PTC 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_ to_

Commission File Number: 0-18059

PTC Inc.

(Exact name of registrant as specified in its charter)

Massachusetts		04-2866152
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

121 Seaport Boulevard, Boston, MA 02210

(Address of principal executive offices, including zip code)

(781) 370-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value per share	PTC	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☑		Accelerated filer	☐		Non-accelerated filer	☐		Smaller reporting company	☐
									Emerging growth company	☐

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

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

There were 116,975,944 shares of our common stock outstanding on May 4, 2022.

PTC Inc.

INDEX TO FORM 10-Q

For the Quarter Ended March 31, 2022

				Page Number
Part I—FINANCIAL INFORMATION
Item 1.		Unaudited Condensed Consolidated Financial Statements:		1
		Consolidated Balance Sheets as of March 31, 2022 and September 30, 2021		1
		Consolidated Statements of Operations for the three and six months ended March 31, 2022 and March 31, 2021		2
		Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2022 and March 31, 2021		3
		Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and March 31, 2021		4
		Consolidated Statements of Stockholders' Equity for the three and six months ended March 31, 2022 and March 31, 2021		5
		Notes to Condensed Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		38
Item 4.		Controls and Procedures		38
Part II—OTHER INFORMATION
Item 1.		Legal Proceedings		39
Item 1A.		Risk Factors		39
Item 2.		Unregistered Sales of Equity Securities		39
Item 6.		Exhibits		40
Signature				41

PART I—FINANCIAL INFORMATION

| --- | --- |

PTC Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

		March 31, 2022				September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	306,701			$	326,532
Accounts receivable, net of allowance for doubtful accounts of $733 and $304 at March 31, 2022 and September 30, 2021, respectively			510,196				541,072
Prepaid expenses			88,918				69,991
Other current assets			61,147				135,415
Total current assets			966,962				1,073,010
Property and equipment, net			92,897				100,237
Goodwill			2,186,156				2,191,887
Acquired intangible assets, net			355,360				378,967
Deferred tax assets			299,381				297,789
Operating right-of-use lease assets			149,801				152,337
Other assets			327,966				313,333
Total assets		$	4,378,523			$	4,507,560
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	23,741			$	33,381
Accrued expenses and other current liabilities			102,116				113,067
Accrued compensation and benefits			99,162				117,784
Accrued income taxes			15,054				5,055
Deferred revenue			516,933				482,131
Short-term lease obligations			25,375				27,864
Total current liabilities			782,381				779,282
Long-term debt			1,265,546				1,439,471
Deferred tax liabilities			4,163				4,165
Deferred revenue			17,748				15,546
Long-term lease obligations			178,615				180,935
Other liabilities			46,093				49,693
Total liabilities			2,294,546				2,469,092
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 500,000 shares authorized; 116,976 and 117,163 shares issued and outstanding at March 31, 2022 and September 30, 2021, respectively			1,170				1,172
Additional paid-in capital			1,637,631				1,718,504
Retained earnings			550,424				414,656
Accumulated other comprehensive loss			(105,248	)			(95,864	)
Total stockholders’ equity			2,083,977				2,038,468
Total liabilities and stockholders’ equity		$	4,378,523			$	4,507,560

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

PTC Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three months ended								Six months ended
	March 31, 2022				March 31, 2021				March 31, 2022				March 31, 2021
Revenue:
License	$	218,375			$	198,011			$	387,483			$	375,186
Support and cloud services		243,875				223,756				488,360				440,002
Total software revenue		462,250				421,767				875,843				815,188
Professional services		42,977				40,018				87,105				75,648
Total revenue		505,227				461,785				962,948				890,836
Cost of revenue:
Cost of license revenue		11,936				14,160				21,730				27,416
Cost of support and cloud services revenue		44,768				39,972				90,653				78,314
Total cost of software revenue		56,704				54,132				112,383				105,730
Cost of professional services revenue		36,633				35,316				76,072				70,548
Total cost of revenue		93,337				89,448				188,455				176,278
Gross margin		411,890				372,337				774,493				714,558
Operating expenses:
Sales and marketing		116,408				129,178				241,884				253,903
Research and development		81,935				72,545				162,469				143,380
General and administrative		47,469				60,805				99,409				110,333
Amortization of acquired intangible assets		8,450				7,650				16,934				14,197
Restructuring and other charges, net		(1,562	)			469				32,429				716
Total operating expenses		252,700				270,647				553,125				522,529
Operating income		159,190				101,690				221,368				192,029
Interest and debt premium expense		(12,239	)			(12,925	)			(25,225	)			(24,444	)
Other expense, net		(43,385	)			(2,408	)			(37,201	)			(3,821	)
Income before income taxes		103,566				86,357				158,942				163,764
Provision(benefit) for income taxes		13,887				(22,905	)			23,174				30,987
Net income	$	89,679			$	109,262			$	135,768			$	132,777
Earnings per share—Basic	$	0.77			$	0.94			$	1.16			$	1.14
Earnings per share—Diluted	$	0.76			$	0.92			$	1.15			$	1.13
Weighted-average shares outstanding—Basic		117,008				116,777				117,135				116,587
Weighted-average shares outstanding—Diluted		117,811				118,331				118,162				117,966

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

PTC Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

		Three months ended								Six months ended
		March 31, 2022				March 31, 2021				March 31, 2022				March 31, 2021
Net income		$	89,679			$	109,262			$	135,768			$	132,777
Other comprehensive income (loss), net of tax:
Hedge gain arising during the period, net of tax of $1.2 million and $0 million in the second quarter of 2022 and 2021, respectively, and $2 million and $0 million in the first six months of 2022 and 2021, respectively			3,697				7,017				6,192				238
Foreign currency translation adjustment, net of tax of $0 for each period			(11,356	)			(15,851	)			(17,024	)			4,124
Unrealized loss on marketable securities, net of tax of $0 for each period			—				—				—				(307	)
Amortization of net actuarial pension loss included in net income, net of tax of $0.1 million and $0.3 million in the second quarter of 2022 and 2021, respectively, and $0.2 million and $0.6 million in the first six months of 2022 and 2021, respectively			260				744				525				1,476
Change in unamortized pension gain

Showing the first 8K of 99K characters. Open the full section

| --- | --- |

Business Overview

PTC is a global software and services company that enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things (IIoT), and Augmented Reality (AR) markets.

