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What changed in PTC Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PTC Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+191 added−220 removedSource: 10-K (2024-11-14) vs 10-K (2023-11-20)

Top changes in PTC Inc.'s 2024 10-K

191 paragraphs added · 220 removed · 144 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur long-term net-zero commitment is to reach net-zero across all scope emissions by 2050, with absolute reductions of over 90% across Scopes 1-3, with accredited carbon removal offsets for the remaining While we await SBTi approval of our near-term and net-zero targets, we have already begun to implement programs and pursue initiatives to reduce our emissions and carbon footprint, including: • prioritizing energy efficiency and accessibility to public transportation when selecting office space; • increasing our subsidy for employee’s public transportation commute costs; and • consolidating our data center operations with providers committed to mid-decade 100% renewable energy and advancing circular outcomes.
Biggest changeOur long-term net-zero commitment is to reach net-zero across all scope emissions by 2050, with absolute reductions of over 90% across Scopes 1-3, with accredited carbon removal offsets for the remaining 10% (or less) as needed.
We also review and revise our processes based on feedback and engagement scores from employee pulse surveys. We embed equitable practices into the planning and execution of how we attract, select, develop, and retain talent. Meanwhile, our DEI ambassadors are aligned with functions across the business to amplify and enhance our efforts in these areas.
We also review and revise our processes based on feedback and engagement scores from employee pulse surveys. We embed equitable practices into the planning and execution of how we attract, select, develop, and retain talent. Meanwhile, our DEI ambassadors are aligned with business functions to amplify and enhance our efforts in these areas.
For our SLM products, we compete with enterprise software companies such as Oracle, SAP and IFS AB, and with companies that offer point solutions. 4 Table of Contents Proprietary Rights Our software products and related technical know-how, along with our trademarks, including our company names, product names and logos, are proprietary.
For our SLM products, we compete with enterprise software companies such as Oracle, SAP and IFS AB, and with companies that offer point solutions. 3 Table of Contents Proprietary Rights Our software products and related technical know-how, along with our trademarks, including our company names, product names and logos, are proprietary.
From initial concept to design, simulation, and analysis, Creo provides designers with innovative tools to efficiently create better products, faster. 3 Table of Contents Our Onshape ® SaaS product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics.
From initial concept to design, simulation, and analysis, Creo provides designers with innovative tools to efficiently create better products, faster. 2 Table of Contents Our Onshape ® SaaS product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics.
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. Corporate Information PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts. 8 Table of Contents
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. Corporate Information PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts. 7 Table of Contents
Employees also have the opportunity to purchase PTC stock at a discount through our Employee Stock Purchase Plan. Our benefits offerings are designed to meet the needs of our employees and their families around the world.
Employees also have the opportunity to purchase PTC stock at a discount through our Employee Stock Purchase Plan. Our benefit offerings are designed to meet the needs of our employees and their families around the world.
Competition We compete with a number of companies whose offerings address one or more specific functional areas covered by our solutions. For enterprise CAD and PLM solutions, we compete with large established companies including Autodesk, Dassault Systèmes SA, and Siemens AG.
Competition We compete with a number of companies whose offerings address one or more specific functional areas covered by our solutions. For enterprise CAD and PLM solutions, we compete with large established companies including Autodesk, Dassault Systèmes SA, and Siemens AG. For our ALM products, we compete with IBM, Jama Software, Inc. and Siemens AG.
Finally, to cultivate a community of belonging, our 12 Employee Resource Groups foster an inclusive culture and facilitate safe spaces for employees to navigate social issues and challenges. Additional Information About Our Employee Initiatives You can find more information about our employee initiatives in our 2023 Impact Report, which we expect to release in December 2023.
Finally, to cultivate a community of belonging, our 11 Employee Resource Groups foster an inclusive culture and facilitate safe spaces for employees to navigate social issues and challenges. Additional Information About Our Employee Initiatives You can find more information about our employee initiatives in our 2024 Impact Report, which we expect to release in early 2025.
Worldwide Employee Representation United States Employee Representation 7 Table of Contents Compensation and Benefits PTC provides a comprehensive and competitive compensation and benefits package designed to attract, retain, motivate, and engage talent around the world. We provide employees with competitive compensation packages, including base salaries, and, for eligible roles, incentive and equity compensation.
Worldwide Employee Representation United States Employee Representation 6 Table of Contents Compensation and Benefits PTC provides a comprehensive and competitive compensation and benefits package designed to attract, retain, motivate, and engage talent around the world, including base salaries, and, for eligible roles, incentive and equity compensation.
Our approach is focused on promoting an agile culture, an increased sense of belonging, engaged work environments, and high-performing teams. 6 Table of Contents PTC at-a-Glance As of September 30, 2023, PTC had 7,231 full-time employees. Our employee population is geographically diverse and serves a geographically diverse customer and partner network.
This is a key aspect of our talent strategy. Our approach is focused on promoting an agile culture, an increased sense of belonging, engaged work environments, and high-performing teams. 5 Table of Contents PTC at-a-Glance As of September 30, 2024, PTC had 7,501 full-time employees. Our employee population is geographically diverse and serves a geographically diverse customer and partner network.
Our ServiceMax ® field service management (FSM) solutions enable companies to improve asset uptime with optimized in-person and remote service, boost technician productivity with the latest mobile tools, and deliver metrics for confident decision making.
Our ServiceMax ® service lifecycle management (SLM) solution enables companies to improve asset uptime with optimized in-person and remote service, boost technician productivity with the latest mobile tools, and deliver metrics for confident decision making.
Approximately 25% 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 sales force focuses on large accounts, while our reseller channel provides a cost-effective means of covering the small- and medium-size business markets. Our strategic reseller and software partners enable us to increase our market reach, offer broader solutions, and add compelling technology to our offerings.
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 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 Arena ® Software as a Service (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 deliver innovative products to customers faster.
Our submitted near-term commitment is to reduce combined Scope 1 (direct emissions from owned/controlled operations) and Scope 2 (indirect energy use) emissions by 50% and reduce Scope 3 - Category 1 (Purchased Goods and Services) 25% compared to our 2022 baseline by 2030.
Footprint Our emission reduction plan was validated by the Science Based Targets initiative (SBTi) in September 2024. Our near-term commitment is to reduce by 2030 combined Scope 1 (direct emissions from owned/controlled operations) and Scope 2 (indirect energy use) emissions by 50% and reduce Scope 3 - Category 1 (Purchased Goods and Services) by 25% compared to our 2022 baseline.
Environmental Sustainability At PTC, we’re motivated to become an impactful contributor to the dematerialization and decarbonization of global manufacturing. While we have a climate action plan committed to reduce our company’s “footprint,” we believe far larger benefits will flow from our “handprint” stemming from our software offerings.
Environmental Sustainability At PTC, we’re working to contribute to the decarbonization and circularity of global manufacturing. While we have a climate action plan committed to reducing our company’s “footprint,” we believe far larger benefits will flow from our “handprint” stemming from our software offerings. Our software solutions enable manufacturers to design, build, and service their products more sustainably.
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, manufacturing, and field service processes. With its open architecture that integrates with other enterprise systems, Windchill provides a solid foundation for a product-driven digital thread.
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, manufacturing, field service, and end-of-life processes.
Our Codebeamer ® application lifecycle management (ALM) and model-based systems engineering capabilities enable companies to accelerate the development of software-intensive products through system modeling, software configuration, and requirements, risk, and test management. Our Servigistics ® service parts management solution enables companies to effectively manage their service parts inventory, enabling them to optimize equipment availability and uptime, and increase customer satisfaction.
Our Servigistics ® service parts management solution enables companies to effectively manage their service parts inventory, enabling them to optimize equipment availability and uptime, and increase customer satisfaction.
Handprint Environmental sustainability is integral to our product offerings. With our software, manufacturers can drive sustainability improvement, including by designing with less material, enhancing product repairability and circularity, improving factory efficiency, and enabling remote service. 5 Table of Contents People and Culture At PTC, we don’t just imagine a better world, we help create it.
With our software, manufacturers can support their sustainability and compliance initiatives, including by designing with less material, enhancing product repairability and circularity, improving factory efficiency, and enabling remote service. 4 Table of Contents People and Culture Within our work environment we seek to create an equitable and inclusive culture in which all employees can thrive.
Across all our solutions, we see opportunity for further market growth with a new generation of SaaS solutions we are developing to bring to market over the next few years. We derive most of our sales from products and services sold directly by our sales force to end-user customers.
To a lesser extent, our growth is also supported by new customers and price increases. We derive approximately 75% of our sales from products and services sold directly by our sales force to end-user customers. The rest of our sales of products and services are through third-party resellers.
A digital thread manages product data and makes it accessible and useful to the right people, at the right time, and in the right context. The digital thread is particularly valuable for customers with complex products that tend to have longer life cycles.
It also secures the quality, consistency and traceability of product-related data, ensuring that the data is up-to-date, accessible, reliable and actionable. With a digital thread, the right data is delivered to the right people at the right time and in the right context across the value chain.
Subscription Business Model Our transition from a perpetual and maintenance model to a subscription business model continues to be key to driving growth. Our subscription model offers greater benefits of scale and growth potential, drives higher customer engagement and retention, and provides better business predictability, with over 90% of our annual revenues being recurring in nature.
Our business is based on a subscription model, with 93% of our 2024 revenue being recurring in nature. Compared to a perpetual license model, our subscription model naturally drives higher customer engagement and retention and provides better business predictability. This, in turn, enables us to make steady and sustained investments to pursue mid-to-long-term growth opportunities.
Acquisitions and Disposition of Businesses of Notes to Consolidated Financial Statements in this Annual Report for additional discussion about the ServiceMax transaction. 1 Table of Contents Our Strategy We pursue multiple strategic initiatives designed to create value for our customers, increase our Annual Run Rate (ARR) and free cash flow, and deliver long-term value for stockholders.
Our Markets and How We Address Them Our strategy aims to create value for our customers, increase our Annual Run Rate (ARR) and cash flow, and deliver long-term value for shareholders.
This is a longer-term strategy as we expect that SaaS adoption in the CAD and PLM markets will be gradual at first, then accelerate significantly, given constraints such as the length and cost of conversion projects and budgeting timelines of our customers. 2 Table of Contents Our Principal Products and Services Our Principal Product Groups PLM Software Products For Product Data Management and Process Orchestration CAD Software Products For Product Data Authoring PLM 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.
