10q10k10q10k.net

What changed in PTC Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of PTC Inc.'s 2022 and 2023 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 2023 report.

+273 added−275 removedSource: 10-K (2023-11-20) vs 10-K (2022-11-15)

Top changes in PTC Inc.'s 2023 10-K

273 paragraphs added · 275 removed · 176 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

26 edited+28 added−25 removed2 unchanged
Biggest changeThe new reporting structure aligns better to our strategy, product offerings and industry segments. 3 Table of Contents 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.
Biggest changeThis 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 Arena ® SaaS PLM solution enables product teams to collaborate virtually anytime and anywhere, making it easier to share the latest product and quality information with internal teams and supply chain partners and help deliver innovative products to customers faster. Our Arena quality management system software connects quality and product designs into a single system to simplify regulatory compliance.
Our 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.
Windchill provides real-time information sharing, dynamic data visualization, and the ability to collaborate across geographically-distributed teams, enabling manufacturers to elevate their product development process. With its open architecture that integrates with other enterprise systems, Windchill provides a solid foundation for a product-driven digital thread.
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.
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 to deliver workforce productivity and business results in manufacturing, service, engineering, and operations.
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.
Our customer base includes some of the world's most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, retail and consumer products industries.
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.
Our approach is focused on sustainable talent practices and core values that promote an agile culture, an increased sense of belonging, engaged work environments, and high-performing teams. 6 Table of Contents PTC at-a-Glance As of September 30, 2022, PTC had 6,503 full-time employees. Our employee population is geographically diverse and serves a geographically diverse customer and partner network.
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.
We also use license management and other anti-piracy technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of our products. Our proprietary rights are subject to the risks and uncertainties described under Item 1A.
We also use license management and other anti-piracy technology measures, as well as contractual restrictions, to curtail the unauthorized use and distribution of our products. Our proprietary rights are subject to the risks and uncertainties described under Item 1A. Risk Factors below, which is incorporated into this section by reference.
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. Our software portfolio includes award-winning offerings in the computer-aided design (CAD) and product lifecycle management (PLM) markets.
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.
Vuforia solutions equip frontline workers with focused and effective step-by-step instructions, procedural guidance, skill development and remote assistance that enable enterprises to reduce errors, increase asset utilization and drive higher profitability.
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.
The nature and extent of such legal protection depends in part on the type of intellectual property right and the relevant jurisdiction. In the U.S., we are generally able to maintain our trademark registrations for as long as the trademarks are in use and to maintain our patents for up to 20 years from the earliest effective filing date.
In the U.S., we are generally able to maintain our trademark registrations for as long as the trademarks are in use and to maintain our patents for up to 20 years from the earliest effective filing date.
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, and ScopeAR. For our ALM products, we compete with IBM and Siemens AG. For our SLM products, we compete with companies that offer point solutions and with customers’ homegrown solutions.
In our IIoT business, we compete with large established companies such as Amazon, IBM, Oracle, SAP, Siemens AG, and Software AG as well as customers’ homegrown solutions. There are also a number of smaller companies that compete in the market for IIoT products. For our AR products, our primary competitors include Microsoft, TeamViewer SE, and Scope Technologies US Inc.
We derive most of our sales from products and services sold directly by our sales force to end-user customers. Approximately 25% to 30% 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.
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.
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 that will drive success and innovation in meeting the goals of our business.
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.
We generate revenue through the sale of software subscriptions, which include license access and support (technical support and software updates); support for perpetual licenses; cloud services (hosting for our software and software-as-a-service (SaaS)); perpetual licenses; and professional services (consulting, implementation, and training). 1 Table of Contents Our Strategy There are three key elements to our strategy to deliver long-term shareholder value.
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).
Our Onshape ® SaaS product development platform unites computer-aided design with data management, collaboration tools, and real-time analytics. A cloud-native multi-tenant solution that can be instantly deployed on virtually any computer or mobile device, Onshape enables teams to work together from just about anywhere.
A cloud-native multi-tenant solution that can be instantly deployed on virtually any computer or mobile device, Onshape enables teams to work together from just about anywhere. Real-time design reviews, commenting, and simultaneous editing enable a collaborative workflow where multiple design iterations can be completed in parallel and merged into the final design.
Our ThingWorx Digital Performance Management solution enables manufacturers to identify, prioritize, and overcome their most significant production bottlenecks. Our Codebeamer TM and Integrity TM application lifecycle management (ALM) and model-based systems engineering capabilities enable users to accelerate the development of software-intensive products through system modeling, software configuration, and requirements, risk, and test management.
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 Proxy Statements for our Annual Meetings and Section 16 trading reports on SEC Forms 3, 4 and 5 also are available on our website. The reference to our website is not intended to incorporate information on our website into this Annual Report by reference.
Our 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
We launched Windchill+ in the second quarter of 2022. Our Markets and How We Address Them The markets we serve present different growth opportunities for us. We see opportunity for further market growth for all our solutions with a new generation of SaaS solutions we are developing to bring to market over the next few years.
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.
Proprietary Rights Our software products and related technical know-how, along with our trademarks, including our company names, product names and logos, are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection.
We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection. The nature and extent of such legal protection depends in part on the type of intellectual property right and the relevant jurisdiction.
Our strategic alliance partners enable us to increase our market reach, offer broader solutions, and add compelling technology to our offerings. Our strategic services partners provide service offerings to help customers implement our product offerings and transition to SaaS. Additional financial information about our segments and international and domestic operations may be found in Note 18.
Our strategic services partners provide service offerings to help customers implement our product offerings and transition to SaaS. Additional financial information about our international and domestic operations may be found in Note 3. Revenue from Contracts with Customers of Notes to Consolidated Financial Statements in this Annual Report, which information is incorporated herein by reference.
CAD is utilized for product data authoring and PLM is for product data management and process orchestration. Our software can be delivered on premises, in the cloud, or in a hybrid model.
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.
Our Creo ® 3D CAD technology enables the digital design, testing, and modification of product models. With its design simulation, additive manufacturing, and generative design innovations, we enable our customers to be first to market with differentiated products. From initial concept to design, simulation, and analysis, Creo provides designers with innovative tools to efficiently create better products, faster.
With its design simulation, additive manufacturing, and generative design innovations, we enable our customers to be first to market with differentiated products.
Accelerate Digital Thread Solutions With our solutions, we enable companies to adopt a “digital thread” strategy to drive innovation and productivity. 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.
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.
Segment and Geographic Information of Notes to Consolidated Financial Statements in this Annual Report, which information is incorporated herein by reference. Competition We compete with a number of companies whose offerings address one or more specific functional areas covered by our solutions.
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.
Employee Development We invest in our employees, creating meaningful opportunities to learn, grow, develop and advance their careers. We have specific development programs, including our Rotational Leadership Development, Managing at PTC, Leading at PTC, and 360-degree development programs.
Talent Development & Employee Engagement As we focus on enhancing the employee experience, we are increasing our efforts to invest in our people and create meaningful opportunities to learn, grow, develop, and advance their careers. We have specific development programs and coaching programs, as well as numerous other self-led learning paths.
These service offerings will provide an alternative to our traditional on-premises software products and provide our customers with the benefits of SaaS including accelerated time to value, reduced complexity, lower costs to implement, upgrade and administer, improved user collaboration and mobility, and scalability. We are giving this new generation of offerings a “plus” brand.
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.
Removed
This is particularly relevant for larger businesses pursuing a vertically integrated manufacturing strategy in which the reuse and repurposing of earlier innovations drives next generation product offerings.
Added
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.
Removed
Accelerate Product Innovation We enable companies to upend the product development process with solutions that apply agile concepts, originally focused on software development, to the entire product innovation process, from software to hardware and electronics.
Added
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.
Removed
By applying agile product development processes across all three disciplines, companies can increase innovation velocity and bring new products to market faster to meet rapidly changing market demand. This is particularly relevant for start-up and upstart businesses focused on technology-centered innovations that commonly leverage contract manufacturers for production of their designs.