Our customer base includes some of the world’s most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries. Our solutions enable industrial companies to create a closed loop of information shared across their organization’s entire value chain. This “digital thread” can drive excellence in engineering, efficiency in manufacturing operations and service delivery, and innovation across product offerings and business models. With our solutions, digital transforms physical.

We generate revenue through the sale of software subscriptions, which include license access and support (technical support and software updates); support for existing perpetual licenses; professional services (consulting, implementation, and training); and cloud services (hosting for our software and Software as a Service (SaaS)).

Forward-Looking Statements

Statements in this document that are not historic facts, including statements about our future financial and growth expectations and targets, and potential stock repurchases, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the macroeconomic and/or global manufacturing climates may not improve when or as we expect, or may deteriorate, due to, among other factors, the COVID-19 pandemic and the effects of the Russia/Ukraine conflict, which could cause customers to delay or reduce purchases of new software reduce the number of subscriptions they carry, or delay payments to us, which would adversely affect ARR and/or our financial results, including cash flow; our businesses, including our SaaS businesses, may not expand and/or generate the revenue or ARR we expect if customers are slower to adopt our technologies than we expect or if they adopt competing technologies; the transaction with ITC Infotech may not close when or as we expect due to the failure to achieve the applicable closing conditions; the Intland Software and ITC Infotech transactions may not have expected effects on our business or results of operations; our strategic initiatives and investments, including our restructuring and our accelerated investments in our transition to SaaS, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to repay amounts under our credit facility or to return 50% of free cash flow to shareholders, and other uses of cash or our credit facility limits or other matters could preclude such repayment and/or repurchases; we may be unable to attract and retain employees in the current competitive hiring environment, which could adversely impact our operations and our financial results; and foreign exchange rates may differ materially from those we expect. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses and profits, as well as other risks and uncertainties described below throughout or referenced in Part II, Item 1A. Risk Factors of this report.

Operating and Non-GAAP Financial Measures

Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures.

Executive Overview

We delivered another strong financial performance in Q2’22 despite macro and geopolitical concerns and currency headwinds, once again demonstrating the benefit of our recurring revenue model. Q2’22 ARR increased to $1.53 billion, representing 11% growth (13% on a constant currency basis) compared to Q2’21, driven by strength in new bookings. ARR at the end of Q2’22 includes a $4 million reduction associated with discontinuing our business operations in Russia. Q2’22 revenue of $505 million was up 9% (13% constant currency) over Q2’21, driven by higher revenue from our recurring revenue business lines, particularly in Digital Thread where contract durations on on-premise subscriptions increased over Q2’21. Q2’22 operating margin was 32% compared to 22% in Q2’21, and Q2’22 non-GAAP operating margin was 42% compared to 37% in Q2’21. Year-over-year operating margin improvements were primarily due to year-over-year revenue increases and expense reductions resulting from the restructuring we announced in Q1’22 in alignment with our SaaS-acceleration initiatives and operational discipline. Q2’22 EPS decreased to $0.76 compared to $0.92 in Q2’21 primarily due to the effect of a non-cash reduction in value of a publicly-traded equity investment on non-operating expenses. Non-GAAP EPS in Q2’22 was $1.39 compared to $1.08 in Q2’21 and benefited from year-over-year revenue increases and expense reductions. Discontinuing our operations in Russia during Q2’22 had an immaterial effect on our on revenue, operating margins, EPS and cash flows.

We generated $142 million of cash from operations compared to $122 million in Q2’21, with the increase driven by strong operational execution. Included in operating cash flow are payments related to restructuring, which were higher by $13 million year-over-year, and acquisition and transaction-related payments, which were $8 million lower. In Q2’22, we had proceeds of $43 million from the sale of a publicly-traded equity investment and used those proceeds and cash from operations to repay $175 million of our revolving credit facility balance. We completed stock repurchases of $5 million in Q2’22, reflecting the settlement of repurchases that were initiated in Q1’22, bringing year-to-date total share repurchases to $125 million.

Subsequent to the end of Q2’22, we entered into an agreement to acquire Intland Software, maker of the Codebeamer® suite of application lifecycle management solutions, and completed the acquisition on April 29, 2022. We paid approximately $280 million for Intland, net of cash acquired, using $264 million borrowed under our revolving credit facility and cash on hand. We also entered into an agreement with ITC Infotech to transition a portion of our PLM services business to them to accelerate our SaaS initiatives, which transaction is expected to close in Q3’22.

Results of Operations

The following table shows the financial measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude the items described in Non-GAAP Financial Measures below. Investors should use these non-GAAP financial measures only in conjunction with our GAAP results.

