potential customers to use and access our cloud services or our website in order to download our software or encrypted access keys for our software within an acceptable amount of time.

We use a number of third-party service providers, which we do not control, for key components of our infrastructure, particularly with respect to development and delivery of our cloud-based products.

The use of these service providers gives us greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes us to additional risks and vulnerabilities.

Third-party service providers operate their own platforms that we access, and we are, therefore, vulnerable to their service interruptions.

We may experience interruptions, delays and outages in service and availability from time to time as a result of problems with our third-party service providers’ infrastructure.

Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent.

Such outages could lead to the triggering of our service level agreements and the issuance of credits to our cloud-based product customers, which may impact our business and consolidated financial statements.

If we are unable to renew our agreements with our cloud service providers on commercially reasonable terms, or our agreement is prematurely terminated, or we need to add new cloud services providers to increase capacity and uptime, we could experience interruptions, downtime, delays, and additional expenses related to transferring to and providing support for these new platforms.

Any of the above circumstances or events may harm our reputation and brand, reduce the availability or usage of our platforms and impair our ability to attract new users, any of which could adversely affect our business, financial condition and results of operations.

Becoming a SaaS company requires considerable additional investment in our organization.

On March 5, 2021, the Intercontinental Exchange Benchmark Administration, the U.K. Financial Conduct Authority (FCA) regulated and authorized administrator of LIBOR, announced, and the FCA confirmed, that one week and two-month USD LIBOR settings will cease on December 31, 2021, and that the USD LIBOR panel for all other tenors will cease on June 30, 2023.

The credit facility provides a mechanism pursuant to which we and the administrative agent may agree, under certain circumstances, to transition to an alternate base rate borrowing or amend the

credit facility to establish an alternate interest rate to LIBOR that includes consideration of the then-prevailing market convention for determining interest rates for syndicated loans in the United States at that time.

From time to time, we may acquire common stock in publicly traded companies as strategic investments.

Owning such stock exposes us to the volatility, liquidity and other risks inherent in holding that stock.

From time to time, we may own common stock of publicly traded companies.

We are required to present the value of such stock on our Consolidated Balance Sheet at their fair value at the end of each reporting period.

The fair value of those shares may fluctuate due to the volatility of the stock market, changes in general economic conditions, and the performance of these publicly traded companies.

We recognize all changes in the fair value of the owned shares (whether realized or unrealized) as gains or losses in our Consolidated Statement of Operations.

Accordingly, changes in the fair value of the owned shares can materially impact the earnings we report, which introduces volatility in our earnings that is not associated with the results of our business operations.

In particular, significant declines in the fair value of the owned shares would produce significant declines in our reported earnings.

The reported value of the owned shares does not necessarily reflect their lowest current market price.

If we were forced to sell some or all of the owned shares in the market, there can be no assurance that we would be able to sell them at prices equivalent to the value that we have reported on our Consolidated Balance Sheet, and we may be forced to sell them at significantly lower prices.

ability to obtain cash from our subsidiaries.

We experienced an increase in churn in FY’20 to 8.6%, versus a churn rate of 7.4% for FY’19.

which would adversely affect our revenue, earnings and cash flow.

The economic uncertainty caused by the COVID-19 pandemic has also caused our customers to focus on their liquidity.

This focus on liquidity, or our customers’ lack of liquidity, could adversely affect our cash flows if we make concessions in the amount or timing of payments due from customers or if our customers do not pay when or as expected.

Moreover, some of our resellers may face liquidity challenges, which could adversely affect our cash flows if they do not pay us when or as expected.

Finally, while we expect to have sufficient liquidity with cash on hand, cash generated from operations, and amounts available under our credit facility to meet our working capital and capital expenditure requirements through at least the next twelve months and our known long-term capital requirements, declines in cash flows could adversely affect our liquidity and we may be unable to draw on our credit facility as we expect due to covenants under the credit facility.

If our liquidity is significantly impaired, it would significantly adversely affect our business due to our inability to pay our suppliers and our employees.

Further, a significant liquidity impairment could cause us to be unable to make the required periodic interest payments due on our outstanding Senior Notes due 2028 and 2025, which would constitute an event of default under the applicable notes, and cause the aggregate principal amount of those notes on which we defaulted to become due and payable.

The global Manufacturing Purchasing Managers' Index (PMI) declined significantly in the second and third quarters of 2020 due to the impact of COVID-19 and, though it has recovered somewhat, remained approximately at the 50% level in September 2020.

Although the volatility in Manufacturing PMI did not have a significant adverse effect on our business in FY’20, if the manufacturing sector does not improve or 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 could adversely affect our financial results.

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.

requirements, and our costs.

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.

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 $17 million.

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

Our discussion of results includes discussion of our ARR [added: (Annual Run Rate)] operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis.

ARR increased [removed: 14% to $1,270 million (11%] [added: 16% (actual] and [removed: $1,236 million] constant currency) [added: to $1,475 million in FY’21] compared to the end of [removed: FY’19.][added: FY’20.]

[removed: In Q4’20,] [added: Our FY’21 revenue was positively impacted by ASC 606 as longer] contract durations [removed: were slightly longer than forecasted] and [removed: we had a higher than anticipated number of conversions, both of which positively impacted] [added: support to subscription conversions increased] the amount of upfront subscription [added: license] revenue recognized in the [removed: quarter.][added: year.]

For discussion of [removed: FY'19] [added: FY’20] results and comparison with [removed: FY'18] [added: FY’19] results, refer to *Management's Discussion and Analysis of Financial Conditions and Results of Operations* in our Annual Report on Form 10-K for the fiscal year ended September 30, [removed: 2019.][added: 2020.]

| | | [removed: 2020] [added: 2021] | | | | [removed: 2019] [added: 2020] | | | | Actual | | | | Constant Currency(1) | | |

| Total recurring revenue | | $ | [removed: 1,281.9] [added: 1,616.3] | | | $ | [removed: 1,017.4] [added: 1,281.9] | | | | 26 | % | | | [removed: 27] [added: 22] | % |

| Perpetual license | | | [removed: 32.7] [added: 33.0] | | | | [removed: 70.7] [added: 32.7] | | | | [removed: (54] [added: 1] | [removed: )%] [added: %] | | | [removed: (53] [added: (1] | )% |

| Professional services | | | [removed: 143.8] [added: 157.8] | | | | [removed: 167.5] [added: 143.8] | | | | [removed: (14] [added: 10] | [removed: )%] [added: %] | | | [removed: (13] [added: 5] | [removed: )%] [added: %] |

| Total revenue | | | [removed: 1,458.4] [added: 1,807.2] | | | | [removed: 1,255.6] [added: 1,458.4] | | | | [removed: 16] [added: 24] | % | | | [removed: 17] [added: 20] | % |

| Total cost of revenue | | | [removed: 334.3] [added: 371.1] | | | | [removed: 325.4] [added: 334.3] | | | | [removed: 3] [added: 11] | % | | | [removed: 3] [added: 9] | % |

| Gross margin | | | [removed: 1,124.1] [added: 1,436.1] | | | | [removed: 930.3] [added: 1,124.1] | | | | [removed: 21] [added: 28] | % | | | [removed: 22] [added: 23] | % |

| Operating expenses | | | [removed: 913.2] [added: 1,055.3] | | | | [removed: 867.2] [added: 913.2] | | | | [removed: 5] [added: 16] | % | | | [removed: 6] [added: 14] | % |

| Operating income | | $ | [removed: 210.9] [added: 380.7] | | | $ | [removed: 63.0] [added: 210.9] | | | | [removed: 234] [added: 81] | % | | | [removed: 281] [added: 63] | % |

| Non-GAAP operating income(1) | | $ | [removed: 423.4] [added: 634.4] | | | $ | [removed: 255.3] [added: 423.4] | | | | [removed: 66] [added: 50] | % | | | [removed: 69] [added: 42] | % |

| Operating margin | | | [removed: 14.5] [added: 21.1] | % | | | [removed: 5.0] [added: 14.5] | % | | | | | | | | |