Added
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.
Removed
Accelerate SaaS Transformation Manufacturers today face a myriad of business challenges. Macroeconomic forces, such as an ever-evolving workforce, supply chain disruptions, the rise of smart, connected products, and the need to prove sustainability, are all driving the need for change.
Added
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.
Removed
We enable companies to respond to these challenges with technology that leverages the cloud to transform how, where, and when work gets done. Software-as-a-service (SaaS), which has already reshaped nearly all aspects of business, is poised to transform management of the entire product lifecycle. Anticipating this need, PTC acquired the Onshape and Arena cloud-native product development solutions.
Added
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.
Removed
In parallel, we are heavily investing to transform our technology portfolio to SaaS. Strategic Transactions During FY'22, we completed two strategic transactions. In Q3'22, we acquired the Codebeamer TM application lifecycle management business to broaden and deepen our ALM footprint across safety-critical and regulated industries. In Q3'22, we also sold a portion of our PLM services business to ITC Infotech.
Added
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.
Removed
The transaction is designed to accelerate customer digital transformation initiatives and adoption of our Windchill+ SaaS solution. Refer to Note 6.
Added
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.
Removed
Acquisitions and Disposition of Business of Notes to Consolidated Financial Statements in this Annual Report for additional discussion regarding these transactions. 2 Table of Contents Our Principal Products and Services In 2022, we reported our business in two product groups: Digital Thread and Velocity.
Added
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.
Removed
Digital Thread included products focused on customers that are embracing enterprise-wide digital transformation and Velocity included products focused on customers that prioritize agile product development. Beginning in fiscal year 2023, we are reporting our businesses in two new product groups: CAD (Computer-Aided Design) and PLM (Product Lifecycle Management). Products designated as CAD refer to software used for product data authoring.
Added
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.
Removed
Products designated as PLM refer to software used for product data management and process orchestration.
Added
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.
Removed
Our Servigistics ® service parts management solution enables customers to effectively manage their service parts inventory, enabling them to optimize equipment availability and uptime, and increase customer satisfaction. Our FlexPLM ® solution provides retailers with a single platform for merchandising and line planning, materials management, sampling, and more.
Added
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.
Removed
Real-time design reviews, commenting, and simultaneous editing enable a collaborative workflow where multiple design iterations can be completed in parallel and merged into the final design.
Added
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.
Removed
Our Arbortext ® dynamic publishing solution streamlines how organizations create, manage, and publish technical documentation. 4 Table of Contents To meet the increasing demand for SaaS delivered solutions, we expect to introduce a number of new SaaS offerings over time.
Added
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.
Removed
For enterprise Creo and Windchill solutions, we compete with large established companies including Autodesk, Dassault Systèmes SA, and Siemens AG. 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.
Added
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.
Removed
“Risk Factors” below, which is incorporated into this section by reference. 5 Table of Contents People and Culture PTC’s commitment to building a diverse, equitable, and inclusive culture is fundamental to our purpose – the Power to Create – and critical to every aspect of our talent strategy.
Added
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.
Removed
We provide employees with competitive base salaries, incentive compensation and, in many cases, equity compensation. Our benefits offerings are designed to meet the unique needs of our employees. We believe we provide competitive benefits in each local market we operate in to help our employees care for themselves and their families.
Added
For our ALM products, we compete with IBM, Jama Software, Inc. and Siemens AG.
Removed
Common offerings are health benefits, retirement benefits, life insurance and disability protection, employee assistance, vacation time, holidays and leave benefits.
Added
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.
Removed
To ensure our employees and families have the support they need as the COVID-19 pandemic begins to ease, PTC has continued its global emergency leave policy, which provides for ten days of paid time off over and above regular sick or other time off to recuperate from or care for a family member recovering from COVID-19.
Added
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.
Removed
Commitment to Diversity, Equity, and Inclusion (DEI) We are improving our systems and processes to enable us to better track, manage and develop our employees. With these improvements, we are gaining a better understanding of our current demographic population and developing demographic goals, as we strive to create a more demographically diverse, inclusive, and equitable organization.
Added
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.
Removed
Starting in FY’22, our Self-Identification program invited U.S. employees to volunteer their personal information across categories such as race/ethnicity, sexual orientation, gender identity, pronouns, disability, veteran and military status, and more. By analyzing this information in aggregate, we can determine what we should adjust in terms of DEI programming, policies, and hiring practices.
Added
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.
Removed
Commitment to our values and diversity in our workforce has inspired our top-line company goals. Key milestones include launching leadership development experiences for underrepresented minority and underrepresented group populations, offering learning programs in psychological safety, requiring unconscious bias training for hiring managers, and enhancing our Employee Resource Group (ERG) program and Global DEI Champions Network.
Added
Our 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.
Removed
PTC currently supports 12 ERGs that span a broad spectrum of identities, experiences, and interests: Asian, Black, Early Career, Energize (Health & Wellness), Family, Green (Sustainability), Hola (Hispanic & Latine), Prism (LGBTQ+), SMART (Neurodiversity), Veterans, Virtual, and Women.
Added
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.
Removed
In 2021, we introduced a CEO Rotation program that allows our CEO to spend three months with each ERG as a rotational sponsor. 8 Table of Contents Additional Information About Our Employee Initiatives You can find more information about our employee initiatives, including our DEI, Training and Career Development, Compensation & Benefits, Employee Engagement, and Employee Health & Safety initiatives, in our Corporate Social Responsibility Report available on PTC.com.
Added
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.
Removed
The references to our Corporate Social Responsibility Report and our website are not intended to incorporate information in that report or on our website into this Annual Report by reference.
Added
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.
Removed
Corporate Information PTC was incorporated in Massachusetts in 1985 and is headquartered in Boston, Massachusetts. 9 Table of Contents
Added
Specific offerings differ country by country due to cultural norms, market dynamics, and legal requirements, but we provide a wide variety of core health and financial programs such as healthcare, life and disability insurance, employee assistance plans, retirement savings and pension benefit plans, and generous paid family leave and vacation time.
Added
The variety of options means that employees have the ability to focus on the development path most meaningful to them. Diversity, Equity, and Inclusion (DEI) Commitment to our values and diversity in our workforce is supported by various ongoing efforts. We mitigate bias by coaching managers and leaders in fostering psychologically safe environments.
Added
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.
Added
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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

57 edited+7 added−18 removed24 unchanged
Biggest changeThe types of issues that we may face in integrating and operating the acquired business include: • difficulties managing an acquired company’s technologies or lines of business or entering new markets where we have limited or no prior experience or where competitors may have stronger market positions; • unanticipated operating difficulties in connection with the acquired entities, including potential declines in revenue of the acquired entity; • complications relating to the assumption of pre-existing contractual relationships of an acquired company that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business; • issuing equity awards to, or assuming existing equity awards of, acquired employees, which may more rapidly deplete share reserves available under our shareholder-approved equity incentive plans; • litigation arising from the transaction, including potential intellectual property claims or disputes following our acquisition; • diversion of management and employee attention; • challenges with implementing adequate and appropriate controls, procedures and policies in an acquired business; • potential loss of key personnel in connection with an acquisition; and • potential incompatibility of business cultures. 13 Table of Contents Further, if we do not achieve the expected return on our investments, it could impair the intangible assets and goodwill that we recorded as part of an acquisition, which could require us to record a reduction to the value of those assets.
Biggest changeThe types of issues that we may face in integrating and operating the acquired business include: • difficulties managing an acquired company’s technologies or lines of business or entering new markets where we have limited or no prior experience or where competitors may have stronger market positions; • unanticipated operating difficulties in connection with the acquired entities, including potential declines in sales of the acquired entity; • complications relating to the assumption of pre-existing contractual relationships of an acquired company that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business; • litigation arising from the transaction, including potential intellectual property claims or disputes following an acquisition; • diversion of management and employee attention; • challenges with implementing adequate and appropriate controls, procedures and policies in an acquired business; • potential loss of key personnel in connection with an acquisition; and • potential incompatibility of business cultures.
