EDGAR 10-K Filing

Company CIK: 857005
Filing Year: 2021
Filename: 857005_10-K_2021_0001564590-21-057806.json

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ITEM 1. BUSINESS
ITEM 1.
Business
PTC is a global software and services company that enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things (IIoT), and Augmented Reality (AR) markets. Our technology can be delivered on premises, in the cloud, or in a hybrid model.
Our customer base includes some of the world’s most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries. Our solutions enable industrial companies to create a closed loop of information shared across their organization’s entire value chain. This “digital thread” can drive excellence in engineering, efficiency in manufacturing operations and service delivery, and innovation across product offerings and business models. With our solutions, digital transforms physical.
As a purpose-driven company, we don’t just imagine a better world, we help create it. Our purpose statement - Power To Create - is a commitment to our customers to help them solve difficult challenges; a commitment to our employees to build a culture that supports diversity, equity, and inclusion so they can achieve their greatest potential; and a commitment to support the communities our employees live and work in globally.
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 SaaS).
Our Strategy
There are three key elements to our strategy to deliver long-term shareholder value.
Align with market demand to deliver technology solutions aligned with secular market trends, including digital transformation, SaaS, remote collaboration and AI. We believe demand for solutions such as ours that enable work from home and/or office, global team and supply chain collaboration, remote asset management, and remote frontline worker training and support is strong. In addition, there is growing customer demand for SaaS offerings; we intend to increase our investment in SaaS initiatives, while better aligning with SaaS best practices in order to meet the needs of the market.
Drive sustainable top line ARR growth by expanding our footprint with existing customers, cross-selling complementary solutions in our customer base, adding new customers and by maintaining strong customer retention rates through our global field organization and partner ecosystem. FY’21 marked the fourth consecutive year of double-digit ARR growth, despite the manufacturing and macroeconomic environments over that period. In FY’22, we are evolving our organizational structure to align better with a traditional SaaS model and create a much-improved customer experience.
Grow operating cash flow through continued operating discipline within a recurring business model. Our organizational changes are designed to grow ARR, increase customer retention, and improve operating efficiency, we expect to grow our operating cash flow.
Our Principal Products and Services
In order to drive clear focus, we have divided our business into two key product groups: Digital Thread and Velocity. The Digital Thread business is focused on customers that are embracing digital transformation and the Velocity business is focused on customers that prioritize agile product development.
Digital Thread - Core
Our Creo® 3D CAD technology enables the digital design, testing, and modification of product models. With its design simulation, additive manufacturing, and generative design innovations, we enable our customers to be first to market with differentiated products. From initial concept to design, simulation, and analysis, Creo provides designers with innovative tools to efficiently create better products, faster.
Our Windchill® PLM application suite manages all aspects of the product development lifecycle - from concept through service and retirement - by enabling a digital thread of product parts, materials, and configuration information. Windchill provides real-time information sharing, dynamic data visualization, and the ability to collaborate across geographically-distributed teams, enabling manufacturers to elevate their product development process. With its open architecture that integrates with other enterprise systems, Windchill provides a solid foundation for a product-driven digital thread.
Digital Thread - Growth
Flexible and purpose-built for Industrial IoT, our ThingWorx® platform offers a rich set of capabilities that enable enterprises to digitally transform every aspect of their business with innovative solutions that are simple to create, easy to implement, scalable to meet future needs, and designed to enable customers to accelerate time to value.
Our Vuforia® augmented reality technology enables the visualization of digital information in a physical context and the creation of AR experiences to deliver workforce productivity and business results in manufacturing, service, engineering, and operations. Vuforia enables augmented reality and mixed reality experiences for the industrial enterprise. Vuforia solutions equip frontline workers with focused and effective step-by-step instructions, procedural guidance, skill development and remote assistance that enable enterprises to reduce errors, increase asset utilization and drive higher profitability.
Digital Thread - Focused Solutions Group (FSG)
Our IntegrityTM application lifecycle management (ALM) and model-based systems engineering capabilities enable users to manage system models, software configurations, and test plans and defects.
Our Servigistics® service parts management solution enables customers to effectively manage service parts, improve their products and services, and increase customer satisfaction.
Velocity
Our Onshape® Software-as-a-Service (SaaS) product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics. A cloud-native multi-tenant solution that can be instantly deployed on virtually any computer or mobile device, Onshape enables teams to work together from just about anywhere. Real-time design reviews, commenting, and simultaneous editing enable a collaborative workflow where multiple design iterations can be completed in parallel and merged into the final design.
Our Arena® SaaS PLM solution enables product teams to collaborate virtually anytime and anywhere, making it easier to share the latest product and quality information with internal teams and supply chain partners and help deliver innovative products to customers faster. Our Arena quality management system software connects quality and product designs into a single system to simplify regulatory compliance.
Our Markets and How We Address Them
We compete in the CAD, PLM, IIoT and AR markets. The markets we serve present different growth opportunities for us. We see greater opportunity for market growth for our IIoT and AR solutions for the enterprise and our SaaS solutions, followed by more moderate market growth for our on-premise CAD and PLM solutions, both of which have been growing faster than their respective market growth rates.
We derive most of our sales from products and services sold directly by our sales force to end-user customers. Approximately 30% to 35% of our sales of products and services are through third-party resellers. Our sales force focuses on large accounts, while our reseller channel provides a cost-effective means of covering the small- and medium-size business market. Our strategic alliance partners enable us to increase our market reach, offer broader solutions, and add compelling technology to our offerings. Our strategic services partners provide service offerings to help customers implement our product offerings.
Additional financial information about our segments and international and domestic operations may be found in Note 18. Segment and Geographic Information of Notes to Consolidated Financial Statements in this Form 10-K, which information is incorporated herein by reference.
Competition
We compete with a number of companies whose offerings address one or more specific functional areas covered by our solutions. In our IIoT business, we compete with large established companies such as Amazon, IBM, Oracle, SAP, Siemens AG, and Software AG as well as customers’ homegrown solutions. There are also a number of smaller companies that compete in the market for IIoT products. For enterprise CAD and PLM solutions, we compete with large established companies including Autodesk, Dassault Systèmes SA, and Siemens AG. For our PLM solutions, we also compete with Oracle and SAP, but we believe our products are more specifically targeted toward the business process challenges of manufacturing companies and offer broader and deeper functionality for those processes than ERP-based solutions. For our AR products, our primary competitors include TeamViewer, ScopeAR and Re’Flekt. Although Microsoft is a partner (especially in IoT), it is a competitor in AR; the competing products are Microsoft Dynamics 365 Remote Assist and Dynamics 365 Guides.
Proprietary Rights
Our software products and related technical know-how, along with our trademarks, including our company names, product names and logos, are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection. The nature and extent of such legal protection depends in part on the type of intellectual property right and the relevant jurisdiction. In the U.S., we are generally able to maintain our trademark registrations for as long as the trademarks are in use and to maintain our patents for up to 20 years from the earliest effective filing date. We also use license management and other anti-piracy
technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of our products.
Our proprietary rights are subject to risks and uncertainties described under Item 1A. “Risk Factors” below, which is incorporated into this section by reference.
People and Culture
PTC’s commitment to building a diverse, equitable, and inclusive culture is fundamental to our purpose - the Power to Create, and critical to every aspect of our talent strategy. Our approach is focused on sustainable talent practices and core values that promote an agile culture, an increased sense of belonging, engaged work environments, and high-performing teams.
PTC at-a-Glance
As of September 30, 2021, PTC had 6,709 employees. Our population is geographically diverse and serves a geographically diverse customer and partner network.
Commitment to Diversity and Inclusion
We have been improving our systems and processes to enable us to better track, manage and develop our employees. With these improvements, we aim to better understand our demographic population and to develop demographic goals we can share.
Commitment to our values and diversity in our workforce has inspired our top-line company goals. They include a focus on increasing under-represented minority and gender representation in global leadership as a first and essential step to diversifying our employee population. In addition to hiring our first Chief Diversity & CSR Officer in 2020, we are building an extended team to support our diversity and inclusion initiatives. Key milestones include establishing a global employee DEI Champion network, launching leadership development experiences for our underrepresented minority and underrepresented group populations, designing training programs in psychological safety, inclusive leadership, and conscious inclusion, and enhancing our Employee Resource Group program.
Employee Health & Safety | COVID-19 Response
Throughout the COVID-19 crisis, PTC focused on protecting the safety and well-being of our employees and supported our local communities. PTC moved to fully remote work in March 2020. Employees may continue to work remotely until 2022. PTC will then move to a hybrid flex model with a blend of in-office and remote work.
Workforce Planning & Long-Range Plan
We believe that the transition of industrial software to SaaS is inevitable and is accelerating. To better position us to be a leader in this SaaS evolution by aligning our internal processes and resources with SaaS operating best practices, in November 2021, we committed to a plan to reorganize our workforce and consolidate select facilities. While this restructuring will result in a number of employee reductions to create operating efficiencies, it will enable us to invest in roles that will further our journey to SaaS. We expect we will continue to recruit and hire many new employees in FY’22, particularly in SaaS sales and engineering roles. For those employees adversely impacted by this realignment, we are providing separation packages and outplacement support to help make the transition as smooth as possible. It is never easy to reduce employee resources and we’re focused on supporting and treating all impacted employees with dignity and respect.
Website Access to Reports and Code of Business Conduct and Ethics
We make available free of charge on our website at www.ptc.com the following reports as soon as reasonably practicable after electronically filing them with, or furnishing them to, the SEC: our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current Reports on Form 8-K; and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934. Our Proxy Statements for our Annual Meetings and Section 16 trading reports on SEC Forms 3, 4 and 5 also are available on our website. The reference to our website is not intended to incorporate information on our website into this Annual Report by reference.
Our Code of Ethics for Senior Executive Officers is embedded in our Code of Business Conduct and Ethics, which is also available on our website. Additional information about this code and amendments and waivers thereto can be found below in Part III, Item 10 of this Annual Report.
Executive Officers
Information about our executive officers is incorporated by reference from our 2022 Proxy Statement.