| Non-GAAP operating margin(1) | | | [removed: 29.0] [added: 35.1] | % | | | [removed: 20.3] [added: 29.0] | % | | | | | | | | |

| Diluted earnings [removed: (loss)] per share | | $ | [removed: 1.12] [added: 4.03] | | | $ | [removed: (0.23] [added: 1.12] | [removed: )] | | | | | | | | |

| Non-GAAP diluted earnings per share(1)(2) | | $ | [removed: 2.57] [added: 3.97] | | | $ | [removed: 1.64] [added: 2.57] | | | | | | | | | |

| Cash flow from operations(3) | | $ | [removed: 233.8] [added: 368.8] | | | $ | [removed: 285.1] [added: 233.8] | | | | | | | | | |

| Free cash flow(4) | | $ | [removed: 213.6] [added: 344.1] | | | $ | [removed: 220.7] [added: 213.6] | | | | | | | | | |

| (3) | Cash flow from operations for [removed: FY’20] [added: FY’21] and [removed: FY’19] [added: FY’20] includes [removed: $42] [added: $14.5] million and [removed: $25] [added: $42] million of restructuring payments, [removed: respectively,] [added: respectively. Cash from operations for FY’21] and [removed: $60.6] [added: FY’20 includes $15.0] million and [removed: $40.8] [added: $9.6] million of [removed: interest] [added: acquisition-related] payments, respectively. Cash from operations for [removed: FY’20] [added: FY’21] includes [removed: $9.6] [added: $17.9] million [removed: of acquisition-related payments.] [added: in un-forecasted payments related to the prior period tax exposure from a non-U.S. tax dispute.] |

| (4) | Free cash flow is cash from operations net of capital expenditures of [removed: $20.2] [added: $24.7] million and [removed: $64.4] [added: $20.2] million in [removed: FY’20] [added: FY’21] and [removed: FY’19,] [added: FY’20,] respectively. |

[removed: Starting in Q1’20, our] [added: Our] constant currency disclosures are calculated by multiplying the results in local currency for [removed: FY’20] [added: FY’21] and [removed: FY’19] [added: FY’20] by the exchange rates in effect on September 30, [removed: 2019,] [added: 2020,] excluding the effect of any hedging.

If [removed: FY'20] [added: FY'21] reported results were converted into U.S. dollars based on this methodology, [removed: FY'20] [added: FY'21] revenue would have been lower by [removed: $12] [added: $20] million and expenses would have been lower by [removed: $4] [added: $8] million.

The net impact on year-over-year results would have been a decrease in operating income of [removed: $8] [added: $12] million in [removed: FY'20.][added: FY'21.]

Our revenue results period to period are impacted by contract terms, including the duration and start dates of our subscription [removed: contracts.][added: contracts, due to up-front recognition of subscription license revenue.]

[removed: As a] result, our revenue will be impacted [added: over time] as a higher portion of [removed: it] [added: our sales] will be [added: from cloud services, which are] recognized ratably.

[removed: Revenue] [added: Revenue] by Line of [removed: Business][added: Business]

| | | [removed: 2020] [added: 2021] | | | | [removed: 2019] [added: 2020] | | | | Actual | | | | Constant Currency | | |

| License [added: (1)] | | $ | [removed: 509.8] [added: 738.1] | | | $ | [removed: 324.4] [added: 509.8] | | | | [removed: 57] [added: 45] | % | | | [removed: 58] [added: 40] | % |

| Support [added: (2)] and cloud services | | | [removed: 804.8] [added: 911.3] | | | | [removed: 763.7] [added: 804.8] | | | | [removed: 5] [added: 13] | % | | | [removed: 6] [added: 10] | % |

| Total software revenue | | | [removed: 1,314.6] [added: 1,649.3] | | | | [removed: 1,088.1] [added: 1,314.6] | | | | [removed: 21] [added: 25] | % | | | 22 | % |

| Total revenue | | $ | [removed: 1,458.4] [added: 1,807.2] | | | $ | [removed: 1,255.6] [added: 1,458.4] | | | | [removed: 16] [added: 24] | % | | | [removed: 17] [added: 20] | % |

Software revenue increased in [removed: FY’20] [added: FY’21] compared to [removed: FY’19] [added: FY’20] due to subscription revenue [removed: growth,] [added: growth of 42% (38% constant currency),] offset by [removed: declines] [added: an 18% decline] in perpetual [removed: license and perpetual] support revenue [added: (21% constant currency)] due to conversions of [added: perpetual] support contracts to subscriptions.

Professional services engagements typically result from sales of new [removed: licenses;] [added: licenses and software upgrades;] revenue is recognized over the term of the engagement.

Our expectation is that professional services revenue will trend flat-to-down over time due to our strategy to expand margins by migrating more services engagements to our partners and delivering products that require less consulting and training [removed: services, and in the near-term will trend down due to the effects of the COVID-19 pandemic.][added: services.]

Revenue [added: and ARR] by Product Group

| Core (CAD and PLM) | | $ | [removed: 947.1] [added: 1,161.7] | | | $ | [removed: 762.2] [added: 947.1] | | | | [removed: 24] [added: 23] | % | | | [removed: 25] [added: 19] | % |

| Growth (IoT, AR, [removed: Onshape)] [added: Onshape, Arena)] | | | [removed: 183.8] [added: 277.4] | | | | [removed: 140.2] [added: 183.8] | | | | [removed: 31] [added: 51] | % | | | [removed: 32] [added: 48] | % |

Excluding the impact of Arena, which was acquired in the second quarter of FY’21, our organic constant currency ARR growth was 12% in FY’21 compared to FY’20.

Organic churn improved approximately 130 basis points year over year, primarily driven by strong execution in CAD, PLM, FSG and modest continued improvement in IoT and AR.

FY’21 revenue of $1.81 billion increased 24% over FY’20 (20% in constant currency).

FY’21 operating margin of 21% increased approximately 700 basis points over FY’20 due to strong revenue performance as strong product differentiation improved sales and renewals, while maintaining good discipline on our operating expense structure.

FY’21 diluted EPS more than doubled year over year to $4.03, due in part to a gain of $69 million related to common stock we own in a publicly-traded company, the release of a $137 million valuation allowance related to our deferred tax assets in the U.S., and a non-cash tax benefit of $42 million related to our Arena acquisition.

FY’21 operating cash flow of $369 million grew 58% over FY’20; FY’21 free cash flow of $344 million grew 61% over FY’20.

Operating cash flow and free cash flow included an $18 million outflow related to a foreign tax dispute, $15 million of acquisition-related costs, and $15 million of restructuring payments.

We ended FY’21 with cash and cash equivalents of $327 million.

In addition, we held a $78 million equity investment in Matterport, Inc., currently subject to trading restrictions.

We ended FY’21 with gross debt of $1.45 billion, with an aggregate interest rate of 3.2%.

| ARR | | $ | 1,474.7 | | | $ | 1,270.0 | | | | 16 | % | | | 16 | % |

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

| (2) | In FY’21 and FY’20 our GAAP results included tax benefits of $179.7 million and $21.2 million, respectively. The FY’21 results include a $137.4 million benefit related to the release of the valuation allowance on the majority of our U.S. deferred tax assets and a $42.3 million benefit related to the release of a valuation allowance resulting from the Arena acquisition. The FY’20 results include a $21.2 million benefit related to the release of a valuation allowance resulting from the Onshape acquisition. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded. Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, our non-GAAP results for FY'21 exclude tax expense of $34.8 million related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes. |

As a

| Professional services | | | 157.8 | | | | 143.8 | | | | 10 | % | | | 5 | % |

| (1) | Includes perpetual licenses and the license portion of subscription sales. |

| (2) | Includes support on perpetual licenses and the support portion of subscription sales. |

Arena; acquired in the second quarter, contributed approximately $29 million in FY’21.

In FY’21, license revenue growth was primarily driven by contracts with longer durations.

