Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED CONDENSED CONS****OLIDATED FINANCIAL STATEMENTS

PTC Inc.

CONSOLIDATED B****ALANCE SHEETS

(in thousands, except per share data)

(unaudited)

		June 30, 2024				September 30, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	247,749			$	288,103
Accounts receivable, net of allowance for doubtful accounts of $1,269 and $429 at June 30, 2024 and September 30, 2023, respectively			674,959				811,398
Prepaid expenses			109,373				96,016
Other current assets			59,690				81,849
Total current assets			1,091,771				1,277,366
Property and equipment, net			77,535				88,391
Goodwill			3,442,245				3,358,511
Acquired intangible assets, net			910,505				941,249
Deferred tax assets			151,659				123,319
Operating right-of-use lease assets			131,297				143,028
Other assets			323,133				356,978
Total assets		$	6,128,145			$	6,288,842
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	47,153			$	43,480
Accrued expenses and other current liabilities			123,090				132,841
Accrued compensation and benefits			161,073				160,431
Accrued income taxes			25,366				14,919
Current portion of long-term debt			518,071				9,375
Deferred acquisition payments			—				620,040
Deferred revenue			671,209				665,362
Short-term lease obligations			23,287				24,737
Total current liabilities			1,569,249				1,671,185
Long-term debt			1,293,083				1,686,410
Deferred tax liabilities			37,255				29,508
Long-term deferred revenue			16,405				16,188
Long-term lease obligations			156,987				168,455
Other liabilities			40,487				39,806
Total liabilities			3,113,466				3,611,552
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 500,000 shares authorized; 120,049 and 118,846 shares issued and outstanding at June 30, 2024 and September 30, 2023, respectively			1,200				1,188
Additional paid-in capital			1,910,615				1,820,905
Retained earnings			1,223,087				973,277
Accumulated other comprehensive loss			(120,223	)			(118,080	)
Total stockholders’ equity			3,014,679				2,677,290
Total liabilities and stockholders’ equity		$	6,128,145			$	6,288,842

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

PTC Inc.

CONSOLIDATED STATEM****ENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Revenue:
License		$	149,104			$	192,940			$	567,423			$	562,631
Support and cloud services			339,505				313,721				1,006,420				875,448
Total software revenue			488,609				506,661				1,573,843				1,438,079
Professional services			30,030				35,681				98,082				112,354
Total revenue			518,639				542,342				1,671,925				1,550,433
Cost of revenue:
Cost of license revenue			12,072				11,501				33,003				41,293
Cost of support and cloud services revenue			69,968				68,264				204,405				177,626
Total cost of software revenue			82,040				79,765				237,408				218,919
Cost of professional services revenue			29,876				36,089				94,583				106,231
Total cost of revenue			111,916				115,854				331,991				325,150
Gross margin			406,723				426,488				1,339,934				1,225,283
Operating expenses:
Sales and marketing			140,318				145,083				411,763				392,673
Research and development			110,253				103,819				323,034				292,345
General and administrative			49,659				57,055				180,391				173,949
Amortization of acquired intangible assets			10,672				10,670				31,459				29,352
Restructuring and other credits, net			—				(39	)			(802	)			(376	)
Total operating expenses			310,902				316,588				945,845				887,943
Operating income			95,821				109,900				394,089				337,340
Interest and debt premium expense			(27,785	)			(35,836	)			(94,705	)			(93,719	)
Other income (expense), net			(663	)			2,462				(667	)			398
Income before income taxes			67,373				76,526				298,717				244,019
Provision (benefit) for income taxes			(1,605	)			15,128				48,907				44,082
Net income		$	68,978			$	61,398			$	249,810			$	199,937
Earnings per share—Basic		$	0.58			$	0.52			$	2.09			$	1.69
Earnings per share—Diluted		$	0.57			$	0.51			$	2.07			$	1.68
Weighted-average shares outstanding—Basic			119,893				118,483				119,533				118,186
Weighted-average shares outstanding—Diluted			120,822				119,392				120,593				119,072

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

PTC Inc.