Corporate Information
PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts.

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ITEM 1A. RISK FACTORS
ITEM 1A.
Risk Factors
The following are important factors we have identified that could affect our future results and your investment in our securities. You should consider them carefully when evaluating an investment in PTC securities or any forward-looking statements made by us, including those contained in this Annual Report, because these factors could cause actual results to differ materially from historical results or the performance projected in forward-looking statements. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.
I. Risks Related to Our Business Operations and Industry
We face significant competition, which may reduce our profitability and limit or reduce our market share.
The markets for our products and solutions are rapidly changing and characterized by intense competition, disruptive technology developments, evolving distribution models and increasingly lower barriers to entry. If we are unable to provide products and solutions that address customers’ needs as well as our competitors’ products and solutions do, or to align our pricing, licensing and delivery models with customer preferences, we could lose customers and/or fail to attract new customers, which could cause us to lose revenue and market share.
For example, the COVID-19 pandemic has caused companies worldwide to close their offices and their employees to have to work remotely from their homes, which has focused companies on the need for solutions that empower and support remote work by employees. We believe customers and potential customers will increasingly seek software solutions that support remote work by employees. Although many of our solutions support remote work, others are less efficient at doing so. We have embarked on an effort to make our solutions available on a SaaS platform; however, this will require significant effort and investment and we cannot be sure that we will be able to make our solutions available as SaaS solutions as quickly as we expect or that customers will adopt them as we expect. If we are unable to compete successfully with competitors offering SaaS solutions, we could lose customers and/or fail to attract new customers, which could cause us to lose revenue and market share, which would adversely affect our business and financial results.
In addition, competitive pressures could cause us to reduce our prices, which could reduce our revenue and margins.
Finally, our current and potential competitors range from large and well-established companies to emerging start-ups. Some of our competitors and potential competitors have greater name recognition in the markets we serve and greater financial, technical, sales and marketing, and other resources, which could limit our ability to gain customer recognition and confidence in our products and solutions and successfully sell our products and solutions, which could adversely affect our ability to grow our business.
A breach of security in our products or computer systems, or those of our third-party service providers, could compromise the integrity of our products, cause loss of data, harm our reputation, create additional liability and adversely impact our financial results.
We have implemented and continue to implement measures intended to maintain the security and integrity of our products, source code and IT systems. The potential for a security breach or system disruption has significantly increased over time as the scope, number, intensity and sophistication of attempted cyberattacks and cyber intrusions have increased. We face cyberattacks and intrusions designed to access and exfiltrate information and to disrupt and lock-up access to systems for the purpose of demanding a ransom payment. Despite efforts to create security barriers to such threats, it is impossible for us to eliminate the risk of a successful cyberattack or intrusion, and, in fact, we deal with security issues on a regular basis and have experienced security incidents from time to time. Accordingly, there is a risk that a cyberattack or intrusion will be successful and that such event will be material.
In addition, we offer cloud services to our customers and some of our products, including our SaaS products, are hosted by third-party service providers, which expose us to additional risks as those repositories of our customers’ proprietary data may be targeted and a cyberattack or intrusion may be
successful and material. Interception of data transmission, misappropriation or modification of data, corruption of data and attacks against our service providers may adversely affect our products or product and service delivery. Malicious code, viruses or vulnerabilities that are undetected by our service providers may disrupt our business operations generally and may have a disproportionate effect on those of our products that are developed and delivered in the cloud environment.
While we devote resources to maintaining the security and integrity of our products and systems, as well as performing due diligence of our third-party service providers, a significant breach of the security and/or integrity of our products or systems, or those of our third-party service providers, could prevent our products from functioning properly, could enable access to sensitive, proprietary or confidential information, including that of our customers, or could disrupt our business operations or those of our customers. This could require us to incur significant costs of investigation, remediation and/or payment of a ransom; harm our reputation; cause customers to stop buying our products; and cause us to face lawsuits and potential liability, which could have a material adverse effect on our financial condition and results of operations.
We increasingly rely on third-party providers of cloud infrastructure services to deliver our offerings to users on our platform, and any disruption of or interference with our use of these services could adversely affect our business.
Our continued growth depends in part on the ability of our existing and potential customers to use and access our cloud services or our website in order to download our software or encrypted access keys for our software within an acceptable amount of time. We use a number of third-party service providers, which we do not control, for key components of our infrastructure, particularly with respect to development and delivery of our cloud-based products. The use of these service providers gives us greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes us to additional risks and vulnerabilities. Third-party service providers operate their own platforms that we access, and we are, therefore, vulnerable to their service interruptions. We may experience interruptions, delays and outages in service and availability from time to time as a result of problems with our third-party service providers’ infrastructure. Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent. Such outages could lead to the triggering of our service level agreements and the issuance of credits to our cloud-based product customers, which may impact our business and consolidated financial statements.
If we are unable to renew our agreements with our cloud service providers on commercially reasonable terms, or our agreement is prematurely terminated, or we need to add new cloud services providers to increase capacity and uptime, we could experience interruptions, downtime, delays, and additional expenses related to transferring to and providing support for these new platforms. Any of the above circumstances or events may harm our reputation and brand, reduce the availability or usage of our platforms and impair our ability to attract new users, any of which could adversely affect our business, financial condition and results of operations.
We may be unable to hire or retain personnel with the necessary skills to operate and grow our business, which could adversely affect our ability to compete.
Our success depends upon our ability to attract and retain highly skilled managerial, sales and marketing, technical, financial and administrative personnel to operate and grow our business. Competition for such personnel in our industry is intense, particularly in the Boston, Massachusetts area where our global headquarters is located.
The technical personnel required to develop our products and solutions are in high demand, particularly technical personnel with augmented and virtual reality and analytics expertise as there are comparatively fewer persons with those skills. If we are unable to attract and retain technical personnel with the requisite skills, our product and solution development efforts could be delayed, which could adversely affect our ability to compete and thereby adversely affect our revenues and profitability.
The managerial, sales and marketing, financial and administrative personnel necessary to guide our operations, market and sell our solutions and support our business operations are also in high demand due to the intense competition in our industry.
If we are unable to attract and retain the personnel we need to develop compelling products and solutions, and guide, operate and support our business, we may be unable to successfully compete in the marketplace, which would adversely affect our revenues and profitability.
The extent to which the COVID-19 pandemic may impact our business is uncertain and it could materially adversely affect our financial condition and results of operations.
The COVID-19 pandemic continues to impact global economic activity and create macroeconomic uncertainty. Public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, temporary closures of businesses, and the adoption of remote working, have significantly changed the way we and our customers work. The effects and duration of this disruption remain uncertain.
While PTC was able to transition to remote working without significant disruption to our day-to-day operations, disruption to our customers’ and our prospects’ operations and the way we work with them have adversely affected our business.
Demand for our solutions declined and could decline further due to challenges associated with conducting in-person sales meetings and project scoping and implementation activities while social distancing measures are in place, which has deterred or prevented, and could further deter or prevent, customers from proceeding with new software purchases and deployments. Likewise, temporary plant closures, layoffs and furloughs at our customers and the challenges they face forecasting business needs in this time of global economic uncertainty have caused, and could continue to cause, our customers to delay or reduce new license purchases.
Longer term plant closures and layoffs among our customer base could cause existing subscription customers to renew fewer existing licenses when their subscriptions come up for renewal and could cause existing support customers to discontinue support at the time of renewal. If churn increases in the future, our ARR and financial results and condition could be negatively impacted.
Reductions in new subscription sales and/or renewals and in professional services delivered could reduce our ARR growth or cause our ARR to decline, and would reduce our professional services revenue, all of which would adversely affect our revenue, earnings and cash flow. Further prolonged disruption could continue to negatively impact the businesses of our customers and prospective customers and, therefore, our business and financial condition.
If our business declines due to the factors above, we could be required to reduce our expenses, which could result in material restructuring charges and/or reduce or delay investments in our business, including hiring. Reductions in our workforce and/or investments in our business could hamper our ability to recover and compete successfully, which could adversely affect our business and results of operations.
We depend on sales within the discrete manufacturing sector and our business could be adversely affected if manufacturing activity does not grow, or if it contracts, or if manufacturers are adversely affected by other economic factors.
A large amount of our sales are to customers in the discrete manufacturing sector. Manufacturers worldwide are facing increasing uncertainty about the global economic climate due to, among other factors, the COVID-19 pandemic and the geopolitical environment. In addition, within the technology industry the U.S. Administration’s focus on technology transactions with non-U.S. entities and potential expanded prohibitions has created additional uncertainty. In light of these concerns, customers may delay, reduce or forego purchases of our solutions, which would adversely affect our business and financial results.
If we fail to successfully manage our transition to a SaaS company, our business and financial results could be adversely affected.
Becoming a SaaS company requires considerable additional investment in our organization. Whether our transition will be successful and will accomplish our business and financial objectives is subject to uncertainties, including but not limited to: customer demand, attach and renewal rates, channel adoption, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, and our costs. If we are unable to successfully establish these new offerings and navigate our business transition due to these risks and uncertainties, our business and financial results could be adversely impacted.
Because our sales and operations are globally dispersed, we face additional compliance risks and any compliance failure could adversely affect our business and financial results.
We sell and deliver software and services, and maintain support operations, in many countries whose laws and practices differ from one another and are subject to unexpected changes. Managing these geographically dispersed operations requires significant attention and resources to ensure compliance with laws of those countries and those of the U.S. governing our activities in non-U.S. countries.
Those laws include, but are not limited to, anti-corruption laws and regulations (including the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act 2010), data privacy laws and regulations (including the European Union's General Data Privacy Regulation), and trade and economic sanctions laws and regulations (including laws administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities). Our compliance risks are heightened due to the go-to-market approach for our business that relies heavily on a partner ecosystem, the fact that we operate in, and are expanding into, countries with a higher incidence of corruption and fraudulent business practices than others, the fact that we deal with governments and state-owned business enterprises, and the fact that global enforcement of laws has significantly increased.
