PTC INC.
SECOND QUARTER FISCAL 2015
PREPARED REMARKS
April 29, 2015
Please refer to the “Important Disclosures” section of these prepared remarks for important information
about our reporting metrics, GAAP and non-GAAP definitions, and other important disclosures. In
addition, please refer to the PTC Q2 FY’15 Financial Data tables posted to PTC’s Investor Relations
website at investor.ptc.com for a reconciliation between our GAAP and non-GAAP measures.
Management comments in the following tables refer to non-GAAP results unless otherwise specified.
Key Highlights
In Millions

Total Revenue(GAAP)

Total Revenue(Non-GAAP)

Software Revenue(GAAP)

Software Revenue(Non-GAAP)

Q2
FY’15

$314.1$315.3$254.7$255.5EPS(GAAP)$0.05

EPS(Non-GAAP)

$0.53

YoY

(4%)

(4%)

0%

0%

(87%)

11%

YoY CCManagement Comments (1)Total revenue was above the Q2 guidance midpoint.
Viewed on a license mix-adjusted constant currency basis,
total revenue would have been up 5% YoY.



Software revenue increased 8% YoY CC; professional
services revenue declined (12%) YoY CC driven in part bystrong growth in service partner bookings.



By region on a constant currency basis, strong growth inJapan was offset by declines in the Americas and thePacific Rim while Europe was flat.

Software revenue was above the Q2 guidance midpoint.
Viewed on a license mix-adjusted constant currency basis,
software revenue would have been up 10% YoY.

Support revenue was above our guidance. Viewed on alicense mix-adjusted constant currency basis, support
revenue would have been up 10% YoY, driven by strong
license growth during FY’14.



L&SS revenue was modestly below our guidance midpoint.
Viewed on a license mix-adjusted constant currency basis,
L&SS revenue would have been up 8% YoY.

GAAP EPS was below our guidance due to a $38 million
restructuring charge.



Non-GAAP EPS was above our guidance driven by higher
support revenue, lower professional services revenue, lower
operating expenses, a lower tax rate, and a modestly lower
share count.

License mix-adjusted CC non-GAAP operating margin wasapproximately 27% in Q2 FY’15 vs. 25% in Q2 FY’14.

3%

4%

8%

8%

(66%)

33%

1

Software Performance by Solution Area
In Millions

CAD SoftwareePLM Software

IoT Software(GAAP)
IoT Software(Non-GAAP)

Q2
FY’15

$126.2

$91.9

$8.7

$9.6

YoY

(4%)

(4%)

2140%

2359%

YoY CCCAD support revenue increased 6% YoY CC.



CAD L&SS revenue increased 2% YoY CC driven by a midsingle digit YoY CC growth in new seats, modules, andupgrades of Creo, offset by a decline in legacy CAD products.



CAD L&SS bookings increased 1% YoY CC.

ePLM support revenue increased 14% YoY CC.

ePLM L&SS revenue declined (11%) YoY CC, with doubledigit YoY CC growth in cloud services offset by a decline in
PLM license revenue against a tough YoY comparison relative
to large deals.



ePLM L&SS bookings decreased (16%) YoY CC.

Both IoT support revenue and L&SS revenue increased over
2000% YoY CC driven by strong growth for our ThingWorx
platform and the acquisition of Axeda in August 2014.



IoT L&SS bookings increased 488% YoY CC.



IoT non-GAAP L&SS revenue approached 10% of total L&SS
revenue.



SLM support revenue increased 6% YoY CC.



SLM L&SS revenue increased 11% YoY CC.



Excluding cloud services, SLM L&SS bookings grew by a midteens percentage YoY CC. Due to a challenging Q2 FY’14
comparison in cloud services, total SLM L&SS bookings
declined (1%) YoY CC.

Support revenue was above our guidance and up 9% YoY CC.



L&SS revenue was modestly below our guidance midpoint andup 6% YoY CC.



L&SS bookings were up sequentially, down YoY and flat YoY
CC.