Our Principal Products and Services PLM software products for product data management and process orchestration Our Windchill ® PLM application suite manages all aspects of the product development lifecycle—from concept through service and end-of-life.
Our FlexPLM ® solution provides retailers with a single platform for merchandising and line planning, materials management, sampling, and more. Our Kepware ® portfolio of industrial connectivity solutions helps companies connect diverse automation devices and software applications. CAD Our Creo ® 3D CAD technology enables the digital design, testing, and modification of product models.
Our Arena quality management system software connects quality and product designs into a single system to simplify regulatory compliance. CAD software products for product data authoring Our Creo ® 3D CAD technology enables the digital design, testing, and modification of product models.
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ITEM 1. Bu siness Our Business PTC is a global software company that provides a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced.
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ITEM 1. Bu siness Our Business PTC is a global software company that enables manufacturers and product companies to digitally transform how they design, manufacture, and service the physical products that the world relies on. Headquartered in Boston, Massachusetts, PTC employs over 7,000 people and supports more than 30,000 customers globally.
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Our software portfolio includes award-winning offerings that enable companies to author product data (our computer-aided design (CAD) portfolio solutions) and to manage product data and orchestrate processes (our product lifecycle management (PLM) portfolio solutions). Our software can be delivered on premises, in the cloud, or in a hybrid model.
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We primarily serve customers in the following industry verticals: • Industrials • Federal, Aerospace and Defense • Electronics and High Tech • Automotive • Medical Technology and Life Sciences Our customers are focused on improving their competitiveness in the face of global competition and increasing product complexity, and our suite of software offerings is a strategic enabler of this and their digital transformation initiatives.
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Our customers include some of the world's most innovative companies in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, retail and consumer products industries.
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We enable our customers to establish a strong product data foundation and leverage that foundation to drive cross-functional collaboration, accelerate new product introduction timelines and deliver higher product quality.
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We generate revenue through the sale of subscriptions, which include term-based on-premises software licenses and related support, Software-as-a-Service (SaaS), and hosting services; perpetual licenses; support for perpetual licenses; and professional services (consulting, implementation, and training).
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Our offerings include CAD (Computer Aided Design) solutions for product data authoring and PLM (Product Lifecycle Management) solutions for product data management and process orchestration. 1 Table of Contents Within the overall PLM category, our offerings also include ALM (Application Lifecycle Management) and SLM (Service Lifecyle Management).
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Recent Developments We acquired the ServiceMax® cloud-native field service management business in Q2’23, broadening our PLM solution set to encompass the service phase of the product lifecycle.
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Given the breadth and openness of our portfolio, we can enable end-to-end digital thread initiatives, which leverage a connected flow of product data across design, manufacturing, service, and, ultimately, reuse. A digital thread enables product companies to break down silos, streamline workflows, and achieve interoperability across departments, functions and systems with a single version of truth.
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We paid the first purchase payment installment of $835 million, as adjusted for working capital, indebtedness, cash, and transaction expenses, in January 2023, and the second and final installment of $650 million in October 2023. Refer to Note 6.
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Our Codebeamer ® and pure::variants TM application lifecycle management (ALM) solutions enable companies to accelerate the development of products that contain software, including software-defined products which require multiple software variants to be created and updated over the life of the product.
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This, in turn, enables us to make steady and sustained investments to pursue mid-to-long-term growth opportunities. Customer Expansion Our solutions portfolio encompasses the entire product life cycle, from design to manufacture to service, enabling companies to adopt a “digital thread” strategy to drive innovation and productivity.
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Enabling technologies Our principal products and services are enhanced by a collection of enabling technologies, including SaaS versions of our Creo ® CAD and Windchill ® PLM software, artificial intelligence software, our ThingWorx ® Internet of Things software, and our Vuforia ® augmented reality software.
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We seek to drive value for our customers by offering new and enhanced features and products that enable our customers to pursue and expand their digital thread strategies. Our acquisition strategy targets companies with products that complement ours and that we believe will appeal to our existing customer base, allowing us to pursue cross-selling opportunities.
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The primary focus of these technologies is to deliver value-added capabilities to our principal products and services, such as the improved security and collaboration environment of a SaaS platform; unlocking productivity with artificial intelligence; moving product data more quickly across engineering, manufacturing, and service using IoT; or automatically analyzing the quality of a manufactured product with augmented reality.
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The addition of ServiceMax in 2023 for the SLM part of our PLM portfolio further extends what was already a unique portfolio of interconnected digital thread capabilities across the full product life cycle.
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We focus our resources on the following five solutions, where we believe we can create the greatest customer value: • PLM • ALM • SLM • CAD • SaaS or Software as a Service Our growth is primarily driven by existing customers that continue to expand their PTC footprint, largely relating to their focus on improving their competitiveness through digital transformation.
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The addition of Codebeamer in 2022 for the ALM part of our PLM portfolio strengthened our offerings in the ALM space as software becomes integral to more and more products, especially in regulated industries where traceability is safety-critical. PLM Expansion PLM is at the heart of digital transformation and has become essential technology at industrial companies.
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We have already begun to implement programs and pursue initiatives to reduce our emissions and carbon footprint, including: • entering into a Virtual Power Purchase Agreement (VPPA) to reduce our future carbon footprint; • prioritizing energy efficiency and accessibility to public transportation when selecting office space; • providing a subsidy for employee’s public transportation commute costs; and • selecting suppliers with decarbonization targets.
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No longer confined to the Engineering department, PLM data is driving decision-making across organizations, enabling them to improve how products are designed, manufactured, and serviced. Our goal is to be the category leader in PLM and to provide our customers with best-in-class solutions to drive innovation and productivity.
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Handprint Environmental sustainability is integral to our product offerings.
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SaaS Transition We continue to invest in the transformation of our technology portfolio to include more SaaS offerings. Our acquisitions of Onshape, Arena, and ServiceMax brought cloud-native solutions to our portfolio, and we continue to work towards creating and expanding SaaS offerings for our existing products.
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We believe that SaaS products represent a strong value proposition for our customers, offering reduced complexity; lower costs to implement, upgrade and administer; better user collaboration and mobility; and scalability.
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Our ThingWorx ® platform is flexible and purpose-built for Industrial Internet of Things (IIoT). It 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.
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Primary use cases include remote asset monitoring, remote maintenance and service, predictive maintenance and asset management, and optimized equipment effectiveness. Our ThingWorx Digital Performance Management solution enables manufacturers to identify, prioritize, and overcome their most significant production bottlenecks.
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Our Vuforia ® augmented reality (AR) technology enables the visualization of digital information in a physical context and the creation of AR and mixed reality experiences, enabling companies to drive results in manufacturing, service, engineering, and operations.
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Vuforia solutions equip frontline workers with focused and effective step-by-step instructions, procedural guidance, skill development and remote assistance that enable enterprises to improve workforce productivity, reduce errors, increase asset utilization and drive higher profitability. Our Arbortext ® dynamic publishing solution streamlines how organizations create, manage, and publish technical documentation.
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Our Markets and How We Address Them The markets we serve present different growth opportunities for us. The PLM market is undergoing expansion as PLM plays a larger role in industrial companies. Within PLM, we've extended our reach in the growing SLM and ALM spaces through our acquisitions of ServiceMax and Codebeamer.
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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 our AR products, our primary competitors include Microsoft, TeamViewer SE, and Scope Technologies US Inc.
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For our ALM products, we compete with IBM, Jama Software, Inc. and Siemens AG.
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Our software solutions enable manufacturers to design, build, and service their products more sustainably. Footprint In 2023, we announced our footprint reduction commitment via the Science Based Target initiative (SBTi) and submitted near-term and net-zero targets for validation by SBTi.
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Within our work environment we seek to create an equitable and inclusive culture in which all employees can thrive. This is a key aspect of our talent strategy.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe 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 12 Table of Contents relationships and such relationships may be terminated by the other party.
Biggest changeWe have many strategic, technology, and software partner and system integrator relationships with other companies that provide technologies and software that we embed in our solutions, that provide implementation services to our customers, that we work with to offer complementary solutions and services, and that market and sell our solutions.
Whether we will be successful and will accomplish our business and financial objectives is subject to risks and 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, our ability and the ability of our partners to transition existing customer implementations and subscriptions to SaaS, and our costs.
Whether we will be successful and will accomplish our business and financial objectives is subject to risks and uncertainties, including but not limited to: our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, our ability and the ability of our partners to transition existing customer implementations to SaaS, customer demand, attach and renewal rates, channel adoption, and our costs.
Our quarterly operating results fluctuate depending on many factors, including the effect of ASC 606 on revenue recognition for the on-premises software subscriptions we offer, variability in the timing of start dates for our subscription and SaaS offerings, length of contracts, and renewals, and significant unexpected expenses in a quarter.
Our quarterly operating results fluctuate depending on many factors, including the effect of ASC 606 on revenue recognition for the on-premises software subscriptions we offer, variability in the timing of start dates for our subscription offerings, length of contracts, and renewals, and significant unexpected expenses in a quarter.
Our effective tax rate and tax payment obligations can be adversely affected by several factors, many of which are outside of our control, including: • changes in tax laws (for example, the introduction of an amendment to Section 174 of the U.S. tax legislation), 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. 16 Table of Contents ITEM 1B.
Our effective tax rate and tax payment obligations can be adversely affected by several factors, many of which are outside of our control, including: • changes in tax laws (for example, the introduction of an amendment to Section 174 of the U.S. tax legislation), 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. 17 Table of Contents ITEM 1B.
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. 9 Table of Contents 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, security breaches that have not had a material effect on our business or that of our customers have occurred, and we will continue to face cybersecurity threats and exposure.
Malicious code, viruses or vulnerabilities that are undetected by us or 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. 8 Table of Contents 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, security breaches that have not had a material effect on our business or that of our customers have occurred, and we will continue to face cybersecurity threats and exposure.
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.
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, cash flows and operating results.
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.
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 reported income tax provisions and accruals.
Risks Related to Acquisitions and Strategic Relationships Businesses we acquire may not generate the sales and earnings we anticipate and may otherwise adversely affect our business and prospects. We have acquired, and intend to continue to acquire, new businesses and technologies.
Risks Related to Acquisitions Businesses we acquire may not generate the sales and earnings we anticipate and may otherwise adversely affect our business and prospects. We have acquired, and intend to continue to acquire, new businesses and technologies.