Accordingly, while we strive to maintain a comprehensive compliance program, we cannot guarantee that an employee, agent or business partner will not act in violation of our policies or U.S. or other applicable laws or that we may inadvertently violate such laws. Investigations of alleged violations of those laws can be expensive and disruptive. Violations of such laws can lead to civil and/or criminal prosecutions, substantial fines and other sanctions, including the revocation of our rights to continue certain operations, and also cause business and reputation loss, which could adversely affect our financial results and/or stock price.
II. Risks Related to Acquisitions and Strategic Relationships
Businesses we acquire may not generate the revenue and earnings we anticipate and may otherwise adversely affect our business.
We have acquired, and intend to continue to acquire, new businesses and technologies. If we fail to successfully integrate and manage the businesses and technologies we acquire, if an acquisition does not further our business strategy as we expect, or if a business we acquire has unexpected legal or financial liabilities, our operating results will be adversely affected.
The types of issues that we may face in integrating and operating the acquired business include:
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difficulties managing an acquired company’s technologies or lines of business or entering new markets where we have limited or no prior experience or where competitors may have stronger market positions;
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unanticipated operating difficulties in connection with the acquired entities, including potential declines in revenue of the acquired entity;
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diversion of management and employee attention;
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loss of key personnel; and
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potential incompatibility of business cultures.
Further, if we do not achieve the expected return on our investments it could impair the intangible assets and goodwill that we recorded as part of an acquisition, which could require us to record a reduction to the value of those assets.
We may incur significant debt or issue a material amount of debt or equity securities to finance an acquisition, which could adversely affect our operating flexibility and financial statements.
If we were to incur a significant amount of debt-whether by borrowing funds or issuing new debt securities-to finance an acquisition, our interest expense, debt service requirements and leverage would increase significantly. The increases in these expenses and in our leverage could adversely impact our ability to operate the company as we might otherwise and to borrow additional amounts.
If we were to issue a significant amount of equity securities in connection with an acquisition, existing stockholders would be diluted and earnings per share could decrease.
Our inability to maintain or develop our strategic and technology relationships could adversely affect our business.
We have many strategic and technology relationships with other companies with which we work to offer complementary solutions and services, that market and sell our solutions, and that provide technologies that we embed in our solutions. We may not realize the expected benefits from these relationships and such relationships may be terminated by the other party. If these companies fail to perform or if a company terminates or substantially alters the terms of the relationship, we could suffer delays in product development, reduced sales or other operational difficulties and our business, results of operations and financial condition could be materially adversely affected.
III. Risks Related to Our Intellectual Property
We may be unable to adequately protect our proprietary rights, which could adversely affect our business and our ability to compete effectively.
Our software products are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection, as well as restrictions on disclosures and transferability contained in our agreements with other parties. Despite these measures, the laws of all relevant jurisdictions may not afford adequate protection to our products and other intellectual property. In addition, we frequently encounter attempts by individuals and companies to pirate our software. If our measures to protect our intellectual property rights fail, others may be able to use those rights, which could reduce our competitiveness and revenues.
In addition, any legal action to protect our intellectual property rights that we may bring or be engaged in could be costly, may distract management from day-to-day operations and may lead to additional claims against us, and we may not succeed, all of which would materially adversely affect our operating results.
Intellectual property infringement claims could be asserted against us, which could be expensive to defend and could result in limitations on our use of the claimed intellectual property.
The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. If a lawsuit of this type is filed, it could result in significant expense to us and divert the efforts of our technical and management personnel. We cannot be sure that we would prevail against any such asserted claims. If we did not prevail, we could be prevented from using the claimed intellectual property or be required to enter into royalty or licensing agreements, which might not be available on terms acceptable to us. In addition to possible claims with respect to our proprietary products, some of our products contain technology developed by and licensed from third parties and we may likewise be susceptible to infringement claims with respect to these third-party technologies.
IV. Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our business, financial condition and results of operations, as well as our ability to meet our payment obligations under our debt.
We have a significant amount of indebtedness. As of November 19, 2021, our total debt outstanding was approximately $1,450 billion, $1 billion of which was associated with the 3.625% Senior Notes and 4.000% Senior Notes (together, “Senior Notes”) issued February 2020, which mature in February 2025 and 2028, respectively, and are unsecured, and $450 million of which was borrowed under our credit facility, which matures in February 2025. All amounts outstanding under the credit facility and the Senior Notes will be due and payable in full on their respective maturity dates. As of November 19, 2021, we had unused commitments under our credit facility of $550 million. PTC Inc. and one of our foreign subsidiaries are eligible borrowers under the credit facility and certain other foreign subsidiaries may become borrowers under our credit facility in the future, subject to certain conditions.
Specifically, our level of debt could:
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make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults;
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result in an event of default if we fail to comply with the financial and other covenants contained in the agreements governing our debt instruments, which could result in all of our debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;
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limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
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reduce the availability of our cash to fund working capital, capital expenditures, acquisitions and other general corporate purposes and limit our ability to obtain additional financing for these purposes;
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increase our vulnerability to the impact of adverse economic and industry conditions;
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expose us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facility, are at variable rates of interest;
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limit our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;
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place us at a competitive disadvantage compared to other, less leveraged competitors; and
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increase our cost of borrowing.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt agreements.
Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt and other obligations. This could further exacerbate the risks to our financial condition described above.
We and our subsidiaries may be able to incur significant additional indebtedness and other obligations in the future, including secured debt. Although the credit agreement governing our credit facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions. The additional indebtedness incurred in compliance with these restrictions could be substantial. In addition, the credit agreement and the indenture governing the Senior Notes will not prevent us from incurring obligations that do not constitute indebtedness. If new debt is added to our current debt levels, or we incur other obligations, the related risks that we now face could intensify.
We may not be able to generate enough cash to service all our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors, some of which are beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. Our debt agreements restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our debt obligations.
If we cannot make scheduled payments on our debt, we will be in default and the lenders under our credit facility could terminate their commitments to loan money, the lenders could foreclose against the assets securing their borrowings, the holders of our Senior Notes could declare all outstanding principal, premium, if any, and interest to be due and payable, and we could be forced into bankruptcy or liquidation. These events could result in a loss of your investment.
We are required to comply with certain financial and operating covenants under our debt agreements. Any failure to comply with those covenants could cause amounts borrowed to become immediately due and payable and/or prevent us from borrowing under the credit facility.
We are required to comply with specified financial and operating covenants under our debt agreements and to make payments under our debt, which limit our ability to operate our business as we otherwise might operate it. Our failure to comply with any of these covenants or to meet any debt payment obligations could result in an event of default which, if not cured or waived, would result in any amounts outstanding, including any accrued interest and/or unpaid fees, becoming immediately due and payable. We might not have enough working capital or liquidity to satisfy any repayment obligations if those obligations were accelerated. In addition, if we are not in compliance with the financial and operating covenants under the credit facility when we wish to borrow funds, we will be unable to borrow funds.
In addition, the financial and operating covenants under the credit facility may limit our ability to borrow funds, including for strategic acquisitions and share repurchases.
Our credit facility has variable interest tied to LIBOR and we could become subject to higher interest rates if the replacement rate we agree on with our banks is higher.
Borrowings under our revolving credit facility use the London Interbank Offering Rate (LIBOR) as a benchmark for establishing the interest rate. On March 5, 2021, the Intercontinental Exchange Benchmark Administration, the U.K. Financial Conduct Authority (FCA) regulated and authorized administrator of LIBOR, announced, and the FCA confirmed, that one week and two-month USD LIBOR settings will cease on December 31, 2021, and that the USD LIBOR panel for all other tenors will cease on June 30, 2023.
The credit facility provides a mechanism pursuant to which we and the administrative agent may agree, under certain circumstances, to transition to an alternate base rate borrowing or amend the
credit facility to establish an alternate interest rate to LIBOR that includes consideration of the then-prevailing market convention for determining interest rates for syndicated loans in the United States at that time.
Although we believe the alternative rates will not materially increase the rates on our credit facility, the final agreed rate may increase the cost of our variable rate indebtedness.
V. Risks Related to Our Common Stock and Common Stock of Public Companies We Own
Our operating results fluctuate from quarter to quarter, making future operating results difficult to predict; failure to meet market expectations could cause the price of our securities to decline.
Our quarterly operating results historically have fluctuated and are likely to continue to fluctuate depending on many factors, including:
•
variability in our contracts, including timing of start dates, length of contracts, and mix of on-premises and cloud-based purchases, which would impact our revenue and earnings;
•
a high percentage of our orders historically have been generated in the third month of each fiscal quarter and any failure to receive, complete or process orders at the end of any quarter could cause us to fall short of our financial targets;
•
our adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers: Topic 606 in 2019 creates significant revenue volatility;
•
a significant percentage of our orders comes from transactions with large customers, which tend to have long lead times that are less predictable;
•
because our operating expenses are largely fixed in the short term and are based on expected revenues, any failure to achieve our revenue targets could cause us to miss our earnings targets;
•
because a significant portion of our revenue and expenses are generated from outside the U.S., shifts in foreign currency exchange rates could adversely affect our reported results; and
•
we may incur significant expenses in a quarter in connection with corporate development initiatives, restructuring efforts or the investigation, defense or settlement of legal actions that would increase our operating expenses and reduce our earnings for the quarter in which those expenses are incurred.
Accordingly, our quarterly results are difficult to predict prior to the end of the quarter and we may be unable to confirm or adjust expectations with respect to our operating results for a quarter until that quarter has closed. Any failure to meet our quarterly revenue or earnings expectations could adversely impact the market price of our securities.
Our stock price has been volatile, which may make it harder to resell shares at a favorable time and price.
Market prices for securities of software companies are generally volatile and are subject to significant fluctuations that may be unrelated or disproportionate to the operating performance of these companies. Further, our stock price has been more volatile than that of other software companies. Accordingly, the trading prices and valuations of software companies’ stocks, and of ours, may not be predictable. Negative changes in the public’s perception of the prospects of software companies, or of PTC or the markets we serve, could depress our stock price regardless of our operating results.