CONSOLIDATED STATEMENTS OF C****OMPREHENSIVE INCOME

(in thousands)

(unaudited)

		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Net income		$	68,978			$	61,398			$	249,810			$	199,937
Other comprehensive income (loss), net of tax:
Hedge gain (loss) arising during the period, net of tax of $(0.8) million and $0.2 million in the third quarter of 2024 and 2023, respectively, and $0.9 million and $4.7 million in the first nine months of 2024 and 2023, respectively			2,292				(521	)			(2,787	)			(14,005	)
Foreign currency translation adjustment, net of tax of $0 for each period			(9,344	)			1,405				538				70,181
Change in pension benefit, net of tax of $0.0 million and $0.0 million in the third quarter of 2024 and 2023, respectively, and $(0.1) million and $0.0 million in the first nine months of 2024 and 2023, respectively			112				(24	)			106				(356	)
Other comprehensive income (loss)			(6,940	)			860				(2,143	)			55,820
Comprehensive income		$	62,038			$	62,258			$	247,667			$	255,757

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

PTC Inc.

CONSOLIDATED STATEM****ENTS OF CASH FLOWS

(in thousands)

(unaudited)

		Nine months ended
		June 30, 2024				June 30, 2023
Cash flows from operating activities:
Net income		$	249,810			$	199,937
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			81,272				76,943
Amortization of right-of-use lease assets			23,143				24,705
Stock-based compensation			161,242				147,568
Other non-cash items, net			(297	)			(3,114	)
Changes in operating assets and liabilities, excluding the effects of acquisitions:
Accounts receivable			131,422				99,521
Accounts payable and accrued expenses			(8,631	)			5,407
Accrued compensation and benefits			8,666				5,961
Deferred revenue			8,393				18,696
Accrued income taxes			(1,795	)			(9,910	)
Other current assets and prepaid expenses			(9,962	)			8,670
Operating lease liabilities			(13,438	)			(1,360	)
Other noncurrent assets and liabilities			22,045				(11,932	)
Net cash provided by operating activities			651,870				561,092
Cash flows from investing activities:
Additions to property and equipment			(9,841	)			(18,035	)
Acquisitions of businesses, net of cash acquired			(93,457	)			(828,271	)
Proceeds from sale of investments			—				349
Purchases of investments			—				(5,823	)
Settlement of net investment hedges			3,826				(14,204	)
Divestitures of businesses and assets, net			—				(154	)
Net cash used in investing activities			(99,472	)			(866,138	)
Cash flows from financing activities:
Borrowings under credit facility			944,845				1,130,000
Repayments of borrowings under credit facility and acquired debt			(835,796	)			(744,000	)
Proceeds from issuance of common stock			12,709				10,592
Payments of withholding taxes in connection with stock-based awards			(92,589	)			(75,489	)
Payments of principal for financing leases			—				(217	)
Credit facility origination costs			—				(13,355	)
Payment of deferred acquisition consideration			(620,040	)			—
Net cash provided by (used in) financing activities			(590,871	)			307,531
Effect of exchange rate changes on cash, cash equivalents, and restricted cash			(2,003	)			6,835
Net change in cash, cash equivalents, and restricted cash			(40,476	)			9,320
Cash, cash equivalents, and restricted cash, beginning of period			288,798				272,888
Cash, cash equivalents, and restricted cash, end of period		$	248,322			$	282,208
Supplemental disclosure of non-cash financing and investing activities:
Withholding taxes in connection with stock-based awards, accrued		$	7,674			$	5,705
Operating right-of-use assets obtained in exchange for operating lease liabilities		$	4,941			$	23,142

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

PTC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

		Three months ended June 30, 2024
		Common Stock																Accumulated
		Shares				Amount				Additional Paid-In Capital				Retained Earnings				Other Comprehensive Loss				Total Stockholders’ Equity
Balance as of March 31, 2024			119,717			$	1,197			$	1,901,109			$	1,154,109			$	(113,283	)		$	2,943,132
Common stock issued for employee stock-based awards			486				5				(5	)			—				—				—
Shares surrendered by employees to pay taxes related to stock-based awards			(154	)			(2	)			(28,069	)			—				—				(28,071	)
Compensation expense from stock-based awards			—				—				37,580				—				—				37,580
Net income			—				—				—				68,978				—				68,978
Gain on net investment hedges, net of tax			—				—				—				—				2,292				2,292
Foreign currency translation adjustment			—				—				—				—				(9,344	)			(9,344	)
Change in defined benefit pension items, net of tax			—				—				—				—				112				112
Balance as of June 30, 2024			120,049			$	1,200			$	1,910,615			$	1,223,087			$	(120,223	)		$	3,014,679