A significant breach of the security and/or integrity of our products or systems, or those of our third-party service providers, whether or intentional or by human error by our employees or others, could disrupt our business operations or those of our customers, could prevent our products from functioning properly, could enable access to sensitive, proprietary or confidential information of our customers, or could enable access to our sensitive, proprietary or confidential information.
A significant breach of the security and/or integrity of our products or systems, or those of our third-party service providers, whether intentional or by human error by our employees or others, could disrupt our business operations or those of our customers, could prevent our products from functioning properly, could enable access to sensitive, proprietary or confidential information of our customers, or could enable access to our sensitive, proprietary or confidential information.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt agreements. Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt and other obligations.
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.
If these companies fail to perform or if a company terminates or substantially alters the terms of the relationship, we could suffer delays in product development, reduced sales or other operational difficulties and our business, results of operations and financial condition could be materially adversely affected. III.
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.
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. 18 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. 16 Table of Contents ITEM 1B.
The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results. I.
The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, operating results, and prospects. I.
Risks Related to Our Indebtedness Our substantial indebtedness could adversely affect our business, financial condition and results of operations, as well as our ability to meet our payment obligations under our debt. We have a significant amount of indebtedness.
Risks Related to Our Indebtedness Our substantial indebtedness could adversely affect our business, financial condition, results of operations, and prospects, as well as our ability to meet our payment obligations under our debt. We have a substantial amount of indebtedness.
Our stock price has been volatile, which may make it harder to resell shares at a favorable time and price. Market prices for securities of software companies are generally volatile and are subject to significant fluctuations that may be unrelated or disproportionate to the operating performance of these companies.
Risks Related to Our Common Stock Our stock price has been volatile, which may make it harder to resell shares at a favorable time and price. Market prices for securities of software companies are generally volatile and are subject to significant fluctuations that may be unrelated or disproportionate to the operating performance of these companies.
This could require us to incur significant costs of investigation, remediation and/or payment of a ransom; harm our reputation; cause customers to stop buying our products; and cause us to face lawsuits and potential liability, any of which could have a material adverse effect on our business, financial condition and results of operations.
This could require us to incur significant costs of investigation, remediation and/or payment of a ransom; harm our reputation; cause customers to stop buying our products; and cause us to face lawsuits and potential liability, any of which could have a material adverse effect on our business, financial condition, operating results, and prospects.
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. 14 Table of Contents 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. IV.
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.
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.
Risks Related to Acquisitions and Strategic Relationships Businesses we acquire may not generate the revenue and earnings we anticipate and may otherwise adversely affect our business. We have acquired, and intend to continue to acquire, new businesses and technologies.
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.
In addition, any legal action to protect our intellectual property rights that we may bring or be engaged in could be costly, may distract management from day-to-day operations and may lead to additional claims against us, and we may not succeed, all of which would materially adversely affect our operating results.
In addition, any legal action to protect our intellectual property rights that we may bring or be engaged in could be costly, may distract management from day-to-day operations and may lead to additional claims against us, and we may not succeed, all of which could adversely affect our business, financial condition, operating results, and prospects.
We may incur significant debt or issue a material amount of debt or equity securities to finance an acquisition, which could adversely affect our operating flexibility and financial statements.
We may incur significant debt or issue a material amount of debt or equity securities to finance an acquisition, which could adversely affect our operating flexibility, business and prospects.
Our compliance risks are heightened due to the go-to-market approach for our business that relies heavily on a partner ecosystem, the fact that we operate in countries with a higher incidence of corruption and fraudulent business practices than others, the fact that we deal with governments and state-owned business enterprises, and the fact that global enforcement of laws has significantly increased.
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.
We increasingly rely on third-party providers of cloud infrastructure services to deliver our offerings to users on our platform, and any disruption of or interference with our use of these services could adversely affect our business.
We increasingly rely on third-party providers of cloud infrastructure services to deliver our offerings to users on our platform, and any disruption of or interference with our use of these services could adversely affect our business, financial condition, operating results, and prospects.
Risks Related to Our Intellectual Property We may be unable to adequately protect our proprietary rights, which could adversely affect our business and our ability to compete effectively. Our software products are proprietary.
Risks Related to Our Intellectual Property We may be unable to adequately protect our proprietary rights, which could adversely affect our business and our prospects. Our software products are proprietary.
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 financial results and/or stock price. II.
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.
A breach of security in our products or computer systems, or those of our third-party service providers, could compromise the integrity of our products, cause loss of data, harm our reputation, create additional liability and adversely impact our financial results.
A breach of security in our products or computer systems, or those of our third-party service providers, could compromise the integrity of our products, cause loss of data, harm our reputation, create additional liability and adversely affect our business, financial condition, operating results, and prospects.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations and our ability to satisfy our debt obligations.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our ability to satisfy our debt obligations.
If we are unable to successfully establish these new offerings and navigate our business transition due to these risks and uncertainties, our business and financial results could be adversely impacted. Because our sales and operations are globally dispersed, we face additional compliance risks and any compliance failure could adversely affect our business and financial results.
If we are unable to successfully establish these new offerings and navigate our business transition, our business, financial condition, results of operations, and prospects could be adversely affected. Because our sales and operations are globally dispersed, we face additional compliance risks, and any compliance failure could adversely affect our business and prospects.
Whether our transition will be successful and will accomplish our business and financial objectives is subject to uncertainties, including but not limited to: customer demand, attach and renewal rates, channel adoption, our ability to further develop and scale infrastructure, our ability to include functionality and usability in such offerings that address customer requirements, and our costs.
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.
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 15, 2022, we had unused commitments under our credit facility of $641 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 17, 2023, we had unused commitments under our credit facility of approximately $350 million.
Accordingly, there is a risk that a cyberattack or intrusion will be successful and that such event will be material. 10 Table of Contents In addition, we offer cloud services to our customers and some of our products, including our SaaS products, are hosted by third-party service providers, which expose us to additional risks as those repositories of our customers’ proprietary data may be targeted and a cyberattack or intrusion may be successful and material.
In addition, we offer cloud services to our customers and some of our products, including our SaaS products, are hosted by third-party service providers, which expose us to additional risks as those repositories of our customers’ proprietary data may be targeted and a cyberattack or intrusion may be successful and material.
In addition, we frequently encounter attempts by individuals and companies to pirate our software. If our measures to protect our intellectual property rights fail, others may be able to use those rights, which could reduce our competitiveness and revenues.
In addition, we frequently encounter attempts by individuals and companies to pirate our software. If our measures to protect our intellectual property rights fail, others may be able to use those rights, which could reduce our competitiveness and adversely affect our business, financial condition, operating results, and prospects.
If we fail to successfully integrate and manage the businesses and technologies we acquire, if an acquisition does not further our business strategy as we expect, or if a business we acquire has unexpected legal or financial liabilities, our operating results will be adversely affected.
If we fail to successfully integrate and manage the businesses and technologies we acquire, if an acquisition does not further our business strategy or return a level of sales as we expect, or if a business we acquire has unexpected legal or financial liabilities, our business, financial condition, results of operations, and prospects could be adversely affected.
Intellectual property infringement claims could be asserted against us, which could be expensive to defend and could result in limitations on our use of the claimed intellectual property. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights.
Intellectual property infringement claims could be asserted against us, which could be expensive to defend, could result in limitations on our use of the claimed intellectual property, and could adversely affect our business and prospects. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. We have faced such lawsuits from time to time.
If a lawsuit of this type is filed, it could result in significant expense to us and divert the efforts of our technical and management personnel. We cannot be sure that we would prevail against any such asserted claims.
Any such claim could result in significant expense to us and divert the efforts of our technical and management personnel. We cannot be sure that we would prevail against any such asserted claims.
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; • 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.
If we are unable to provide products and solutions that address customers’ needs as well as our competitors’ products and solutions do, or to align our pricing, licensing and delivery models with customer preferences, we could lose customers and/or fail to attract new customers, which could cause us to lose revenue and market share.