Also, a large percentage of our common stock is held by institutional investors and by Rockwell Automation. Purchases and sales of our common stock by these investors could have a significant impact on the market price of the stock. For more information about those investors, please see our proxy statement with respect to our most recent annual meeting of stockholders and Schedules 13D and 13G filed with the SEC with respect to our common stock.
From time to time, we may acquire common stock in publicly traded companies as strategic investments. Owning such stock exposes us to the volatility, liquidity and other risks inherent in holding that stock.
From time to time, we may own common stock of publicly traded companies. We are required to present the value of such stock on our Consolidated Balance Sheet at their fair value at the end of each reporting period. The fair value of those shares may fluctuate due to the volatility of the stock market, changes in general economic conditions, and the performance of these publicly traded companies. We recognize all changes in the fair value of the owned shares (whether realized or unrealized) as gains or losses in our Consolidated Statement of Operations. Accordingly, changes in the fair value of the owned shares can materially impact the earnings we report, which introduces volatility in our earnings that is not associated with the results of our business operations. In particular, significant declines in the fair value of the owned shares would produce significant declines in our reported earnings.
The reported value of the owned shares does not necessarily reflect their lowest current market price. If we were forced to sell some or all of the owned shares in the market, there can be no assurance that we would be able to sell them at prices equivalent to the value that we have reported on our Consolidated Balance Sheet, and we may be forced to sell them at significantly lower prices.
VI. Risks Related to Our Senior Notes
Our Senior Notes are unsecured and do not limit our ability to incur indebtedness, which could reduce any payments to holders of the Senior Notes in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of PTC.
Unlike the credit facility, which is secured, the Senior Notes are not secured. Although the indenture governing the Senior Notes limits our ability to incur secured debt, the covenant is subject to significant exceptions, and we may incur additional secured debt in the future. The effect of this subordination is that upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of bankruptcy, insolvency, liquidation, dissolution or reorganization of our company (collectively, “Adverse Events”), the proceeds from the sale of assets securing our secured indebtedness will be available to pay obligations on the Senior Notes only after all indebtedness under the credit facility and any other secured debt has been paid in full. As a result, the holders of the Senior Notes may receive less, ratably, than the holders of secured debt if an Adverse Event occurs.
In addition, the indenture governing the Senior Notes does not limit our ability to incur unsecured indebtedness. If we incur any additional indebtedness that ranks equally with the Senior Notes, subject to collateral arrangements, the holders of that debt will be entitled to share ratably with holders of the Senior Notes in any proceeds distributed in connection with any of the Adverse Events described above. This may reduce the amount of proceeds to holders of the Senior Notes.
Our Senior Notes are not guaranteed by any of our subsidiaries, which could adversely affect our ability to pay interest on or redeem the Senior Notes when due.
We conduct a substantial portion of our operations through our subsidiaries, none of which currently guarantees the Senior Notes. Accordingly, payment of interest on the Senior Notes and redemption of the Senior Notes is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they become guarantors of the Senior Notes, our subsidiaries do not have any obligation to pay amounts due on the Senior Notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of the Senior Notes. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our
ability to obtain cash from our subsidiaries. If we do not receive distributions from our subsidiaries, we may be unable to make required payments of principal, premium, if any, and interest on the Senior Notes.
Our Senior Notes are not listed on any national securities exchange or included in any automated quotation system, which could make it harder to resell the notes at a favorable time and price.
Our Senior Notes are not listed on any national securities exchange or included in any automated quotation system. As a result, an active market for the notes may not exist or be maintained, which would adversely affect the market price and liquidity of the notes. In that case, holders may not be able to sell their notes when they want to or at a favorable price.
The market for non-investment grade debt historically has been subject to severe disruptions that have caused substantial volatility in the prices of securities similar to the notes. The market, if any, for the notes may experience similar disruptions and any such disruptions may adversely affect the liquidity in that market or the prices at which the notes may be sold.
VII. General Risk Factors
Our international businesses present economic and operating risks, which could adversely affect our business and financial results.
We expect that our international operations will continue to expand and to account for a significant portion of our total revenue. Because we transact business in various foreign currencies, the volatility of foreign exchange rates has had and may in the future have a material adverse effect on our revenue, expenses and operating results.
Other risks inherent in our international operations include, but are not limited to, the following:
•
difficulties in staffing and managing foreign sales and development operations;
•
possible future limitations upon foreign-owned businesses;
•
increased financial accounting and reporting burdens and complexities;
•
inadequate local infrastructure; and
•
greater difficulty in protecting our intellectual property.
We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense and reduce our net income.
As a multinational organization, we are subject to income taxes as well as non-income based taxes in the U.S. and in various foreign jurisdictions. Significant judgment is required in determining our worldwide income tax provision and other tax liabilities. In the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination is uncertain. Our tax returns are subject to review by various taxing authorities. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes could be different from what is reflected in our historical income tax provisions and accruals.
Our effective tax rate can be adversely affected by several factors, many of which are outside of our control, including:
•
changes in tax laws, regulations, and interpretations in multiple jurisdictions in which we operate;
•
assessments, and any related tax interest or penalties, by taxing authorities;
•
changes in the relative proportions of revenues and income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
•
changes to the financial accounting rules for income taxes;
•
unanticipated changes in tax rates; and
•
changes to a valuation allowance on net deferred tax assets, if any.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.
Unresolved Staff Comments
None.

---

ITEM 2. PROPERTIES
ITEM 2.
Properties
We currently have 86 office locations used in operations in the United States and internationally, predominately as sales and/or support offices and for research and development work. Of our total of approximately 1,270,000 square feet of leased facilities used in operations, approximately 527,000 square feet are located in the U.S., including 250,000 square feet at our headquarters facility located in Boston, Massachusetts, and approximately 260,000 square feet are located in India, where a significant amount of our research and development is conducted. In addition, approximately 210,000 feet are associated with facilities that have been restructured, primarily our previous headquarters facility in Needham, Massachusetts. We believe that our facilities are adequate for our present and foreseeable needs.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3.
Legal Proceedings
Information on legal proceedings can be found in Note 10. Commitments and Contingencies of Notes to Consolidated Financial Statements in this Form 10-K, which information is incorporated herein by reference.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
Mine Safety Disclosures
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the Nasdaq Global Select Market under the symbol "PTC."
On September 30, 2021, the close of our fiscal year, and on November 17, 2021, our common stock was held by 1,023 and 1,020 shareholders of record, respectively.
The table below shows the shares of our common stock we repurchased in the fourth quarter of 2021.
Period
Total Number of Shares (or Units) Purchased
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(1)
July 2021
-
$
-
-
$
1,000,000,000
August 2021
225,909
132.80
225,909
970,000,047
September 2021
-
-
-
970,000,047
Total
225,909
$
132.80
225,909
$
970,000,047
(1)
On November 13, 2020, the Board of Directors authorized us to repurchase up to $1 billion of our common stock in the period November 13, 2020 through September 30, 2023.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.
[Reserved]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements in this Annual Report about anticipated financial results, capital developments and growth, as well as about the development of our products, markets and workforce, are forward-looking statements that are based on our current plans and assumptions. Important information about the bases for these plans and assumptions and factors that may cause our actual results to differ materially from these statements is contained below and in Item 1A. “Risk Factors” of this Annual Report.
Unless otherwise indicated, all references to a year reflect our fiscal year that ends on September 30.
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
ARR increased 16% (actual and constant currency) to $1,475 million in FY’21 compared to the end of FY’20. Excluding the impact of Arena, which was acquired in the second quarter of FY’21, our organic constant currency ARR growth was 12% in FY’21 compared to FY’20. Organic churn improved approximately 130 basis points year over year, primarily driven by strong execution in CAD, PLM, FSG and modest continued improvement in IoT and AR.
FY’21 revenue of $1.81 billion increased 24% over FY’20 (20% in constant currency). Our FY’21 revenue was positively impacted by ASC 606 as longer contract durations and support to subscription conversions increased the amount of upfront subscription license revenue recognized in the year. FY’21 operating margin of 21% increased approximately 700 basis points over FY’20 due to strong revenue performance as strong product differentiation improved sales and renewals, while maintaining good discipline on our operating expense structure. FY’21 diluted EPS more than doubled year over year to $4.03, due in part to a gain of $69 million related to common stock we own in a publicly-traded company, the release of a $137 million valuation allowance related to our deferred tax assets in the U.S., and a non-cash tax benefit of $42 million related to our Arena acquisition.
FY’21 operating cash flow of $369 million grew 58% over FY’20; FY’21 free cash flow of $344 million grew 61% over FY’20. Operating cash flow and free cash flow included an $18 million outflow related to a foreign tax dispute, $15 million of acquisition-related costs, and $15 million of restructuring payments. We ended FY’21 with cash and cash equivalents of $327 million. In addition, we held a $78 million equity investment in Matterport, Inc., currently subject to trading restrictions. We ended FY’21 with gross debt of $1.45 billion, with an aggregate interest rate of 3.2%.
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.
For discussion of FY’20 results and comparison with FY’19 results, refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
(Dollar amounts in millions, except per share data)
Year ended September 30,
Percent Change
Actual
Constant Currency(1)
ARR
$
1,474.7
$
1,270.0
%
%
Total recurring revenue
$
1,616.3
$
1,281.9
%
%
Perpetual license
33.0
32.7
%
(1
)%
Professional services
157.8
143.8
%
%
Total revenue
1,807.2
1,458.4
%
%
Total cost of revenue
371.1
334.3
%
%
Gross margin
1,436.1
1,124.1
%
%
Operating expenses
1,055.3
913.2
%
%
Operating income
$
380.7
$
210.9
%
%
Non-GAAP operating income(1)
$
634.4
$
423.4
%
%
Operating margin
21.1
%
14.5
%
Non-GAAP operating margin(1)
35.1
%
29.0
%
Diluted earnings per share
$
4.03
$
1.12
Non-GAAP diluted earnings per share(1)(2)
$
3.97
$
2.57
Cash flow from operations(3)
$
368.8
$
233.8
Free cash flow(4)
$
344.1
$
213.6
(1)
See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP 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.