5%

4%

2171%

2391%

SLM Software

$27.9

4%

8%

Total Software(GAAP)$254.70%

8%

Total Software(Non-GAAP)$255.50%Management Comments

8%2Software Performance by Region
In Millions

Q2
FY’15

YoY

YoY CC

Americas Software(GAAP)$105.1

3%

3%

Americas Software(Non-GAAP)$105.83%

4%

Europe Software(GAAP)

$88.3

(12%)

3%

Europe Software(Non-GAAP)

$88.4

(12%)

3%

Japan Software(GAAP)

$33.0

39%

60%

Japan Software(Non-GAAP)

$33.0

39%

60%

Pacific Rim Software(GAAP)

$28.3

(1%)

1%

Pacific Rim Software(Non-GAAP)

$28.3

(1%)

1%

Total Software(GAAP)$254.70%

8%

Total Software(Non-GAAP)$255.50%

8%Management CommentsAmericas non-GAAP support revenue increased 9% YoY CC.

Americas non-GAAP L&SS revenue decreased (7%) YoY
CC with growth in IoT and SLM offset by declines in CAD
and ePLM.



Americas L&SS bookings decreased (15%) YoY CC due inpart to a challenging Q2 FY’14 comparison when we had twomega deals in the region.

Europe support revenue increased 9% YoY CC.

Europe L&SS revenue decreased (11%) YoY CC with growthin IoT and ePLM offset by declines in CAD and SLM.

Europe L&SS bookings decreased (21%) YoY CC due in partto a challenging Q2 FY’14 comparison when we had one
mega deal in the region.

Japan support revenue increased 8% YoY CC.

Japan L&SS revenue increased 178% YoY CC with growth in
IoT, ePLM, and CAD offset by a decline in SLM.

Japan L&SS bookings increased 181% YoY CC helped by amega deal in the region and an easier comparison during Q2
FY’14 when some business pushed into Q3 FY’14.



Pacific Rim support revenue increased 16% YoY CC.

Pacific Rim L&SS revenue declined (9%) YoY CC withgrowth in IoT and CAD offset by declines in ePLM and SLM.

Pacific Rim L&SS bookings decreased (8%) YoY CC.

Support revenue was above our guidance and up 9% YoY
CC.

L&SS revenue was modestly below our guidance midpoint
and up 6% YoY CC.



L&SS bookings were up sequentially, down YoY and flat
YoY CC.

3

Operating Performance
In Millions

Professional
Services
Gross Margin

Q2’15
GAAP

13.3%

Q2’15
Non-GAAP

16.0%

Sales andMarketing$82.0

S&M % of
Revenue

26.1%

25.0%

Research andDevelopment

$60.2

$57.2

$78.9

R&D % of
Revenue

19.2%

18.1%

General and
Administrative

$34.2

$26.5

G&A % of
Revenue

10.9%

8.4%

Operating Profit

$4.0

$73.8

OperatingMargin

1.3%

23.4%

Income Taxes($5.0)$8.8

Tax Rate(1293%)

12%

Management Comments
Professional services gross margin increased 300 basis points
sequentially on a GAAP and non-GAAP basis.



Non-GAAP professional services gross margin was above our FY’15
target of 15%.



Professional services gross margin declined YoY versus a strong Q2
FY’14, which benefitted from several discrete items.



S&M expense was flat YoY as a percentage of revenue.



Our goal is to improve sales efficiency. On a trailing 12-month basis,
we generated $1.12 in L&SS bookings for every $1.00 of sales andmarketing expenses, up 7% YoY.



R&D increased YoY driven by higher headcount due in part to theacquisitions of Axeda and Atego.



We also increased development spending on new solutions related to
IoT and connected service that offer potential to deliver higher value to
PTC over time.



G&A expense increased YoY driven by higher headcount due in part tothe acquisitions of Axeda and Atego.



GAAP operating margin was below our guidance due to a $38 million
restructuring charge.



Non-GAAP operating margin was above our guidance driven by higher
support revenue, lower professional services revenue and lower
operating expenses.



Viewed on a license mix-adjusted CC basis, operating margin wasapproximately 27% in Q2 FY’15 vs. 25% in Q2 FY’14.



The GAAP income tax benefit reflects lower GAAP pretax income,largely driven by a $38 million restructuring charge as well as discrete
items in the quarter.



Non-GAAP tax rate was below our 15% guidance due to a discrete
item in the quarter.

4

Other Highlights


Subscription solutions bookings represented 14% of L&SS bookings, slightly below ourguidance assumption of 15%, partially due to a perpetual license mega deal in the quarter.