If we are unable to provide products and solutions that address customers’ needs as well as our competitors’ products and solutions do, or to align our pricing, licensing and delivery models with customer preferences, we could lose customers and/or fail to attract new customers, which could adversely affect our business, financial condition, operating results, and prospects.
Our success depends upon our ability to attract and retain highly skilled managerial, sales and marketing, technical, financial and administrative personnel to operate and grow our business. Competition for such personnel in our industry is intense, particularly in the Boston, Massachusetts area where our global headquarters is located.
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.
It is impossible for us to eliminate the risk of a successful cyberattack or intrusion, and, in fact, we deal with security issues on a regular basis and have experienced security incidents from time to time.
It is impossible for us to eliminate the risk of a successful cyberattack or intrusion, and, in fact, we regularly deal with security issues and have experienced security incidents from time to time. Accordingly, there is a risk that a cyberattack or intrusion will be successful and that such event will be material.
Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent.
Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent. Such outages could adversely impact our business, financial condition, results of operations, and prospects.
We expect that our international operations will continue to expand and to account for a significant portion of our total revenue. Because we transact business in various foreign currencies, the volatility of foreign exchange rates has had and may in the future have a material adverse effect on our revenue, expenses and operating results.
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.
As of November 15, 2022, our total debt outstanding was approximately $1,359 billion, $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, and $359 million of which was borrowed under our credit facility, which matures in February 2025.
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.
Negative changes in the public’s perception of the prospects of software companies, or of PTC or the markets we serve, could depress our stock price regardless of our operating results. 17 Table of Contents Also, a large percentage of our common stock is held by institutional investors and by Rockwell Automation.
Accordingly, the trading prices and valuations of software companies’ stocks, and of ours, may not be predictable. Negative changes in the public’s perception of the prospects of software companies, or of PTC or the markets we serve, could depress our stock price regardless of our operating results. Also, a large percentage of our common stock is held by institutional investors.
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 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.
Any of the above circumstances or events may harm our reputation and brand, reduce the availability or usage of our platforms and impair our ability to attract new users, any of which could adversely affect our business, financial condition and results of operations. 11 Table of Contents We may be unable to hire or retain personnel with the necessary skills to operate and grow our business, which could adversely affect our ability to compete.
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.
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. dollar, the effects of the Russia—Ukraine conflict, including on the supply of energy resources in Europe, and the U.S.
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.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness.
We may 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.
Risks Related to Our Business Operations and Industry We face significant competition, which may reduce our profitability and limit or reduce our market share. The markets for our products and solutions are rapidly changing and characterized by intense competition, disruptive technology developments, evolving distribution models and increasingly lower barriers to entry.
Risks Related to Our Business Operations and Industry We face significant competition, which could adversely affect our business, financial condition, operating results, and prospects if we are unable to successfully compete. The markets for our products and solutions are rapidly changing and characterized by intense competition, disruptive technology developments, evolving distribution models and increasingly lower barriers to entry.
Government’s focus on technology transactions with non-U.S. entities. In light of these challenges and concerns, customers may delay, reduce, or forego purchases of our solutions, which would adversely affect our business and financial results. If we fail to successfully manage our transition to a SaaS company, our business and financial results could be adversely affected.
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.
Accordingly, our quarterly results are difficult to predict prior to the end of the quarter and we may be unable to confirm or adjust expectations with respect to our operating results for a quarter until that quarter has closed. Any failure to meet our quarterly revenue or earnings expectations could adversely impact the market price of our securities.
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.
This could further exacerbate the risks to our financial condition described above. We and our subsidiaries may be able to incur significant additional indebtedness and other obligations in the future, including secured debt. Although the credit agreement governing our credit facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions.
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.
We sell and deliver software and services, and maintain support operations, in many countries whose laws and practices differ from one another and are subject to unexpected changes.
We sell and deliver software and services, and maintain support operations, in many countries whose laws and practices differ from one another and are subject to unexpected changes. Managing these geographically dispersed operations requires significant attention and resources to ensure compliance with laws of those countries and those of the U.S. governing our activities in non-U.S. countries.
Bribery Act 2010), data privacy laws and regulations (including the European Union's General Data Privacy Regulation), and trade and economic sanctions laws and regulations (including laws administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities).
Department of the Treasury’s Office of Foreign Assets Control, the U.S. State Department, the U.S. Department of Commerce, the United Nations Security Council and other sanctions authorities).
If new debt is added to our current debt levels, or we incur other obligations, the related risks that we now face could intensify. 15 Table of Contents We may not be able to generate enough cash to service all our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
We may not be able to generate enough cash to service all our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful, and could harm our business and prospects.
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.
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.
If we are unable to compete successfully with competitors offering SaaS solutions, we could lose customers and/or fail to attract new customers, which could cause us to lose revenue and market share, which would adversely affect our business and financial results. In addition, competitive pressures could cause us to reduce our prices, which could reduce our revenue and margins.
If we are unable to compete successfully with competitors offering SaaS solutions, we could lose customers and/or fail to attract new customers, which could adversely affect our business, financial condition, operating results, and prospects. Our current and potential competitors range from large and well-established companies to emerging start-ups.
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.
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.
Our inability to maintain or develop our strategic and technology relationships could adversely affect our business. We have many strategic and technology relationships with other companies with which we work to offer complementary solutions and services, that market and sell our solutions and that provide technologies that we embed in our solutions.
We 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.
We might not have enough working capital or liquidity to satisfy any repayment obligations if those obligations were accelerated. In addition, if we are not in compliance with the financial and operating covenants under the credit facility when we wish to borrow funds, we will be unable to borrow funds.
We might not have enough working capital or liquidity to satisfy any repayment obligations if those obligations were accelerated.
If we are unable to attract and retain the personnel we need to develop compelling products and solutions, and guide, operate and support our business, we may be unable to successfully compete, which would adversely affect our business, financial condition and results of operations.
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.
Purchases and sales of our common stock by these investors could have a significant impact on the market price of the stock. VI. General Risk Factors Our international businesses present economic and operating risks, which could adversely affect our business and financial results.
Purchases and sales of our common stock by these investors could have a significant impact on the market price of our stock. If our results of operations do not meet market or analysts’ expectations, our stock price could decline.
The increases in these expenses and in our leverage could constrain our ability to operate as we might otherwise or to borrow additional amounts. If we were to issue a significant amount of equity securities in connection with an acquisition, existing stockholders would be diluted and earnings per share could decrease.
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.
Managing these geographically dispersed operations requires significant attention and resources to ensure compliance with laws of those countries and those of the U.S. governing our activities in non-U.S. countries. 12 Table of Contents Those laws include, but are not limited to, anti-corruption laws and regulations (including the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K.
Those laws include, but are not limited to, anti-corruption laws and regulations (including the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act 2010), data privacy laws and regulations (including the European Union's General Data Privacy Regulation), and trade and economic sanctions laws and regulations (including laws administered by the U.S.
In addition, the financial and operating covenants under the credit facility may limit our ability to borrow funds, including for strategic acquisitions and share repurchases. Our credit facility has variable interest tied to LIBOR and we could become subject to higher interest rates if the replacement rate we agree on with our banks is higher.
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.
Removed
For example, the COVID-19 pandemic caused companies worldwide to close their offices and their employees to have to work remotely from their homes, and there remains uncertainty about the extent to which employees will return to the office in the long term. This has focused companies on the need for solutions that empower and support remote work by employees.
Added
For example, customer demand for SaaS solutions is increasing. While our Arena, ServiceMax, and Onshape solutions are cloud-native SaaS solutions, and we have introduced our Windchill+, Creo+, and Kepware+ SaaS solutions, customers may not adopt them as we expect.
Removed
We believe customers and potential customers will increasingly seek software solutions that support remote work by employees. Although many of our solutions support remote work, others are less efficient at doing so.
Added
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.