(2)
In FY’21 and FY’20 our GAAP results included tax benefits of $179.7 million and $21.2 million, respectively. The FY’21 results include a $137.4 million benefit related to the release of the valuation allowance on the majority of our U.S. deferred tax assets and a $42.3 million benefit related to the release of a valuation allowance resulting from the Arena acquisition. The FY’20 results include a $21.2 million benefit related to the release of a valuation allowance resulting from the Onshape acquisition. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded. Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, our non-GAAP results for FY'21 exclude tax expense of $34.8 million related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes.
(3)
Cash flow from operations for FY’21 and FY’20 includes $14.5 million and $42 million of restructuring payments, respectively. Cash from operations for FY’21 and FY’20 includes $15.0 million and $9.6 million of acquisition-related payments, respectively. Cash from operations for FY’21 includes $17.9 million in un-forecasted payments related to the prior period tax exposure from a non-U.S. tax dispute.
(4)
Free cash flow is cash from operations net of capital expenditures of $24.7 million and $20.2 million in FY’21 and FY’20, respectively.
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 FY’21 and FY’20 by the exchange rates in effect on September 30, 2020, excluding the effect of any hedging. If FY'21 reported results were converted into U.S. dollars based on this methodology, FY'21 revenue would have been lower by $20 million and expenses would have been lower by $8 million. The net impact on year-over-year results would have been a decrease in operating income of $12 million in FY'21.
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
Our revenue results period to period are impacted by contract terms, including the duration and start dates of our subscription contracts, due to up-front recognition of subscription license revenue. We are expanding our SaaS offerings and are releasing additional cloud functionality into our products. As a
result, our revenue will be impacted over time as a higher portion of our sales will be from cloud services, which are recognized ratably.
Revenue by Line of Business
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Actual
Constant
Currency
License (1)
$
738.1
$
509.8
%
%
Support (2) and cloud services
911.3
804.8
%
%
Total software revenue
1,649.3
1,314.6
%
%
Professional services
157.8
143.8
%
%
Total revenue
$
1,807.2
$
1,458.4
%
%
(1)
Includes perpetual licenses and the license portion of subscription sales.
(2)
Includes support on perpetual licenses and the support portion of subscription sales.
Software revenue increased in FY’21 compared to FY’20 due to subscription revenue growth of 42% (38% constant currency), offset by an 18% decline in perpetual support revenue (21% constant currency) due to conversions of perpetual support contracts to subscriptions. Arena; acquired in the second quarter, contributed approximately $29 million in FY’21. In FY’21, license revenue growth was primarily driven by contracts with longer durations.
Professional services engagements typically result from sales of new licenses and software upgrades; revenue is recognized over the term of the engagement. Our expectation is that professional services revenue will trend flat-to-down over time due to our strategy to expand margins by migrating more services engagements to our partners and delivering products that require less consulting and training services.
Professional services revenue grew in FY’21 by 10% (5% constant currency); where FY’20 revenue was negatively impacted by the COVID-19 pandemic, FY’21 benefited from increased delivery activity associated with PLM deployments.
Revenue and ARR by Product Group
Software Revenue by Product Group
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Actual
Constant
Currency
Core (CAD and PLM)
$
1,161.7
$
947.1
%
%
Growth (IoT, AR, Onshape, Arena)
277.4
183.8
%
%
FSG (Focused Solutions Group)
210.2
183.7
%
%
Total Software revenue
$
1,649.3
$
1,314.6
%
%
Core product software revenue growth in FY’21 compared to FY’20 was driven by subscription revenue growth of 39% (34% constant currency), offset by expected declines in perpetual support revenue of 20% (23% constant currency) due in part to ongoing perpetual support contract conversions to subscription.
ARR increased 11% (12% constant currency) for FY’21 compared to FY’20, reflecting solid ARR growth for both PLM (13% actual,14% constant currency) and CAD (10% actual and constant currency) as customers pursue their digital transformation initiatives.
Growth product software revenue growth in FY’21 was driven by subscription revenue growth of 67% (63% constant currency) compared to the year-ago period, driven primarily by IoT and contribution from Arena.
Growth product ARR increased 50% (actual and constant currency) for FY’21 compared to FY’20, due in part to a $59 million contribution from Arena. Excluding Arena, organic ARR growth was 17% (18%
constant currency), reflecting 15% (16% constant currency) growth in IoT and 16% (actual and constant currency) growth in AR.
FSG product software revenue growth in FY’21 compared to FY’20 was primarily driven by subscription revenue growth of 34% (31% constant currency), offset by a decline in perpetual support revenue of 15% (17% constant currency) due to conversions of perpetual support contracts to subscriptions.
FSG product ARR increased 6% (actual and constant currency) for FY’21 compared to FY’20.
Software Revenue & ARR by Geographic Region
A significant portion of our software revenue is generated outside the U.S. In both FY’21 and FY’20, approximately 40% to 45% of software revenue was generated in the Americas, 35% to 40% in Europe, and 20% in Asia Pacific.
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Actual
Constant
Currency
Americas
$
710.7
$
592.7
%
%
Europe
645.8
482.5
%
%
Asia Pacific
292.8
239.4
%
%
Total Software revenue
$
1,649.3
$
1,314.6
%
%
Americas software revenue growth in FY’21 was driven by growth in subscription revenue of 34% (actual and constant currency) as compared to FY’20, partially offset by a decline of 26% (actual and constant currency) in perpetual support revenue, due to conversions of perpetual support contracts to subscriptions, resulting in recurring revenue growth of 21% (actual and constant currency).
Americas ARR was up 19%, led by double-digit growth in Core products and Arena.
Europe software revenue growth in FY’21 was driven by growth in subscription revenue of 56% (46% constant currency) as compared to FY’20, partially offset by a decline of 16% (21% constant currency) in perpetual support revenue, resulting in recurring revenue growth of 35% (26% constant currency).
ARR in Europe was up 13% constant currency, led by high-single digit growth in Core products, low-40s growth in Growth products, and double-digit growth in FSG.
Asia Pacific software revenue growth in FY’21 was driven by subscription revenue growth of 36% (32% constant currency) as compared to FY’20, partially offset by a decline of 9% (12% constant currency) in perpetual support revenue, resulting in recurring revenue growth of 22% (18% constant currency).
ARR in Asia Pacific was up 17% constant currency, led by mid-teens growth in Core products and low-30s growth in Growth products.
Gross Margin
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Gross margin:
License gross margin
$
676.3
$
456.6
%
License gross margin percentage
%
%
Support and cloud services gross margin
$
747.2
$
659.4
%
Support and cloud services gross margin percentage
%
%
Professional services
$
12.6
$
8.1
%
Professional services gross margin percentage
%
%
Total gross margin
$
1,436.1
$
1,124.1
%
Total gross margin percentage
%
%
Non-GAAP gross margin(1)
$
1,485.1
$
1,165.5
%
Non-GAAP gross margin percentage(1)
%
%
(1)
Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.
License gross margin increased in FY’21 compared to FY’20 due to subscription license revenue increasing significantly as a result of longer subscription term durations, offset by increased royalty expense due to the mix of products sold and higher intangible amortization due to the Arena acquisition.
Support and cloud services gross margin percentage is flat in FY’21 compared to FY’20, while gross margin contribution increased from FY’20 to FY’21 reflecting an increase in subscription support and cloud revenue, offset by a decrease in perpetual support revenue, higher compensation costs, and an increase in costs associated with our cloud services business due to greater demand for those services.
Professional services gross margin increased in FY’21 compared to FY’20 primarily due to the impact of the COVID-19 pandemic on FY’20 resulting in a year-over-year increase in revenue and lower travel costs in FY’21, partially offset by higher compensation and outside services costs.
Operating Expenses
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Sales and marketing
$
517.8
$
435.5
%
% of total revenue
%
%
Research and development
299.9
256.6
%
% of total revenue
%
%
General and administrative
206.0
159.8
%
% of total revenue
%
%
Amortization of acquired intangible assets
29.4
28.7
%
% of total revenue
%
%
Restructuring and other charges, net
2.2
32.7
(93
)%
% of total revenue
%
%
Total operating expenses
$
1,055.3
$
913.3
%
Total headcount increased by 7.5% in FY’21 to 6,709 from 6,243 at the end of FY’20. Headcount at the end of FY’21 includes approximately 180 people from Arena and other smaller acquisitions.
Operating expenses in FY'21 compared to FY'20 increased primarily due to the following:
•
a $142.3 million increase in compensation expense (including benefit costs), primarily driven by:
•
a $56.8 million (56%) increase in stock-based compensation expense,
•
a $55.4 million (14%) increase in salaries due to higher headcount and merit increases as well as $10.3 million from Arena,
•
a $15.8 million increase (17%) in benefits, of which $1.8 million is related to Arena,
•
a $12.3 million (114%) increase in cash bonus expense due to higher attainment and includes $1.2 million from Arena,
•
a $9.7 million (17%) increase in commissions due to additional amortization of capitalized commissions;
•
a $7.8 million (39%) increase in professional fees;
•
a $6.8 million (55%) increase in internal hosting costs;
•
a $6.4 million increase in acquisition-related charges, which are included in general and administrative costs; and
•
a $4.3 million (16%) increase in marketing expense;
partially offset by:
•
a $28.8 million decrease in restructuring charges.
Stock-based compensation was higher in FY’21 compared to FY’20 primarily due to higher estimated attainment under performance-based incentive compensation and more time-based awards outstanding in FY’21. Cash bonus expense was also higher in FY’21 compared to FY’20 due to higher attainment under the FY’21 bonus plan.
Interest Expense
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Interest and debt premium expense
$
(50.5
)
$
(76.4
)
(34
)%
Interest expense includes interest under our credit facility and senior notes. Interest expense was lower in FY’21 as FY’20 included $15 million of expense related to penalties for the early redemption of the 6.000% Senior Notes due 2024, with higher balances in FY’21 partially offset by lower rates. We had $1,450 million of total debt at September 30, 2021, compared to $1,018 million at September 30, 2020. For additional detail on the changes in our debt structure, see Note 9. Debt, included in the Notes to Consolidated Financial Statements in this Annual Report.