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 to pursue certain corporate initiatives, including strategic acquisitions, which could adversely affect our business and prospects. V.
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 to pursue certain corporate initiatives, including strategic acquisitions, which could adversely affect our business and prospects. 15 Table of Contents V.
Accordingly, our quarterly results are difficult to predict and we may 15 Table of Contents be unable to confirm or adjust expectations with respect to our operating results for a quarter until that quarter has closed. If our quarterly operating results do not meet market or analysts’ expectations, our stock price could decline. VI.
Accordingly, our quarterly results are difficult to predict and we may be unable to confirm or adjust expectations with respect to our operating results for a quarter until that quarter has closed. If our quarterly operating results do not meet market or analysts’ expectations, our stock price could decline. VI.
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. 13 Table of Contents Specifically, our level of debt could: • make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults; • 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; • limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; • 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; • increase our vulnerability to adverse economic and industry conditions; • amplify the risk of increased interest rates as certain of our borrowings, including borrowings under our credit facility, are at variable rates of interest; • 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; and • place us at a competitive disadvantage compared to other, less leveraged competitors.
Specifically, our level of debt could: • make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults; • 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; • limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; • 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; • increase our vulnerability to adverse economic and industry conditions; • amplify the risk of increased interest rates as certain of our borrowings, including borrowings under our credit facility, are at variable rates of interest; • 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; and • place us at a competitive disadvantage compared to other, less leveraged competitors.
Any of the above-listed factors could have an adverse effect on our business, financial condition, results of operations, and prospects, 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.
Any of the above-listed factors could have an adverse effect on our business, financial condition, results of operations, and prospects, and our ability to meet our payment obligations under our debt agreements. Despite our current level of indebtedness, we and our subsidiaries might incur substantially more debt and other obligations.
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.
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. 12 Table of Contents III.
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 17, 2023, we had unused commitments under our credit facility of approximately $350 million.
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 14, 2024, we had unused commitments under our credit facility of approximately $1,073 million.
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 loss and reputational harm, which could adversely affect our business, financial condition, results of operations, and prospects. 11 Table of Contents II.
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 loss and reputational harm, which could adversely affect our business, financial condition, results of operations, and prospects.
As of November 17, 2023, our total debt outstanding was approximately $2,307 million and €85 million, $1 billion of which was associated with the 3.625% Senior Notes and 4.000% Senior Notes (together, “Senior Notes”) issued in February 2020, which mature in February 2025 and 2028, respectively, and are unsecured; $807 million and €85 million of which was borrowed under our credit facility revolving line, which matures in January 2028; and $500 million of which was borrowed under our credit facility term loan, which begins amortizing in March 2024.
As of November 14, 2024, our total debt outstanding was approximately $1,668 million, $1 billion of which was associated with the 3.625% Senior Notes and 4.000% Senior Notes (together, “Senior Notes”) issued in February 2020, which mature in February 2025 and 2028, respectively, and are unsecured; $177 million of which was borrowed under our credit facility revolving line, which matures in January 2028; and $491 million of which was borrowed under our credit facility term loan [which began amortizing in March 2024].
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.
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.
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, financial condition, results of operations, and prospects could be materially adversely affected. III.
If these companies fail to perform as we expect, or if a company terminates or substantially alters the terms of the relationship, we could experience delays in product development, reduced or delayed sales, customer dissatisfaction, and additional expenses, and our business, financial condition, results of operations, and prospects could be materially adversely affected.
Our success depends upon our ability to attract and retain highly skilled employees to develop our products and solutions and to operate and grow our business. Competition for such employees in our industry is intense worldwide, and particularly in the Boston, Massachusetts area where our global headquarters is located.
Our success depends upon our ability to attract and retain highly skilled employees to develop and sell our products and solutions and to operate and grow our business. Competition for such employees in our industry is intense worldwide.
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; • exposure of our operations and employees to political instability and armed conflict in the countries and regions in which we operate, including Israel; • increased financial accounting and reporting burdens and complexities; • increased regulatory and compliance risks; • inadequate local infrastructure; and • greater difficulty in protecting our intellectual property.
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; • exposure of our operations and employees to political instability and armed conflict in the countries and regions in which we operate, including Israel; • increased financial accounting and reporting burdens and complexities; • increased regulatory and compliance risks; • inadequate local infrastructure; and • greater difficulty in protecting our intellectual property. 16 Table of Contents We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense, reduce our net income, and increase our tax payment obligations.
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, results of operations, and prospects.
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, results of operations, and prospects. 9 Table of Contents We may be unable to hire or retain employees with the necessary skills to operate and grow our business, which could adversely affect our ability to compete and adversely affect our business, financial condition, results of operations, and prospects.
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. 14 Table of Contents 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.
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.
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 some of the countries we operate in have a higher incidence of corruption and fraudulent business practices, the fact that we sell to governments and state-owned business enterprises, and the fact that global enforcement of laws has significantly increased.
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 some of the countries we operate in have a higher incidence of corruption and fraudulent business practices, the fact that we sell to governments and state-owned business enterprises, and the fact that global enforcement of laws has significantly increased. 10 Table of Contents Accordingly, while we strive to maintain a comprehensive compliance program, an employee, agent or business partner may violate our policies or U.S. or other applicable laws, as has occurred in the past, or we may inadvertently violate such laws.
If we were to issue a significant amount of equity securities in connection with an acquisition, existing stockholders would be diluted and our stock price could decline. Our inability to maintain or develop our strategic and technology relationships could adversely affect our business and prospects.
If we were to issue a significant amount of equity securities in connection with an acquisition, existing stockholders would be diluted and our stock price could decline. 13 Table of Contents IV.
A large amount of our sales are to customers in the discrete manufacturing sector. Manufacturers worldwide continue to face uncertainty about the global macroeconomic environment due to, among other factors, the effects of earlier and ongoing supply chain disruptions, rising interest rates and inflation, volatile foreign exchange rates and the current relative strength of the U.S.
Manufacturers worldwide continue to face uncertainty about the global macroeconomic environment due to, among other factors, the effects of earlier and ongoing supply chain disruptions, high interest rates and inflation, volatile foreign exchange rates and the current relative strength of the U.S. Dollar, and the U.S. government’s focus on technology transactions with non-U.S. entities.
If we are unable to attract and retain employees with the requisite skills to develop our products and solutions, or to guide, operate and support our business, we may be unable to compete successfully, which would adversely affect our business, financial condition, results of operations, and prospects. 10 Table of Contents 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 macroeconomic factors.
If we are unable to attract and retain employees with the requisite skills to develop and sell our products and solutions, or to guide, operate and support our business, we may be unable to compete successfully, which would adversely affect our business, financial condition, results of operations, and prospects.
This could further exacerbate the risks to our business, financial condition, and prospects described above. We and our subsidiaries may be able to incur significant additional indebtedness and other obligations in the future, including secured debt.
This could further exacerbate the risks to our business, financial condition, and prospects described above. We and our subsidiaries might 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.
Dollar, and the U.S. government’s focus on technology transactions with non-U.S. entities. Customers may delay, reduce, or forego purchases of our solutions due to these challenges and concerns, which could adversely affect our business, financial condition, results of operations, and prospects.
Customers may delay, reduce, or forego purchases of our solutions due to these challenges and concerns, which could adversely affect our business, financial condition, results of operations, and prospects. If we fail to successfully transform our operations to support the sale of SaaS solutions and to develop competitive SaaS solutions, our business and prospects could be adversely affected.
In addition, the credit agreement and the indenture governing our Senior Notes due 2025 and 2028, 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.
The additional indebtedness incurred in compliance with these restrictions could be substantial. In addition, the credit agreement and the indenture governing our Senior Notes due 2025 and 2028, will not prevent us from incurring obligations that do not constitute indebtedness.
We may have exposure to additional tax liabilities and our effective tax rate may increase or fluctuate, which could increase our income tax expense, reduce our net income, and increase our tax payment obligations. 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.
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.
If we fail to successfully transform our operations to support the sale of SaaS solutions and to develop competitive SaaS solutions, our business and prospects could be adversely affected. Transforming our business to offer and support SaaS solutions requires considerable additional investment in our organization.
Transforming our business to offer and support SaaS solutions requires considerable additional investment in our organization.
We may be unable to hire or retain employees with the necessary skills to operate and grow our business, which could adversely affect our ability to compete and adversely affect our business, financial condition, results of operations, and prospects.
We and our customers are subject to an increasing number of laws and regulations related to sustainability matters, compliance with which could adversely affect our business, financial condition, results of operations, and prospects.
Removed
Accordingly, while we strive to maintain a comprehensive compliance program, an employee, agent or business partner may violate our policies or U.S. or other applicable laws or we may inadvertently violate such laws. Investigations of alleged violations of those laws can be expensive and disruptive.
Added
We have a large ecosystem of strategic, technology, and software partners and system integrators that enable us to enhance our products and offerings, expand our market reach, and accelerate our customers’ digital transformation journeys. Failures by those partners or termination of those relationships could adversely affect our business, financial condition, operating results, and prospects.
Removed
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.
Added
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 macroeconomic factors. A large amount of our sales are to customers in the discrete manufacturing sector.
Added
We are subject to an increasing number of laws and regulations promulgated by multiple countries and jurisdictions that require new and expansive disclosure on sustainability topics and, in some cases, remediation of adverse effects, that will increase our compliance costs and expose us to risks associated with regulatory compliance.
Added
These laws and regulations include those promulgated pursuant to the European Union’s Corporate Sustainability Reporting Directive (“CSRD”) and its Corporate Sustainability Due Diligence Directive (“CSDDD”). CSRD requires new and expansive disclosures related to sustainability risks and opportunities.
Added
CSDDD will require us to conduct due diligence to identify, prevent, mitigate, and account for actual and potential adverse impacts on human rights and the environment arising from our own operations and our value chains and to remediate any such adverse impacts.
Added
Compliance with these directives requires significant investment in resources, including the implementation of new reporting systems, data collection processes, and due diligence procedures.
Added
As many of our customers and potential customers, particularly those in Germany and elsewhere in the European Union, are also subject to such laws and directives, those companies will increasingly be required to assess our sustainability efforts and impacts; if we are unable to satisfactorily address their requests for information or other sustainability related requests, contracting periods with those companies may be extended or those companies may elect to use other suppliers or switch suppliers, which could adversely affect our business, financial condition, results of operations, and prospects.