Approximately 59% of Q2’15 revenue came from recurring revenue streams (subscription
solutions and support), up from 52% in the year ago period.

While we experienced strong YoY growth in IoT revenue and bookings, at this stage, ourprimary goal is to win new accounts or new logos, and then expand within these accounts. We
added 62 new IoT customers in Q2 FY’15, bringing our total added in the first half FY’15 to 104
and putting us on pace to exceed our target of 200 new IoT customer additions in FY’15.



We had 13 large deals (greater than $1 million L&SS bookings from a customer during thequarter) in Q2 FY’15, down from 17 in Q2 FY’14. As a percentage of L&SS bookings, Q2
FY’15 large deals were in line with our historic average. We also had one mega deal (in Japan)
in Q2 FY’15 down from three (2 in the Americas, 1 in Europe) in Q2 FY’14.



We continue to expect fewer large deals and mega deals in FY’15 vs. FY’14, which was a record
year for both.



Operating cash flow of $92 million declined $19 million versus Q2 FY’14 due to lower earnings
and $5 million in discretionary contributions to a non-U.S. pension plan in Q2 FY’15. We expect
to pay approximately $40 million in the remainder of FY’15 for accrued restructuring and to
make cash contributions of approximately $30 million to fund pension plans, including theestimated amount required to settle our U.S. pension plan obligations and expected voluntary
contributions to a non-U.S. plan. In Q2 FY’15 we repaid $75 million on our credit facility, andended the quarter with a cash balance of $268 million.



We ended the quarter with 342 quota-carrying sales reps, down from 345 in Q2 FY’14.



In keeping with our strategy to grow our professional services partner ecosystem, Q2 FY’15
service partner bookings grew by a double digit percentage YoY, with strong bookings growthamong our large system integrator partners.

Current borrowings under our credit facility total $531 million. Under our leverage covenant, weare limited to 3.0 times adjusted EBITDA which, as of April 4, 2015, would limit additional
revolving credit borrowings to $405 million.

5

Guidance and Long-Range Targets
Our FY’15 financial guidance includes the following general considerations:

Historically, CAD and PLM L&SS revenue growth correlates to growth in broader measures of
the global manufacturing economy. Current indicators suggest the global manufacturing
economy may be modestly weaker than during the year-ago period with foreign currency
depreciation and other acute macro factors potentially weighing on our multinational customers
in the Americas and certain weakening economic indicators for manufacturers in Europe, Japan,
and China. Our current guidance assumes a weaker global manufacturing economy than we saw
in FY’14.



We expect fewer large deals, which historically represent 30% to 50% of L&SS bookings, versus
FY’14, which was a record year for large deal activity.



We expect that approximately 17% of our L&SS bookings will come in as subscription solutions
bookings during FY’15, up from 15% previously assumed last quarter. Fluctuation below or
above 17% will impact revenue positively or negatively, respectively, with every 1% change inmix raising or lowering annual revenue by approximately $3 million and annual non-GAAP EPS
by approximately $0.02.

Assuming current EUR|USD and USD|JPY spot exchange rates for Q3 and Q4 FY’15, foreign
currency depreciation reduces the midpoint of our FY’15 non-GAAP revenue guidance byapproximately $100 million and non-GAAP EPS by approximately $0.35 versus FY’14.

The FY’15 GAAP and non-GAAP operating margin and GAAP and non-GAAP EPS guidance
exclude the estimated settlement losses of approximately $65 million related to the terminationof our U.S. pension plan. While we expect to complete the termination process by September 30,
2015, the amount of the losses will vary based on the timing of the settlements and the amount of
the projected benefit obligations and assets in the plan measured as of the dates the settlements
occur.

FY’15 Guidance Changes (Non-GAAP)

Total Revenue

Current
FY’15
Low$1,280Current
FY’15
High$1,295

Prior
FY’15
Low
$1,320

Prior
FY’15
High
$1,350($48)

Effect ofCurrency
& Mix
($23)

Total Software Revenue
L&SS Revenue
Professional Services$1,048$360$232$1,063$375$232$1,070$380$250$1,100
$410
$250

($30)
($28)
($18)

($20)
($12)
($3)

EPS

$2.18

$2.30

$2.20

$2.35

($0.04)($0.08)In Millions

6

Change(Midpoint)

Financial Guidance
In Millions

Q3
FY’15
Low

Q3
FY’15
High

FY’15
Low

FY’15
High

Subscription Solutions% of L&SS Bookings

18%

18%

17%

17%

L&SS Revenue(GAAP)

$85

$90

$358

$373

Management Comments


We anticipate a higher mix of subscription
bookings in the second half FY’15 based on ourcurrent pipeline and forecast.