The average interest rate on our total borrowings was 3.3% in FY'21 and 4.3% in FY'20.
Other Income (Expense)
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Interest income
$
1.8
$
3.8
(54
)%
Other income (expense), net
59.7
(3.5
)
(1830
)%
Other income, net
$
61.5
$
0.3
%
Interest income represents earnings on the investment of our available cash and marketable securities.
Other expense, net includes foreign currency gains and losses and other non-operating gains and losses. In FY’21, we recorded a $69 million non-operating gain related to an equity investment in Matterport, Inc., which will continue to fluctuate. Foreign currency gains and losses include costs of hedging contracts, certain realized and unrealized foreign currency transaction gains or losses, and foreign exchange gains or losses resulting from the required period-end currency remeasurement of the assets and liabilities of our subsidiaries that use the U.S. dollar as their functional currency.
Income Taxes
(Dollar amounts in millions)
Year ended September 30,
Percent Change
Income before income taxes
$
391.8
$
134.7
%
Provision (benefit) for income taxes
(85.2
)
4.0
(2223
)%
Effective income tax rate
(22
)%
%
In FY’21 and FY’20, our tax rate differed from the U.S. statutory federal income tax rate 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 FY’21 and FY’20 the foreign rate differential predominantly relates to those earnings.
In FY’21, in addition to the foreign rate differential, our tax rate differed from the statutory federal income tax rate due to the release of the valuation allowance on the majority of our U.S. net deferred tax assets, the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes (together referred to as U.S. Tax reform), and the excess tax benefit related to stock-based compensation.
In FY’20, in addition to the foreign rate differential, our tax rate differed from the statutory federal income tax rate due to U.S. tax reform, the excess tax benefit related to stock-based compensation and the indirect effects of the adoption of ASC 606. Additionally, we recorded benefits for the reduction of the U.S. valuation allowance as a result of the Onshape acquisition. A further reduction to the valuation allowance was also recorded to reflect the impact from the scheduling of the reversal of existing temporary differences resulting in deferred tax liabilities that cannot be offset against deferred tax assets.
Our results for the twelve months ended September 30, 2021 include a charge of $37.3 million related to the effects of a tax matter in the Republic of Korea (South Korea) of $34.4 million, and the resulting impact on U.S. income taxes of $2.9 million. The charge relates to an assessment with respect to various tax issues, primarily foreign withholding taxes, that was under appeal in South Korea. We received an assessment of approximately $12 million from the tax authorities in South Korea in the fourth quarter of 2016 for the years 2011 to 2015 and paid the assessment in the first quarter of 2017. We appealed that assessment to an intermediate appellate court. In December 2020, our appeal to that court - the Seoul High Court - was rejected. We appealed this decision to the Supreme Court of the Republic of Korea. In May 2021, the Supreme Court denied our request for a review of the case. Therefore, the decision of the Seoul High Court was deemed final. We made additional payments of approximately $20 million to the tax authorities in South Korea in FY’21 for the years 2016 to 2021 in settlement of the amounts previously accrued.
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 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
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; and income tax adjustments.
The items excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses non-GAAP financial measures in conjunction with our GAAP results, as should investors.
Stock-based compensation is a non-cash expense relating to stock-based awards issued to executive officers, employees and outside directors, consisting of restricted stock units. We exclude this expense as it is a non-cash expense and we assess our internal operations excluding this expense and believe it facilitates comparisons to the performance of other companies in our industry.
Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Acquisition-related and other transactional charges included in general and administrative expenses are direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. Subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are also included within acquisition-related charges. Other transactional charges include third-party costs related to structuring unusual transactions. We do not include these costs when reviewing our operating results internally. The occurrence and amount of these costs will vary depending on the timing and size of acquisitions.
Restructuring and other charges, net includes excess facility restructuring charges (credits); impairment and accretion expense charges related to the lease assets of exited facilities; sublease income from previously impaired facilities; and severance costs resulting from reductions of personnel and third-party professional consulting fees related to modifications of our business strategy. These costs may vary in size based on our restructuring plan.
Non-operating charges (credits). In Q4’21, we recorded a $69 million gain related to our equity investment in Matterport, Inc., which will continue to fluctuate based on the market value of the investment. In FY’20, we incurred an early redemption interest penalty and wrote off debt issuance costs, both of which were related to the settlement of the 6.000% Senior Notes due 2024. These items are excluded from our non-GAAP financial measures as they are non-ordinary course in nature and not included in management’s review of our results.
Income tax adjustments include the tax impact of the items above and assumes that we are profitable on a non-GAAP basis in the U.S. and one foreign jurisdiction. It also eliminates the effect of the valuation allowance recorded against our net deferred tax assets in those jurisdictions. Additionally, we exclude other material tax items that we do not include when reviewing our operating results internally.
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 and such items often recur. Accordingly, the non-GAAP financial measures included in this Annual Report 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)
Year ended September 30,
GAAP gross margin
$
1,436.1
$
1,124.1
Stock-based compensation
19.3
14.0
Amortization of acquired intangible assets included in cost of revenue
29.8
27.4
Non-GAAP gross margin
$
1,485.1
$
1,165.5
GAAP operating income
$
380.7
$
210.9
Stock-based compensation
177.3
115.1
Amortization of acquired intangible assets included in cost of revenue
29.8
27.4
Amortization of acquired intangible assets
29.4
28.7
Acquisition-related and other transactional charges included in general and administrative expenses
15.0
8.6
Restructuring and other charges, net
2.2
32.7
Non-GAAP operating income
$
634.4
$
423.4
GAAP net income
$
476.9
$
130.7
Stock-based compensation
177.3
115.1
Amortization of acquired intangible assets included in cost of revenue
29.8
27.4
Amortization of acquired intangible assets
29.4
28.7
Acquisition-related and other transactional charges included in general and administrative expenses
15.0
8.6
Restructuring and other charges, net
2.2
32.7
Non-operating charges (credits)(1)
(68.8
)
18.5
Income tax adjustments(2)
(191.6
)
(63.3
)
Non-GAAP net income
$
470.2
$
298.4
GAAP diluted earnings per share
$
4.03
$
1.12
Stock-based compensation
1.50
0.99
Total amortization of acquired intangible assets
0.50
0.48
Acquisition-related and other transactional charges included in general and administrative expenses
0.13
0.07
Restructuring and other charges, net
0.02
0.28
Non-operating charges (credits)(1)
(0.58
)
0.16
Income tax adjustments(2)
(1.62
)
(0.54
)
Non-GAAP diluted earnings per share
$
3.97
$
2.57
(1)
In FY’21, we recorded a $69 million gain on common stock we own in a public company. In FY’20, we recognized $15 million of expense related to penalties for the early redemption of the 6.000% Senior Notes due in 2024 and wrote off approximately $3 million of related debt issuance costs.
(2)
In FY’21 and FY’20 our GAAP results included tax benefits of $179.7 million and $21.2 million, respectively. The FY’21 results include a $137.4 million benefit related to the release of the valuation allowance on the majority of our U.S. deferred tax assets and a $42.3 million benefit related to the release of a valuation allowance resulting from the Arena acquisition. The FY’20 results include a $21.2 million benefit related to the release of a valuation allowance resulting from the Onshape acquisition. As the non-GAAP tax provision is calculated assuming that there is no valuation allowance, these benefits have been excluded.
Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. Additionally, our non-GAAP results for FY'21 exclude tax expense of $34.8 million related to a non-U.S. prior period tax exposure, primarily related to foreign withholding taxes.
Operating margin impact of non-GAAP adjustments:
Year ended September 30,
GAAP operating margin
21.1
%
14.5
%
Stock-based compensation
9.8
%
7.9
%
Total amortization of acquired intangible assets
3.3
%
3.8
%
Acquisition-related and other transactional charges included in general and administrative expenses
0.8
%
0.6
%
Restructuring and other charges, net
0.1
%
2.2
%
Non-GAAP operating margin
35.1
%
29.0
%
Critical Accounting Policies and Estimates
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our reported revenues, results of operations, and net income, as well as on the value of certain assets and liabilities on our balance sheet. These estimates, assumptions and judgments are made based on our historical experience and on other assumptions that we believe to be reasonable under the circumstances. These estimates may change as new events occur or additional information is obtained, and we may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged period of time.
The accounting policies, methods and estimates used to prepare our financial statements are described generally in Note 2. Summary of Significant Accounting Policies of Notes to Consolidated Financial Statements in this Annual Report. The most important accounting judgments and estimates that we made in preparing the financial statements involved:
•
revenue recognition;
•
accounting for income taxes; and
•
valuation of assets and liabilities acquired in business combinations.
A critical accounting policy is one that is both material to the presentation of our financial statements and requires us to make subjective or complex judgments that could have a material effect on our financial condition and results of operations. Critical accounting policies require us to make assumptions about matters that are uncertain at the time of the estimate, and different estimates that we could have used, or changes in the estimates that are reasonably likely to occur, may have a material impact on our financial condition or results of operations. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.
Accounting policies, guidelines and interpretations related to our critical accounting policies and estimates are generally subject to numerous sources of authoritative guidance and are often reexamined by accounting standards rule makers and regulators. These rule makers and/or regulators may promulgate interpretations, guidance or regulations that may result in changes to our accounting policies, which could have a material impact on our financial position and results of operations.
Revenue Recognition
We record revenues in accordance with the guidance provided by ASC 606, Revenue from Contracts with Customers. For a full description of our revenue accounting policy, refer to Note 2. Summary of Significant Accounting Policies, included in the Notes to Consolidated Financial Statements in this Annual Report.
Our sources of revenue include: (1) subscriptions, (2) perpetual licenses, (3) support for perpetual licenses and (4) professional services. Subscriptions include term-based on-premises licenses, Software-as-a-Service (SaaS), and hosting services.