		Nine months ended June 30, 2024
		Common Stock																Accumulated
		Shares				Amount				Additional Paid-In Capital				Retained Earnings				Other Comprehensive Loss				Total Stockholders’ Equity
Balance as of September 30, 2023			118,846			$	1,188			$	1,820,905			$	973,277			$	(118,080	)		$	2,677,290
Common stock issued for employee stock-based awards			1,702				18				(18	)			—				—				—
Shares surrendered by employees to pay taxes related to stock-based awards			(601	)			(7	)			(99,938	)			—				—				(99,945	)
Common stock issued for employee stock purchase plan			102				1				12,708				—				—				12,709
Compensation expense from stock-based awards			—				—				176,958				—				—				176,958
Net income			—				—				—				249,810				—				249,810
Loss on net investment hedges, net of tax			—				—				—				—				(2,787	)			(2,787	)
Foreign currency translation adjustment			—				—				—				—				538				538
Change in defined benefit pension items, net of tax			—				—				—				—				106				106
Balance as of June 30, 2024			120,049			$	1,200			$	1,910,615			$	1,223,087			$	(120,223	)		$	3,014,679

		Three months ended June 30, 2023
		Common Stock																Accumulated
		Shares				Amount				Additional Paid-In Capital				Retained Earnings				Other Comprehensive Loss				Total Stockholders’ Equity
Balance as of March 31, 2023			118,334			$	1,182			$	1,749,574			$	866,276			$	(98,498	)		$	2,518,534
Common stock issued for employee stock-based awards			582				6				(6	)			—				—				—
Shares surrendered by employees to pay taxes related to stock-based awards			(185	)			(2	)			(25,170	)			—				—				(25,172	)
Compensation expense from stock-based awards			—				—				43,044				—				—				43,044
Net income			—				—				—				61,398				—				61,398
Loss on net investment hedges, net of tax			—				—				—				—				(521	)			(521	)
Foreign currency translation adjustment			—				—				—				—				1,405				1,405
Change in defined benefit pension items, net of tax			—				—				—				—				(24	)			(24	)
Balance as of June 30, 2023			118,731			$	1,186			$	1,767,442			$	927,674			$	(97,638	)		$	2,598,664

		Nine months ended June 30, 2023
		Common Stock																Accumulated
		Shares				Amount				Additional Paid-In Capital				Retained Earnings				Other Comprehensive Loss				Total Stockholders’ Equity
Balance as of September 30, 2022			117,472			$	1,175			$	1,720,580			$	727,737			$	(153,458	)		$	2,296,034
Common stock issued for employee stock-based awards			1,766				18				(18	)			—				—				—
Shares surrendered by employees to pay taxes related to stock-based awards			(609	)			(7	)			(81,187	)			—				—				(81,194	)
Common stock issued for employee stock purchase plan			102				—				10,592				—				—				10,592
Compensation expense from stock-based awards			—				—				117,475				—				—				117,475
Net income			—				—				—				199,937				—				199,937
Loss on net investment hedges, net of tax			—				—				—				—				(14,005	)			(14,005	)
Foreign currency translation adjustment			—				—				—				—				70,181				70,181
Change in defined benefit pension items, net of tax			—				—				—				—				(356	)			(356	)
Balance as of June 30, 2023			118,731			$	1,186			$	1,767,442			$	927,674			$	(97,638	)		$	2,598,664

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

PTC Inc.

NOTES TO CON****DENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

General

The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of our financial position, results of operations and cash flows as of the dates and for the periods indicated. The September 30, 2023 Consolidated Balance Sheet included herein is derived from our audited consolidated financial statements.

Unless otherwise indicated, all references to a year mean our fiscal year, which ends on September 30.

Pending Accounting Pronouncements

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU will be effective for us in 2026. We expect the adoption to result in disclosure changes only.

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU will be effective for us in 2025. We expect the adoption to result in disclosure changes only.

2. Revenue from Contracts with Customers

Receivables, Co**ntract Assets and Contract Liabilities

(in thousands)		June 30, 2024				September 30, 2023
Short-term and long-term receivables		$	840,382			$	997,490
Contract asset		$	13,443			$	16,465
Deferred revenue		$	687,614			$	681,550

During the nine months ended June 30, 2024, we recognized $619.2 million of revenue that was included in Deferred revenue as of September 30, 2023. The remainder of the change was driven by additional deferrals, primarily from new billings.

Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the subscription with other software. As of June 30, 2024 and September 30, 2023, our total revenue liability was $27.0 million and $23.7 million, respectively, primarily associated with the annual right to exchange on-premises subscription software.

Remaining Performance Obligations

Our contracts with customers include transaction price amounts allocated to performance obligations that will be satisfied and recognized as revenue at a later date. As of June 30, 2024, the transaction price amounts include performance obligations of $687.6 million recorded in Deferred revenue and $1,382.2 million that are not yet recorded in the Consolidated Balance Sheets. Of the total $2,069.8 million, we expect to recognize approximately 59% over the next 12 months, 26% over the next 13 to 24 months, and the remaining amount thereafter.