We are lowering the midpoint of FY’15 L&SS
revenue guidance by $28 million.
Approximately $12 million of this reduction is for
currency and subscription bookings mix.
The other portion of the reduction reflects
incremental caution around customer spend due
to a potentially weakening manufacturing
economy.



L&SS Revenue(Non-GAAP)

$85

$90

$360

$375

Support Revenue(GAAP)

$167

$167

$687

$687

Support Revenue(Non-GAAP)

$168

$168

$688

$688

Total Software Revenue(GAAP)$252$257$1,045$1,060

Total Software Revenue(Non-GAAP)

$253

$258

$1,048$1,063

Professional Services
Revenue (GAAP)

$54

$54

$231

$231




Professional Services
Revenue (Non-GAAP)

$54

$54

$232

$232

Total Revenue(GAAP)$306$311$1,276$1,291Total Revenue(Non-GAAP)

$307

$312

$1,280$1,295

7

We are lowering our FY’15 support revenue
guidance by $2 million.
Viewed on a constant currency basis, our FY’15
support guidance would imply a modest increase
versus our prior outlook.
Current guidance reflects Q2 outperformance andplanned pricing actions during FY’15.
We are reducing FY’15 software revenue
guidance to the lower half of our prior guidance
range adjusting for license mix and currency.
Our current assumptions around currency andlicense mix are negatively impacting software
revenue guidance by approximately $20 million.
We are lowering the midpoint of FY’15
professional services revenue guidance by $18
million.
This reflects (1) accelerated transition of certain
customer engagements to our partner ecosystemand (2) ongoing development of solutions that
require less professional services to deploy.
Viewed on a license mix-adjusted constantcurrency basis, FY’15 revenue guidance would
imply approximately 4% YoY growth.
Revenue guidance reflects 2% to 3% YoY CC
growth, down from our prior outlook of 4% to 6%
YoY CC growth due to a higher mix ofsubscription and lower professional services
revenue.

Financial Guidance Continued
In Millions

Q3
FY’15
Low

Q3
FY’15
High

FY’15
Low

FY’15
High

Operating Margin(GAAP)

12%

13%

11%

12%

Operating Margin(Non-GAAP)

22%

23%

24%

25%



Tax Rate(GAAP)

5%

5%

1%

1%



Management CommentsTax Rate(Non-GAAP)

Shares Outstanding

15%

116

EPS
(GAAP)$0.26

EPS(Non-GAAP)

$0.47

15%

116

$0.29

14%

116

$1.10

14%

$2.18

Our FY’15 share count is slightly below our priorassumption given the benefit of an earlier (Q1
FY’15) completion of our accelerated share
repurchase.

On a constant currency basis we expect to deliverat least 15% non-GAAP EPS growth in FY’15, inline with our prior guidance.
Viewed on a license mix-adjusted constantcurrency basis, we expect non-GAAP EPS growth
to exceed 20% this year, in line with our five-year
CAGR from FY’09 to FY’14.
Versus our prior FY’15 non-GAAP EPS
guidance, we see $0.08 headwind from license
mix and currency.

116

$1.22

$2.30

We are lowering our FY’15 non-GAAP tax rate
to 14% from 15% previously.
This reduction is driven by a lower tax rate in thefirst half FY’15 from several discrete items
including the U.S. R&D tax credit.





$0.50

Our non-GAAP operating margin guidance isunchanged for FY’15.
We expect our workforce realignment to drive$30 million in annualized expense reduction
exiting Q3 FY’15, driving margin expansion in
Q4 FY’15 into FY’16.
We continue to target a 15% non-GAAP
professional services gross margin in FY’15.