Professional services revenue grew in FY’21 by 10% (5% constant currency); where FY’20 revenue was negatively impacted by the COVID-19 pandemic, FY’21 benefited from increased delivery activity associated with PLM deployments.

| | | 2021 | | | | 2020 | | | | Actual | | | | Constant Currency | | |

Growth product software revenue growth in FY’21 was driven by subscription revenue growth of 67% (63% constant currency) compared to the year-ago period, driven primarily by IoT and contribution from Arena.

Growth product ARR increased 50% (actual and constant currency) for FY’21 compared to FY’20, due in part to a $59 million contribution from Arena.

Excluding Arena, organic ARR growth was 17% (18%

constant currency), reflecting 15% (16% constant currency) growth in IoT and 16% (actual and constant currency) growth in AR.

FSG product ARR increased 6% (actual and constant currency) for FY’21 compared to FY’20.

| | | 2021 | | | | 2020 | | | | Actual | | | | Constant Currency | | |

Americas ARR was up 19%, led by double-digit growth in Core products and Arena.

ARR in Europe was up 13% constant currency, led by high-single digit growth in Core products, low-40s growth in Growth products, and double-digit growth in FSG.

ARR in Asia Pacific was up 17% constant currency, led by mid-teens growth in Core products and low-30s growth in Growth products.

License gross margin increased in FY’21 compared to FY’20 due to subscription license revenue increasing significantly as a result of longer subscription term durations, offset by increased royalty expense due to the mix of products sold and higher intangible amortization due to the Arena acquisition.

| | | 2021 | | | | 2020 | | | | Percent Change | | |

| | • | a $142.3 million increase in compensation expense (including benefit costs), primarily driven by: |

| | • | a $56.8 million (56%) increase in stock-based compensation expense, |

| | • | a $55.4 million (14%) increase in salaries due to higher headcount and merit increases as well as $10.3 million from Arena, |

| | • | a $15.8 million increase (17%) in benefits, of which $1.8 million is related to Arena, |

| | • | a $12.3 million (114%) increase in cash bonus expense due to higher attainment and includes $1.2 million from Arena, |

| | • | a $9.7 million (17%) increase in commissions due to additional amortization of capitalized commissions; |

| | • | a $7.8 million (39%) increase in professional fees; |

| | • | a $6.8 million (55%) increase in internal hosting costs; |

| --- | --- |

ARR growth was strong in our much larger Core business and accelerated in our Growth business, but declined modestly in our Focused Solutions Group (FSG) business.

Churn of 8.6% was slightly higher than expected.

FY’20 revenue of $1.46 billion increased 16% year over year driven by 26% recurring revenue growth, due in part to the adoption of ASC 606 and related business policy changes.

FY’20 operating margin of 14% increased approximately 900 basis points and EPS increased significantly year over year due to the increase in revenue and a decrease in the effective tax rate, primarily due to a reduction of the U.S. valuation allowance.

We generated $234 million of cash from operations in FY'20 compared to $285 million in FY'19, primarily due to higher interest and restructuring payments in the year.

We ended FY’20 with $335 million of cash and marketable securities and $1.0 billion of debt outstanding, including $1 billion of Senior Notes with a weighted average cost of debt of 3.8%, and $18 million outstanding under our credit facility, which was paid down subsequent to year end.

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

| (2) | We have a full valuation allowance against our U.S. net deferred tax assets and a valuation allowance against net deferred tax assets in certain foreign jurisdictions. As we are profitable on a non-GAAP basis, the non-GAAP tax provisions are calculated assuming there is no valuation allowance. Income tax adjustments reflect the tax effects of non-GAAP adjustments, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. |

Early in Q4’19, we discontinued offering cancellation rights for multi-year subscription contracts, which results in the recognition of the license portion of revenue for all years of the contract at the beginning of the multiyear contract period for our on-premises subscription licenses.

The discontinuation of the cancellation clause is expected to have less of an impact in FY’21.

| (Dollar amounts in millions) | | Year ended September 30, | | | | | | | | Percent Change | | | | | | |

In FY’20, subscription license revenue increased 88% (89% constant currency) compared to the year-ago period, due in part to the discontinuation of the annual cancellation right in new multi-year contracts and in part to new conversions in FY’20.

Professional services revenue declined in FY’20 due to challenges with project scoping and implementation activities and performance due to social distancing measures and facility closures implemented to address the COVID-19 pandemic.

Additionally, there was an increase in the estimated costs to complete a large fixed price professional services contract, which led to a corresponding decrease in the estimated percent complete and a related reversal of revenue.

| Core (CAD and PLM) | | $ | 1,025.7 | | | $ | 869.0 | | | | 18 | % | | | 19 | % |

| Growth (IoT, AR, Onshape) | | | 222.6 | | | | 167.5 | | | | 33 | % | | | 34 | % |

| FSG (Focused Solutions Group) | | | 210.1 | | | | 219.1 | | | | (4 | )% | | | (4 | )% |

Total revenue growth was lower than software revenue growth due to a decline in professional services revenue.

In FY’20, professional services revenue declined 26% (actual and constant currency) compared to the year-ago period due in part to the impact of the COVID-19 pandemic and the impact of the professional services contract described above.

Growth product software revenue growth in FY’20 was driven by subscription revenue growth of 49% (50% constant currency) compared to the year-ago period, offset by an expected decline in perpetual license revenue due to the end of sales of perpetual licenses at the end of Q1’19.

The revenue growth rate has been impacted by a decrease in the proportion of license revenue recognized upfront as we have released additional cloud functionality (for which revenue is recognized ratably) into our IoT products.

Growth product ARR increased 34% (32% constant currency) for FY’20 compared to FY’19, including growth from sales of our products through our strategic alliance with Rockwell Automation and reflecting strong growth in all three product lines.

This decline was partially offset by a 12% (13% constant currency) increase in subscription revenue in FY’20 compared to the year-ago period.

The total revenue decrease in FY’20 was higher than the decline in software revenue due to a decrease in professional services revenue, which declined 21% (20% constant currency) in FY’20 compared to FY’19 due in part to the impact of the COVID-19 pandemic on our ability to execute professional services projects.

FSG product ARR decreased 2% (4% constant currency) for FY’20 compared to FY’19, largely due to the impact of COVID-19 on FSG markets, primarily due to the non-renewal of a government contract which did not receive renewed funding.

Recurring revenue growth was 26% (actual and constant currency).

License gross margin increased in FY’20 compared to FY’19 due to revenue increasing significantly as a result of ASC 606 and the discontinuation of the cancellation clause, while cost of license expenses increased only slightly.

License revenue growth was driven by an 88% (89% constant currency) increase in subscription license revenue year over year, partially offset by a 54% (53% constant currency) decrease in perpetual license revenue.

This was partially offset by increases in subscription support and cloud services revenue.

| % of total revenue | | | 2 | % | | | 4 | % | | | | |

| | • | an increase in general and administrative expenses driven by a $17.6 million increase in compensation (including benefit costs), primarily related to stock-based compensation; a $6.1 million increase in professional fees; and a $5.5 million increase in acquisition-related charges; |

| | • | a $37.3 million increase in sales and marketing compensation (including benefit costs) due to higher salaries related partially to higher headcount, higher commissions due to amortization of capitalized commissions under ASC 606, and higher stock-based compensation; |

| | • | an increase in research and development costs primarily related to a $9.2 million increase in compensation (including benefit costs) primarily due to higher salaries and stock-based compensation; and |

| | • | an increase of $4.9 million in intangible amortization related to the acquisition of Onshape; |

| | • | decreases of $16.1 million in travel costs and $8.3 million in event and meeting expenses, both of which primarily impacted sales and marketing, due to the COVID-19 global pandemic; and |

Restructuring and other charges in FY’20 primarily related to an employee restructuring plan in the first half of the fiscal year to shift resources to support our SaaS initiatives.

Restructuring and other charges in FY’19 largely related to the exit of our Needham headquarters facility.

| Interest expense | | $ | (76.4 | ) | | $ | (43.0 | ) | | | 78 | % |

Interest expense was higher in FY’20 as compared to FY’19 primarily due to increased debt to complete the Onshape acquisition: we had $1,018 million of total debt at September 30, 2020, compared to $673 million at September 30, 2019.