Disaggregation of Revenue

(in thousands)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Recurring revenue(1)		$	481,559			$	498,410			$	1,551,600			$	1,407,662
Perpetual license			7,050				8,251				22,243				30,417
Professional services			30,030				35,681				98,082				112,354
Total revenue		$	518,639			$	542,342			$	1,671,925			$	1,550,433

(1)

Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and hosting services revenue.

Our international revenue is presented based on the location of our customer. Revenue for the geographic regions in which we operate is presented below.

(in thousands)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Americas		$	253,592			$	278,329			$	781,480			$	761,617
Europe			170,617				173,559				624,884				549,835
Asia Pacific			94,430				90,454				265,561				238,981
Total revenue		$	518,639			$	542,342			$	1,671,925			$	1,550,433

3. Stock-based Compensation

The value of stock issued for vested restricted stock units (RSUs) is as follows:

(in thousands)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Stock issued for vested RSUs		$	88,803			$	79,129			$	283,975			$	235,430

Compensation expense recorded for our stock-based awards is classified in our Consolidated Statements of Operations as follows:

(in thousands)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Cost of license revenue		$	49			$	53			$	116			$	141
Cost of support and cloud services revenue			4,035				3,479				10,762				9,464
Cost of professional services revenue			1,772				2,315				5,101				6,063
Sales and marketing			15,167				14,513				46,023				39,554
Research and development			13,101				14,801				41,275				41,839
General and administrative			13,914				18,657				57,965				50,507
Total stock-based compensation expense		$	48,038			$	53,818			$	161,242			$	147,568

As of June 30, 2024 and September 30, 2023, we had liability-classified awards related to stock-based compensation based on a fixed monetary amount of $29.1 million and $44.9 million, respectively.

4. Earnings per Share (EPS) and Common Stock

EPS

The following table presents the calculation for both basic and diluted EPS:

(in thousands, except per share data)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Net income		$	68,978			$	61,398			$	249,810			$	199,937
Weighted-average shares outstanding—Basic			119,893				118,483				119,533				118,186
Dilutive effect of restricted stock units			929				909				1,060				886
Weighted-average shares outstanding—Diluted			120,822				119,392				120,593				119,072
Earnings per share—Basic		$	0.58			$	0.52			$	2.09			$	1.69
Earnings per share—Diluted		$	0.57			$	0.51			$	2.07			$	1.68

Anti-dilutive shares were immaterial for the three and nine months ended June 30, 2024 and June 30, 2023.

5. Acquisitions

Acquisition and transaction-related costs for the third quarter and first nine months of 2024 totaled $0.2 million and $3.0 million, respectively, compared to $0.8 million and $18.5 million in the third quarter and first nine months of 2023, respectively. These costs are classified in General and administrative expense in the accompanying Consolidated Statements of Operations.

pure-systems

On October 4, 2023, we acquired pure-systems GmbH pursuant to a Share Purchase Agreement. pure-systems is a leading provider of product and software variant management solutions used by manufacturing companies to efficiently manage the different versions of software and systems engineering assets. The purchase price was $93.5 million, net of cash acquired, which we financed primarily with a draw on the revolving line of our credit facility. pure-systems had approximately 50 employees on the close date.

The acquisition of pure-systems has been accounted for as a business combination. Assets and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow model which requires the use of significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.

The following table outlines the purchase price allocation for pure-systems:

(in thousands)
Goodwill	$	77,118
Customer relationships		17,400
Purchased software		10,000
Trademarks		800
Net tax liability		(8,860	)
Acquired debt		(2,475	)
Other net liabilities		(526	)
Total	$	93,457

The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 18 years, 10 years, and 10 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill will not be deductible for income tax purposes. The amount of goodwill resulting from the purchase price allocation reflects the expected value that will be created by expanding our application lifecycle management (ALM) offerings, which are included within our PLM product group.

Our results of operations for the reported periods if presented on a pro forma basis would not differ materially from our reported results.

ServiceMax

On January 3, 2023, we acquired ServiceMax, Inc. pursuant to a Share Purchase Agreement dated November 17, 2022 for $1,448.2 million, net of cash acquired. PTC paid the first installment of $828.2 million on the acquisition date. The remaining installment of $650.0 million, of which $620.0 million represented the fair value as of the acquisition date and $30.0 million was imputed interest, was paid in October 2023. The fair value of the deferred acquisition payment was calculated based on our borrowing rate at the time of the acquisition. The purchase price allocation resulted in $974.9 million of Goodwill, $628.6 million of intangible assets, $121.7 million of net tax liabilities, and $33.6 million of other net liabilities.