The third quarter and full year FY’15 non-GAAP revenue, non-GAAP operating margin and non-GAAPEPS guidance exclude the following items and their income tax effects, as well as any discrete tax items,
if any:Q3
FY’15

In Millions

FY’15

Effect of acquisition accounting on fair value of acquired deferred revenue$

Stock-based compensation expense
Intangible asset amortization expense
Acquisition-related charges
Pension plan termination costs
Restructuring
Total GAAP adjustments

14
14
1
2
1
$ 33

8

1

$

4

52
55
7
7
40
$ 165

Long-Range Targets (Non-GAAP)In Millions

FY’14
ActualFY’15
Target

FY’18
TargetManagement Comments


L&SS Revenue YoY

10%(8%) to (4%)

12% to 15%
Support Revenue YoY

5%

(0%)

2% to 4%

Total Software Revenue
YoY

7%(3%) to (2%)

6% to 8%

Professional Services
Revenue YoY

(2%)

(17%)

(3%) to (0%)

Total Revenue YoY

5%(6%) to (5%)

6% to 10%

Operating Margin (1)25%

24% to 25%

28% to 30%



21%

14%

18% to 20%

We expect our professional services revenue todecline as our PLM, ALM, and SLM solutions
evolve to require less professional services toimplement and as more of this consulting andimplementation work is done by our partners.



Our revenue outlook includes 2% to 4% of
acquisition-related growth, which is in line with
our historic trend.



Our FY’18 target assumes professional services
gross margin increases to 20% by FY’18.
Our operating margin target also assumes a 5%
to 7% increase in sales and marketing efficiency
each year through FY’18.


Shares Outstanding

120

116

112

EPS YoY (1)20%

0% to 6%15%

Our support growth rate is driven by perpetual
license sales in prior periods.
An increasing mix of subscription bookings andrevenue over time will ultimately reduce growth
rates in our support business.


Tax Rate (1)We expect our IoT and SLM solution areas,
which we view as faster growth markets, will
represent a growing percentage of our L&SS
business.
Our target range assumes a stable, healthy
macroeconomic environment, constantcurrency, and growth at or above market rates.



Our tax rate is largely driven by geographic mixof revenue and expenses.
Our FY’18 target includes a $15 million to $20
million annual tax benefit from the transfer ofintellectual property between two wholly-owned
foreign subsidiaries.
We expect to reduce our shares outstanding
through FY’18 through stock repurchases.
This is in keeping with our commitment toreturn 40% of free cash flow to shareholders.

(1) FY’18 non-GAAP targets exclude all of the items we describe in “Important Information About Non-GAAP References”
below. We do not model GAAP for periods beyond the current fiscal year as many of the items we exclude from our nonGAAP target, such as restructurings and one-time legal settlement amounts, may occur but are not currently contemplated or
known. Many of the expenses we exclude, such as stock-based compensation expenses and amortization of acquired
intangible assets, will be incurred, although we do not model them, and will cause GAAP results to differ from our nonGAAP targets, perhaps materially.

9

Important Disclosures

Reporting metrics and non-GAAP definitions – management believes certain non-GAAP
financial measures provide additional meaningful financial information that should be consideredwhen assessing our ongoing performance. These measures should be considered in addition to,
not a substitute for, the reported GAAP results.

Software licensing model – a majority of our software sales to date have been perpetual
licenses, where customers own the software license. Typically our customers choose to pay for
ongoing support, which includes the right to software upgrades and technical support, and attach
rates on support are in the high 90% range with retention rates also in the 90% range. A small but
growing percentage of our business consists of ratably recognized subscriptions. Under asubscription, customers pay a periodic fee for the continuing right to use our software, including
access to technical support. They may also elect to use our cloud services and have us manage
the application. We began offering subscription pricing as an option for most PTC products
starting in Q1 FY’15. We believe this additional purchase option will prove attractive tocustomers over time as it: (1) increases customer flexibility and opportunity to change their mixof licenses; (2) lowers the initial purchase commitment; and (3) allows customers to use
operating rather than capital budgets. Over a three to five year period we believe the net present
value (NPV) of a subscription is likely to exceed that of a perpetual license, assuming similarseat counts. However, initial revenue, operating margin, and EPS will be lower as revenue isrecognized ratably in a subscription, rather than up front.