Removed
We have embarked on an effort to make our solutions available on a SaaS platform; however, this will require significant effort and investment and we cannot be sure that we will be able to make our solutions available as SaaS solutions as quickly as we expect or that customers will adopt them as we expect.
Added
Further, if we do not achieve the expected return on our investments, it could impair the intangible assets and goodwill that we recorded as part of an acquisition, which could require us to record a reduction to the value of those assets.
Removed
Our current and potential competitors range from large and well-established companies to emerging start-ups.
Added
The increases in these expenses and in our leverage could constrain our ability to operate as we might otherwise or to borrow additional amounts and could adversely affect our business, financial condition, results of operations, and prospects.
Removed
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.
Added
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.
Removed
Such outages could trigger our service level agreements with customers and require us to issue the issuance of credits to our cloud-based product customers, which could adversely impact our business, financial condition and results of operations.
Added
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.
Removed
The technical personnel required to develop our products and solutions are in high demand. If we are unable to attract and retain technical personnel with the requisite skills, our product and solution development efforts could be delayed, which could adversely affect our ability to compete and thereby adversely affect our revenues and profitability.
Added
General Risk Factors Our international businesses present economic and operating risks, which could adversely affect our business and prospects. We expect that our international operations will continue to expand and to account for a significant portion of our total revenue.
Removed
The managerial, sales and marketing, financial and administrative personnel necessary to guide our operations, market and sell our solutions and support our business operations are also in high demand due to intense competition in our industry.
Removed
Becoming a SaaS company requires considerable additional investment in our organization.
Removed
We may not realize the expected benefits from these relationships and such relationships may be terminated by the other party.
Removed
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.
Removed
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.
Removed
Borrowings under our revolving credit facility use the London Interbank Offering Rate (LIBOR) as a benchmark for establishing the interest rate. On March 5, 2021, the Intercontinental Exchange Benchmark Administration, the U.K.
Removed
Financial Conduct Authority (FCA) regulated and authorized administrator of LIBOR, announced, and the FCA confirmed, that one week and two-month USD LIBOR settings will cease on December 31, 2021, and that the USD LIBOR panel for all other tenors will cease on June 30, 2023. 16 Table of Contents The credit facility provides a mechanism pursuant to which we and the administrative agent may agree, under certain circumstances, to transition to an alternate base rate borrowing or amend the credit facility to establish an alternate interest rate to LIBOR that includes consideration of the then-prevailing market convention for determining interest rates for syndicated loans in the United States at that time.
Removed
Although we believe the alternative rates will not materially increase the rates on our credit facility, the final agreed rate may increase the cost of our variable rate indebtedness. V.
Removed
Risks Related to Our Common Stock Our operating results fluctuate from quarter to quarter, making future operating results difficult to predict; failure to meet market expectations could cause the price of our securities to decline.

… 2 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+3 added−0 removed0 unchanged
Biggest changeOf our total of approximately 1,209,000 square feet of leased facilities used in operations, approximately 484,000 square feet are located in the U.S., including 250,000 square feet at our headquarters facility located in Boston, Massachusetts, and approximately 250,000 square feet are located in India, where a significant amount of our research and development is conducted.
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.
ITEM 2. Prope rties We currently have 98 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 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.
Added
Legal Pro ceedings None. ITEM 4. Mine Safety Disclosures Not applicable. PART II ITEM 5.
Added
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.
Added
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+17 added−2 removed0 unchanged
Removed
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, 2022, the close of our fiscal year, and on November 14, 2022, our common stock was held by 1,003 and 1,000 shareholders of record, respectively.
Added
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Removed
ITEM 6. [Re served] 19 Table of Contents
Added
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”).
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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).
Added
All plans adopted covered only sales of PTC common stock. No plans were modified or terminated .
Added
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.
Added
(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.
Added
(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.
Added
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

73 edited+41 added−54 removed37 unchanged
Biggest changeThe following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements. 31 Table of Contents (in millions, except per share amounts) Year ended September 30, 2022 2021 GAAP gross margin $ 1,547.4 $ 1,436.1 Stock-based compensation 22.8 19.3 Amortization of acquired intangible assets included in cost of revenue 25.6 29.8 Non-GAAP gross margin $ 1,595.7 $ 1,485.1 GAAP operating income $ 447.4 $ 380.7 Stock-based compensation 174.9 177.3 Amortization of acquired intangible assets 60.5 59.2 Acquisition and transaction-related charges 13.2 15.0 Restructuring and other charges, net 36.2 2.2 Non-GAAP operating income $ 732.2 $ 634.4 GAAP net income $ 313.1 $ 476.9 Stock-based compensation 174.9 177.3 Amortization of acquired intangible assets 60.5 59.2 Acquisition and transaction-related charges 13.2 15.0 Restructuring and other charges, net 36.2 2.2 Non-operating charges(credits), net (1) (1.4 ) (68.8 ) Income tax adjustments (2) (55.1 ) (191.6 ) Non-GAAP net income $ 541.5 $ 470.2 GAAP diluted earnings per share $ 2.65 $ 4.03 Stock-based compensation 1.48 1.50 Total amortization of acquired intangible assets 0.51 0.50 Acquisition and transaction-related charges 0.11 0.13 Restructuring and other charges, net 0.31 0.02 Non-operating charges(credits), net (1) (0.01 ) (0.58 ) Income tax adjustments (2) (0.47 ) (1.62 ) Non-GAAP diluted earnings per share $ 4.58 $ 3.97 Cash flow from operations $ 435.3 $ 368.8 Capital expenditure (19.5 ) (24.7 ) Free cash flow $ 415.8 $ 344.1 (1) Non-operating net credits for FY'22 include a $29.8 million gain on the sale of a portion of our PLM services business, a $3.4 million gain on sale of an asset, and a $3.0 million gain on sale of an investment, offset by a $34.8 million expense recognized due to the reduction in value of an equity investment in a publicly-traded company.
Biggest change(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.
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 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.
The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based compensation expense; amortization of acquired intangible assets; acquisition and transaction-related charges included in general and administrative expenses; restructuring and other charges, net; non-operating charges; and income tax adjustments.
The non-GAAP financial measures other than free cash flow exclude, as applicable: stock-based compensation expense; amortization of acquired intangible assets; acquisition and transaction-related charges included in General and administrative expenses; restructuring and other charges (credits), net; non-operating charges (credits), net; and income tax adjustments.
Restructuring and other charges, net includes excess facility restructuring charges (credits); impairment and accretion expense charges related to the lease assets of exited facilities; sublease income from previously impaired facilities; and severance costs resulting from reductions of personnel and third-party professional consulting fees related to modifications of our business strategy.
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.
Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.
Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the Senior Note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.
We recognize revenue for the license portion of on-premises subscription contracts up front when we deliver the licenses to the customer, typically on the start date, and we recognize revenue on the support element of on-premises subscription contracts and stand-alone support contracts ratably over the term.
We recognize revenue for the license portion of on-premises subscription contracts up front when we deliver the licenses to the customer, typically on the start date, and we recognize revenue on the support portion of on-premises subscription contracts and stand-alone support contracts ratably over the term.
On-premises license software revenue is generally recognized at the point in time that the software is made available to the customer, while the support and cloud software revenue components are recognized over the term of the contract.
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.
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. 33 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. 29 Table of Contents Revenue Recognition We record revenues in accordance with the guidance provided by ASC 606, Revenue from Contracts with Customers .
These estimates are subject to change as our product offerings change and could have a significant impact due to the difference in the timing of revenue recognition for on-premises licenses and support and/or cloud. Right to exchange. Our multi-year, non-cancellable on-premises subscription contracts provide customers with an annual right to exchange software within the original subscription with other software.
These estimates are subject to change as our product offerings change and could have a significant impact due to the difference in the timing of revenue recognition for on-premises licenses versus support and cloud. Right to exchange. Our multi-year, non-cancellable subscription contracts provide customers with an annual right to exchange software within the original subscription with other software.