Added
The regulatory landscape for sustainability continues to evolve and expand and the introduction of additional laws or regulatory requirements may impose further compliance burdens and further increase our compliance costs.
Added
We are committed to meeting existing and future regulatory requirements; however, the financial and operational impact of current and future laws and regulations remains uncertain and could materially adversely affect our business, financial condition, results of operations and prospects.
Added
Increased scrutiny and expectations around environmental, social, and governance (“ESG”) matters may require us to incur additional costs or otherwise adversely impact our reputation, business, and prospects. Our stakeholders, including investors, customers, suppliers, and employees, are placing greater emphasis on our ESG performance and transparency.
Added
This increasing stakeholder attention to and expectations around ESG matters, particularly sustainability matters, and our response to the same, may result in higher costs (including higher costs related to compliance, stakeholder engagement, and contracting), adversely impact our reputation, or otherwise negatively affect our business performance and prospects.
Added
Our statements about our sustainability, environmental and human capital initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change.
Added
If our related data, processing and reporting are incomplete or otherwise inaccurate, or if we fail to achieve progress on our stated targets or initiatives when or as expected, our business, financial condition, operating results, and prospects could be adversely affected. 11 Table of Contents II.
Added
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.
Added
If new 14 Table of Contents debt is added to our current debt levels, or we incur other obligations, the related risks that we now face could increase.
Added
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.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−2 removed0 unchanged
Biggest changeOf our total of approximately 1,076,000 square feet of leased facilities used in operations, approximately 421,000 square feet are located in the U.S., including approximately 250,000 square feet at our headquarters facility located in Boston, Massachusetts, and approximately 267,000 square feet are located in India, where a significant amount of our research and development is conducted. ITEM 3.
Biggest changeOf our total of approximately 1,060,000 square feet of leased facilities used in operations, approximately 401,000 square feet are located in the U.S., including approximately 250,000 square feet at our headquarters facility located in Boston, Massachusetts, and approximately 268,000 square feet are located in India, where a significant amount of our research and development is conducted. ITEM 3.
ITEM 2. Prope rties We currently have 83 office locations used in operations in the United States and internationally, predominately as sales and/or support offices and for research and development work.
ITEM 2. Prope rties We currently have 75 office locations used in operations in the United States and internationally, predominately as sales and/or support offices and for research and development work.
Legal Pro ceedings None. ITEM 4. Mine Safety Disclosures Not applicable. PART II ITEM 5.
Legal Pro ceedings None. ITEM 4. Mine Safety Disclosures Not applicable. PART II
Removed
Market for Registrant’s Common Equity, Related Stockho lder 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, 2023, the close of our fiscal year, and on November 13, 2023, our common stock was held by 952 and 950 shareholders of record, respectively.
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ITEM 6. [Re served] 17 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

0 edited+1 added−17 removed0 unchanged
Removed
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Added
ITEM 5. Market for Registrant’s Common Equity, Related Stockho lder 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, 2024, the close of our fiscal year, and on November 12, 2024, our common stock was held by 884 and 877 shareholders of record, respectively.
Removed
On November 16, 2023, Michael DiTullio, President and Chief Operating Officer of the Company, Kristian Talvitie, Executive Vice President, Chief Financial Officer, Catherine Kniker, Executive Vice President, Chief Strategy and Marketing Officer, and Aaron von Staats, Executive Vice President, General Counsel entered into new Executive Agreements with PTC Inc. (the “Company”).
Removed
The new Executive Agreements replace the executives’ existing Executive Agreements with the Company. The Executive Agreements provide certain compensation and employment protections to the executives.
Removed
Each Executive Agreement provides that, upon a change in control of the Company, (i) all performance measures under any outstanding equity award held by the executive will be deemed to have been met at the target level, and (ii) the executive will receive a payment in an amount equal to the pro-rata portion of the executive’s target incentive bonus for the current year.
Removed
Upon any termination of the executive’s employment after a change in control of the Company, (i) all equity awards held by the executive will accelerate and vest in full, (ii) the executive will receive a payment in an amount equal to: (a) 100% of the executive’s highest base salary in the six months preceding the termination date, plus (b) 100% of the executive’s highest applicable target bonus, and (iii) the executive will be entitled to continued participation in the Company’s medical, dental and vision benefit plans (the “Benefit Plans”) for one year, or payment of an amount sufficient to purchase substantially equivalent benefits if continued participation is not permitted under the applicable Benefit Plan or if the Benefit Plan is terminated.
Removed
The Executive Agreement also provides that, upon termination of the executive’s employment by the Company without cause (i) the executive will receive a payment in an amount equal to 100% of the executive’s highest base salary in the six months preceding the termination date plus 100% of the executive’s target bonus for the year in which the termination occurs, (ii) all equity awards held by the executive that would have vested in the twelve months following the termination date will vest, and (iii) the executive will be entitled to continued participation in the Benefit Plans or payment in lieu thereof as described above.
Removed
The Executive Agreement also provides that upon termination of the executive’s employment by the Company due to the executive’s death or disability, all equity held by the executive will vest in full. Mr.
Removed
DiTullio’s Executive Agreement also provides that if he voluntarily terminates his employment after September 30, 2025, or if he is terminated without cause, all outstanding equity held by him will continue to vest after such termination in accordance with its terms, which continued equity vesting after termination without cause replaces the equity acceleration described above in the event of termination without cause.
Removed
To receive the payments and benefits under the Executive Agreement, the 36 Table of Contents executive must execute a release of claims in favor of the Company and continue to comply with the terms of the executive’s Proprietary Information Agreement with the Company.
Removed
The preceding description of the Executive Agreements is qualified by reference to the full text of such agreements, copies of which are filed as Exhibits 10.5 and 10.6 of this Form 10-K.
Removed
Insider Trading Arrangements Our Section 16 officers and directors may enter into plans or arrangements for the purchase or sale of our securities that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act.
Removed
Such plans and arrangements must comply in all respects with our insider trading policies, including our policy governing entry into and operation of 10b5-1 plans and arrangements. During the quarter ended September 30, 2023, the following Section 16 officers and directors adopted Rule 10b5-1 trading arrangements (as defined in Item 408 of Regulation S-K of the Exchange Act).
Removed
All plans adopted covered only sales of PTC common stock. No plans were modified or terminated .
Removed
Name and Title of Director or Section 16 Officer Date of Adoption, Modification, or Termination Duration of the Plan Aggregate Number of Shares of Common Stock that may be Sold under the Plan James Heppelmann , Chairman and Chief Executive Officer Adopted August 7, 2023 Ends February 12, 2024 35,000 Kristian Talvitie , Executive Vice President, Chief Financial Officer Adopted August 31, 2023 Ends February 29, 2024 22,240 Catherine Kniker , Executive Vice President, Chief Strategy and Marketing Officer Adopted August 15, 2023 Ends August 8, 2024 4,857 , plus all net vested shares issued for the FY2023 Corporate Incentive Plan, plus all shares purchased under the 2016 Employee Stock Purchase Plan for the offering periods ending on January 31, 2024 and July 31, 2024 (1)(2) Aaron von Staats , Executive Vice President, General Counsel Adopted August 24, 2023 Ends May 31, 2024 3,835 , plus all net vested shares issued for the FY2023 Corporate Incentive Plan, plus 40.5% of total shares that vest on November 15, 2023 under the performance-based RSU awards granted on November 17, 2020, November 17, 2021, and November 16, 2022 (1)(3) (1) The total number of shares that would be issued for the FY2023 Corporate Incentive Plan could not be known when the plan was adopted as the FY2023 performance period had not yet ended and attainment of the performance measure was not known.
Removed
(2) The total number of shares that will be purchased under the 2016 Employee Stock Purchase Plan for the offering periods ending January 31, 2024 and July 31, 2024 could not be known when the plan was adopted.
Removed
(3) The total number of shares that would be earned and vested under the performance-based RSU awards for the FY2023 performance period could not be known when the plan was adopted as the FY2023 performance period had not yet ended and attainment of the performance measures was not known. ITEM 9C.
Removed
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 37 Table of Contents PART III

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

71 edited+19 added−30 removed50 unchanged
Biggest changeOperating expenses in FY'23 compared to FY'22 increased primarily due to the following: • a $90 million increase in compensation expense (including stock-based compensation and benefit costs), primarily due to our acquisition of ServiceMax; • a $12 million increase in marketing expense, primarily due to our Q3'23 LiveWorx event; • an $11 million increase in software subscriptions and internal hosting costs; • a $10 million increase in travel expenses; partially offset by: • a $38 million decrease in restructuring charges, primarily due to the restructuring plan initiated and substantially completed in FY'22. 22 Table of Contents Interest Expense (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Interest and debt premium expense $ (129.4 ) $ (54.3 ) 138 % Interest expense includes interest on our revolving credit facility and term loan, our Senior Notes due 2025 and 2028, and imputed interest on the deferred payment of a portion of the ServiceMax purchase price.
Biggest changeOperating expenses in FY'24 compared to FY'23 increased primarily due to the following: • a $47 million increase in compensation and benefits expense (excluding stock-based compensation), driven by higher headcount and our Q2'23 acquisition of ServiceMax, as well as higher health insurance costs in the U.S.; • a $16 million increase in stock-based compensation expense, driven in part by acceleration of expense on equity grants held by our former chief executive and chief operating officers (which expense is included in General and administrative and Sales and marketing), as well as the impact of an FY'24 change in eligibility for continued vesting upon retirement for a subset of prospective equity grants; • a $14 million increase in outside services, driven by consulting services related to corporate initiatives; and • a $10 million increase in software subscription related costs; partially offset by: • a $16 million decrease in acquisition and transaction-related costs, largely driven by costs associated with our Q2'23 acquisition of ServiceMax; and • a $12 million decrease in marketing expense, primarily due to not holding our LiveWorx event in FY'24. 25 Table of Contents Interest Expense (Dollar amounts in millions) Year ended September 30, 2024 2023 Percent Change Interest expense $ (119.7 ) $ (129.4 ) (8 )% Interest expense includes interest on our credit facility loans and our Senior Notes due 2025 and 2028.