(Dollar amounts in millions, except per share data)		Three months ended								Percent Change
		March 31, 2022				March 31, 2021				Actual				Constant Currency(1)
ARR(1)		$	1,532.5			$	1,386.3				11	%			13	%
Total recurring revenue(2)		$	452.7			$	414.8				9	%			13	%
Perpetual license			9.5				6.9				38	%			21	%
Professional services			43.0				40.0				7	%			12	%
Total revenue			505.2				461.8				9	%			13	%
Total cost of revenue			93.3				89.4				4	%			7	%
Gross margin			411.9				372.3				11	%			15	%
Operating expenses			252.7				270.6				(7	)%			(5	)%
Total costs and expenses			346.0				360.1				(4	)%			(2	)%
Operating income		$	159.2			$	101.7				57	%			73	%
Non-GAAP operating income(3)		$	213.8			$	172.0				24	%			32	%
Operating margin			31.5	%			22.0	%
Non-GAAP operating margin(3)			42.3	%			37.2	%
Diluted earnings per share		$	0.76			$	0.92
Non-GAAP diluted earnings per share(3)(4)		$	1.39			$	1.08
Cash flow from operations(5)		$	142.3			$	121.7
Capital expenditures		$	(2.1	)		$	(5.4	)
Free cash flow		$	140.2			$	116.3

(Dollar amounts in millions, except per share data)		Six months ended								Percent Change
		March 31, 2022				March 31, 2021				Actual				Constant Currency(1)
ARR(1)		$	1,532.5			$	1,386.3				11	%			13	%
Total recurring revenue(2)		$	857.8			$	799.8				7	%			10	%
Perpetual license			18.0				15.4				17	%			17	%
Professional services			87.1				75.6				15	%			19	%
Total revenue			962.9				890.8				8	%			11	%
Total cost of revenue			188.5				176.3				7	%			8	%
Gross margin			774.5				714.6				8	%			11	%
Operating expenses			553.1				522.5				6	%			7	%
Total costs and expenses			741.6				698.8				6	%			7	%
Operating income		$	221.4			$	192.0				15	%			23	%
Non-GAAP operating income(3)		$	372.0			$	325.4				14	%			19	%
Operating margin			23.0	%			21.6	%
Non-GAAP operating margin(3)			38.6	%			36.5	%
Diluted earnings per share		$	1.15			$	1.13
Non-GAAP diluted earnings per share(3)(4)		$	2.34			$	2.05
Cash flow from operations(5)		$	280.1			$	235.5
Capital expenditures		$	(5.5	)		$	(8.2	)
Free cash flow		$	274.6			$	227.2

(1)	For the March 31, 2021 period, to facilitate comparability, we removed $7 million of ARR associated with a Vuforia AR product that we ceased selling as of September 30, 2021.

(2)	Recurring revenue is comprised of subscription, perpetual support, and SaaS, and cloud revenue.

(3)	See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP financial measures and Impact of Foreign Currency Exchange on Results of Operations below for a description of how we calculate our results on a constant currency basis.

(4)

Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. In 2021 we had recorded a full valuation allowance against our U.S. net deferred tax assets. As we were profitable on a non-GAAP basis, the 2021 tax provision was calculated assuming there was no valuation allowance. Additionally, our non-GAAP results for the six months ended March 31, 2021 excluded tax expenses of $34.6 million related to a South Korean tax exposure, primarily related to prior period foreign withholding taxes.

(5)

Cash flow from operations for the second quarter and first six months of FY’22 includes $17.8 million and $28.4 million of restructuring payments, respectively, and $0.4 million of acquisition and transaction-related payments. Cash flow from operations for the second quarter and first six months of FY’21 includes $4.5 million and $11.7 million of restructuring payments, respectively, $8.2 million and $11.1 million of transaction and acquisition-related payments, respectively, and $1.0 million of non-ordinary course tax payments related to a prior period tax exposure from a non-U.S. tax dispute.

Impact of Foreign Currency Exchange on Results of Operations

Approximately 60% of our revenue and 40% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Our constant currency

disclosures are calculated by multiplying the results in local currency for the quarterly and year-to-date periods for FY’22 and FY’21 by the exchange rates in effect on September 30, 2021. Changes in foreign currency exchange rates have been a headwind to results in the first half of FY’22, with reported revenue, total costs and expenses and operating margin lower than at constant currency based on plan rates. We anticipate foreign currency exchange rates will continue to be a headwind for the remainder of FY’22.

The results of operations in the table above and revenue by line of business, product group, and geographic region in the tables that follow present both actual percentage changes year over year and percentage changes on a constant currency basis.

Revenue

Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, subscription) starting or renewing in any given period may have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period-over-period. We recognize revenue for the license portion of subscription contracts up front when we deliver the licenses to the customer, typically on the start date, and we recognize revenue on the support element of subscription contracts and stand-alone support contracts ratably over the term. We continue to convert existing support contracts to subscriptions resulting in a shift to up-front recognition of subscription license revenue in the period converted compared to ratable recognition for a perpetual support contract. Revenue from our SaaS contracts is recognized ratably. We are expanding our SaaS offerings and are releasing additional cloud functionality into our products and customers are migrating from subscription to SaaS products. As a result, over time a higher portion of our revenue will be recognized ratably. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue comparisons can vary significantly.