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
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
If we were compelled to revise or to account differently for our arrangements, that revision could affect our recorded tax liabilities. 34 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 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.
The results of operations in the table above, and the tables and discussions below about revenue by line of business, product group, and geographic region present both actual percentage changes year over year and percentage changes on a constant currency basis.
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.
Contracts for which our commitment is variable, based on volumes, with no fixed minimum quantities, and contracts that can be canceled without payment penalties are not included in the purchase obligation amounts above. The purchase obligations included above are in addition to amounts included in Current liabilities and Prepaid expenses recorded on our September 30, 2022 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, 2023 Consolidated Balance Sheet.
We have substantial cash requirements in the U.S., but we believe that the combination of our existing U.S. cash and cash equivalents, marketable securities, our ability to repatriate cash to the U.S., future U.S. operating cash flows and cash available under our credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.
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.
Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we engage in strategic transactions, retire debt, 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 decide to retire other debt, engage in strategic transactions, or repurchase shares, any of which could be commenced, suspended, or completed at any time.
Recent Accounting Pronouncements In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations, none of which are expected to have a material impact on our consolidated financial statements. Refer to Note 2.
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.
Non-GAAP Financial Measures The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are: • free cash flow—cash flow from operations • non-GAAP gross margin—GAAP gross margin • non-GAAP operating income—GAAP operating income • non-GAAP operating margin—GAAP operating margin • non-GAAP net income—GAAP net income • non-GAAP diluted earnings or loss per share—GAAP diluted earnings or loss per share Free cash flow is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software.
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.
Expectations for Fiscal 2023 We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under the credit facility and otherwise, will be sufficient to meet our working capital and capital expenditure requirements (which we expect to be approximately $20 million in FY’23) through at least the next twelve months and to meet our known long-term capital requirements.
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.
Critical estimates in valuing certain of the intangible assets include but are not limited to: 35 Table of Contents • future expected cash flows from software license sales, customer support agreements, customer contracts and related customer relationships and acquired developed technologies and trademarks and trade names and • discount rates used to determine the present value of estimated future cash flows.
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.
As of September 30, 2022, we had letters of credit and bank guarantees outstanding of approximately $15 million (of which $0.5 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, cloud, SaaS, and support contracts as of the end of the reporting period.
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.
Our identifiable intangible assets acquired consist of developed technology, core technology, tradenames, customer lists and contracts, and software support agreements and related relationships. Developed technology consists of products that have reached technological feasibility. Core technology represents a combination of processes, inventions and trade secrets related to the design and development of acquired products.
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.
Investors should use our non-GAAP financial measures only in conjunction with our GAAP results. 20 Table of Contents For discussion of our FY'21 results and comparison to our FY'20 results, refer to Management's Discussion and Analysis of Financial Conditions and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
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.
Any share repurchases or debt retirement will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Such 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. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.
As of September 30, 2022, we have a valuation allowance of $17.8 million against net deferred tax assets in the U.S. and a valuation allowance of $4.5 million against net deferred tax assets in certain foreign jurisdictions.
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.
Customer lists and contracts and software support agreements and related relationships represent the underlying relationships and agreements with customers of the acquired company’s installed base. We have generally valued intangible assets using a discounted cash flow model.
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.
These costs may vary in size based on our restructuring plan. Non-operating charges (credits) includes gains or losses associated with sales or changes in value of assets or liabilities which are generally investing or financing in nature, and are inconsistent with our ordinary operating activities.
These costs may vary in size based on our restructuring plan. Non-operating charges (credits), net are gains or losses associated with sales or changes in value of assets or liabilities that are generally investing or financing in nature and are not indicative of our ongoing ordinary operating activities.
For a full description of our revenue accounting policy, refer to Note 2. Summary of Significant Accounting Policies , included in the Notes to Consolidated Financial Statements in this Annual Report. Our sources of revenue include: (1) subscriptions, (2) perpetual licenses, (3) support for perpetual licenses and (4) professional services. Subscriptions include term-based on-premises licenses, Software-as-a-Service (SaaS), and hosting services.
For a full description of our revenue accounting policy, refer to Note 2. Summary of Significant Accounting Policies , included in the Notes to Consolidated Financial Statements in this Annual Report. Our sources of revenue include: (1) subscriptions, (2) perpetual licenses, (3) support for perpetual licenses, and (4) professional services.
We account for this right as a liability. For most contracts, we use the expected value method to determine the liability associated with this right across a portfolio of contracts.
When it applies to on-premises licenses, we account for this right as a liability. For most contracts, we use the expected value method to determine the liability associated with this right across a portfolio of contracts.
Operating margin impact of non-GAAP adjustments: Year ended September 30, 2022 2021 GAAP operating margin 23.1 % 21.1 % Stock-based compensation 9.0 % 9.8 % Total amortization of acquired intangible assets 3.1 % 3.3 % Acquisition and transaction-related charges 0.7 % 0.8 % Restructuring and other charges, net 1.9 % 0.1 % Non-GAAP operating margin 37.9 % 35.1 % 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.
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 and Non-GAAP Financial Measures Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis.
ITEM 7. Management’s Discussion and Analysis of Fin ancial Condition and Results of Operations Operating and Non-GAAP Financial Measures Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis.
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 $161.4 million, with $64.2 million expected to be paid in FY'23 and $97.2 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 $164.7 million, with $75.9 million expected to be paid in FY'24 and $88.8 million thereafter.
(Dollar amounts in millions, except per share data) Year ended September 30, Percent Change 2022 2021 Actual Constant Currency (1) ARR as of September 30 (2) $ 1,572.0 $ 1,468.5 7 % 16 % Total recurring revenue (3) $ 1,736.2 $ 1,616.3 7 % 12 % Perpetual license 34.1 33.0 3 % 6 % Professional services 163.1 157.8 3 % 9 % Total revenue 1,933.3 1,807.2 7 % 11 % Total cost of revenue 386.0 371.1 4 % 7 % Gross margin 1,547.4 1,436.1 8 % 12 % Operating expenses 1,100.0 1,055.3 4 % 6 % Operating income $ 447.4 $ 380.7 17 % 30 % Non-GAAP operating income (1) $ 732.2 $ 634.4 15 % 23 % Operating margin 23.1 % 21.1 % Non-GAAP operating margin (1) 37.9 % 35.1 % Diluted earnings per share $ 2.65 $ 4.03 Non-GAAP diluted earnings per share (1) $ 4.58 $ 3.97 Cash flow from operations (4) $ 435.3 $ 368.8 Capital expenditure (19.5 ) (24.7 ) Free cash flow $ 415.8 $ 344.1 (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 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.
In addition, uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and we reevaluate these items quarterly with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period (up to one year from the acquisition date) and we continue to collect information in order to determine their estimated values.
We reevaluate these items quarterly with any adjustments to our preliminary estimates being recorded to goodwill provided that we are within the measurement period (up to one year from the acquisition date) and we continue to collect information in order to determine their estimated values.
Gross Margin (Dollar amounts in millions) Year ended September 30, 2022 2021 Percent Change Gross margin: License gross margin $ 733.4 $ 676.3 8 % License gross margin percentage 94 % 92 % Support and cloud services gross margin $ 802.8 $ 747.2 7 % Support and cloud services gross margin percentage 81 % 82 % Professional services gross margin $ 11.1 $ 12.6 (11 )% Professional services gross margin percentage 7 % 8 % Total gross margin $ 1,547.4 $ 1,436.1 8 % Total gross margin percentage 80 % 79 % Non-GAAP gross margin (1) $ 1,595.7 $ 1,485.1 7 % Non-GAAP gross margin percentage (1) 83 % 82 % (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, 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.
Revenue by Line of Business (Dollar amounts in millions) Year ended September 30, Percent Change 2022 2021 Actual Constant Currency License (1) $ 782.7 $ 738.1 6 % 10 % Support (2) and cloud services 987.6 911.3 8 % 13 % Total software revenue 1,770.3 1,649.3 7 % 12 % Professional services 163.1 157.8 3 % 9 % Total revenue $ 1,933.3 $ 1,807.2 7 % 11 % (1) Includes perpetual licenses and the license portion of subscription sales.