We continue to convert existing perpetual support contracts to on-premises subscriptions, resulting in a shift to up-front recognition of on-premises subscription license revenue in the period converted compared to ratable recognition for a perpetual support contract. Revenue from our cloud services (primarily SaaS) contracts is recognized ratably.
We continue to convert existing support contracts to on-premises subscriptions, resulting in a shift to up-front recognition of on-premises subscription license revenue in the period converted compared to ratable recognition for a perpetual support contract. Revenue from our cloud services (primarily SaaS) contracts is recognized ratably.
We have substantial cash requirements in the U.S., but believe that the combination of our existing U.S. cash and cash equivalents, our ability to repatriate cash to the U.S., future U.S. operating cash flows, and cash available under our revolving credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.
We have substantial cash requirements in the U.S. but believe that the combination of our existing U.S. cash and cash equivalents, cash available under our revolving credit facility, future U.S. operating cash flows, and our ability to repatriate cash to the U.S. will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.
We expect that over time a higher portion of our revenue will be recognized ratably as we continue to expand our SaaS offerings, release additional cloud functionality into our products, and migrate customers from on-premises subscriptions to SaaS. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue can vary significantly.
We expect that over time a higher portion of our revenue will be recognized ratably as we expand our SaaS offerings, release additional cloud functionality into our products, and migrate customers from on-premises subscriptions to SaaS. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue can vary significantly.
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 ratably over the term of the contract.
On-premises 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 ratably over the term of the contract.
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 26 Table of Contents • non-GAAP net income—GAAP net income • non-GAAP diluted earnings per share—GAAP diluted earnings 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.
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 30 Table of Contents • non-GAAP net income—GAAP net income • non-GAAP diluted earnings per share—GAAP diluted earnings 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.
Contracts for which our commitment is variable or 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, 2023 Consolidated Balance Sheet.
Contracts for which our commitment is variable or 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, 2024 Consolidated Balance Sheet.
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. 32 Table of Contents
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. 36 Table of Contents
Tax Act, we 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.
Tax Act, we asserted that substantially all of the undistributed earnings of our 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.
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 other debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended, or completed at any time.
Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we retire other debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended, or completed at any time.
Our identifiable intangible assets acquired consist of purchased software, tradenames, customer lists and contracts, and software support agreements and related relationships. Purchased software consists of products that have reached technological feasibility and the combination of processes, inventions and trade secrets related to the design and development of acquired products.
Our identifiable intangible assets acquired consist of purchased software, trademarks, customer lists and contracts, and software support agreements and related relationships. Purchased software consists of products that have reached technological feasibility and the combination of processes, inventions and trade secrets related to the design and development of acquired products.
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. 29 Table of Contents Revenue Recognition We record revenues in accordance with the guidance provided by ASC 606, Revenue from Contracts with Customers .
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 .
Subscriptions include term-based on-premises licenses and related support, 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, for certain offerings, cloud services over the same term.
Subscriptions include term-based on-premises licenses and related support, Software-as-a-Service (SaaS), and hosting services. 33 Table of Contents 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, for certain offerings, cloud services over the same term.
Other transactional charges include third-party costs related to structuring merger and acquisition transactions outside of ordinary business operations. 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 and transactions.
Other transactional charges include third-party costs related to structuring merger and acquisition transactions outside of ordinary business operations. We do not include these costs when reviewing our operating results internally. The occurrence and amount of these costs varies depending on the timing and size of acquisitions and transactions.
We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $26 million as audits close and statutes of limitations expire.
We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $27.0 million as audits close and statutes of limitations expire.
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 31 Table of Contents generally valued intangible assets using discounted cash flow models.
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 discounted cash flow models.
As of September 30, 2023, we have a valuation allowance of $17.4 million against net deferred tax assets in the U.S. and a valuation allowance of $4.3 million against net deferred tax assets in certain foreign jurisdictions.
As of September 30, 2024, we have a valuation allowance of $17.4 million against net deferred tax assets in the U.S. and a valuation allowance of $4.4 million against net deferred tax assets in certain foreign jurisdictions.
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 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) 31 Table of Contents for managing our business and evaluating our performance.
Our constant currency disclosures are calculated by multiplying the results in local currency for FY'23 and FY'22 by the exchange rates in effect on September 30, 2022. If FY'23 reported results were converted into U.S.
Our constant currency disclosures are calculated by multiplying the results in local currency for FY'24 and FY'23 by the exchange rates in effect on September 30, 2023. If FY'24 reported results were converted into U.S.
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.
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 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.
Investors should use our non-GAAP financial measures only in conjunction with our GAAP results. 18 Table of Contents For discussion of our FY'22 results and comparison to our FY'21 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 year ended September 30, 2022.
Investors should use our non-GAAP financial measures only in conjunction with our GAAP results. 21 Table of Contents For discussion of our FY'23 results and comparison to our FY'22 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 year ended September 30, 2023.
Dollars using the rates in effect as of September 30, 2022, ARR would have been the same, revenue would have been lower by $112 million, and expenses would have been lower by $50 million. 19 Table of Contents Revenue Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, on-premises subscription) starting or renewing in any given period can have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period over period.
Dollars using the rates in effect as of September 30, 2023, ARR would have been the same, revenue would have been lower by $17 million, and expenses would have been lower by $12 million. 22 Table of Contents Revenue Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, on-premises subscription) starting or renewing in any given period can have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period over period.
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.
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. Free cash flow is not a measure of cash available for discretionary expenditures.
Restructuring and other charges (credits), 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; severance charges resulting from reductions of personnel; and third-party professional consulting fees related to modifications of our business strategy.
Restructuring and other charges (credits), 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; severance charges resulting from substantial employee reduction actions; and third-party professional consulting fees related to modifications of our business strategy.
If we were compelled to revise or to account differently for our arrangements, that revision could affect our recorded tax liabilities. 30 Table of Contents 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.
If tax authorities compelled us 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.
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.
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.
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 $164.7 million, with $75.9 million expected to be paid in FY'24 and $88.8 million thereafter.
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 $163.2 million, with $88.2 million expected to be paid in FY'25 and $75.0 million thereafter.
As of September 30, 2023, we had letters of credit and bank guarantees outstanding of approximately $13.1 million (of which $0.5 million was collateralized). 25 Table of Contents 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.
As of September 30, 2024, we had letters of credit and bank guarantees outstanding of approximately $15.6 million (of which $0.6 million was collateralized). 29 Table of Contents Operating Measure ARR ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, SaaS, hosting, and support contracts as of the end of the reporting period.
During FY'22, we adopted ASU 2021-08, whereby deferred revenue for acquisitions completed in FY'22 and thereafter reflect the amounts that would have been deferred as of the acquisition date in accordance with ASC 606. 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.
Deferred revenue for acquisitions reflect the amounts that would have been deferred as of the acquisition date in accordance with ASC 606. 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.
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.
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. 34 Table of Contents We have unrecognized tax benefits as of September 30, 2024 of $65.0 million.
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.
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.
The results of operations in the table above, and the tables and discussions below about revenue by line of business and product group present both actual percentage changes year over year and percentage changes on a constant currency basis.
Dollar exchange rate, as of September 30, 2024 compared to September 30, 2023. The results of operations in the table above, and the tables and discussions below about revenue by line of business and product group present both actual percentage changes year over year and percentage changes on a constant currency basis.
In FY'23, non-GAAP expense excludes $21.8 million related to uncertain tax positions in a foreign jurisdiction. 28 Table of Contents Operating margin impact of non-GAAP adjustments: Year ended September 30, 2023 2022 GAAP operating margin 21.9 % 23.1 % Stock-based compensation 9.8 % 9.0 % Total amortization of acquired intangible assets 3.6 % 3.1 % Acquisition and transaction-related charges 0.9 % 0.7 % Restructuring and other charges (credits), net (— )% 1.9 % Non-GAAP operating margin 36.2 % 37.9 % 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.
Operating margin impact of non-GAAP adjustments: Year ended September 30, 2024 2023 GAAP operating margin 25.6 % 21.9 % Stock-based compensation 9.7 % 9.8 % Amortization of acquired intangible assets 3.5 % 3.6 % Acquisition and transaction-related charges 0.1 % 0.9 % Restructuring and other credits, net (— )% (— )% Non-GAAP operating margin 38.9 % 36.2 % 32 Table of Contents 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.
Dollars using the rates in effect as of September 30, 2022, ARR would have been lower by $38 million, revenue would have been lower by $59 million, and expenses would have been lower by $26 million. If FY'22 reported results were converted into U.S.
Dollars using the rates in effect as of September 30, 2023, ARR would have been lower by $47 million, revenue would have been lower by $22 million, and expenses would have been lower by $10 million. If FY'23 reported results were converted into U.S.
Revenue by Line of Business (Dollar amounts in millions) Year ended September 30, Percent Change 2023 2022 Actual Constant Currency License (1) $ 747.0 $ 782.7 (5 )% (1 )% Support and cloud services (2) 1,199.5 987.6 21 % 25 % Total software revenue 1,946.6 1,770.3 10 % 13 % Professional services 150.5 163.1 (8 )% (5 )% Total revenue $ 2,097.1 $ 1,933.3 8 % 12 % (1) Includes perpetual licenses and the license portion of on-premises subscription sales.
Revenue by Line of Business (Dollar amounts in millions) Year ended September 30, Percent Change 2024 2023 Actual Constant Currency License (1) $ 806.9 $ 747.0 8 % 8 % Support and cloud services (2) 1,359.4 1,199.5 13 % 13 % Software revenue 2,166.2 1,946.6 11 % 11 % Professional services 132.2 150.5 (12 )% (12 )% Total revenue $ 2,298.5 $ 2,097.1 10 % 9 % (1) Includes perpetual licenses and the license portion of on-premises subscription sales.
Gross Margin (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change License gross margin $ 693.8 $ 733.4 (5 )% License gross margin percentage 93 % 94 % Support and cloud services gross margin $ 954.5 $ 802.8 19 % Support and cloud services gross margin percentage 80 % 81 % Professional services gross margin $ 7.7 $ 11.1 (31 )% Professional services gross margin percentage 5 % 7 % Total gross margin $ 1,656.0 $ 1,547.4 7 % Total gross margin percentage 79 % 80 % Non-GAAP gross margin (1) $ 1,712.6 $ 1,595.7 7 % Non-GAAP gross margin percentage (1) 82 % 83 % (1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.