ServiceMax develops and licenses cloud-native, product-centric field service management (FSM) software, which is included within our PLM product group. ServiceMax had approximately 500 employees on the close date.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for PTC and ServiceMax for the pro forma nine months ended June 30, 2023. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022. Since the acquisition took place in fiscal 2023, the unaudited pro forma financial information was prepared as though ServiceMax was acquired at the beginning of fiscal 2022. The unaudited pro forma financial information for all periods presented includes adjustments to reflect certain business combination effects, including: amortization of acquired intangible assets, including the elimination of related ServiceMax expenses; acquisition-related costs incurred by both parties; reversal of certain costs incurred by ServiceMax which would not have been incurred had the acquisition occurred at the beginning of fiscal 2022; interest expense under the new combined capital structure; stock-based compensation charges; and the related tax effects as though ServiceMax was acquired as of the beginning of fiscal 2022.

The unaudited pro forma financial information for the nine months ended June 30, 2023 presented below combines the historical results of PTC for those periods, the historical results of ServiceMax for the three months ended January 31, 2023, and the effects of the pro forma adjustments listed above.

(in thousands)		Pro forma nine months ended
		June 30, 2023
Revenue		$	1,594,118
Net income		$	193,834

6. Goodwill and Intangible Assets

During the third fiscal quarter of 2024, we completed our annual impairment test of goodwill, which was based on a qualitative assessment, and concluded that there was no impairment. A qualitative assessment is designed to determine whether we believe it is more likely than not that the fair values of our reporting units exceed their carrying values. A qualitative assessment includes a review of qualitative factors, including company-specific (financial performance and long-range plans), industry, and macroeconomic factors, and a consideration of the fair value of each reporting unit at the last valuation date.

Goodwill and acquired intangible assets consisted of the following:

(in thousands)		June 30, 2024												September 30, 2023
		Gross Carrying Amount				Accumulated Amortization				Net Book Value				Gross Carrying Amount				Accumulated Amortization				Net Book Value
Goodwill (not amortized)										$	3,442,245											$	3,358,511
Intangible assets with finite lives (amortized):
Purchased software		$	627,099			$	424,643			$	202,456			$	615,915			$	395,109			$	220,806
Capitalized software			22,877				22,877				—				22,877				22,877				—
Customer lists and relationships			1,135,067				443,644				691,423				1,116,117				413,125				702,992
Trademarks and trade names			37,727				21,101				16,626				36,851				19,400				17,451
Other			3,886				3,886				—				3,867				3,867				—
Total intangible assets with finite lives		$	1,826,656			$	916,151			$	910,505			$	1,795,627			$	854,378			$	941,249
Total goodwill and acquired intangible assets										$	4,352,750											$	4,299,760

Changes in Goodwill were as follows:

(in thousands)
Balance, October 1, 2023	$	3,358,511
Acquisitions		77,118
Foreign currency translation adjustment		6,616
Balance, June 30, 2024	$	3,442,245

The aggregate amortization expense for intangible assets with finite lives is classified in our Consolidated Statements of Operations as follows:

(in thousands)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Amortization of acquired intangible assets		$	10,672			$	10,670			$	31,459			$	29,352
Cost of revenue			9,685				9,841				28,835				25,817
Total amortization expense		$	20,357			$	20,511			$	60,294			$	55,169

7. Fair Value Measurements

The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs for such valuations into three broad levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; or

Level 3: unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Money market funds, time deposits, and corporate notes/bonds are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets.

The principal market in which we execute our foreign currency derivatives is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants are generally large financial institutions. Our foreign currency derivatives’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

Our significant financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2024 and September 30, 2023 were as follows:

(in thousands)		June 30, 2024
		Level 1				Level 2				Level 3				Total
Financial assets:
Cash equivalents(1)		$	41,103			$	—			$	—			$	41,103
Forward contracts			—				181				—				181
		$	41,103			$	181			$	—			$	41,284
Financial liabilities:
Forward contracts			—				2,103				—				2,103
		$	—			$	2,103			$	—			$	2,103

(in thousands)		September 30, 2023
		Level 1				Level 2				Level 3				Total
Financial assets:
Cash equivalents(1)		$	72,754			$	—			$	—			$	72,754
Convertible note			—				—				2,000				2,000
Forward contracts			—				7,340				—				7,340
		$	72,754			$	7,340			$	2,000			$	82,094
Financial liabilities:
Forward contracts			—				3,158				—				3,158
		$	—			$	3,158			$	—			$	3,158

(1)

Money market funds and time deposits.