We do not enter into or hold foreign currency derivative financial instruments for trading or speculative [removed: purposes] [added: purposes,] nor do we enter into derivative financial instruments to hedge future cash flows or forecast transactions.

Based on current revenue and expense levels (excluding restructuring charges and stock-based compensation), a $0.10 change in the USD to EUR [added: exchange rate] and a 10 Yen change in the Yen to USD exchange rate would impact operating income by approximately [removed: $19] [added: $28] million and [removed: $9] [added: $10] million, respectively.

As of September 30, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:

| Currency Hedged *(in thousands)* | | [removed: 2020] [added: 2021] | | | | [removed: 2019] [added: 2020] | | |

| Canadian / U.S. Dollar | | $ | [removed: 6,847] [added: 4,894] | | | $ | [removed: 9,408] [added: 6,847] | |

| Euro / U.S. Dollar | | | [removed: 390,673] [added: 387,466] | | | | [removed: 308,282] [added: 390,673] | |

| British Pound / U.S. Dollar | | | [removed: 6,328] [added: 23,141] | | | | [removed: 3,756] [added: 6,328] | |

| Israeli Shekel / U.S. Dollar | | | [removed: 9,503] [added: 10,475] | | | | [removed: 10,272] [added: 9,503] | |

| Japanese Yen / U.S. Dollar | | | [removed: 50,379] [added: 46,450] | | | | [removed: 37,462] [added: 50,379] | |

| Swiss Franc / U.S. Dollar | | | [removed: 12,874] [added: 18,039] | | | | [removed: 12,001] [added: 12,874] | |

| Swedish Krona / U.S. Dollar | | | [removed: 18,871] [added: 34,196] | | | | [removed: 20,636] [added: 18,871] | |

| Singapore Dollar / U.S. Dollar | | | [removed: 3,281] [added: 3,498] | | | | [removed: 34,585] [added: 3,281] | |

| Chinese Renminbi / U.S. Dollar | | | [removed: 5,415] [added: 23,297] | | | | [removed: 52,466] [added: 5,415] | |

| Total | | $ | [removed: 512,462] [added: 563,921] | | | $ | [removed: 498,355] [added: 512,462] | |

In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, [removed: 2020,] [added: 2021,] we had [removed: $18] [added: $450] million outstanding under our credit facility.

As of September 30, [removed: 2020,] [added: 2021,] the annual rate on the credit facility loans was [removed: 1.81%.][added: 1.69%.]

If there [removed: was] [added: were] a hypothetical 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be [removed: immaterial.][added: $4.5 million.]

This hypothetical change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, [removed: 2020] [added: 2021] and a 100 basis point per annum change in interest rate applied over a one-year period.

As of September 30, [removed: 2020,] [added: 2021,] cash equivalents were invested in highly liquid investments with maturities of three months or less when purchased.

At September 30, [removed: 2020,] [added: 2021,] we had cash and cash equivalents of [removed: $39] [added: $37] million in the United States, [removed: $108] [added: $111] million in Europe, [removed: $99] [added: $145] million in Asia Pacific (including India), and [removed: $29] [added: $34] million in other non-U.S. countries.

Given the short maturities and investment grade quality of the portfolio holdings at September 30, [removed: 2020,] [added: 2021,] a hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash equivalents.

Changes in foreign currencies relative to the U.S. dollar had an [removed: immaterial impact on our consolidated cash balances in 2020 and an] unfavorable impact of [removed: $2.6] [added: $0.1] million and [removed: $7.8] [added: $2.6] million [added: on our consolidated cash balances] in [removed: 2019] [added: 2021] and [removed: 2018,] [added: 2019,] respectively, in particular due to changes in the Euro and the Japanese [removed: Yen.][added: Yen, and an immaterial impact in 2020.]

| New Taiwan Dollar / U.S. Dollar | | | 3,369 | | | | 1,483 | |

| Russian Ruble/ U.S. Dollar | | | 2,614 | | | | 309 | |

| All other | | | 6,482 | | | | 6,499 | |

| All other | | | 8,291 | | | | 9,487 | |

We believe demand for solutions such as ours that enable work from [removed: home,] [added: home and/or office,] global team and supply chain collaboration, remote asset management, and remote frontline worker training and support is strong.

[removed: FY’20] [added: FY’21] marked the [removed: third] [added: fourth] consecutive year of double-digit ARR growth, despite the [removed: extreme volatility of PMIs] [added: manufacturing] and [removed: the] macroeconomic [removed: environment] [added: environments over] that [removed: occurred during the same time frame.][added: period.]

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

[removed: ][added: ]

[removed: ][added: ]

[removed: ][added: ]

[removed: ][added: ]

[removed: Focused] [added: Digital Thread – Focused Solutions] Group [removed: Products (FSG)][added: (FSG)]

Our IntegrityTM application lifecycle management (ALM) and model-based systems engineering capabilities enable users to manage system models, software configurations, [added: and] test plans and defects.

We compete in the [removed: IIoT, AR, CAD] [added: CAD, PLM, IIoT] and [removed: PLM] [added: AR] markets.

We see greater opportunity for market growth for our IIoT and AR solutions for the [removed: enterprise,] [added: enterprise and our SaaS solutions,] followed by more moderate market growth for our [added: on-premise] CAD and PLM [removed: solutions.][added: solutions, both of which have been growing faster than their respective market growth rates.]

In our IIoT business, we compete with large established companies such as Amazon, IBM, Oracle, SAP, Siemens AG, [removed: Software AG,] and [removed: GE.][added: Software AG as well as customers’ homegrown solutions.]

For enterprise CAD and PLM solutions, we compete with [added: large established] companies including Autodesk, Dassault Systèmes SA, and Siemens AG.

For [added: our] PLM solutions, we also compete with Oracle and 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.

For our AR products, our primary competitors include [removed: Microsoft, Upskill, Ubimax,] [added: TeamViewer,] ScopeAR and Re’Flekt.

[removed: We also use license management and other anti-piracy] technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of our products.

[removed: You should read that discussion,] [added: “Risk Factors” below,] which is incorporated into this section by reference.

[removed: Inclusion] [added: Commitment to Diversity] and [removed: Diversity.][added: Inclusion]

Information about our executive officers is incorporated by reference from our [removed: 2021] [added: 2022] Proxy Statement.

PTC is a global software and services company that enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced.

Our award-winning technology portfolio spans the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things (IIoT), and Augmented Reality (AR) markets.

Our technology can be delivered on premises, in the cloud, or in a hybrid model.

Our customer base includes some of the world’s most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries.

Our solutions enable industrial companies to create a closed loop of information shared across their organization’s entire value chain.

This “digital thread” can drive excellence in engineering, efficiency in manufacturing operations and service delivery, and innovation across product offerings and business models.

With our solutions, digital transforms physical.

As a purpose-driven company, we don’t just imagine a better world, we help create it.

Our purpose statement - Power To Create – is a commitment to our customers to help them solve difficult challenges; a commitment to our employees to build a culture that supports diversity, equity, and inclusion so they can achieve their greatest potential; and a commitment to support the communities our employees live and work in globally.

Align with market demand to deliver technology solutions aligned with secular market trends, including digital transformation, SaaS, remote collaboration and AI.

In addition, there is growing customer demand for SaaS offerings; we intend to increase our investment in SaaS initiatives, while better aligning with SaaS best practices in order to meet the needs of the market.

Drive sustainable top line ARR growth by expanding our footprint with existing customers, cross-selling complementary solutions in our customer base, adding new customers and by maintaining strong customer retention rates through our global field organization and partner ecosystem.

In FY’22, we are evolving our organizational structure to align better with a traditional SaaS model and create a much-improved customer experience.

Grow operating cash flow through continued operating discipline within a recurring business model.

Our organizational changes are designed to grow ARR, increase customer retention, and improve operating efficiency, we expect to grow our operating cash flow.

In order to drive clear focus, we have divided our business into two key product groups: Digital Thread and Velocity.

The Digital Thread business is focused on customers that are embracing digital transformation and the Velocity business is focused on customers that prioritize agile product development.