Revenue by Line of Business

(Dollar amounts in millions)		Three months ended								Percent Change								Six months ended								Percent Change
		March 31, 2022				March 31, 2021				Actual				Constant Currency				March 31, 2022				March 31, 2021				Actual				Constant Currency
License		$	218.4			$	198.0				10	%			15	%		$	387.5			$	375.2				3	%			6	%
Support and cloud services			243.9				223.8				9	%			12	%			488.4				440.0				11	%			13	%
Software revenue			462.3				421.8				10	%			13	%			875.8				815.2				7	%			16	%
Professional services			43.0				40.0				7	%			12	%			87.1				75.6				15	%			19	%
Total revenue		$	505.2			$	461.8				9	%			13	%		$	962.9			$	890.8				8	%			11	%

Software revenue in the second quarter and first six months of FY’22 increased compared to the year-ago periods primarily due to contribution from Arena, as well as subscription support growth in Digital Thread – Core, offset by a decline in perpetual support revenue due to conversions of support contracts to subscriptions. On-premise subscription contract durations for Digital Thread – Core year over year were shorter in Q1’22, but higher in Q2’22, driving variability in the amount of up-front license revenue recognized. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annual values are the same.

Professional services in the second quarter and first six months of FY’22 increased compared to the year-ago periods by 7% (12% constant currency) and 15% (19% constant currency), respectively, as revenue in the first half of 2021 was negatively impacted by services delivery challenges associated with the COVID-19 pandemic. In addition, in the three and six months ended Q2’22 there was an increase in revenue associated with large PLM consulting engagements, particularly with automotive, aerospace and defense customers.

We expect that professional services revenue will be higher in FY'22 than FY’21 or FY’20 as we expect demand for services will increase to a level that is more consistent with pre-pandemic levels. Our longer-term expectation is that professional services revenue will trend down over time as we migrate more services engagements to our partners, including through our pending transaction with ITC Infotech, and as we deliver products that require less consulting and training services.

Software Revenue by Product Group

(Dollar amounts in millions)		Three months ended								Percent Change								Six months ended								Percent Change
		March 31, 2022				March 31, 2021				Actual				Constant Currency				March 31, 2022				March 31, 2021				Actual				Constant Currency
Digital Thread - Core		$	327.5			$	298.8				10	%			14	%		$	609.6			$	588.3				4	%			12	%
Digital Thread - Growth			62.5				60.7				3	%			6	%			124.5				116.0				7	%			10	%
Digital Thread - FSG			52.4				52.5				—				2	%			103.9				98.7				5	%			16	%
Digital Thread (Total)			442.4				412.0				7	%			11	%			838.0				803.0				4	%			12	%
Velocity			19.9				9.8				103	%			104	%			37.8				12.2				210	%			214	%
Software revenue		$	462.3			$	421.8				10	%			13	%		$	875.8			$	815.2				7	%			16	%

Digital Thread

Core Product software revenue growth in the second quarter and first six months of FY’22 compared to the year-ago periods was driven by subscription license revenue growth of 15% (20% constant currency) and 3% (5% constant currency), respectively, which is impacted by the duration and mix of contract types for new and renewal contracts started in the quarter. On-premise subscription contract durations year over year were lower in Q1’22, but higher in Q2’22, driving variability in the amount of up-front revenue recognized. For the second quarter and first six months of FY’22, subscription support revenues increased 17% (22% constant currency) and 18% (21% constant currency), respectively, and cloud revenues grew by 23% (25% constant currency) and 34% (35% constant currency, respectively. Growth in subscription and cloud services revenues were offset by a decrease in perpetual support revenue as customers continue to convert from perpetual support to subscriptions.

ARR increased 10% (13% constant currency) for Q2’22 compared to Q2’21, reflecting growth in both CAD and PLM.

Growth Product software revenue growth in the second quarter and first six months of FY’22 compared to the year-ago periods was driven by ratably recognized cloud revenue growth of 16% (18% constant currency) and 21% (23% constant currency), respectively. This was offset by a year-over-year decrease in subscription license revenue of 16% (13% constant currency) and 6% (4% constant currency) for the three and six months ended Q2’22, respectively. The majority of the year-over-year decreases in Growth subscription license revenue was driven by the discontinuance at the beginning of FY’22 of certain AR products with up-front revenue recognition.

Growth Product ARR increased 13% (15% constant currency) for Q2’22 compared to Q2’21, driven primarily by growth in IoT.

FSG Product software revenue fluctuations in the second quarter and first six months of FY’22 were driven by ratably recognized cloud revenue growth of 27% (29% constant currency) and 24% (25% constant currency), respectively. Subscription license revenue decreased by 9% (5% constant currency) and increased 7% (10% constant currency), for the three and six months ended Q2’22 due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annual values are the same.

FSG product ARR increased by 6% (8% constant currency) for Q2’22 compared to Q2’21 driven primarily by strength in the Americas and Europe.

Velocity

Velocity Product software revenue growth in the second quarter and first six months of FY’22 compared to the year-ago periods was driven by the acquisition of the Arena business in January 2021. Additionally, Onshape revenue grew by 45% (actual and constant currency) and 48% (49% constant currency) during the three and six months ended Q2’22, respectively.

ARR grew in Q2’22 compared to Q2’21 by 27% (actual and constant currency) reflecting strong growth in both Arena and Onshape.

Software Revenue by Geographic Region

A significant portion of our software revenue is generated outside the U.S. In the first six months of FY’22 and FY’21, approximately 45% of software revenue was generated in the Americas, 40% in Europe, and 15% in Asia Pacific.