Gross Margin (Dollar amounts in millions) Year ended September 30, 2024 2023 Percent Change License gross margin $ 760.0 $ 693.8 10 % License gross margin percentage 94 % 93 % Support and cloud services gross margin $ 1,084.8 $ 954.5 14 % Support and cloud services gross margin percentage 80 % 80 % Professional services gross margin $ 8.9 $ 7.7 15 % Professional services gross margin percentage 7 % 5 % Total gross margin $ 1,853.7 $ 1,656.0 12 % Total gross margin percentage 81 % 79 % Non-GAAP gross margin (1) $ 1,913.6 $ 1,712.6 12 % Non-GAAP gross margin percentage (1) 83 % 82 % (1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below.
Expectations for 2024 We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under our credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $20 million in FY’24) through at least the next twelve months and to meet our known long-term capital requirements.
Expectations for 2025 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 through at least the next twelve months, including redemption of the 3.625% Senior Notes in February 2025, and to meet our known long-term capital requirements.
We have unrecognized tax benefits as of September 30, 2023 of $50.7 million. Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates.
Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates.
As of September 30, 2023, we had cash and cash equivalents of $35 million in the U.S., $111 million in Europe, $121 million in Asia Pacific (including India), and $21 million in other non-U.S. countries.
As of September 30, 2024, we had cash and cash equivalents of $36 million in the U.S., $127 million in Europe, $86 million in Asia Pacific (including India), and $17 million in other non-U.S. countries.
Critical estimates in valuing certain of the intangible assets include but are not limited to: • future expected revenues and costs related to 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.
Critical estimates in valuing certain of the intangible assets include but are not limited to: • future expected revenues and costs related to 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. 35 Table of Contents 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.
(Dollar amounts in millions, except per share data) Year ended September 30, Percent Change 2023 2022 Actual Constant Currency (1) ARR as of September 30 $ 1,978.6 $ 1,572.0 26 % 23 % Total recurring revenue (2) $ 1,907.9 $ 1,736.2 10 % 13 % Perpetual license 38.6 34.1 13 % 17 % Professional services 150.5 163.1 (8 )% (5 )% Total revenue 2,097.1 1,933.3 8 % 12 % Total cost of revenue 441.0 386.0 14 % 16 % Gross margin 1,656.0 1,547.4 7 % 11 % Operating expenses 1,197.6 1,100.0 9 % 11 % Operating income $ 458.5 $ 447.4 2 % 10 % Non-GAAP operating income (1) $ 758.9 $ 732.2 4 % 8 % Operating margin 21.9 % 23.1 % Non-GAAP operating margin (1) 36.2 % 37.9 % Diluted earnings per share $ 2.06 $ 2.65 Non-GAAP diluted earnings per share (1) $ 4.34 $ 4.58 Cash flow from operations (3) $ 610.9 $ 435.3 Capital expenditure (23.8 ) (19.5 ) Free cash flow $ 587.0 $ 415.8 (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.
(Dollar amounts in millions, except per share data) Year ended September 30, Percent Change 2024 2023 Actual Constant Currency (1) ARR $ 2,254.7 $ 1,978.6 14 % 12 % Total recurring revenue (2) $ 2,134.0 $ 1,907.9 12 % 12 % Perpetual license 32.2 38.6 (17 )% (16 )% Professional services 132.2 150.5 (12 )% (12 )% Total revenue 2,298.5 2,097.1 10 % 9 % Total cost of revenue 444.8 441.0 1 % 1 % Gross margin 1,853.7 1,656.0 12 % 12 % Operating expenses 1,265.6 1,197.6 6 % 6 % Operating income $ 588.1 $ 458.5 28 % 27 % Non-GAAP operating income (1) $ 894.3 $ 758.9 18 % 17 % Operating margin 25.6 % 21.9 % Non-GAAP operating margin (1) 38.9 % 36.2 % Diluted earnings per share $ 3.12 $ 2.06 Non-GAAP diluted earnings per share (1) $ 5.08 $ 4.34 Cash provided by operating activities $ 750.0 $ 610.9 Capital expenditures (14.4 ) (23.8 ) Free cash flow $ 735.6 $ 587.0 (1) See Non-GAAP Financial Measures below for a reconciliation of our GAAP results to our non-GAAP financial measures and Impact of Foreign Currency Exchange on Results of Operations below for a description of how we calculate our results on a constant currency basis.
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.
Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
Cash and cash equivalents include highly liquid investments with original maturities of three months or less. A significant portion of our cash is generated and held outside the U.S.
Cash and cash equivalents include highly liquid investments with original maturities of three months or less. Due to the stability of our subscription model and consistency of annual, up-front billing, we aim to maintain a low cash balance. A significant portion of our cash is generated and held outside the U.S.
Excluding them facilitates evaluation of our ongoing performance, our earnings trends, and comparisons to the performance of other companies in our industry. 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.
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.
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.
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.
Liquidity and Capital Resources (in millions) September 30, 2023 2022 Cash and cash equivalents $ 288.1 $ 272.2 Restricted cash 0.7 0.7 Total $ 288.8 $ 272.9 23 Table of Contents (in millions) Year ended September 30, 2023 2022 Net cash provided by operating activities $ 610.9 $ 435.3 Net cash used in investing activities $ (866.1 ) $ (201.2 ) Net cash provided by (used in) financing activities $ 268.3 $ (264.1 ) Cash, Cash Equivalents and Restricted Cash We invest our cash with highly rated financial institutions.
Audits by tax authorities typically involve examination of the deductibility of certain permanent items, transfer pricing, limitations on net operating losses, and tax credits. 26 Table of Contents Liquidity and Capital Resources (in millions) September 30, 2024 2023 Cash and cash equivalents $ 265.8 $ 288.1 Restricted cash 0.7 0.7 Total $ 266.5 $ 288.8 (in millions) Year ended September 30, 2024 2023 Net cash provided by operating activities $ 750.0 $ 610.9 Net cash used in investing activities $ (124.8 ) $ (866.1 ) Net cash provided by (used in) financing activities $ (650.7 ) $ 268.3 Cash, Cash Equivalents and Restricted Cash We invest our cash with highly rated financial institutions.
You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures. Executive Overview ARR grew 26% (23% constant currency) to $1.98 billion as of the end of FY'23 compared to FY’22.
You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures. Executive Overview Despite the overall demand environment, which has been challenging for many quarters now, ARR grew 14% (12% constant currency) to $2.25 billion as of the end of FY'24 compared to FY’23.
Impact of Foreign Currency Exchange on Results of Operations Approximately 50% of our revenue and 35% 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.
(2) Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and hosting services revenue. Impact of Foreign Currency Exchange on Results of Operations Approximately 50% of our revenue and 35% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S.
Support and cloud services gross margin increased in FY’23 compared to FY’22 due to higher support and cloud services revenue, partially offset by increases in cost of support and cloud services, which were driven by higher royalty expenses, compensation costs, higher intangible amortization expense due to the ServiceMax acquisition, and cloud hosting costs. 21 Table of Contents Professional services gross margin decreased in FY’23 compared to FY’22 due to lower professional services revenue, offset by lower professional services costs.
Cost of support and cloud services in FY'24 grew at a similar rate to revenue, driven by higher intangible amortization expense, compensation expense, and royalty expense. Professional services gross margin increased in FY’24 compared to FY’23, primarily due to lower outside service costs, partially offset by decreases in professional services revenue.
Cash Provided by Operating Activities Cash provided by operating activities increased by $175.6 million in FY'23 compared to FY'22. This increase was driven by higher collections, including contributions from ServiceMax, offset by higher vendor disbursements and higher interest payments due to a higher debt burden and higher interest rates.
Cash Provided by Operating Activities Cash provided by operating activities increased by $139.1 million in FY'24 compared to FY'23. This increase was driven by higher collections (including contribution from ServiceMax), which were partially offset by higher salary-related and interest payments.
(in millions, except per share amounts) Year ended September 30, 2023 2022 GAAP gross margin $ 1,656.0 $ 1,547.4 Stock-based compensation 20.9 22.8 Amortization of acquired intangible assets included in cost of revenue 35.7 25.6 Non-GAAP gross margin $ 1,712.6 $ 1,595.7 GAAP operating income $ 458.5 $ 447.4 Stock-based compensation 206.5 174.9 Amortization of acquired intangible assets 75.7 60.5 Acquisition and transaction-related charges 18.7 13.2 Restructuring and other charges (credits), net (0.5 ) 36.2 Non-GAAP operating income $ 758.9 $ 732.2 GAAP net income $ 245.5 $ 313.1 Stock-based compensation 206.5 174.9 Amortization of acquired intangible assets 75.7 60.5 Acquisition and transaction-related charges 18.7 13.2 Restructuring and other charges (credits), net (0.5 ) 36.2 Non-operating charges (credits), net (1) 5.1 (1.4 ) Income tax adjustments (2) (33.5 ) (55.1 ) Non-GAAP net income $ 517.6 $ 541.5 GAAP diluted earnings per share $ 2.06 $ 2.65 Stock-based compensation 1.73 1.48 Total amortization of acquired intangible assets 0.63 0.51 Acquisition and transaction-related charges 0.16 0.11 Restructuring and other charges (credits), net — 0.31 Non-operating charges (credits), net (1) 0.04 (0.01 ) Income tax adjustments (2) (0.28 ) (0.47 ) Non-GAAP diluted earnings per share $ 4.34 $ 4.58 Cash flow from operations $ 610.9 $ 435.3 Capital expenditure (23.8 ) (19.5 ) Free cash flow $ 587.0 $ 415.8 (1) In FY'23, we recognized $4.2 million of financing charges for a debt commitment agreement associated with our acquisition of ServiceMax.