Level 3 Investments

Convertible Note

In the fourth quarter of 2021, we invested $2.0 million in a non-marketable convertible note. This debt security was classified as available-for-sale and included in Other assets on the Consolidated Balance Sheet. During the nine months ended June 30, 2024, we recorded a $2.0 million impairment loss related to this Level 3 investment. The impairment loss is included in Other income (expense), net on the Consolidated Statements of Operations.

8. Derivative Financial Instruments

We enter into foreign currency forward contracts to manage our exposure to foreign currency exchange risk to reduce earnings volatility. We do not enter into derivative transactions for trading or speculative purposes.

The following table shows our derivative instruments measured at gross fair value as reflected in the Consolidated Balance Sheets:

(in thousands)		Fair Value of Derivatives Designated As Hedging Instruments								Fair Value of Derivatives Not Designated As Hedging Instruments
		June 30, 2024				September 30, 2023				June 30, 2024				September 30, 2023
Derivative assets(1):
Forward contracts		$	81			$	3,770			$	100			$	3,570
Derivative liabilities(2):
Forward contracts		$	681			$	—			$	1,422			$	3,158

(1)

As of June 30, 2024 and September 30, 2023, current derivative assets are recorded in Other current assets in the Consolidated Balance Sheets.

(2)

As of June 30, 2024 and September 30, 2023, current derivative liabilities are recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Non-Designated Hedges

We hedge our net foreign currency monetary assets and liabilities primarily resulting from foreign currency denominated receivables and payables with foreign exchange forward contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These contracts have maturities of up to approximately three months. Generally, we do not designate these foreign currency forward contracts as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into forward contracts only as an economic hedge, gains or losses on the underlying foreign-denominated balance are generally offset by the losses or gains on the forward contract. Gains and losses on forward contracts and foreign denominated receivables and payables are included in Other income (expense), net.

As of June 30, 2024 and September 30, 2023, we had outstanding forward contracts not designated as hedging instruments with notional amounts equivalent to the following:

Currency Hedged (in thousands)		June 30, 2024				September 30, 2023
Canadian Dollar / U.S. Dollar		$	5,125			$	5,135
Euro / U.S. Dollar			396,345				383,227
British Pound / U.S. Dollar			13,460				6,058
Israeli Shekel / U.S. Dollar			12,091				11,852
Japanese Yen / U.S. Dollar			27,914				4,770
Swiss Franc / U.S. Dollar			16,743				32,766
Swedish Krona / U.S. Dollar			21,841				35,085
Chinese Renminbi / U.S. Dollar			4,209				16,660
New Taiwan Dollar / U.S. Dollar			8,915				11,855
Korean Won / U.S. Dollar			—				6,157
Danish Krone / U.S. Dollar			3,353				6,731
All other			4,854				3,340
Total		$	514,850			$	523,636

The following table shows the effect of our non-designated hedges on the Consolidated Statements of Operations for the three and nine months ended June 30, 2024 and June 30, 2023:

(in thousands)				Three months ended								Nine months ended
		Location of Gain (Loss)		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Net realized and unrealized loss, excluding the underlying foreign currency exposure being hedged		Other income (expense), net		$	(1,590	)		$	(1,006	)		$	(6,611	)		$	(13,437	)

In the three months ended June 30, 2024, foreign currency losses, net were $1.7 million. In the three months ended June 30, 2023, foreign currency gains, net were $0.5 million. In the nine months ended June 30, 2024 and June 30, 2023, foreign currency losses, net were $1.8 million and $3.4 million, respectively.

Net Investment Hedges

We translate balance sheet accounts of subsidiaries with foreign functional currencies into the U.S. Dollar using the exchange rate at each balance sheet date. Resulting translation adjustments are reported as a component of Accumulated other comprehensive loss on the Consolidated Balance Sheets. We designate certain foreign exchange forward contracts as net investment hedges against exposure on translation of balance sheet accounts of Euro and Japanese Yen functional subsidiaries. Net investment hedges partially offset the impact of Foreign currency translation adjustment recorded in Accumulated other comprehensive loss on the Consolidated Balance Sheets. All foreign exchange forward contracts are carried at fair value on the Consolidated Balance Sheets and the maximum duration of net investment hedge foreign exchange forward contracts is approximately three months.