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.
In FY'22, we recorded gains associated with the sale of assets, including the sale of a portion of our PLM services business. Additionally in FY'22, we recorded a loss associated with the reduction in value of an equity investment in a publicly-traded company.
In FY'22, we recorded gains associated with the sale of assets, including the sale of a portion of our PLM services business, and we recorded a loss associated with the reduction in value of an equity investment in a publicly-traded company. 27 Table of Contents Income tax adjustments include the tax impact of the items above.
As of September 30, 2022, we had cash and cash equivalents of $11 million in the U.S., $105 million in Europe, $128 million in Asia Pacific (including India) and $28 million in other non-U.S. countries.
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.
If FY'22 reported results were converted into U.S. dollars using the rates in effect as of September 30, 2021, ARR as of September 30, 2022 would have been higher by $134 million and operating income in FY'22 would have been $27 million higher. 21 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 may 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, 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.
Contractual Obligations At September 30, 2022, our future contractual obligations were related to debt, leases, pension liabilities, unrecognized tax benefits, and purchase obligations. See Note 9. Debt, Note 19. Leases, Note 14. Pension Plans, and Note 8.
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.
You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures. Executive Overview ARR increased 7% (16% constant currency) to $1,572 million in FY’22 compared to the end of FY’21.
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.
Our constant currency disclosures are calculated by multiplying the results in local currency for FY'22 and FY'21 by the exchange rates in effect on September 30, 2021.
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.
As we continue to expand our SaaS offerings and release additional cloud functionality into our products, and customers begin to migrate from on-premises subscriptions to SaaS products, we expect that over time a higher portion of our revenue will be recognized ratably.
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.
During FY'22, we adopted ASU 2021-08, whereby deferred revenue for acquisitions completed in FY'22 reflect the amounts that would have been deferred as of the acquisition date in accordance with ASC 606.
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.
Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S.
Tax Act, 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.
Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days. As of September 30, 2022, the annual rate for borrowings outstanding was 4.1%, which has subsequently increased to 5.7%. Our credit facility and our Senior Notes are described in Note 9. Debt of Notes to the Consolidated Financial Statements in this Annual Report.
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.
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.
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.
Judgments and Estimates Determination of performance obligations. Our subscriptions are frequently sold as a bundle of products and services, typically pairing on-premises term software licenses with support and/or cloud services over the same term. On-premises software is typically determined to be a distinct performance obligation and is thus recognized separately from the support and/or cloud components.
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.
Operating expenses in FY'22 compared to FY'21 increased primarily due to the following: • a $34 million increase in restructuring charges primarily due to the restructuring plan initiated in Q1’22; • a $9 million increase in travel expenses; • a $6 million increase in intangible amortization expense; • a $6 million increase in software subscriptions; and • a $5 million increase in internal hosting costs; partially offset by: • a $12 million decrease in compensation expense (including benefit costs) due to lower headcount caused by attrition and restructuring actions; and • a $6 million decrease in stock-based compensation. 25 Table of Contents Interest Expense (Dollar amounts in millions) Year ended September 30, 2022 2021 Percent Change Interest and debt premium expense $ (54.3 ) $ (50.5 ) 8 % Interest expense includes interest under our credit facility and senior notes.
Operating 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.
License gross margin increased in FY’22 compared to FY’21 due to an increase in license revenue of $44.6 million and a decrease in cost of license of $12.5 million, which was driven by lower amortization expense, royalty expense and compensation costs. 24 Table of Contents Support and cloud services gross margin increased in FY’22 compared to FY’21 due to increases in support and cloud services revenue of $76.3 million, partially offset by increases in cost of support and cloud services of $20.7 million, which were driven by higher compensation, maintenance and hosting costs.
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.
Operating Expenses (Dollar amounts in millions) Year ended September 30, 2022 2021 Percent Change Sales and marketing $ 485.2 $ 517.8 (6 )% % of total revenue 25 % 29 % Research and development 338.8 299.9 13 % % of total revenue 18 % 17 % General and administrative 204.7 206.0 (1 )% % of total revenue 11 % 11 % Amortization of acquired intangible assets 35.0 29.4 19 % % of total revenue 2 % 2 % Restructuring and other charges, net 36.2 2.2 1545 % % of total revenue 2 % 0 % Total operating expenses $ 1,100.0 $ 1,055.3 4 % The strengthening of the U.S. dollar compared to foreign currencies had a substantial reduction to our operating expense increase in FY'22.
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 valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our capital loss carryforwards, the majority of which do not expire. However, there are limitations imposed on the utilization of such capital losses that could further restrict the recognition of any tax benefits. Prior to the passage of the U.S.
The valuation allowance recorded in the U.S. relates to Massachusetts tax credit carryforwards that we do not expect to realize a benefit from prior to expiration. The valuation allowance recorded against net deferred tax assets of certain foreign jurisdictions is established primarily for our capital loss carryforwards, the majority of which do not expire.
Liquidity and Capital Resources (in millions) September 30, 2022 2021 Cash and cash equivalents $ 272.2 $ 326.5 Restricted cash 0.7 0.5 Total $ 272.9 $ 327.0 Activity for the year included the following: Net cash provided by operating activities $ 435.3 $ 368.8 Net cash used in investing activities $ (201.2 ) $ (687.9 ) Net cash (used in) provided by financing activities $ (264.1 ) $ 370.3 Cash, cash equivalents and restricted cash We invest our cash with highly rated financial institutions and in diversified domestic and international money market mutual funds. cash and cash equivalents include highly liquid investments with original maturities of three months or less.
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.
(4) Cash flow from operations for FY’22 and FY’21 includes $40.8 million and $14.5 million of restructuring payments, respectively. Cash from operations for FY’22 and FY’21 includes $11.8 million and $15.0 million of acquisition and transaction-related payments, respectively.
Cash from operations in FY'23 includes $1.5 million of restructuring payments and $19.6 million of acquisition and transaction-related payments compared to $40.8 million of restructuring payments and $11.8 million of acquisition and transaction-related payments in FY'22.
Diluted EPS in FY'22 included a $35 million non-operating charge associated with the decrease in value of an equity investment in a publicly-traded company, offset by a non-operating $30 million credit associated with the sale of a portion of our PLM services business.
Other income (expense), net in FY’22 included $36 million of recognized gains from the sale of assets, primarily related to the sale of a portion of our PLM services business, offset by a $35 million loss associated with an equity investment in a publicly traded company.
Amortization of acquired intangible assets is a non-cash expense that is impacted by the timing and magnitude of our acquisitions.
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.
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 have been a headwind to reported results in FY’22.
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.
Non-operating credits for FY'21 include a $68.8 million gain associated with an increase in value of an equity investment in a publicly-traded company. (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.
(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.
Subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are also included within acquisition and transaction-related charges. Other transactional charges include third-party costs related to structuring unusual transactions. We do not include these costs when reviewing our operating results internally.
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.
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. 30 Table of Contents Acquisition and transaction-related charges included in General and administrative expenses are direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees.
Acquisition and transaction-related charges included in General and administrative expenses are direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. Subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are also included within acquisition and transaction-related charges.
We ended FY’22 with cash and cash equivalents of $272 million and gross debt of $1.36 billion, with an aggregate interest rate of 3.9%. Results of Operations The following table shows the measures that we consider the most significant indicators of our business performance.
Results of Operations The following table shows the measures that we consider the most significant indicators of our business performance.
Outstanding Debt As of September 30, 2022, we had: (in millions) September 30, 2022 4.000% Senior notes due 2028 $ 500.0 3.625% Senior notes due 2025 500.0 Credit facility revolver 359.0 Total debt 1,359.0 Unamortized debt issuance costs for the Senior notes (8.4 ) Total debt, net of issuance costs $ 1,350.6 Undrawn under credit facility revolver $ 641.0 Undrawn under credit facility revolver available for borrowing $ 625.1 As of September 30, 2022, we were in compliance with all financial and operating covenants of the credit facility and the note indentures.