(in millions, except per share amounts) Year ended September 30, 2024 2023 GAAP gross margin $ 1,853.7 $ 1,656.0 Stock-based compensation 21.4 20.9 Amortization of acquired intangible assets included in cost of revenue 38.5 35.7 Non-GAAP gross margin $ 1,913.6 $ 1,712.6 GAAP operating income $ 588.1 $ 458.5 Stock-based compensation 223.5 206.5 Amortization of acquired intangible assets 80.5 75.7 Acquisition and transaction-related charges 3.1 18.7 Restructuring and other credits, net (0.8 ) (0.5 ) Non-GAAP operating income $ 894.3 $ 758.9 GAAP net income $ 376.3 $ 245.5 Stock-based compensation 223.5 206.5 Amortization of acquired intangible assets 80.5 75.7 Acquisition and transaction-related charges 3.1 18.7 Restructuring and other credits, net (0.8 ) (0.5 ) Non-operating charges, net (1) 2.0 5.1 Income tax adjustments (2) (71.2 ) (33.5 ) Non-GAAP net income $ 613.4 $ 517.6 GAAP diluted earnings per share $ 3.12 $ 2.06 Stock-based compensation 1.85 1.73 Amortization of acquired intangible assets 0.67 0.63 Acquisition and transaction-related charges 0.03 0.16 Restructuring and other credits, net (0.01 ) — Non-operating charges, net (1) 0.02 0.04 Income tax adjustments (2) (0.59 ) (0.28 ) Non-GAAP diluted earnings per share $ 5.08 $ 4.34 Cash provided by operating activities $ 750.0 $ 610.9 Capital expenditures (14.4 ) (23.8 ) Free cash flow $ 735.6 $ 587.0 (1) In FY'24, we recognized an impairment loss of $2.0 million on an available-for-sale debt security.
(2) Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above.
In FY'23, we recognized $4.2 million of financing charges for a debt commitment agreement associated with our acquisition of ServiceMax. (2) Income tax adjustments reflect the tax effects of non-GAAP adjustments which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above.
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.
Recent Accounting Pronouncements In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 2.
Changes in foreign currency exchange rates were a headwind to reported income statement results in FY’23. However, ARR was positively impacted by improvements in currency exchange rates, particularly the Euro to U.S. Dollar exchange rate, as of September 30, 2023 compared to September 30, 2022.
Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Changes in foreign currency exchange rates were a slight tailwind to reported income statement results in FY’24. ARR was positively impacted by improvements in currency exchange rates, particularly the Euro to U.S.
Additionally, we exclude other material tax items that we do not include when reviewing our operating results internally. For example, in FY’23, adjustments include a charge related to an uncertain tax position in a foreign jurisdiction.
In FY'24, we recognized an impairment charge related to an available-for-sale debt security. In FY'23, we recognized a financing charge for a debt commitment agreement associated with our acquisition of ServiceMax. Income tax adjustments include the tax impact of the items above. Additionally, we exclude other material tax items that we do not include when reviewing our operating results internally.
We ended FY’23 with cash and cash equivalents of $288 million and gross debt of $1.70 billion, with an aggregate weighted average interest rate of 5.2%. Revenue growth of 8% (12% constant currency) in FY'23 compared to FY'22 was primarily due to the contributions from ServiceMax and Codebeamer.
We ended FY’24 with cash and cash equivalents of $266 million and gross debt of $1.75 billion, which debt carried an aggregate weighted average interest rate of 5.1%. Revenue grew 10% (9% constant currency) in FY'24 compared to FY'23. Our acquisition of ServiceMax in early Q2'23 contributed to FY'24 revenue growth.
The increase in interest expense was driven by higher total debt and higher interest rates in FY'23 compared to FY'22, as well as $30 million of imputed interest associated with the ServiceMax deferred acquisition payment.
Interest expense in FY'23 also included $30 million of interest on a deferred acquisition payment associated with the ServiceMax acquisition. The decrease in interest expense was driven by the lower aggregate average of debt and deferred acquisition payment liability balances outstanding in FY'24 compared to FY'23.
Operating Expenses (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Sales and marketing $ 530.1 $ 485.2 9 % % of total revenue 25 % 25 % Research and development 394.4 338.8 16 % % of total revenue 19 % 18 % General and administrative 233.5 204.7 14 % % of total revenue 11 % 11 % Amortization of acquired intangible assets 40.0 35.0 14 % % of total revenue 2 % 2 % Restructuring and other charges (credits), net (0.5 ) 36.2 (101 )% % of total revenue 0 % 2 % Total operating expenses $ 1,197.6 $ 1,100.0 9 % Total headcount increased by 11% between FY'22 and FY'23, primarily driven by our acquisition of ServiceMax.
The decreases in professional services revenue and costs are due to our continued execution on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves. 24 Table of Contents Operating Expenses (Dollar amounts in millions) Year ended September 30, 2024 2023 Percent Change Sales and marketing $ 559.0 $ 530.1 5 % % of total revenue 24 % 25 % Research and development 433.0 394.4 10 % % of total revenue 19 % 19 % General and administrative 232.4 233.5 (0 )% % of total revenue 10 % 11 % Amortization of acquired intangible assets 42.0 40.0 5 % % of total revenue 2 % 2 % Restructuring and other credits, net (0.8 ) (0.5 ) 74 % % of total revenue 0 % 0 % Total operating expenses $ 1,265.6 $ 1,197.6 6 % Total headcount increased by 4% between September 30, 2023 and September 30, 2024.
Outstanding Debt (in millions) September 30, 2023 4.000% Senior Notes due 2028 $ 500.0 3.625% Senior Notes due 2025 500.0 Credit facility revolver line 202.0 Credit facility term loan 500.0 Total debt 1,702.0 Unamortized debt issuance costs for the Senior Notes (6.2 ) Total debt, net of issuance costs $ 1,695.8 Undrawn under credit facility revolver $ 1,048.0 Undrawn under credit facility revolver available for borrowing $ 384.6 24 Table of Contents In addition to the debt shown in the above table, as of September 30, 2023, we had a $620 million deferred acquisition payment liability related to the fair value of the $650 million installment paid in October 2023 for the ServiceMax acquisition.
Cash provided by financing activities in FY’23 was primarily related to net new borrowings of $771.0 million (a $500.0 million term loan and a $271.0 million incremental revolving line) to fund the ServiceMax acquisition and net repayments of $428.0 million on the new revolving facility. 27 Table of Contents Outstanding Debt (in millions) September 30, 2024 2023 4.000% Senior Notes due 2028 $ 500.0 $ 500.0 3.625% Senior Notes due 2025 500.0 500.0 Credit facility revolver line 262.0 202.0 Credit facility term loan 490.6 500.0 Total debt 1,752.6 1,702.0 Unamortized debt issuance costs for the Senior Notes (4.1 ) (6.2 ) Total debt, net of issuance costs $ 1,748.6 $ 1,695.8 Undrawn under credit facility revolver $ 988.0 $ 1,048.0 Undrawn under credit facility revolver available to borrow $ 972.1 $ 384.6 As of September 30, 2024, we were in compliance with all financial and operating covenants of the credit facility and the Senior Note indentures.
Contractual Obligations At September 30, 2023, our future contractual obligations were related to debt, deferred acquisition payments, leases, pension liabilities, unrecognized tax benefits, and purchase obligations. See Note 6. Acquisitions and Disposition of Businesses, Note 9. Debt, Note 17. Leases, Note 14. Pension Plans, and Note 8.
The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material. 28 Table of Contents Contractual Obligations At September 30, 2024, our future contractual obligations were related to debt, leases, pension liabilities, unrecognized tax benefits, and purchase obligations. See Note 9. Debt, Note 17. Leases, Note 14. Pension Plans, and Note 8.
Other Income (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Interest income $ 5.4 $ 2.5 116 % Other income (expense), net (1.9 ) 1.5 (227 )% Other income, net $ 3.5 $ 4.0 (13 )% Other income (expense), net in FY'23 was related to foreign currency exchange losses.
Other Income (Dollar amounts in millions) Year ended September 30, 2024 2023 Percent Change Interest income $ 4.4 $ 5.4 (19 )% Other expense, net (3.8 ) (1.9 ) (103 )% Other income, net $ 0.6 $ 3.5 (84 )% Other income, net was lower in FY'24 compared to FY'23 due to a $2.0 million impairment loss related to an available-for-sale debt security.
Results of Operations The following table shows the measures that we consider the most significant indicators of our business performance.
Under ASC 606, the timing of revenue recognition for on-premises subscription revenue can vary significantly, impacting reported revenue and growth rates. Results of Operations The following table shows the measures that we consider the most significant indicators of our business performance.
Our rate was also impacted by tax expense of $6.3 million related to non-deductible imputed interest related to the deferred payment on the acquisition of ServiceMax Inc. Additionally, in FY'22, our rate included $8.1 million of tax expense arising from the basis difference on goodwill related to the sale of a portion of our PLM services business.
FY'23 included tax expense of $21.8 million related to an uncertain tax position regarding transfer pricing in a foreign jurisdiction where we are currently under audit. Our FY'23 rate was also impacted by tax expense of $6.3 million related to non-deductible imputed interest related to the deferred payment on the acquisition of ServiceMax.
(2) Includes support on perpetual licenses, the support portion of on-premises subscription sales, SaaS, and cloud services. Software revenue in FY'23 benefited from contributions from ServiceMax, acquired early in Q2'23, and Codebeamer, acquired in Q3'22. Changes in foreign currency exchange rates were a headwind to year-over-year revenue growth.
(2) Includes support on perpetual licenses, the support portion of on-premises subscription sales, SaaS, and hosting services. Software revenue growth in FY'24 was driven by PLM, which included the contribution from ServiceMax (acquired in early Q2'23), and CAD.
Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days. As of September 30, 2023, the annual rates for borrowings outstanding under the credit facility revolver line and term loan were both 7.2%. Our credit facility and our Senior Notes are described in Note 9.
As of September 30, 2024, the annual rates for borrowings outstanding under the credit facility revolver line and term loan were 7.0% and 6.9%, respectively.
Our expectation is that professional services revenue will continue to trend down over time as we execute on our partner strategy and deliver products that require less consulting and training services. 20 Table of Contents Software Revenue by Product Group (Dollar amounts in millions) Year ended September 30, Percent Change 2023 2022 Actual Constant Currency Product lifecycle management (PLM) $ 1,186.0 $ 980.5 21 % 24 % Computer-aided design (CAD) 760.6 789.8 (4 )% 0 % Software revenue $ 1,946.6 $ 1,770.3 10 % 13 % PLM software revenue growth in FY'23 benefited from contributions from ServiceMax and Codebeamer.
Professional services revenue decreased in FY'24 as we continue to execute on our strategy of leveraging partners to deliver services rather than contracting to deliver services ourselves. 23 Table of Contents Software Revenue by Product Group (Dollar amounts in millions) Year ended September 30, Percent Change 2024 2023 Actual Constant Currency PLM $ 1,333.4 $ 1,186.0 12 % 12 % CAD 832.8 760.6 9 % 10 % Software revenue $ 2,166.2 $ 1,946.6 11 % 11 % PLM software revenue growth in FY'24 was driven by growth in Europe and the contribution from ServiceMax (acquired in early Q2'23).