Judgments and Estimates
Determination of performance obligations. Our subscriptions are frequently sold as a bundle of products and services, typically pairing on-premises term software licenses with support and/or cloud services over the same term. On-premises software is typically determined to be a distinct performance obligation and is thus recognized separately from the support and/or cloud components. On-premises license software revenue is generally recognized at the point in time that the software is made available to the customer, while the support and cloud software revenue components are recognized over the term of the contract. In cases where subscriptions include cloud functionality and on-premises software, an assessment has been performed to determine whether the cloud services are distinct from the on-premises software. In the substantial majority of instances, cloud services provide incremental functionality to customers and have been considered distinct and recognized separately from the on-premises software. This assessment could have a significant impact on the timing of revenue recognition and may change as our product offerings evolve.
Allocation of transaction price. We estimate the standalone selling price of each identified performance obligation and use that estimate to allocate the transaction price among said performance obligations. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs. Significant judgment is used in determining the standalone selling prices of the on-premises license, support, and cloud components of our subscription products. These estimates are subject to change as our product offerings change and could have a significant impact due to the difference in the timing of revenue recognition for on-premises licenses and support and/or cloud.
Right to exchange. Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the original subscription with other software. We account for this right as a refund liability. For most contracts, we use the expected value method to determine the refund liability associated with this right across a portfolio of contracts. Where contracts are outside of the standard portfolio of contracts due to contract size, longer contract duration, or other unique contractual terms, we use the most likely amount method to determine the refund liability for each individual contract. In both circumstances, the transaction price is constrained based on our estimates, which impacts the amount of revenue recognized. Changes in these estimates could significantly impact revenue for any given period.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to calculate our income tax expense based on taxable income by jurisdiction. There are many transactions and calculations about which the ultimate tax outcome is uncertain; as a result, our calculations involve estimates by management. Some of these uncertainties arise as a consequence of revenue-sharing, cost-reimbursement and transfer pricing arrangements among related entities and the differing tax treatment of revenue and cost items across various jurisdictions. If we were compelled to revise or to account differently for our arrangements, that revision could affect our recorded tax liabilities.
The income tax accounting process also involves estimating our actual current tax liability, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be
recovered from future taxable income and, to the extent we believe that it is more likely than not that all or a portion of our deferred tax assets will not be realized, we must establish a valuation allowance as a charge to income tax expense.
As of September 30, 2021, we have a valuation allowance of $17.7 million against net deferred tax assets in the U.S. and a valuation allowance of $34.4 million against net deferred tax assets in certain foreign jurisdictions. We have concluded, based on the weight of available evidence, that a full valuation allowance is no longer required against our U.S. net deferred tax assets as they are more likely than not to be realized in the future. We will continue to reassess our valuation allowance requirements each financial reporting period.
The valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our capital loss carryforwards, the majority of which do not expire. However, there are limitations imposed on the utilization of such capital losses that could further restrict the recognition of any tax benefits.
Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were subjected to a one-time transition tax and there is therefore no longer a material cumulative basis difference associated with the undistributed earnings. We maintain our assertion to permanently reinvest these earnings outside the U.S. unless repatriation can be done substantially tax-free, with the exception of a foreign holding company formed in 2018 and our Taiwan subsidiary. If we decide to repatriate any additional non-U.S. earnings in the future, we may be required to establish a deferred tax liability on such earnings. The amount of unrecognized deferred tax liability on the undistributed earnings would not be material.
In the normal course of business, PTC and its subsidiaries are examined by various taxing authorities, including the Internal Revenue Service (IRS) 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. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in material changes in our estimates.
Valuation of Assets and Liabilities Acquired in Business Combinations
In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Determining these fair values requires management to make significant estimates and assumptions, especially with respect to intangible assets.
Our identifiable intangible assets acquired consist of developed technology, core technology, tradenames, customer lists and contracts, and software support agreements and related relationships. Developed technology consists of products that have reached technological feasibility. Core technology represents a combination of processes, inventions and trade secrets related to the design and development of acquired products. Customer lists and contracts and software support agreements and related relationships represent the underlying relationships and agreements with customers of the acquired company’s installed base. We have generally valued intangible assets using a discounted cash flow model. Critical estimates in valuing certain of the intangible assets include but are not limited to:
•
future expected cash flows from software license sales, customer support agreements, customer contracts and related customer relationships and acquired developed technologies and trademarks and trade names and
•
discount rates used to determine the present value of estimated future cash flows.
In addition, we estimate the useful lives of our intangible assets based upon the expected period over which we anticipate generating economic benefits from the related intangible asset.
Net tangible assets consist of the fair values of tangible assets less the fair values of assumed liabilities and obligations. Except for deferred revenues, net tangible assets were generally valued by us at the respective carrying amounts recorded by the acquired company, if we believed that their carrying values approximated their fair values at the acquisition date. The values assigned to deferred revenue reflect an amount equivalent to the estimated cost plus an appropriate profit margin to perform the services related to the acquired company’s software support contracts.
In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and we reevaluate these items quarterly with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period (up to one year from the acquisition date) and we continue to collect information in order to determine their estimated values. Subsequent to the measurement period or our final determination of the estimated value of uncertain tax positions or tax-related valuation allowances, whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will affect our provision for income taxes in our Consolidated Statements of Operations.
Our estimates of fair value are based upon assumptions believed to be reasonable at that time, but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or actual results.
When events or changes in circumstances indicate that the carrying value of a finite-lived intangible asset may not be recoverable, we perform an assessment of the asset for potential impairment. This assessment is based on projected undiscounted future cash flows over the asset’s remaining life. If the carrying value of the asset exceeds its undiscounted cash flows, we record an impairment loss equal to the excess of the carrying value over the fair value of the asset, determined using projected discounted future cash flows of the asset.
Liquidity and Capital Resources
(in millions)
September 30,
Cash and cash equivalents
$
326.5
$
275.5
Restricted cash
0.5
0.5
Marketable securities
-
59.1
Total
$
327.0
$
335.1
Activity for the year included the following:
Cash provided by operating activities
$
368.8
$
233.8
Cash used in investing activities
(687.9
)
(526.0
)
Cash provided by financing activities
370.3
297.4
Cash, cash equivalents and restricted cash
We invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. At September 30, 2021, cash and cash equivalents totaled $327 million, compared to $275 million at September 30, 2020.
A significant portion of our cash is generated and held outside the U.S. As of September 30, 2021, we had cash and cash equivalents of $37 million in the U.S., $111 million in Europe, $145 million in Asia Pacific (including India) and $34 million in other non-U.S. countries. All our marketable securities are held in the U.S. We have substantial cash requirements in the U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, marketable securities, our ability to repatriate cash to the U.S. more cost effectively, 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 $369 million in FY'21 compared to $234 million in FY'20. The year-over-year increase is primarily due to approximately $190 million of higher cash collections and $20
million in contribution from Arena, offset by $80 million more in salary and salary-related payment and an $18 million foreign tax payment.
Restructuring payments totaled $14 million in FY’21, compared to $42 million in FY’20. Cash paid for income taxes was $58 million in FY’21 compared to $53 million in FY’20.
Cash used in investing activities
(in millions)
Year ended September 30,
Additions to property and equipment
$
(24.7
)
$
(20.2
)
Proceeds (purchases) of short- and long-term marketable securities, net
58.4
(1.8
)
Acquisitions of businesses, net of cash acquired
(718.0
)
(483.5
)
Purchases of investments
(4.0
)
-
Purchase of intangible assets
(0.6
)
(11.1
)
Settlement of net investment hedges
1.0
(9.4
)
Net cash used in investing activities
$
(687.9
)
$
(526.0
)
Cash used in investing activities reflects $718 million used for acquisitions in FY’21, primarily related to Arena compared to $483 million in FY’20 ($469 million of which related to Onshape). For additional detail on our acquisitions, see Note 6. Acquisitions, included in the Notes to Consolidated Financial Statements in this Annual Report. Our expenditures for property and equipment consist primarily of facility improvements, office equipment, computer equipment, and software.
Cash provided by financing activities
(in millions)
Year ended September 30,
Borrowings on debt, net
$
432.0
$
344.9
Repurchases of common stock
(30.0
)
-
Proceeds from issuance of common stock
21.6
18.3
Debt issuance costs
-
(17.1
)
Debt early redemption premium
-
(15.0
)
Payments of withholding taxes in connection with stock-based awards
(53.0
)
(33.7
)
Payments of principal for financing leases
(0.4
)
-
Net cash provided by financing activities
$
370.3
$
297.4
FY’21 net borrowings of $432 million were primarily used to fund the Arena acquisition. FY’20 net borrowings were primarily related to the acquisition of Onshape. FY’20 net borrowings reflect the issuance of $1 billion in new notes in February 2020 and the repayment of $500 million of earlier issued notes in May 2020, as well as net repayments of $155 million under our revolving credit facility.
Outstanding Debt
As of September 30, 2021, we had:
(in millions)
September 30, 2021
4.000% Senior notes due 2028
$
500.0
3.625% Senior notes due 2025
500.0
Credit facility revolver
450.0
Total debt
1,450.0
Unamortized debt issuance costs for the Senior notes
(10.5
)
Total debt, net of issuance costs
$
1,439.5
Undrawn under credit facility revolver
$
550.0
Undrawn under credit facility revolver available for borrowing
$
533.7
As of September 30, 2021, 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 are described in Note 9. Debt to the Condensed Consolidated Financial Statements in this Form 10-K.
Share Repurchase Authorization
Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $1 billion of our common stock through September 30, 2023. We may use cash from operations and borrowings under our credit facility to make any such repurchases. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.
In FY’21, we repurchased approximately 226 thousand shares in the open market for $30 million. We did not repurchase any shares in FY’20.
Expectations for Fiscal 2022
We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $30 million in FY’22) through at least the next twelve months and to meet our known long-term capital requirements. In FY’22 we expect to pay approximately $50 million to $55 million in restructuring cash payments related to our recently announced restructuring charge as well as previous restructuring charges. In FY’22, we expect to return approximately 25% of our estimated free cash flow excluding restructuring payments, which is expected to be approximately $450 million, to our shareholders through stock repurchases of our common stock.
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 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.