(Dollar amounts in millions)		Three months ended								Percent Change								Six months ended								Percent Change
		March 31, 2022				March 31, 2021				Actual				Constant Currency				March 31, 2022				March 31, 2021				Actual				Constant Currency
Americas		$	187.1			$	166.3				13	%			12	%		$	383.9			$	357.3				7	%			12	%
Europe			201.6				182.7				10	%			18	%			342.4				327.5				5	%			18	%
Asia Pacific			73.6				72.8				1	%			5	%			149.5				130.4				15	%			25	%
Software revenue		$	462.3			$	421.8				10	%			13	%		$	875.8			$	815.2				7	%			16	%

Americas software revenue growth in the second quarter and first six months of FY’22 compared to the year-ago periods was driven by the acquisition of Arena business in January 2021. Digital Thread revenue in the Americas increased 7% (actual and constant currency) and 1% (actual and constant currency) during the three and six months ended Q2’22, respectively.

Q2’22 Americas ARR was up 12% (actual and constant currency) over Q2’21, led by double digit percentage growth in Digital Thread – Core and mid-20s percentage growth in Velocity.

Europe software revenue growth in the second quarter and first six months of FY’22 compared to the year-ago periods was driven by growth in Digital Thread – Core of 13% (21% constant currency) and 4% (18% constant currency), respectively.

Q2’22 ARR in Europe was up 9% (15% constant currency) over Q2’21, led by approximately 30% growth in our Digital Thread – Growth products and strength in our Digital Thread – Core products.

Asia Pacific software revenue growth in the second quarter and first six months of FY’22 compared to the year-ago periods was primarily driven by growth in Digital Thread – Core by 4% (8% constant currency) and 17% (31% constant currency), respectively.

Q2’22 ARR in Asia Pacific was up 9% (14% constant currency) over Q2’21, led by double-digit growth in Digital Thread – Core.

Gross Margin

(Dollar amounts in millions)		Three months ended												Six months ended
		March 31, 2022				March 31, 2021				Percent Change				March 31, 2022				March 31, 2021				Percent Change
License gross margin		$	206.4			$	183.8				12	%		$	365.8			$	347.8				5	%
License gross margin percentage			95	%			93	%							94	%			93	%
Support and cloud services gross margin		$	199.1			$	183.8				8	%		$	397.7			$	361.7				10	%
Support and cloud services gross margin percentage			82	%			82	%							81	%			82	%
Professional services gross margin		$	6.3			$	4.7				35	%		$	11.0			$	5.1				116	%
Professional services gross margin percentage			15	%			12	%							13	%			7	%
Total gross margin		$	411.9			$	372.3				11	%		$	774.5			$	714.6				8	%
Total gross margin percentage			82	%			81	%							80	%			80	%
Non-GAAP gross margin(1)		$	422.1			$	384.0				10	%		$	797.1			$	736.9				8	%
Non-GAAP gross margin percentage(1)			84	%			83	%							83	%			83	%

(1)	Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.

License gross margin increased in the second quarter and first six months of FY’22 compared to the year-ago periods due to increases in license revenue of $20.4 million and $12.3 million, respectively, along with decreases in cost of license revenue of $2.2 million and $5.7 million, respectively, which were driven by lower royalty and compensation costs.

Support and cloud services gross margin increased in the second quarter and first six months of FY’22 compared to the year-ago periods due to increases in subscription support and cloud revenue of $20.1 million and $48.4 million, respectively, partially offset by increases in cost of support and cloud services of $4.8 million and $12.3 million, respectively.

Professional services gross margin increased in the second quarter and first six months of FY’22 compared to the year-ago periods primarily due to the impact of the COVID-19 pandemic on Q1’21 revenue, as professional services revenue increased by $3.0 million and $11.5 million over the year-ago periods, respectively. This was partially offset by increases in professional services cost of $1.3 million and $5.5 million, respectively.

Operating Expenses

(Dollar amounts in millions)		Three months ended												Six months ended
		March 31, 2022				March 31, 2021				Percent Change				March 31, 2022				March 31, 2021				Percent Change
Sales and marketing		$	116.4			$	129.2				(10	)%		$	241.9			$	253.9				(5	)%
% of total revenue			23	%			28	%							25	%			29	%
Research and development		$	81.9			$	72.5				13	%		$	162.5			$	143.4				13	%
% of total revenue			16	%			16	%							17	%			16	%
General and administrative		$	47.5			$	60.8				(22	)%		$	99.4			$	110.3				(10	)%
% of total revenue			9	%			13	%							10	%			12	%
Amortization of acquired intangible assets		$	8.5			$	7.6				10	%		$	16.9			$	14.2				19	%
% of total revenue			2	%			2	%							2	%			2	%
Restructuring and other charges, net		$	(1.6	)		$	0.5				(433	)%		$	32.4			$	0.7				4429	%
% of total revenue			(0	)%			0	%							3	%			0	%
Total operating expenses		$	252.7			$	270.6				(7	)%		$	553.1			$	522.5				6	%

Headcount decreased 4% between Q2’22 and Q2’21.

Operating expenses in Q2’22 compared to operating expenses in Q2’21 decreased primarily due to the following:

	•	a $13 million (7%) decrease in compensation expense (including benefit costs) due to lower headcount caused by attrition and restructuring actions, including:

	•	a $7 million (16%) decrease in stock-based compensation,

	•	a $5 million (5%) decrease in salaries,

	•	a $3 million (10%) decrease in benefits and pension expenses,

	•	partially offset by a $1 million increase in travel expenses;

	•	a $6 million decrease in transaction and acquisition-related costs included in general and administrative; and

	•	a $2 million decrease in restructuring costs;

partially offset by:

	•	a $1 million increase in software subscriptions; and

	•	a $1 million increase in internal hosting costs;

Operating expenses in the first six months of FY’22 compared to operating expenses in the first six months of FY’21 increased primarily due to the following:

	•	a $33 million increase in restructuring charges primarily due to the restructuring plan initiated in Q1’22;

	•	a $3 million increase in internal hosting costs;

partially offset by:

	•	a $3 million (1%) decrease in compensation expense (including benefit costs), primarily driven by:

	•	an $8 million (10%) decrease in stock-based compensation,

	•	partially offset by:

	•	a $3 million increase in travel expenses,

	•	a $2 million (14%) increase in bonus expense due to higher attainment,

	•	a $1 million increase in benefits and pension expenses; and

	•	a $1 million increase in salaries;

	•	a $9 million decrease in transaction and acquisition-related costs, included in general and administrative expenses.