Net investment hedge relationships are designated at inception, and effectiveness is assessed retrospectively on a quarterly basis using the net equity position of Euro and Japanese Yen functional subsidiaries. As the forward contracts are highly effective in offsetting exchange rate exposure, we record changes in these net investment hedges in Accumulated other comprehensive loss and subsequently reclassify them to Foreign currency translation adjustment in Accumulated other comprehensive loss at the time of forward contract maturity. Changes in the fair value of foreign exchange forward contracts due to changes in time value are excluded from the assessment of effectiveness. Our derivatives are not subject to any credit contingent features. We manage credit risk with counterparties by trading among several counterparties and we review our counterparties’ credit at least quarterly.

As of June 30, 2024 and September 30, 2023, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:

Currency Hedged (in thousands)		June 30, 2024				September 30, 2023
Euro / U.S. Dollar		$	429,516			$	337,923
Japanese Yen / U.S. Dollar			9,495				10,285
Total		$	439,011			$	348,208

The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three and nine months ended June 30, 2024 and June 30, 2023:

(in thousands)				Three months ended								Nine months ended
		Location of Gain (Loss)		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Gain (loss) recognized in OCI		OCI		$	3,047			$	(695	)		$	(3,705	)		$	(18,663	)
Gain (loss) reclassified from OCI to earnings		n/a		$	—			$	—			$	—			$	—
Gain recognized, excluded portion		Other income (expense), net		$	946			$	1,124			$	3,161			$	3,272

As of June 30, 2024, we estimate that all amounts reported in Accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.

Offsetting Derivative Assets and Liabilities

We have entered into master netting arrangements for our forward contracts that allow net settlements under certain conditions. Although netting is permitted, it is currently our policy and practice to record all derivative assets and liabilities on a gross basis in the Consolidated Balance Sheets.

The following table sets forth the offsetting of derivative assets as of June 30, 2024:

(in thousands)		Gross Amounts Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
As of June 30, 2024		Gross Amount of Recognized Assets				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amounts of Assets Presented in the Consolidated Balance Sheets				Financial Instruments				Cash Collateral Received				Net Amount
Forward contracts		$	181			$	—			$	181			$	(181	)		$	—			$	—

The following table sets forth the offsetting of derivative liabilities as of June 30, 2024:

(in thousands)		Gross Amounts Offset in the Consolidated Balance Sheets												Gross Amounts Not Offset in the Consolidated Balance Sheets
As of June 30, 2024		Gross Amount of Recognized Liabilities				Gross Amounts Offset in the Consolidated Balance Sheets				Net Amounts of Liabilities Presented in the Consolidated Balance Sheets				Financial Instruments				Cash Collateral Pledged				Net Amount
Forward contracts		$	2,103			$	—			$	2,103			$	(181	)		$	—			$	1,922

9. Income Taxes

(in thousands)		Three months ended								Nine months ended
		June 30, 2024				June 30, 2023				June 30, 2024				June 30, 2023
Income before income taxes		$	67,373			$	76,526			$	298,717			$	244,019
Provision (benefit) for income taxes		$	(1,605	)		$	15,128			$	48,907			$	44,082
Effective income tax rate			(2	)%			20	%			16	%			18	%

The effective tax rate for the three and nine months ended June 30, 2024 was lower than the effective tax rate for the corresponding prior-year periods primarily due to changes in the geographic mix of income before taxes and the effects of IRS procedural guidance requiring IRS consent for certain previously automatic changes of accounting method. The IRS procedural guidance change significantly increased our estimated taxable income for the year ended September 30, 2024, resulting in an increase to the estimated tax benefit for the deductions associated with Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income. The benefit from this IRS procedural guidance change for the three and nine months ended June 30, 2024 will reverse in a future fiscal period if we receive IRS consent for a change in the treatment of these deductions. For the nine months ended June 30, 2024, this was offset by a tax expense of $3.6 million related to a tax reserve in a foreign jurisdiction.

In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service in the U.S. We regularly assess the likelihood of additional assessments by tax authorities and provide for these matters as appropriate. We are currently under audit by tax authorities in several jurisdictions. Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses and tax credits.

10. Debt

As of June 30, 2024 and September 30, 2023, we had the following debt obligations:

(in thousands)		June 30, 2024				September 30, 2023
4.000% Senior notes due 2028		$	500,000			$	500,000
3.625% Senior notes due 2025			500,000				500,000
Credit facility revolver line(1)(2)			322,000				202,000
Credit facility term loan(1)(2)			493,750				500,000
Total debt			1,815,750				1,702,000
Unamortized debt issuance costs for the senior notes(3)			(4,596	)			(6,215	)
Total debt, net of issuance costs(4)		$	1,811,154			$	1,695,785

(1)

Unamortized debt issuance costs related to the credit facility were $2.3 million included in Other current assets and $5.8 million included in Other assets on the Consolidated Balance Sheet as of June 30, 2024 and $2.3 million included in Other current assets and $7.5 million included in Other assets on the Consolidated Balance Sheet as of September 30, 2023.