Digital Thread – Core

| Our Creo® 3D CAD technology enables the digital design, testing, and modification of product models. With its design simulation, additive manufacturing, and generative design innovations, we enable our customers to be first to market with differentiated products. From initial concept to design, simulation, and analysis, Creo provides designers with innovative tools to efficiently create better products, faster. | | Our Windchill® PLM application suite manages all aspects of the product development lifecycle - from concept through service and retirement - by enabling a digital thread of product parts, materials, and configuration information. Windchill provides real-time information sharing, dynamic data visualization, and the ability to collaborate across geographically-distributed teams, enabling manufacturers to elevate their product development process. With its open architecture that integrates with other enterprise systems, Windchill provides a solid foundation for a product-driven digital thread. |

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

Digital Thread – Growth

| Flexible and purpose-built for Industrial IoT, our ThingWorx® platform offers a rich set of capabilities that enable enterprises to digitally transform every aspect of their business with innovative solutions that are simple to create, easy to implement, scalable to meet future needs, and designed to enable customers to accelerate time to value. | | Our Vuforia® augmented reality technology enables the visualization of digital information in a physical context and the creation of AR experiences to deliver workforce productivity and business results in manufacturing, service, engineering, and operations. Vuforia enables augmented reality and mixed reality experiences for the industrial enterprise. Vuforia solutions equip frontline workers with focused and effective step-by-step instructions, procedural guidance, skill development and remote assistance that enable enterprises to reduce errors, increase asset utilization and drive higher profitability. |

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

Velocity

| Our Onshape® Software-as-a-Service (SaaS) product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics. A cloud-native multi-tenant solution that can be instantly deployed on virtually any computer or mobile device, Onshape enables teams to work together from just about anywhere. Real-time design reviews, commenting, and simultaneous editing enable a collaborative workflow where multiple design iterations can be completed in parallel and merged into the final design. | | Our Arena® SaaS PLM solution enables product teams to collaborate virtually anytime and anywhere, making it easier to share the latest product and quality information with internal teams and supply chain partners and help deliver innovative products to customers faster. Our Arena quality management system software connects quality and product designs into a single system to simplify regulatory compliance. |

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

Our strategic alliance partners enable us to increase our market reach, offer broader solutions, and add compelling technology to our offerings.

Although Microsoft is a partner (especially in IoT), it is a competitor in AR; the competing products are Microsoft Dynamics 365 Remote Assist and Dynamics 365 Guides.

We also use license management and other anti-piracy

People and Culture

PTC’s commitment to building a diverse, equitable, and inclusive culture is fundamental to our purpose – the Power to Create, and critical to every aspect of our talent strategy.

Our approach is focused on sustainable talent practices and core values that promote an agile culture, an increased sense of belonging, engaged work environments, and high-performing teams.

PTC at-a-Glance

As of September 30, 2021, PTC had 6,709 employees.

Our population is geographically diverse and serves a geographically diverse customer and partner network.

We have been improving our systems and processes to enable us to better track, manage and develop our employees.

With these improvements, we aim to better understand our demographic population and to develop demographic goals we can share.

Commitment to our values and diversity in our workforce has inspired our top-line company goals.

They include a focus on increasing under-represented minority and gender representation in global leadership as a first and essential step to diversifying our employee population.

In addition to hiring our first Chief Diversity & CSR Officer in 2020, we are building an extended team to support our diversity and inclusion initiatives.

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

Our Internet of Things (IoT) and Augmented Reality (AR) solutions enable companies to connect factories and plants, smart products, and enterprise systems to transform their businesses.

These products, along with Onshape, are considered our Growth Products.

The primary products in our Core Products portfolio are innovative Computer-Aided Design (CAD) and Product Lifecycle Management (PLM) solutions that enable manufacturers to create, innovate, and service products.

Our Focused Solutions Group (FSG) is a family of software products that target specific vertical industries where we can deliver unique domain expertise and a competitive advantage with Application Lifecycle Management (ALM) products, Service Lifecycle Management (SLM) products, and other niche tailored solutions.

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

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

These solutions are being designed to aggregate technology from across 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 for PTC.

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

Align with market demand to build a strong pipeline.

Optimize new and renewal sales and customer success to power top line ARR growth.

In the past year, we have accelerated our digital marketing and sales capabilities.

Create an efficient business model and operation that enable us to drive free cash flow growth.

As we have completed our subscription transition, we see greater ARR stability and continue to drive operational efficiencies.

Growth Products

Our ThingWorx® IIoT platform delivers end-to-end capabilities that enable customers to address every facet of their digital transformation journey, enabling them 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 IIoT applications; easily and more securely connect devices, systems, and applications; build applications quickly and at enterprise scale; analyze IIoT data to proactively optimize operations; manage connected devices, processes and systems; and create digital and AR experiences.

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.

Our ThingWorx Kepware® product 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, enhancing IIoT solutions through real-time insights, predictions and recommendations from information collected from smart, connected things.

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

PTC was named a leader in IIoT platforms in Gartner’s 2020 Magic Quadrant, Quadrant Knowledge Solutions’ 2020 SPARK Matrix, and Forrester’s 2019 Wave.

Our Vuforia® enterprise AR platform and wide-ranging solution suite enable industrial enterprise customers to address workforce challenges and meet business goals.

Our Vuforia Studio™ product is a powerful, easy-to-use, cloud-based tool that enables industrial enterprises to rapidly author and publish augmented reality experiences.

These augmented reality experiences overlay important digital information from IoT, CAD, and other sources onto the view of the physical things on which users work.

Our Vuforia Expert Capture™ product chronicles the real-time movements of a person wearing an AR headset by monitoring the individual both audio-visually and spatially in three dimensions.

Vuforia Expert Capture supports a variety of industrial use cases, such as creating step-by-step operating or repair instructions, procedural guidance, and hands-on training.

The Vuforia suite also includes the Vuforia Engine™ technology for application development, Vuforia Chalk™ collaboration and remote assistance solution, and Vuforia Spatial Toolbox™ technology to accelerate the development of spatial computing prototypes and use cases.

PTC was named a leader in AR platforms in ABI Research’s 2019 Competitive Assessment and Teknowlogy’s PAC RADAR assessment.

Our Onshape® Software-as-a-Service (SaaS) product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics.

A cloud-native multi-tenant solution that can be instantly deployed on virtually any computer or mobile device, Onshape enables teams to work together from anywhere.

Real-time design reviews, commenting, and simultaneous editing enable a collaborative workflow where multiple design iterations can be completed in parallel and merged into the final design.

Core Products

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 generative design, real-time simulation (through our collaboration with ANSYS), additive manufacturing, design flexibility, advanced assembly design, piping and cabling design, advanced surfacing, comprehensive virtual prototyping and other essential design functions.

Our Creo solutions also 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 designs instantly to collaborate with anyone across the entire enterprise around the world on virtually any device.


Our Windchill® suite of PLM software 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.

For the Fiscal Year Ended: September 30, [removed: 2020][added: 2021]

The aggregate market value of our voting stock held by non-affiliates was approximately [removed: 6,144,651,405] [added: $14,486,748,642] on March [removed: 27, 2020] [added: 31, 2021] based on the last reported sale price of our common stock on the Nasdaq Global Select Market on that date.

There were [removed: 115,695,428] [added: 116,854,806] shares of our common stock outstanding on that day and [removed: 116,662,768] [added: 117,871,872] shares of our common stock outstanding on November [removed: 18, 2020.][added: 17, 2021.]

Portions of the definitive Proxy Statement in connection with the [removed: 2021] [added: 2022] Annual Meeting of Stockholders [removed: (2021] [added: (2022] Proxy Statement) are incorporated by reference into Part III.

ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR [removed: 2020][added: 2021]

| Item 1B. | [Unresolved Staff Comments](#UNRESOLVED_STAFF_COMMENTS) | [removed: [16](#UNRESOLVED_STAFF_COMMENTS)] [added: [17](#UNRESOLVED_STAFF_COMMENTS)] |

| Item 7A. | [Quantitative and Qualitative Disclosures about Market Risk](#Item_7A__Quantitative_and_Qualitative_Di) | [removed: [35](#Item_7A__Quantitative_and_Qualitative_Di)] [added: [33](#Item_7A__Quantitative_and_Qualitative_Di)] |

| Item 8. | [Financial Statements and Supplementary Data](#Item_8__Financial_Statements_and_Supplem) | [removed: [36](#Item_8__Financial_Statements_and_Supplem)] [added: [35](#Item_8__Financial_Statements_and_Supplem)] |

| Item 9. | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#Item_9__Changes_in_and_Disagreements_wit) | [removed: [36](#Item_9__Changes_in_and_Disagreements_wit)] [added: [35](#Item_9__Changes_in_and_Disagreements_wit)] |

| Item 9A. | [Controls and Procedures](#Item_9A__Controls_and_Procedures) | [removed: [37](#Item_9A__Controls_and_Procedures)] [added: [35](#Item_9A__Controls_and_Procedures)] |

| Item 9B. | [Other Information](#Item_9B__Other_Information) | [removed: [38](#Item_9B__Other_Information)] [added: [36](#Item_9B__Other_Information)] |

| Item 10. | [Directors, Executive Officers and Corporate Governance](#Item_10__Directors__Executive_Officers_a) | [removed: [39](#Item_10__Directors__Executive_Officers_a)] [added: [37](#Item_10__Directors__Executive_Officers_a)] |

| Item 11. | [Executive Compensation](#Item_11__Executive_Compensation) | [removed: [39](#Item_11__Executive_Compensation)] [added: [37](#Item_11__Executive_Compensation)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#Item_12__Security_Ownership_of_Certain_B) | [removed: [39](#Item_12__Security_Ownership_of_Certain_B)] [added: [37](#Item_12__Security_Ownership_of_Certain_B)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director Independence](#Item_13__Certain_Relationships_and_Relat) | [removed: [39](#Item_13__Certain_Relationships_and_Relat)] [added: [37](#Item_13__Certain_Relationships_and_Relat)] |

| Item 14. | [Principal Accounting Fees and Services](#Item_14__Principal_Accountant_Fees_and_S) | [removed: [39](#Item_14__Principal_Accountant_Fees_and_S)] [added: [37](#Item_14__Principal_Accountant_Fees_and_S)] |

| Item 15. | [Exhibits and Financial Statement Schedules](#EXHIBITS_FINANCIAL_STATEMENT_SCHEDULES) | [removed: [40](#EXHIBITS_FINANCIAL_STATEMENT_SCHEDULES)] [added: [38](#EXHIBITS_FINANCIAL_STATEMENT_SCHEDULES)] |

| Item 16. | [Form 10-K Summary](#FORM_10K_SUMMARY) | [removed: [40](#FORM_10K_SUMMARY)] [added: [38](#FORM_10K_SUMMARY)] |

| [Exhibit Index](#EXHIBIT_INDEX) | | [removed: [41](#EXHIBIT_INDEX)] [added: [39](#EXHIBIT_INDEX)] |

| [Signatures](#Signatures) | | [removed: [43](#Signatures)] [added: [41](#Signatures)] |

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

| Item 6. | [Reserved](#Reserved) | [17](#Reserved) |

| Item 9C. | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspection](#Item_9C__Disclosue_Regarding_Foreign_Jur) | [36](#Item_9C__Disclosue_Regarding_Foreign_Jur) |

| | | |

| Item 6. | [Selected Financial Data](#ITEM_6_SELECTED_FINANCIAL_DATA) | [17](#ITEM_6_SELECTED_FINANCIAL_DATA) |

| | [Selected Consolidated Financial Data](#SELECTED_CONSOLIDATED_FINANCIAL_DATA) | [A-1](#SELECTED_CONSOLIDATED_FINANCIAL_DATA) |

We currently have [removed: 88] [added: 86] 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: 1,288,000] [added: 1,270,000] square feet of leased facilities used in operations, approximately [removed: 521,000] [added: 527,000] square feet are located in the U.S., including 250,000 square feet at our headquarters facility located in Boston, Massachusetts, and approximately 260,000 square feet are located in India, where a significant amount of our research and development is conducted.

In addition, approximately [removed: 276,000] [added: 210,000] feet are associated with facilities that have been restructured, primarily our previous headquarters facility in Needham, Massachusetts.

On September 30, [removed: 2020,] [added: 2021,] the close of our fiscal year, and on November [removed: 18, 2020,] [added: 17, 2021,] our common stock was held by [removed: 1,072] [added: 1,023] and [removed: 1,070] [added: 1,020] shareholders of record, respectively.

The table below shows the shares of our common stock we repurchased in the fourth quarter of 2021.

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

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

| July 2021 | | — | | | | $ | — | | | | — | | | $ | 1,000,000,000 | |

| August 2021 | | | 225,909 | | | | 132.80 | | | | 225,909 | | | | 970,000,047 | |

| September 2021 | | | — | | | | — | | | | — | | | | 970,000,047 | |

| Total | | | 225,909 | | | $ | 132.80 | | | | 225,909 | | | $ | 970,000,047 | |

| (1) | On November 13, 2020, the Board of Directors authorized us to repurchase up to $1 billion of our common stock in the period November 13, 2020 through September 30, 2023. |

| --- | --- |

Our five-year summary of selected financial data and quarterly financial data for the past two years is located on page A-1 at the end of this Form 10-K and incorporated herein by reference.

Based on this evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, [removed: 2020.][added: 2021.]

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may [removed: deteriorate.][added: deteriorate]

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, [removed: 2020] [added: 2021] using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control-Integrated Framework (2013)*.

[removed: Based on this assessment] and those criteria, our management concluded that, as of September 30, [removed: 2020,] [added: 2021,] our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of September 30, [removed: 2020] [added: 2021] 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: 2020] [added: 2021] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Based on this assessment

Management excluded Arena from our assessment of internal control over financial reporting as of September 30, 2021 because the Company acquired it in a business combination in 2021.

Arena’s total assets and total revenues represent approximately 1% and 2%, respectively, of the Company’s total assets and total revenues, as of and for the year ended September 30, 2021.

PART III

| --- | --- |

Not applicable.

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," and “Transactions [removed: With] [added: with] Related Persons” appearing in our [removed: 2021] [added: 2022] Proxy Statement.

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: 2021] [added: 2022] Proxy Statement.

Information required by this item may be found under the [removed: headings] [added: heading] “Information about PTC Common Stock Ownership” in our [removed: 2021] [added: 2022] Proxy Statement.

| 2016 Employee Stock Purchase Plan(2) | | | — | | | | — | | | | [removed: 875,488] [added: 634,855] | | (2) |

| (2) | This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which [removed: 146,691] [added: 110,363] shares are subject to purchase during the current offering period. |

as of September 30, 2021

| 2000 Equity Incentive Plan(1) | | | 3,215,849 | | | | — | | (1) | | 4,074,497 | | |

| Total | | | 3,215,849 | | | | — | | | | 4,709,352 | | |

as of September 30, 2020

| 2000 Equity Incentive Plan(1) | | | 3,507,317 | | | | — | | (1) | | 5,282,903 | | |

| Total | | | 3,507,317 | | | | — | | | | 6,158,391 | | |

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: 2021] [added: 2022] 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: 2021] [added: 2022] Proxy Statement.