Interest Expense

(Dollar amounts in millions)		Three months ended												Six months ended
		March 31, 2022				March 31, 2021				Percent Change				March 31, 2022				March 31, 2021				Percent Change
Interest and debt premium expense		$	(12.2	)		$	(12.9	)			(5	)%		$	(25.2	)		$	(24.4	)			3	%

Interest expense includes interest on our credit facility and senior notes. We had $1.3 billion of total debt at March 31, 2022, compared to $1.5 billion at March 31, 2021. We repaid $175 million of our revolving credit facility in Q2’22. The average interest rate on borrowings outstanding was approximately 3.2% and 3.2% during the second quarter and first six months of FY’22, respectively, and 3.3% and 3.5% during the second quarter and first six months of FY’21, respectively. We expect the average interest rates will increase during the rest of the year, driven by our variable-rate revolving credit facility.

Other Income (Expense)

(Dollar amounts in millions)		Three months ended												Six months ended
		March 31, 2022				March 31, 2021				Percent Change				March 31, 2022				March 31, 2021				Percent Change
Interest income		$	0.5			$	0.3				64	%		$	1.0			$	0.9				13	%
Other expense, net			(43.9	)			(2.7	)			1518	%			(38.2	)			(4.7	)			712	%
Other expense, net		$	(43.4	)		$	(2.4	)			1703	%		$	(37.2	)		$	(3.8	)			874	%

The increase in other expense, net, in FY’22 over the FY’21 periods is driven by a recognized loss on our equity investment in a publicly-traded company of $44.6 million and $34.8 million in the three and six months ended March 31, 2022, respectively. We sold our investment for $42.7 million in Q2’22.

Income Taxes

(Dollar amounts in millions)		Three months ended												Six months ended
		March 31, 2022				March 31, 2021				Percent Change				March 31, 2022				March 31, 2021				Percent Change
Income before income taxes		$	103.6			$	86.4				20	%		$	158.9			$	163.8				(3	)%
Provision(benefit) for income taxes		$	13.9			$	(22.9	)			(161	)%		$	23.2			$	31.0				(25	)%
Effective income tax rate			13	%			(27	)%							15	%			19	%

In the second quarter and first six months of FY’22 and FY’21, our effective tax rate differed from the statutory federal income tax rate of 21% due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and the Cayman Islands. In 2022 and 2021, the foreign rate differential predominantly relates to these earnings.

In FY’22 and FY’21, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.

Our results for the second quarter and six months ended March 31, 2021, include the effects of the full valuation allowance, which was maintained against our U.S. net deferred tax assets at that time. In the second quarter of FY’21 we reduced our previously established U.S. valuation allowance by $42.3 million as a result of the Arena acquisition. Additionally, in the first six months of FY’21, our results included a charge of $36.1 million related to the effects of an unrecognized tax benefit in the Republic of Korea (South Korea), primarily related to foreign withholding taxes.

Critical Accounting Policies and Estimates

The financial information included in Item 1 reflects no material changes in our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimates in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accounting pronouncements.

Liquidity and Capital Resources

(in millions)		March 31, 2022				September 30, 2021
Cash and cash equivalents		$	306.7			$	326.5
Restricted cash			0.7				0.5
Total		$	307.4			$	327.0
(in millions)		Six months ended
		March 31, 2022				March 31, 2021
Net cash provided by operating activities		$	280.1			$	235.5
Net cash provided by (used in) investing activities		$	44.0			$	(670.3	)
Net cash (used in) provided by financing activities		$	(340.0	)		$	485.0

Cash, Cash Equivalents and Restricted Cash

We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. At March 31, 2022, cash and cash equivalents totaled $307 million, compared to $327 million at September 30, 2021.

A significant portion of our cash is generated and held outside the U.S. As of March 31, 2022, we had cash and cash equivalents of $34.2 million in the U.S., $103.2 million in Europe, $138.8 million in Asia Pacific (including India) and $30.8 million in other non-U.S. countries. We have substantial cash requirements in the U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, our ability to repatriate cash to the U.S., future U.S. operating cash flows, and cash available under our credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.

Cash Provided by Operating Activities

Cash provided by operating activities was $280.1 million in the first six months of FY’22, compared to $235.5 million in the first six months of FY’21. Cash from operations for the first six months of FY’22 includes $28.4 million of restructuring payments and $0.4 million of acquisition-related payments compared to $11.7 million of restructuring payments and $11.1 million of acquisition and transaction-related payments in the prior-year period. The increase in cash from operations in the first six months of FY’22 compared to the same period in FY’21 was primarily driven by increased collections of $134 million in collections, offset by a $51 million increase in salaries, primarily severance related to restructuring, bonus payments in FY’22, a $23 million increase in disbursements largely related to timing of subscription payments, and a $9 million increase in tax-related payments.