Contractual Obligations
At September 30, 2021, our future contractual obligations were related to debt, leases, pension liabilities, unrecognized tax benefits, and purchase obligations. See Note 9. Debt, Note 19. Leases, Note 14. Pension Plans, and Note 8. Income Taxes of Notes to Consolidated Financial Statements in this Annual Report for information about those obligations, which Notes are incorporated by reference into this section. Our purchase obligations were approximately $90.4 million, with $43.7 million expected to be paid in FY’22 and $46.8 million thereafter. Purchase obligations represent minimum commitments due to third parties, including royalty contracts, research and development contracts, telecommunication contracts, information technology maintenance contracts in support of internal-use software and hardware, financing leases, operating leases with original terms of less than 12 months, and other marketing and consulting contracts. Contracts for which our commitment is variable, based on volumes, with no fixed minimum quantities, and contracts that can be canceled without payment penalties are not included in the purchase obligation amounts above. The purchase obligations included above are in addition to amounts included in current liabilities and prepaid expenses recorded on our September 30, 2021 Consolidated Balance Sheet.
As of September 30, 2021, we had letters of credit and bank guarantees outstanding of approximately $16.3 million (of which $0.5 million was collateralized).
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated (to
the extent of our ownership interest therein) into our financial statements. We have not entered into any transactions with unconsolidated entities whereby we have subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us.
Recent Accounting Pronouncements
In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations, none of which are expected to have a material impact on our consolidated financial statements. Refer to Note 2. Summary of Significant Accounting Policies to the Condensed Consolidated Financial Statements in this Form 10-K for all recently issued accounting pronouncements, which is incorporated herein by reference.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.
Quantitative and Qualitative Disclosures about Market Risk
We face exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.
Foreign currency exchange risk
Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign currency exposures relate to Western European countries, Japan, Israel, China and Canada. We enter into foreign currency forward contracts to manage our exposure to fluctuations in foreign exchange rates that arise from receivables and payables denominated in foreign currencies. We do not enter into or hold foreign currency derivative financial instruments for trading or speculative purposes, nor do we enter into derivative financial instruments to hedge future cash flows or forecast transactions.
Our non-U.S. revenues generally are transacted through our non-U.S. subsidiaries and typically are denominated in their local currency. In addition, expenses that are incurred by our non-U.S. subsidiaries typically are denominated in their local currency. Approximately 60% of our revenue and 40% of our expenses were transacted in currencies other than the U.S. dollar. Currency translation affects our reported results because we report our results of operations in U.S. Dollars. Historically, our most significant currency risk has been changes in the Euro and Japanese Yen relative to the U.S. Dollar. Based on current revenue and expense levels (excluding restructuring charges and stock-based compensation), a $0.10 change in the USD to EUR exchange rate and a 10 Yen change in the Yen to USD exchange rate would impact operating income by approximately $28 million and $10 million, respectively.
Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany transactions, with most intercompany transactions occurring between a U.S. dollar functional currency entity and a foreign currency denominated entity. Intercompany transactions typically are denominated in the local currency of the non-U.S. dollar functional currency subsidiary in order to centralize foreign currency risk. Also, both PTC (the parent company) and our non-U.S. subsidiaries may transact business with our customers and vendors in a currency other than their functional currency (transaction risk). In addition, we are exposed to foreign exchange rate fluctuations as the financial results and balances of our non-U.S. subsidiaries are translated into U.S. dollars (translation risk). If sales to customers outside of the United States increase, our exposure to fluctuations in foreign currency exchange rates will increase.
Our foreign currency risk management strategy is principally designed to mitigate the future potential financial impact of changes in the U.S. dollar value of balances denominated in foreign currency, resulting from changes in foreign currency exchange rates. Our foreign currency hedging program uses forward contracts to manage the foreign currency exposures that exist as part of our ongoing business operations. The contracts are primarily denominated in Japanese Yen and European currencies, and have maturities of less than three months.
Generally, we do not designate 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, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract. Gains and losses on forward contracts and foreign currency denominated receivables and payables are included in foreign currency net losses.
As of September 30, 2021 and 2020, we had outstanding forward contracts for derivatives not designated as hedging instruments with notional amounts equivalent to the following:
September 30,
Currency Hedged (in thousands)
Canadian / U.S. Dollar
$
4,894
$
6,847
Euro / U.S. Dollar
387,466
390,673
British Pound / U.S. Dollar
23,141
6,328
Israeli Shekel / U.S. Dollar
10,475
9,503
Japanese Yen / U.S. Dollar
46,450
50,379
Swiss Franc / U.S. Dollar
18,039
12,874
Swedish Krona / U.S. Dollar
34,196
18,871
Singapore Dollar / U.S. Dollar
3,498
3,281
Chinese Renminbi / U.S. Dollar
23,297
5,415
New Taiwan Dollar / U.S. Dollar
3,369
1,483
Russian Ruble/ U.S. Dollar
2,614
All other
6,482
6,499
Total
$
563,921
$
512,462
Debt
In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2021, we had $450 million outstanding under our credit facility. Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by us. These loans are subject to interest rate risk as interest rates will be adjusted at each rollover date to the extent such amounts are not repaid. As of September 30, 2021, the annual rate on the credit facility loans was 1.69%. If there were a hypothetical 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be $4.5 million. This hypothetical change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, 2021 and a 100 basis point per annum change in interest rate applied over a one-year period.
Cash and cash equivalents
As of September 30, 2021, cash equivalents were invested in highly liquid investments with maturities of three months or less when purchased. We invest our cash with highly rated financial institutions in North America, Europe and Asia Pacific and in diversified domestic and international money market mutual funds. At September 30, 2021, we had cash and cash equivalents of $37 million in the United States, $111 million in Europe, $145 million in Asia Pacific (including India), and $34 million in other non-U.S. countries. Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2021, a hypothetical 10% change in interest rates would not materially affect the fair value of our cash and cash equivalents.
Our invested cash is subject to interest rate fluctuations and, for non-U.S. operations, foreign currency risk. In a declining interest rate environment, we would experience a decrease in interest income. The opposite holds true in a rising interest rate environment. Over the past several years, the U.S. Federal Reserve Board, European Central Bank and Bank of England have changed certain benchmark interest rates, which has led to declines and increases in market interest rates. These changes in market interest rates have resulted in fluctuations in interest income earned on our cash and cash equivalents. Interest income will continue to fluctuate based on changes in market interest rates and levels of cash available for investment. Changes in foreign currencies relative to the U.S. dollar had an unfavorable impact of $0.1 million and $2.6 million on our consolidated cash balances in 2021 and 2019, respectively, in particular due to changes in the Euro and the Japanese Yen, and an immaterial impact in 2020.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.
Financial Statements and Supplementary Data
The consolidated financial statements and notes to the consolidated financial statements are attached as APPENDIX A.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.
Controls and Procedures
Evaluation 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.
As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on this evaluation, we concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2021 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment
and those criteria, our management concluded that, as of September 30, 2021, our internal control over financial reporting was effective.
Management excluded Arena from our assessment of internal control over financial reporting as of September 30, 2021 because the Company acquired it in a business combination in 2021. Arena’s total assets and total revenues represent approximately 1% and 2%, respectively, of the Company’s total assets and total revenues, as of and for the year ended September 30, 2021.
The effectiveness of our internal control over financial reporting as of September 30, 2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears under Item 8.
Change in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B.
Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
Directors, Executive Officers and Corporate Governance
The information required by this item with respect to our directors and executive officers may be found in the sections captioned “Proposal 1: Election of Directors,” “Corporate Governance,” "Our Executive Officers," and “Transactions with Related Persons” appearing in our 2022 Proxy Statement. Such information is incorporated into this Item 10 by reference.
Code of Ethics for Senior Executive Officers
We have adopted a Code of Ethics for Senior Executive Officers that applies to our Chief Executive Officer, President, Chief Financial Officer, and Controller, as well as others. The Code is embedded in our Code of Business Conduct and Ethics applicable to all employees. A copy of the Code of Business Conduct and Ethics is publicly available on our website at www.ptc.com. If we make any substantive amendments to, or grant any waiver from, including any implicit waiver, the Code of Ethics for Senior Executive Officers to or for our Chief Executive Officer, President, Chief Financial Officer or Controller, we will disclose the nature of such amendment or waiver in a current report on Form 8-K.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.
Executive Compensation
Information with respect to director and executive compensation may be found under the headings “Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation,” and “Compensation Committee Report” appearing in our 2022 Proxy Statement. Such information is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item may be found under the heading “Information about PTC Common Stock Ownership” in our 2022 Proxy Statement. Such information is incorporated herein by reference.
EQUITY COMPENSATION PLAN INFORMATION
as of September 30, 2021
Plan Category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders:
2000 Equity Incentive Plan(1)
3,215,849
-
(1)
4,074,497
2016 Employee Stock Purchase Plan(2)
-
-
634,855
(2)
Total
3,215,849
-
4,709,352
(1)
All of the shares issuable upon vesting are restricted stock units, which have no exercise price.
(2)
This amount represents the total number of shares remaining available under the 2016 Employee Stock Purchase Plan, of which 110,363 shares are subject to purchase during the current offering period.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
Information with respect to this item may be found under the headings “Independence of Our Directors,” “Review of Transactions with Related Persons” and “Transactions with Related Persons” in our 2022 Proxy Statement. Such information is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
Principal Accounting Fees and Services
Information with respect to this item may be found under the headings “Engagement of Independent Auditor and Approval of Professional Services and Fees” and “PricewaterhouseCoopers LLP Professional Services and Fees” in our 2022 Proxy Statement. Such information is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.
Exhibits and Financial Statement Schedules
(a) Documents Filed as Part of Form 10-K
1.
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2021 and 2020
Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income (Loss) for the years ended September 30, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended September 30, 2021, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
2.
Financial Statement Schedules
Schedules have been omitted since they are either not required, not applicable, or the information is otherwise included in the Financial Statements per Item 15(a)1 above.
3.
Exhibits
The list of exhibits in the Exhibit Index is incorporated herein by reference.
(b) Exhibits
We hereby file the exhibits listed in the attached Exhibit Index.
(c) Financial Statement Schedules
None.