| | [Consolidated Balance Sheets as of September 30, [removed: 2020] [added: 2021] and [removed: 2019](#CONSOLIDATED_BALANCE_SHEETS)] [added: 2020](#CONSOLIDATED_BALANCE_SHEETS)] | [F-4](#CONSOLIDATED_BALANCE_SHEETS) |

| | [Consolidated Statements of Operations for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018](#CONSOLIDATED_STATEMENTS_OPERATIONS)] [added: 2019](#CONSOLIDATED_STATEMENTS_OPERATIONS)] | [F-5](#CONSOLIDATED_STATEMENTS_OPERATIONS) |

| | [Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN)] [added: 2019](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN)] | [F-6](#CONSOLIDATED_STATEMENTS_COMPREHENSIVE_IN) |

| | [Consolidated Statements of Cash Flows for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018](#CONSOLIDATED_STATEMENTS_CASH_FLOWS)] [added: 2019](#CONSOLIDATED_STATEMENTS_CASH_FLOWS)] | [F-7](#CONSOLIDATED_STATEMENTS_CASH_FLOWS) |

| | [Consolidated Statements of Stockholders’ Equity for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018](#CONSOLIDATED_STATEMENTS_STOCKHOLDERS_EQU)] [added: 2019](#CONSOLIDATED_STATEMENTS_STOCKHOLDERS_EQU)] | [F-8](#CONSOLIDATED_STATEMENTS_STOCKHOLDERS_EQU) |

| 10.4* | — | [Form of Amended and Restated Executive Agreement between the Company and each of Kristian [removed: Talvitie, Kathleen Mitford] [added: Talvitie] and Aaron von Staats (filed as Exhibit 10.3 to PTC’s Quarterly Report on Form 10-Q for the period ended December 28, 2019 (File. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/0000857005/000085700520000009/a103evpexecutiveagreemen.htm) |

| 10.5* | — | [Form of Executive Agreement between the Company and [removed: each of Eduarda Camacho,] Michael DiTullio [removed: and Kevin Wrenn] (filed as Exhibit 10.1 to PTC’s Quarterly Report on Form 10-Q for the period ended March 28, 2020 (File. No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000085700520000017/a101executiveagreement.htm) |

| 10.6* | — | [Executive Agreement between the Company and Troy Richardson dated November 16, [removed: 2020.](https://www.sec.gov/Archives/edgar/data/857005/000156459020054803/ptc-ex106_285.htm)] [added: 2020 (filed as Exhibit 10.6 to PTC’s Annual Report on Form 10-K for the period ended September 30, 2020 (File 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000156459020054803/ptc-ex106_285.htm)] |

| [removed: 10.15] [added: 10.16] | — | [Third Amended and Restated Credit Agreement, by and among the Company, PTC (IFSC) Limited, the lenders listed thereto and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 4.4 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference)](http://www.sec.gov/Archives/edgar/data/857005/000119312520035604/d882560dex44.htm). |

| 21.1 | — | [Subsidiaries of PTC [removed: Inc.](https://www.sec.gov/Archives/edgar/data/857005/000156459020054803/ptc-ex211_529.htm)] [added: Inc.](https://www.sec.gov/Archives/edgar/data/857005/000156459021057806/ptc-ex211_8.htm)] |

| 23.1 | — | [Consent of PricewaterhouseCoopers LLP, an independent registered public accounting [removed: firm.](https://www.sec.gov/Archives/edgar/data/857005/000156459020054803/ptc-ex231_394.htm)] [added: firm.](https://www.sec.gov/Archives/edgar/data/857005/000156459021057806/ptc-ex231_11.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/857005/000156459020054803/ptc-ex311_127.htm)] [added: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000156459021057806/ptc-ex311_6.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/857005/000156459020054803/ptc-ex312_126.htm)] [added: 15d-14(a).](https://www.sec.gov/Archives/edgar/data/857005/000156459021057806/ptc-ex312_7.htm)] |

| 32 | — | [Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section [removed: 1350.](https://www.sec.gov/Archives/edgar/data/857005/000156459020054803/ptc-ex32_125.htm)] [added: 1350.](https://www.sec.gov/Archives/edgar/data/857005/000156459021057806/ptc-ex32_9.htm)] |

| 101 | — | The following materials from PTC Inc.'s Annual Report on Form 10-K for the year ended September 30, [removed: 2020,] [added: 2021,] formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, [removed: 2020] [added: 2021] and [removed: 2019;] [added: 2020;] (ii) Consolidated Statements of Operations for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018;] [added: 2019;] (iii) Consolidated Statements of Comprehensive Income for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018;] [added: 2019;] (iv) Consolidated Statements of Cash Flows for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018;] [added: 2019;] (v) Consolidated Statements of Stockholders’ Equity for the years ended September 30, [removed: 2020, 2019] [added: 2021, 2020] and [removed: 2018;] [added: 2019;] and (vi) Notes to Consolidated Financial Statements. |

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the [removed: 20th] [added: 19th] day of November, [removed: 2020.][added: 2021.]

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below, on the [removed: 20th] [added: 19th] day of November, [removed: 2020.][added: 2021.]

We have audited the accompanying consolidated balance sheets of PTC Inc. and its subsidiaries (the “Company”) as of September 30, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ [removed: equity,] [added: equity] and of cash flows for each of the three years in the period ended September 30, [removed: 2020,] [added: 2021,] including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of September 30, [removed: 2020,] [added: 2021,] based on criteria established in *Internal Control - Integrated Framework* (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] and the results of its operations and its cash flows for each of the three years in the period ended September 30, [removed: 2020] [added: 2021] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, [removed: 2020,] [added: 2021,] based on criteria established in *Internal Control - Integrated Framework* (2013) issued by the COSO.

As discussed in Note 2 [removed: and Note 3] to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020 and the manner in which it accounts for revenues from contracts with customers in fiscal 2019.

[removed: Our audits also included performing] such other procedures as we considered necessary in the circumstances.

[removed: Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting][added: Reporting]

Revenue from Contracts with Customers - Identification of Distinct Performance Obligations [removed: and Estimate of Standalone Selling Price]

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

During the year ended September 30, [removed: 2020,] [added: 2021,] the Company recognized revenue from contracts with customers of [removed: $1,458.4] [added: $1,807.2] million.

The Company’s contracts with customers for subscriptions typically include commitments to transfer term-based, [removed: on-premise] [added: on-premises] software licenses bundled with support and/or cloud services.

[removed: On-premise] [added: On-premises] software is determined to be a distinct performance obligation from support.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the identification of distinct performance [removed: obligations and estimate of standalone selling prices used to allocate transaction price to distinct performance obligations in its contracts with customers.][added: obligations.]

As described in Note 6 to the consolidated financial statements, the Company completed its acquisition of [removed: Onshape] [added: Arena Holdings,] Inc. on [removed: November 1, 2019,] [added: January 15, 2021,] for purchase consideration of [removed: $469] [added: approximately $715.0] million, net of cash [removed: acquired.][added: acquired of $11.1 million.]

The acquisition of [removed: Onshape] [added: Arena] has been accounted for as a business combination.

The purchase price allocation resulted in [removed: $56.8] [added: $155.0] million [removed: for] [added: of] customer relationships [removed: and $47.3 million for purchased software] being recorded.

Management estimated the fair [removed: values] [added: value] of [added: the customer relationships] intangible [removed: assets based on valuations] [added: asset] using a discounted cash flow model which included significant judgment and assumptions [removed: relating] [added: related] to [removed: estimating] future revenues and costs.

The principal considerations for our determination that performing procedures relating to the valuation of the [removed: acquired] customer relationships [removed: and purchased software] intangible [removed: assets] [added: asset] in the acquisition of [removed: Onshape, LLC] [added: Arena Holdings, Inc.] is a critical audit matter are the significant judgment by management when estimating the fair value of the [removed: these] [added: customer relationships] intangible [removed: assets,] [added: asset,] which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence [removed: relating] [added: related] to the discounted cash flow model utilized to value the [removed: intangibles] [added: customer relationships intangible asset] and management’s assumptions [removed: for] [added: related to] future revenues and [removed: costs used to develop cash flow projections.][added: costs.]

These procedures included testing the effectiveness of controls relating to management’s determination of the fair value of the customer [removed: relationship and purchased software] [added: relationships] intangible [removed: assets.][added: asset.]

These procedures also included, among [removed: others,] [added: others] (i) reading the purchase [removed: agreement,] [added: agreement;] (ii) testing management’s process for estimating the fair value of the customer relationships [removed: and purchased software] intangible [removed: assets,] [added: asset;] (iii) evaluating the appropriateness of the discounted cash flow [removed: models] [added: model] used by [removed: management,] [added: management;] (iv) testing the completeness and accuracy of the underlying data used in the [removed: valuation,] [added: valuation;] and (v) evaluating the reasonableness of the significant assumptions related to future [removed: revenue] [added: revenues] and costs.