Cash Provided by (Used In) Investing Activities

(in millions)		Six months ended
		March 31, 2022				March 31, 2021
Additions to property and equipment		$	(5.5	)		$	(8.2	)
Proceeds from (purchases of) short- and long-term marketable securities, net			—				58.5
Acquisitions of businesses, net of cash acquired			—				(717.2	)
Proceeds from sale of investments			42.7				—
Other			6.8				(3.4	)
Net cash provided by (used in) investing activities		$	44.0			$	(670.3	)

Cash provided by investing activities in the first six months of FY’22 reflects proceeds from sale of investments of $42.7 million and proceeds from net investment hedges of $11.3 million, offset by fixed asset additions of $5.5 million and purchases of intangible assets of $4.5 million. Cash used in investing activities in the first six months of FY’21 reflects approximately $715 million used for the Arena acquisition and $56 million in proceeds from the sale of marketable securities.

Cash (Used In) Provided by Financing Activities

(in millions)		Six months ended
		March 31, 2022				March 31, 2021
Borrowings on debt, net		$	(175.0	)		$	502.0
Repurchases of common stock			(125.0	)			—
Proceeds from issuance of common stock			10.9				10.5
Payments of withholding taxes in connection with stock-based awards			(50.6	)			(27.2	)
Other			(0.3	)			(0.3	)
Net cash (used in) provided by financing activities		$	(340.0	)		$	485.0

Cash used in financing activities in the first six months of FY’22 reflects a $175 million repayment of the amounts outstanding under our revolving credit facility, repurchase of common stock of $125 million and payment of withholding taxes related to stock-based awards of $50 million. Cash provided by financing activities in the first six months of FY’21 reflects net borrowings of $502 million under our credit facility.

Outstanding Debt

(in millions)		March 31, 2022
4.000% Senior notes due 2028		$	500.0
3.625% Senior notes due 2025			500.0
Credit facility revolver			275.0
Total debt		$	1,275.0
Unamortized debt issuance costs for the senior notes			(9.5	)
Total debt, net of issuance costs		$	1,265.5
Undrawn under credit facility revolver		$	725.0
Undrawn under credit facility revolver available to borrow		$	709.8

As of March 31, 2022, we were in compliance with all financial and operating covenants of the credit facility and the note indentures. Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.

Our credit facility and our senior notes described in Note 13. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

We borrowed $264 million under the credit facility in April 2022 to complete the acquisition of Intland Software, leaving $461 million undrawn and $446 million available to borrow under the credit facility.

Future Expectations

We believe that existing cash and cash equivalents as of March 31, 2022, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our payment obligations associated with the acquisition of Intland Software, working capital and capital expenditure requirements (which we expect to be approximately $25 million in FY’22) through at least the next twelve months and to meet our known long-term capital requirements.

Related to restructuring, we expect to incur an additional approximately $5 million of charges and make approximately $15 million in payments for the remainder of fiscal 2022. Cost savings resulting from the 2022 restructuring action are expected to help align our customer facing and product-related functions with the SaaS industry best practices and accelerate the opportunity for our on-premise customers to move to the cloud.

Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, engage in additional strategic transactions, or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.

Operating Measure

ARR

ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR in FY21 includes orders placed under our Strategic Alliance Agreement with Rockwell Automation, including orders placed to satisfy contractual minimum commitments.

We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers. Because this measure represents the annualized value of customer contracts as of a point in time, it does not represent revenue for any particular period or remaining revenue that will be recognized in future periods.

Non-GAAP Financial Measures

Our non-GAAP financial measures and the reasons we use them and the reasons we exclude the items identified below are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2021.

The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are:

	•	free cash flow—cash flow from operations

	•	non-GAAP gross margin—GAAP gross margin

	•	non-GAAP operating income—GAAP operating income

	•	non-GAAP operating margin—GAAP operating margin

	•	non-GAAP net income—GAAP net income

	•	non-GAAP diluted earnings or loss per share—GAAP diluted earnings or loss per share

Free cash flow is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations.

The non-GAAP financial measures other than free cash flow exclude, as applicable, stock-based compensation expense; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; non-operating charges (credits); and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. In Q1’21, we incurred tax expense related to a reserve for a South Korean tax exposure established in the quarter which is excluded from our non-GAAP financial measures as it was related to prior periods and not included in management’s view of Q1’21 results for comparative purposes.

We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP results.

The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.

(in millions, except per share amounts)		Three months ended								Six months ended
		March 31, 2022				March 31, 2021				March 31, 2022				March 31, 2021
GAAP gross margin		$	411.9			$	372.3			$	774.5			$	714.6
Stock-based compensation			4.3				4.5				10.2				8.9
Amortization of acquired intangible assets included in cost of revenue			5.9				7.1				12.4				13.4
Non-GAAP gross margin		$	422.1			$	384.0			$	797.1			$	736.9
GAAP operating income		$	159.2			$	101.7			$	221.4			$	192.0
Stock-based compensation			37.9				44.7				83.9				90.8
Amortization of acquired intangible assets			14.4				14.8				29.3				27.5
Acquisition-related and other transactional charges included in general and administrative expenses			3.9				10.3				5.0				14.2
Restructuring and other charges, net			(1.6	)			0.5				32.4				0.7
Non-GAAP operating income		$	213.8			$	172.0			$	372.0			$	325.4
GAAP net income		$	89.7			$	109.3			$	135.8			$	132.8
Stock-based compensation			37.9				44.7				83.9				90.8
Amortization of acquired intangible assets			14.4				14.8				29.3				27.5
Acquisition-related and other transactional charges included in general and administrative expenses			3.9				10.3				5.0				14.2
Restructuring and other charges, net			(1.6	)			0.5				32.4				0.7
Non-operating charges(1)			44.6				0.0				34.8				0.0
Income tax adjustments(2)			(25.4	)			(51.7	)			(44.7	)			(24.6	)
Non-GAAP net income		$	163.5			$	127.8			$	276.5			$	241.6
GAAP diluted earnings per share		$	0.76			$	0.92			$	1.15			$	1.13
Stock-based compensation			0.32				0.38				0.71				0.77
Amortization of acquired intangible assets			0.12				0.12				0.25				0.23
Acquisition-related and other transactional charges included in general and administrative expenses			0.03				0.09				0.04				0.12
Restructuring and other charges, net			(0.01	)			0.00				0.27				0.01
Non-operating charges(1)			0.38				0.00				0.29				0.00
Income tax adjustments(2)			(0.22	)			(0.44	)			(0.38	)			(0.21	)
Non-GAAP diluted earnings per share		$	1.39			$	1.08			$	2.34			$	2.05