Cash Used in Investing Activities Cash used in investing activities in FY'23 was driven by the acquisition of ServiceMax, with $828.2 million paid in Q2'23.
Cash used in investing activities in FY'23 was driven by a payment of $828.2 million in Q2'23 related to the acquisition of ServiceMax. Capital expenditures in FY'24 were lower than in FY'23 as we invest more in cloud-based rather than on-premises software.
Of the $650 million paid, $620 million has been recorded as a financing outflow and the $30 million of imputed interest has been recorded as an operating cash outflow in our Q1'24 financials. To finance this payment and the payment for the acquisition of pure-systems in Q1'24, we borrowed $740 million under the revolving line of our credit facility.
Of the $650 million paid, $620 million was recorded as a financing outflow and the $30 million of imputed interest was recorded as an operating cash outflow. Our credit facility and our Senior Notes, including the financial and operating covenants and limitations on the payment of dividends, are described in Note 9.
Free cash flow of $587 million in FY'23 increased 41% from $416 million in FY'22. Our cash flow growth is attributable to strong collections driven by our solid top-line growth from our subscription business model and operational discipline. Interest payments were $41 million higher in FY'23 compared to FY'22, while restructuring payments decreased $39 million year-over-year.
Cash provided by operating activities grew 23% to $750 million in FY'24 compared to FY'23. Free cash flow grew 25% to $736 million in FY'24 compared to FY'23. Our cash flow growth is attributable to solid top-line growth due to our subscription business model and operational discipline.
Income Taxes (Dollar amounts in millions) Year ended September 30, 2023 2022 Percent Change Income before income taxes $ 332.6 $ 397.1 (16 )% Provision for income taxes 87.0 84.0 4 % Effective income tax rate 26 % 21 % The effective tax rate for FY’23 was higher than the effective rate for FY’22, primarily due to tax expense of $21.8 million related to an uncertain tax position regarding transfer pricing in a foreign jurisdiction where we are currently under audit.
Income Taxes (Dollar amounts in millions) Year ended September 30, 2024 2023 Percent Change Income before income taxes $ 469.0 $ 332.6 41 % Provision for income taxes 92.6 87.0 6 % Effective income tax rate 20 % 26 % The effective tax rate for FY’24 was lower than the effective rate for FY’23.
Cash Provided by (Used in) Financing Activities Cash provided by financing activities in FY’23 was primarily related to net new borrowings of $771.0 million (a $500.0 million term loan and a $271.0 million incremental revolving line) to fund the ServiceMax acquisition and net repayments of $428.0 million on the new revolving facility.
Cash Provided by (Used in) Financing Activities Cash used in financing activities in FY'24 included $620.0 million paid to settle a deferred acquisition payment associated with our acquisition of ServiceMax, Q1'24 borrowings of $739.8 million to fund that payment and the pure-systems acquisition, and subsequent net payments on debt of $693.9 million.
Removed
Organic ARR, which excludes contributions from the ServiceMax business we acquired in Q2'23, grew 15% (13% constant currency) year over year to $1.81 billion. Organic ARR growth was driven by double-digit growth across all product groups and geographies. We generated $611 million of cash from operations in FY’23 compared to $435 million in FY’22, an increase of 40%.
Added
Interest payments were $47 million higher in FY'24 compared to FY'23, mainly due to the payment of $30 million of imputed interest on a deferred acquisition payment associated with our 2023 acquisition of ServiceMax and incremental interest expense associated with borrowings in FY'23 and FY'24.
Removed
The timing of revenue recognition for on-premises subscription revenue can vary significantly, impacting reported revenue and growth rates. Interest expense was $75 million higher in FY'23 compared to FY'22, which adversely affected our net income and earnings per share results. The increase was driven by debt and liabilities related to the ServiceMax acquisition.
Added
License revenue growth in FY'24 was mainly driven by CAD and PLM growth in Europe and Asia Pacific, offset by lower license revenue in the Americas, particularly in PLM. A higher proportion of sales in FY'24 were SaaS, which adversely affected license revenue growth in the Americas and Europe.
Removed
(2) Recurring revenue is comprised of on-premises subscription, perpetual support, SaaS, and cloud revenue. (3) Cash flow from operations for FY'23 and FY'22 includes $1.5 million and $40.8 million of restructuring payments, respectively. Cash from operations for FY'23 and FY'22 includes $19.6 million and $11.8 million of acquisition and transaction-related payments, respectively.
Added
Support and cloud services revenue growth in FY'24 was mainly driven by PLM (which included contribution from ServiceMax) in the Americas and Europe.
Removed
Within software revenue, license revenue is impacted by the quantity and size of expiring and renewing multi-year on-premises subscription contracts, along with the duration of those contracts that start in the period.
Added
Year-over-year PLM software revenue growth for FY'24 excluding Q1'24 ServiceMax revenue would have been 9% (9% constant currency). PLM ARR grew 15% (13% constant currency) from September 30, 2023 to September 30, 2024. CAD software revenue growth in FY'24 was primarily driven by revenue growth in Europe and Asia Pacific.
Removed
In FY'23, the weighted-average duration of contracts starting in the year decreased compared to FY'22 primarily due to a few high-value renewal contracts in FY'22 that had longer than typical durations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

14 edited+0 added−3 removed10 unchanged
Biggest changeThis change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, 2023 and a 100 basis point per annum change in interest rate applied over a one-year period.
Biggest changeAs of September 30, 2024, the weighted average annual rate on the credit facility loans was 6.9%. Based on the borrowings outstanding and interest rates in effect as of September 30, 2024, a 100 basis point per annum change in interest rate applied over a one-year period would have an $8 million impact on annual earnings and cash flows.
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 50% of our revenue and 35% of our expenses were transacted in currencies other than the U.S. Dollar.
Our non-U.S. revenues are generally 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 50% of our revenue and 35% of our expenses were transacted in currencies other than the U.S. Dollar.
Our foreign currency hedging program uses forward contracts and options to manage the foreign currency exposures that exist as part of our ongoing business operations. The contracts are primarily denominated in the Euro, Swedish Krona, and Swiss Franc currencies, and have maturities of less than four months.
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 the Euro, Swiss Franc, and Swedish Krona currencies, and have maturities of less than four months.
We enter into foreign currency forward contracts and options 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.
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.
The majority of our foreign currency forward contracts and options are not designated as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings.
The majority of our foreign currency forward contracts are not designated as hedges for accounting purposes, and changes in the fair value of these instruments are recognized immediately in earnings.
Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2023, 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 exchange rate risk.
Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2024, 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 exchange rate risk.
Cash and cash equivalents As of September 30, 2023, 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.
Cash and cash equivalents As of September 30, 2024, 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.
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 $30 million and $6 million, respectively.
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 $38 million and $6 million, respectively.
Gains and losses on these derivatives and foreign currency denominated receivables and payables are included in Other income, net. 33 Table of Contents As of September 30, 2023 and 2022, 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) 2023 2022 Canadian Dollar / U.S.
Gains and losses on these derivatives and foreign currency denominated receivables and payables are included in Other income, net. 37 Table of Contents As of September 30, 2024 and 2023, 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) 2024 2023 Euro / U.S.
Because we enter into these derivative 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 derivative contract.
Because we enter into these derivative contracts only as an economic hedge, any gains or losses on the underlying foreign-denominated balance are generally offset by the losses or gains on the derivative contract.
At September 30, 2023, we had cash and cash equivalents of $35 million in the United States, $111 million in Europe, $121 million in Asia Pacific (including India), and $21 million in other non-U.S. countries.
At September 30, 2024, we had cash and cash equivalents of $36 million in the United States, $127 million in Europe, $86 million in Asia Pacific (including India), and $17 million in other non-U.S. countries.
Dollar had a favorable impact of $2.9 million and an unfavorable impact of $24.2 million on our consolidated cash balances in FY'23 and FY'22, respectively. The impact in FY'23 was due in particular to changes in the Euro and the Korean Won. 34 Table of Contents ITEM 8.
Dollar had a favorable impact of $3.2 million and $2.9 million on our consolidated cash balances in FY'24 and FY'23, respectively. The impact in FY'24 was due in particular to changes in the Brazilian Real, Swedish Krona, Chinese Renminbi, and New Taiwan Dollar. 38 Table of Contents ITEM 8.
Dollar 452 3,269 All other 2,888 4,432 Total $ 523,636 $ 483,178 Debt In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2023, we had $702 million outstanding under our credit facility.
Dollar 16,368 11,855 All other 25,368 21,363 Total $ 1,058,478 $ 523,636 Debt In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2024, we had $753 million outstanding under our credit facility.
Dollar $ 5,135 $ 2,731 Euro / U.S. Dollar 383,227 316,869 British Pound / U.S. Dollar 6,058 7,368 Israeli Shekel / U.S. Dollar 11,852 12,052 Japanese Yen / U.S. Dollar 4,770 25,566 Swiss Franc / U.S. Dollar 32,766 25,559 Swedish Krona / U.S. Dollar 35,085 35,713 Singapore Dollar / U.S. Dollar — 3,637 Chinese Renminbi / U.S.
Dollar $ 781,398 $ 383,227 British Pound / U.S. Dollar 24,810 6,058 Israeli Shekel / U.S. Dollar 12,535 11,852 Japanese Yen / U.S. Dollar 42,340 4,770 Swiss Franc / U.S. Dollar 74,939 32,766 Swedish Krona / U.S. Dollar 48,596 35,085 Chinese Renminbi / U.S. Dollar 32,124 16,660 New Taiwan Dollar / U.S.
Removed
Dollar 16,660 23,965 New Taiwan Dollar / U.S. Dollar 11,855 13,906 Korean Won / U.S. Dollar 6,157 4,919 Danish Krone / U.S. Dollar 6,731 3,192 Australian Dollar / U.S.
Removed
We also had a $620 million deferred acquisition payment liability related to the fair value of the $650 million installment for the ServiceMax acquisition, which we paid in October 2023 leveraging financing from our credit facility.
Removed
As of September 30, 2023, the annual rate on the credit facility loans was 7.18%. If there were a 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be $7 million.

Other PTC 10-K year-over-year comparisons