Bookings Metric –given the difference in revenue recognition between the sale of a perpetualsoftware license (revenue is recognized at the time of sale) and a subscription (revenue isdeferred and recognized ratably over the subscription term), we use bookings for internal
planning, forecasting and reporting of new license and cloud services transactions. In order tonormalize between perpetual and subscription transactions, we define bookings as either theperpetual license revenue or the annualized contract value (ACV) of a new subscription
multiplied by a conversion factor of 2. We arrived at the conversion factor of 2 by considering a
number of variables including pricing, support, length of term, and renewal rates. We define
ACV as the total value of a new subscription solutions booking divided by the term of thecontract (in days) multiplied by 365, unless the term is less than one year, in which case thecontract value equals the ACV. When calculating L&SS bookings, we multiply subscription
solutions ACV by a conversion factor of 2, and then add this amount to our perpetual license
sales.



License Mix-Adjusted Metrics - assume that all new software and cloud services bookings
since the start of FY’14 were perpetual license sales that included support in subsequent periods.
The license mix-adjusted amount is calculated by converting the ACV (as defined above) of a
new subscription solutions booking in the period to an assumed perpetual license equivalent by
multiplying the ACV by a conversion factor of 2 (as defined above), and adding that amount to
the perpetual license revenue amounts recognized in that period. Support calculated at 20% of
the annual value of the converted amount is added to support revenue in future periods,
beginning the quarter after the converted booking is assumed to be recognized. The assumed
support revenue is recognized ratably over a 12 month period and is assumed to renew insubsequent years.
10Free Cash Flow – cash provided by operating activities less capital expenditures. Management
believes this is an important metric in evaluating our financial performance as it enables
investors to assess our ability to generate cash without incurring additional external financingsand to assess our performance against our commitment to a long-term goal of returning
approximately 40% of our free cash flow to shareholders via stock repurchases.



Non-GAAP Revenue – excludes the fair value adjustment for acquired deferred revenue. We
consider the use of non-GAAP revenue helpful in understanding the ongoing operating
performance of our business. Furthermore, we disclose revenue trends across three lines ofbusiness: (1) license & subscription solutions; (2) support; and (3) professional services. In
Q1’15, we began including cloud services revenue, which was formerly reported in services,within license & subscription solutions. We also reclassified a modest amount of FY’14 support
revenue as subscription (less than $4 million).



Foreign Currency Impacts on our Business – We have a global business, with Europe andAsia historically representing approximately 60% of our revenue, and fluctuation in foreign
currency exchange rates can significantly impact our results. We do not forecast currency
movements; rather we provide detailed constant currency commentary. Based on current revenue
and expense levels, a $0.10 move on the USD|EUR exchange rate will impact annualized
revenue by approximately $35 to $40 million and EPS by approximately $0.11 to $0.15. Given
recent fluctuation in the YEN|USD exchange rate, we also note that a 10 YEN move versus the
USD will impact annualized revenue by approximately $13 to $17 million and EPS byapproximately $0.04 to $0.06.

Constant Currency Change Measure (YoY CC) – Year-over-year changes in revenue on aconstant currency basis compare actual reported results converted into U.S. dollars based on thecorresponding prior year’s foreign currency exchange rates to reported results for the comparable
prior year period.

Impact of an Investigation in China
We have, since making a voluntary disclosure to the U.S. Securities and Exchange Commission and The
Department of Justice, been cooperating to provide information to those agencies concerning
expenditures by certain of our business partners in China and by our China business, including for travel
and entertainment, that apparently benefitted employees of customers regarded as state owned
enterprises in China. This matter involves issues regarding compliance with laws, including the U.S.
Foreign Corrupt Practices Act. Negotiations with the SEC to reach a resolution of its investigation havebegun but have not been concluded. We expect to begin negotiations with the Department of Justice toresolve its investigation in the near future. Resolution of this matter is likely to include fines andpenalties. Given the uncertainty regarding whether settlements can be reached and, if reached, on whatterms, we are not able to estimate a range of reasonably possible loss with regard to any such settlements
and have not recorded any liability in connection with this matter. If settlements are reached, we believethat the associated financial liability could be material to our results of operations for the fiscal period inwhich the liability is recorded. Further, any settlement or other resolution of this matter could havecollateral effects on our business in China, the United States and elsewhere.