(1)	We recorded charges related to losses on our equity investment in a publicly-traded company of $44.6 million and $34.8 million in the three and six months ended Q2’22.

(2)

Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. In 2021 we had recorded a full valuation allowance against our U.S. net deferred tax assets. As we were profitable on a non-GAAP basis, the 2021 tax provision was calculated assuming there was no valuation allowance. Additionally, our non-GAAP results for the six months ended March 31, 2021 excluded tax expenses of $34.6 million related to a South Korean tax exposure, primarily related to foreign withholding taxes.

Operating margin impact of non-GAAP adjustments:

		Three months ended								Six months ended
		March 31, 2022				March 31, 2021				March 31, 2022				March 31, 2021
GAAP operating margin			31.5	%			22.0	%			23.0	%			21.6	%
Stock-based compensation			7.5	%			9.7	%			8.7	%			10.2	%
Amortization of acquired intangible assets			2.8	%			3.2	%			3.0	%			3.1	%
Acquisition-related and other transactional charges included in general and administrative expenses			0.8	%			2.2	%			0.5	%			1.6	%
Restructuring and other charges, net			(0.3	)%			0.1	%			3.4	%			0.1	%
Non-GAAP operating margin			42.3	%			37.2	%			38.6	%			36.5	%

| --- | --- |

There have been no significant changes in our market risk exposure as described in Item 7A. Quantitative and Qualitative Disclosures about Market Risk of our 2021 Annual Report on Form 10-K.

| --- | --- |

Evaluation of Effectiveness of Disclosure Controls and Procedures

Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.

We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a or 15(d) of the Exchange Act that occurred during the period ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS | --- | --- |

Information on legal proceedings can be found in Note 15. Commitments and Contingencies – Legal Proceedings – 401(k) Plan of Notes to Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.

| --- | --- |

In addition to other information set forth in this report, you should carefully consider the risk factors described in Part I. Item 1A. Risk Factors in our 2021 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | --- | --- |

The table below shows the shares of our common stock we repurchased in the second quarter of 2022.

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)
January 1, 2022 - January 31, 2022		42,948		$	122.49			42,948		$	845,000,066
February 1, 2022 - February 28, 2022		—			—			—		$	845,000,066
March 1, 2022- March 31, 2022		—			—			—		$	845,000,066
Total		42,948		$	122.49			42,948		$	845,000,066

	(1)	Our Board of Directors has authorized us to repurchase up to $1 billion of our common stock in the period November 13, 2020 through September 30, 2023, which program we announced on December 15, 2020.

| --- | --- |

2		Share Sale and Purchase Agreement dated as of April 19, 2022, by and among PTC (SSI), Intland Software GmbH, Eger Invest GmbH, Janos Rezso Koppány, Zsolt Koppány, Szabolcs Koppány and Eger Software Holding UG (haftungsbeschränkt) & Co. KG. (filed as Exhibit 1.1 to our Current Report on Form 8-K filed on April 20, 2022 (File No. 0-18059) and incorporated herein by reference).
3.1		Restated Articles of Organization of PTC Inc. adopted August 4, 2015 (filed as Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (File No. 0-18059) and incorporated herein by reference).
3.2		By-Laws, as amended and restated, of PTC Inc. (filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 (File No. 0-18059) and incorporated herein by reference).
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).
4.1		Indenture, dated as of February 13, 2020, between PTC Inc. and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).
4.2		Form of 3.625% senior unsecured notes due 2025 (filed as Exhibit 4.2 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).
4.3		Form of 4.000% senior unsecured notes due 2028 (filed as Exhibit 4.3 to our Current Report on Form 8-K filed on February 13, 2020 (File No. 0-18059) and incorporated herein by reference).
31.1		Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
31.2		Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
32*		Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350.
101		The following materials from PTC Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 ("Q2 Form 10-Q") formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2022 and September 30, 2021; (ii) Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2022 and March 31, 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2022 and March 31, 2021; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and March 31, 2021; (v) Consolidated Statements of Stockholders’ Equity for the three and six months ended March 31, 2022 and March 31, 2021; and (vi) Notes to Condensed Consolidated Financial Statements.
104		The cover page of the Q2 Form 10-Q formatted in Inline XBRL (included in Exhibit 101).

*	Indicates that the exhibit is being furnished, not filed, with this report.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	PTC Inc.
	By:		/S/ KRISTIAN TALVITIE
			Kristian Talvitie Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: May 5, 2022