Professionals with specialized skill and knowledge were used to assist in [added: evaluating] the [removed: evaluation] [added: appropriateness] of [removed: management’s] [added: the] discounted cash flow model.

| | [added: 2021] | [added: | | |] 2020 | | | | 2019 | | |

| Cash and cash equivalents | | $ | [removed: 275,458] [added: 326,532] | | | $ | [removed: 269,579] [added: 275,458] | |

| Short-term marketable securities | | | [removed: 28,129] [added: —] | | | | [removed: 27,891] [added: 28,129] | |

| Accounts receivable, net of allowance for doubtful accounts of [removed: $543] [added: $304] and [removed: $744] [added: $543] at September 30, [removed: 2020] [added: 2021] and [removed: 2019,] [added: September 30, 2020,] respectively | | | [removed: 415,221] [added: 541,072] | | | | [removed: 372,743] [added: 415,221] | |

| Prepaid expenses | | | [removed: 69,408] [added: 69,991] | | | | [removed: 52,701] [added: 69,408] | |

| Other current assets | | | [removed: 45,231] [added: 135,415] | | | | [removed: 59,707] [added: 45,231] | |

| Total current assets | | | [removed: 833,447] [added: 1,073,010] | | | | [removed: 782,621] [added: 833,447] | |

| 3.3 | — | [Amendment to PTC By-Laws dated June 24, 2021 (filed as Exhibit 3.1 to our Current Report on Form 8-K filed on June 25, 2021 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000156459021034598/ptc-ex31_6.htm) |

| 10.15 | — | [Amendment No. 1 to Securities Purchase Agreement dated as of May 11, 2021 between PTC Inc. and Rockwell Automation, Inc. filed as Exhibit 10.1 to our Current Report on Form 8-K filed on May 13, 2021 (File No. 0-18059) and incorporated herein by reference).](http://www.sec.gov/Archives/edgar/data/857005/000156459021027521/ptc-ex101_6.htm) |

| /s/ MARK BENJAMIN | | Director |

| Mark Benjamin | | |

| | | |

| | | |

| | | |

| | | |

Our audits also included performing

As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Arena Holdings, Inc. from its assessment of internal control over financial reporting as of September 30, 2021 because it was acquired by the Company in a purchase business combination during fiscal 2021.

We have also excluded Arena Holdings, Inc. from our audit of internal control over financial reporting.

Arena Holdings, Inc. is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 1% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2021.

The principal considerations for our determination that performing procedures relating to revenue recognition, specifically related to management’s identification of distinct performance obligations, is a critical audit matter are the significant judgment by management in the identification of distinct performance obligations, specifically the determination that the on-premises software is determined to

be a distinct performance obligation from support, which 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.

These procedures also included, among others (i) evaluating the Company’s revenue recognition accounting policy and (ii) testing management’s identification of distinct performance obligations in its contracts with customers by examining revenue contracts on a sample basis and evaluating whether these performance obligations are satisfied at a point in time or satisfied over time.

Acquisition of Arena Holdings, Inc. – Valuation of the Customer Relationships Intangible Asset

The acquisition of Arena Holdings, Inc. has been accounted for as a business combination.

November 19, 2021

| | | 2021 | | | | 2020 | | |

| Retained earnings (Accumulated deficit) | | | 414,656 | | | | (62,267 | ) |

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

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

| Net income (loss) | | $ | 476,923 | | | $ | 130,695 | | | $ | (27,460 | ) |

| Gain on investment | | | (68,829 | ) | | | — | | | | — | |

| Payments of principal for financing leases | | | (354 | ) | | | — | | | | — | |

| Withholding taxes in connection with stock-based awards, accrued | | | 120 | | | | — | | | | — | |

| Balance as of September 30, 2021 | | | 117,163 | | | $ | 1,172 | | | $ | 1,718,504 | | | $ | 414,656 | | | $ | (95,864 | ) | | $ | 2,038,468 | |

PTC Inc

In accordance with ASC 606,

associated with this right.

In December 2020, we sold all our marketable securities to partially fund the Arena acquisition, resulting in proceeds of $56.2 million.

Neither gross realized gains nor gross realized losses related to the sale were material.

On July 22, 2021, a company in which we were a preferred equity investor, Matterport, Inc., completed a business combination with a public company.

The carrying value of our investment, which was classified as a non-marketable equity investment, was approximately $8.7 million prior to the business combination.

Our preferred shares were converted into common shares of Matterport.

The Matterport shares are considered equity securities and are included in other current assets.

Any change to fair value will be recorded to the Consolidated Statements of Operations.

After the date of the business combination, for a period of six months, subject to certain exceptions, we are restricted from selling the Matterport shares pursuant to Rule 144 under the Securities Act (Rule 144) and Matterport’s bylaws.

The fair value of the Matterport shares as of September 30, 2021 was $77.5 million and was determined using the closing price of Matterport’s common stock on the Nasdaq stock market as of September 30, 2021, less a temporary discount for lack of marketability.

We recorded an unrealized gain on the appreciation of the value of the shares in other income, net on the Consolidated Statement of Operations.

| --- | --- |

| /s/ PHILLIP FERNANDEZ | | Director |

| Phillip Fernandez | | |

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 the 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, which 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 estimated standalone selling price used to allocate the transaction price to the distinct performance obligations.

These procedures also included, among others, (i) evaluating the Company’s revenue recognition accounting policy; (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.

Acquisition of Onshape Inc. – Valuation of Customer Relationship and Purchased Software Intangible Assets

November 20, 2020

| Accumulated deficit | | | (62,267 | ) | | | (191,390 | ) |

| Fair value of contingent consideration recorded for acquisition | | $ | — | | | $ | — | | | $ | 2,100 | |

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

| Balance as of September 30, 2017 | | | 115,333 | | | $ | 1,153 | | | $ | 1,609,030 | | | $ | (650,840 | ) | | $ | (73,907 | ) | | $ | 885,436 | |

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

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

PTC Inc.

Changes in Presentation and Reclassifications

On October 1, 2019, we adopted ASU No. 2016-02, Leases: Topic 842 (ASC 842), which replaced the existing guidance in ASC 840, *Leases*.

ASC 842 requires lessees to recognize lease assets and lease liabilities on the balance sheet.

Upon the adoption of ASC 842 on October 1, 2019, we recognized an operating lease liability of $224.0 million and a right-of-use asset in the amount of $167.9 million.

We adopted ASC 842 using a modified retrospective transition method in the period of adoption and did not recast prior periods.

Since we adopted ASC 842 using the period of adoption transition method, we are not required to present 2020 comparative disclosures under ASC 842.

However, we are required to present annual disclosures under the previous U.S. GAAP lease accounting standard (ASC 840).

We also elected an accounting policy not to recognize leases with an initial term of one year or less on the balance sheet.

non-monetary assets and liabilities at historical rates and record resulting exchange gains or losses in foreign currency net losses in the Consolidated Statements of Operations.

Through 2018, we recorded revenues for software-related deliverables in accordance with the guidance provided by ASC 985-605, *Software-Revenue Recognition* and revenues for non-software deliverables in accordance with ASC 605-25*, Revenue Recognition, Multiple-Element Arrangements.* Under those standards, revenue was recorded when the following criteria were met: (1) persuasive evidence of an arrangement existed, (2) delivery had occurred (generally, FOB shipping point or electronic distribution), (3) the fee was fixed or determinable, and (4) collection was probable.

We exercised judgment and used estimates in connection with determining the amounts of software license and services revenues to be recognized in each accounting period.

The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields.

All unrealized losses are primarily due to changes in market interest rates and/or bond yields.

We review our investments to identify and evaluate investments that have an indication of possible impairment.

We concluded that, at September 30, 2020, the unrealized losses were temporary.

Non-Marketable Equity Investments

We monitor non-marketable equity investments for events that could

Leases

In 2020, we purchased software of $11.5 million.

Acquisitions*).

The estimated fair value of each reporting unit exceeded its carrying value as of June 27, 2020.

Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share.

See *Note 8.