(2)

The stated maturity date under the credit facility on which both the revolver line and the term loan will mature and all amounts then outstanding will become due and payable is January 3, 2028. However, if our outstanding 2025 Senior Notes have not been refinanced to mature on or after April 3, 2028 or redeemed by November 16, 2024, all amounts outstanding under the credit facility will become due and payable on November 16, 2024. The term loan began amortizing in March 2024, with payments of $3.1 million remaining in 2024, $21.9 million in 2025, $25.0 million in 2026 and 2027, and $418.7 million in 2028.

(3)

Of the unamortized debt issuance costs for the senior notes, $0.7 million was included in Current portion of long-term debt and $3.9 million was included in Long-term debt on the Consolidated Balance Sheet as of June 30, 2024. As of September 30, 2023, all unamortized debt issuance costs for the senior notes were included in Long-term debt on the Consolidated Balance Sheet.

(4)

As of June 30, 2024, $518.1 million of debt was classified as short term, including $499.3 million associated with the 2025 senior notes and related debt issuance costs and $18.8 million associated with the credit facility term loan. As of September 30, 2023, $9.4 million of debt associated with the credit facility term loan was classified as short term with the remaining balance classified as long term.

Senior Unsecured Notes

In February 2020, we issued $500 million in aggregate principal amount of 4.0% senior, unsecured long-term debt at par value, due in 2028 (the 2028 notes) and $500 million in aggregate principal amount of 3.625% senior, unsecured long-term debt at par value, due in 2025 (the 2025 notes).

As of June 30, 2024, the total estimated fair value of the 2028 and 2025 notes was approximately $471.9 million and $493.6 million, respectively, based on quoted prices for the notes on that date.

We were in compliance with all the covenants for all our senior notes as of June 30, 2024.

Credit Agreement

Our credit facility consists of (i) a $1.25 billion revolving credit facility, (ii) a $500 million term loan credit facility, and (iii) an incremental facility pursuant to which we may incur additional term loan tranches or increase the revolving credit facility. As of June 30, 2024, unused commitments under our credit facility were $928.0 million and amounts available for borrowing were $912.1 million.

As of June 30, 2024, the fair value of our credit facility approximates its book value.

PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. As of June 30, 2024, $123.0 million was borrowed by an eligible foreign subsidiary borrower.

Loans under the credit facility bear interest at variable rates. As of June 30, 2024, the annual rate for borrowings outstanding was 6.9%. A quarterly revolving commitment fee on the undrawn portion of the revolving credit facility is required, ranging from 0.175% to 0.325% per annum, based upon our total leverage ratio.

As of June 30, 2024, we were in compliance with all financial and operating covenants of the credit facility.

Interest

We incurred interest expense on our debt of $27.8 million and $94.7 million in the third quarter and first nine months of 2024, respectively, and $35.8 million and $93.7 million in the third quarter and first nine months of 2023, respectively. Interest expense in the third quarter and first nine months of 2023 included $10.0 million and $20.0 million, respectively, of interest associated with the $650.0 million ServiceMax deferred acquisition payment that we settled in the first quarter of 2024. The average interest rate on borrowings outstanding was approximately 5.3% and 5.5% during the third quarter and first nine months of 2024, respectively, and 5.2% and 4.8% during the third quarter and first nine months of 2023, respectively.

11. Commitments and Contingencies

Guarantees and Indemnification Obligations

We enter into standard indemnification agreements with our customers and business partners in the ordinary course of our business. Under such agreements, we typically indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to our products. Indemnification may also cover other types of claims, including claims relating to certain data breaches. These agreements typically limit our liability with respect to indemnification claims other than intellectual property infringement claims. Historically, our costs to defend lawsuits or settle claims relating to such indemnity agreements have been minimal and, accordingly, we believe the estimated fair value of liabilities under these agreements is immaterial.

We warrant that our software products will perform in all material respects in accordance with our standard published specifications during the term of the license. Additionally, we generally warrant that our consulting services will be performed consistent with generally accepted industry standards and, in the case of fixed price services, the agreed-upon specifications. In most cases, liability for these warranties is capped. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history; however, we have not incurred significant cost under our product or services warranties. As a result, we believe the estimated fair value of these liabilities is immaterial.