11

Important Information About Non-GAAP References
PTC provides non-GAAP supplemental information to its financial results. Non-GAAP revenue, nonGAAP operating expenses, non-GAAP operating margin, non-GAAP gross profit, non-GAAP grossmargin, non-GAAP net income and non-GAAP EPS exclude the effect of purchase accounting on thefair value of acquired deferred revenue, stock-based compensation expense, amortization of acquired
intangible assets, restructuring charges, acquisition-related expenses, costs associated with terminating a
U.S. pension plan, certain identified non-operating gains and losses, the related tax effects of thepreceding items, and certain discrete tax items. We use these non-GAAP measures, and we believe thatthey 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 ourcore operating results. We believe that these non-GAAP measures help illustrate underlying trends inour business, and we use the measures to establish budgets and operational goals, communicatedinternally and externally, for managing our business and evaluating our performance. We believe thatproviding non-GAAP measures affords investors a view of our operating results that may be more easily
compared to the results of peer companies. In addition, compensation of our executives is based in parton the performance of our business based on these non-GAAP measures. However, non-GAAP
information should not be construed as an alternative to GAAP information as the items excluded fromthe non-GAAP measures often have a material impact on PTC’s financial results. Management uses, andinvestors should consider, non-GAAP measures in conjunction with our GAAP results. PTC also
provides results on a constant currency basis to provide a year-over-year view of our results excluding
the effect of currency translation. Our constant currency disclosures are calculated by multiplying theactual results for the current period by the exchange rates in effect for the comparable prior period. PTC
also provides information on “free cash flow” and “free cash flow return” to enable investors to assess
our ability to generate cash without incurring additional external financings and to evaluate our
performance against our announced long-term goal of returning approximately 40% of our free cash
flow to shareholders via stock repurchases. Free-cash flow is net cash provided by (used in) operating
activities less capital expenditures and free-cash flow return is the value of shares repurchased divided
by free cash flow.
Forward-Looking Statements
Statements in these prepared remarks that are not historic facts, including statements about our third
quarter and full fiscal 2015, long-term targets and other future financial and growth expectations,anticipated tax rates, expected market growth rates and the long-term prospects for PTC, are forwardlooking statements that involve risks and uncertainties that could cause actual results to differ materiallyfrom those projected. These risks include the possibility that the macroeconomic and/or global
manufacturing climates may not improve or may deteriorate, the possibility that customers may notpurchase our solutions when or at the rates we expect, the possibility that our businesses, including ourInternet of Things (IoT) and SLM businesses, may not expand and/or generate the revenue we expect,
the possibility that our investments in our IoT and connected service solutions may not generate therevenue we expect, the possibility that market size and growth estimates may be incorrect and that wemay be unable to grow our business at or in excess of market growth rates, the possibility that our
pipeline of opportunities may not convert or generate the revenue we expect, the possibility that new
products released and planned products, including IoT enabled core products, may not generate therevenue we expect or be released as we expect, the possibility that foreign currency exchange rates mayvary from our expectations and thereby affect our reported revenue and expense, the possibility that we
may not achieve the license and subscription solutions (L&SS), support or professional services revenue
that we expect, which could result in a different mix of revenue between license & subscription
solutions, support and professional services and could impact our EPS results, the possibility that our12customers may purchase more of our solutions as subscriptions than we expect, which would adversely
affect near-term revenue, operating margins, and EPS, the possibility that sales of our solutions as
subscriptions may not have the longer-term effect on revenue that we expect, the possibility that we may
be unable to leverage our products and customer relationships to increase sales, the possibility that sales
personnel productivity may not increase as we expect, the possibility that we may be unable to expand
our services partner ecosystem or improve services margins as we expect, the possibility that we may beunable to attain or maintain a technology leadership position or that any such leadership position may
not generate the revenue we expect, the possibility that our workforce realignment may not improve
operating margins as we expect and may adversely affect our operations, the possibility that our
portfolio management measures may not drive the operating margin expansion we expect, the possibility
that we may be unable to generate sufficient operating cash flow to return 40% of free cash flow toshareholders or that other uses of cash could preclude share repurchases, the possibility that we may
incur additional acquisition-related and pension plan termination-related expenses and losses than we
expect, and the possibility that fines and penalties may be assessed against PTC in connection with ourpreviously announced investigation in China. In addition, our assumptions concerning our future GAAPand 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 and loans and cash repatriations fromforeign subsidiaries. Other risks and uncertainties that could cause actual results to differ materiallyfrom those projected are detailed from time to time in reports we file with the Securities and Exchange
Commission, including our most recent Annual Report on Form 10-K and Quarterly Report on Form 10Q.

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