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.
Debt , included in the Notes to Consolidated Financial Statements in this Annual Report. The average interest rate on our total borrowings was 3.4% in FY'22 and 3.3% in FY'21.
Debt of Notes to the Consolidated Financial Statements in this Annual Report.
At September 30, 2022, cash and cash equivalents totaled $272 million, compared to $327 million at September 30, 2021. 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. A significant portion of our cash is generated and held outside the U.S.
We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers.
We believe ARR is a valuable operating measure to assess the health of a subscription business because it is aligned with the amount that we invoice the customer on an annual basis. We generally invoice customers annually for the current year of the contract.
The items excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. Our management excludes these items when evaluating our ongoing performance and/or predicting our earnings trends, and therefore excludes them when presenting non-GAAP financial measures. Management uses non-GAAP financial measures in conjunction with our GAAP results, as should investors.
The items excluded from these non-GAAP financial measures are normally included in the comparable measures calculated and presented in accordance with GAAP. We do not include these items, which can vary significantly from period to period, when reviewing our operating results internally because we do not consider them to be part of our core operating results.
It also eliminates the effect of the valuation allowance recorded against our net deferred tax assets in those jurisdictions. Additionally, we exclude other material tax items that we do not include when reviewing our operating results internally.
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'22, adjustments include tax expense of $15.5 million related to the sale of a portion of our PLM services business, of which $8.1 million pertains to the basis difference in goodwill. Our FY'21 GAAP results included benefits of $179.7 million related to the release of the valuation allowance on the majority of our U.S. net deferred tax assets.
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.
Income Taxes (Dollar amounts in millions) Year ended September 30, 2022 2021 Percent Change Income before income taxes $ 397.1 $ 391.8 1 % Provision (benefit) for income taxes 84.0 (85.2 ) (199 )% Effective income tax rate 21 % (22 )% In FY’22 and FY’21, our effective tax rate is impacted by our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate.
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.
Cash (used in) provided by financing activities (in millions) Year ended September 30, 2022 2021 Borrowings (repayments) on debt, net $ (91.0 ) $ 432.0 Repurchases of common stock (125.0 ) (30.0 ) Proceeds from issuance of common stock 21.2 21.6 Payments of withholding taxes in connection with stock-based awards (69.0 ) (53.0 ) Payments of principal for financing leases (0.3 ) (0.4 ) Net cash (used in) provided by financing activities $ (264.1 ) $ 370.3 Cash used in financing activities in FY’22 reflects borrowings of $264 million, offset by repayments of $355 million under our credit facility, repurchases of common stock of $125 million, payments of withholding taxes related to stock-based awards of $69 million and proceeds from the issuance of common stock of $21 million.
Cash used in financing activities in FY’22 includes repayments of $355.0 million under our credit facility and repurchases of common stock of $125.0 million, offset by borrowings of $264.0 million to fund our acquisition of the Codebeamer business.
Other Income (Expense) (Dollar amounts in millions) Year ended September 30, 2022 2021 Percent Change Interest income $ 2.5 $ 1.8 39 % Other income (expense), net 1.5 59.7 (97 )% Other income, net $ 4.0 $ 61.5 (93 )% Interest income represents earnings on the investment of our available cash and marketable securities.
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.
IIoT software revenue increased by 7% (10% constant currency) driven by an increase in cloud services revenue. IIoT ARR increased 14% (21% constant currency) in FY'22 compared to FY'21.
CAD ARR grew 12% (10% constant currency) in FY'23 compared to FY'22, driven by Creo.
That FY'22 charge was offset by a gain on the sale of a portion of our PLM services business of $30 million and $6 million of gains on the sale of other assets and investments.
Net credits for FY'22 include a $29.8 million gain on the sale of a portion of our PLM services business, a $3.4 million gain on the sale of an asset, and a $3.0 million gain on the sale of an investment, offset by a $34.8 million charge from the reduction in value of an equity investment in a publicly-traded company.
Business above, in the second half of FY'22, we accelerated this strategy through the sale of a portion of our PLM services business to ITC Infotech. 22 Table of Contents Revenue and ARR by Product Group Software Revenue by Product Group (1) (Dollar amounts in millions) Year ended September 30, Percent Change 2022 2021 Actual Constant Currency Digital Thread - Core $ 1,212.1 $ 1,161.7 4 % 9 % Digital Thread - Growth 249.6 236.7 5 % 9 % Digital Thread - FSG 227.0 210.2 8 % 12 % Digital Thread (Total) 1,688.7 1,608.6 5 % 9 % Velocity 81.6 40.7 101 % 101 % Software revenue $ 1,770.3 $ 1,649.3 7 % 12 % Product lifecycle management (PLM) $ 980.5 $ 862.9 14 % 18 % Computer-aided design (CAD) 789.8 786.4 0 % 5 % Software revenue $ 1,770.3 $ 1,649.3 7 % 12 % (1) We describe our Product Groups for FY'22 and FY'21 and the change for FY'23, including the products in each group, in Part I, Item 1.
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.
Removed
ITEM 7. Management’s Discussion and Analysis of Fin ancial Condition and Results of Operations Forward-Looking Statements Statements in this Annual Report about anticipated financial results, capital developments and growth, as well as about the development of our products, markets and workforce, are forward-looking statements that are based on our current plans and assumptions.
Added
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%.
Removed
Important information about the bases for these plans and assumptions and factors that may cause our actual results to differ materially from these statements is contained below and in Item 1A. “Risk Factors” of this Annual Report. Unless otherwise indicated, all references to a year reflect our fiscal year that ends on September 30.
Added
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.
Removed
Excluding the impact of Codebeamer, which we acquired in the third quarter of FY’22, organic ARR growth was 6% (15% constant currency) in FY’22 compared to FY’21. FY’22 revenue of $1.93 billion increased 7% over FY’21 (11% in constant currency).
Added
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.
Removed
FY’22 operating margin of 23% increased approximately 200 basis points over FY’21 and non-GAAP operating margin of 38% increased approximately 300 basis points. Operating margin improvements are due to higher revenue and continued operating expense discipline. FY’22 diluted EPS was $2.65 compared to $4.03 in FY'21.

… 88 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

18 edited+1 added−0 removed8 unchanged
Biggest changeChanges in foreign currencies relative to the U.S. dollar had an unfavorable impact of $24.2 million and $0.1 million on our consolidated cash balances in 2022 and 2021, respectively, in particular due to changes in the Euro and the Japanese Yen. 38 Table of Contents ITEM 8.
Biggest changeDollar 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.
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.
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.
Given the short maturities and investment grade quality of the portfolio holdings at September 30, 2022, 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, 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.
Cash and cash equivalents As of September 30, 2022, 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, 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.
This change in cash flows and earnings has been calculated based on the borrowings outstanding at September 30, 2022 and a 100 basis point per annum change in interest rate applied over a one-year period.
This 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.
Because we enter into forward contracts only as an economic hedge, any gain or loss on the underlying foreign-denominated balance would be offset by the loss or gain on the forward contract.
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.
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 $32 million and $12 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 $30 million and $6 million, respectively.
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 55% of our revenue and 40% of our expenses were transacted in currencies other than the U.S. dollar.
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.
Gains and losses on forward contracts and foreign currency denominated receivables and payables are included in foreign currency net losses. 37 Table of Contents As of September 30, 2022 and 2021, 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) 2022 2021 Canadian / U.S.
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.
These changes in market interest rates have resulted in fluctuations in interest income earned on our cash and cash equivalents. Interest income will continue to fluctuate based on changes in market interest rates and levels of cash available for investment.
These changes in market interest rates have resulted in fluctuations in interest income earned on our cash and cash equivalents. Interest income will continue to fluctuate based on changes in market interest rates and levels of cash available for investment. Changes in foreign currencies relative to the U.S.
We enter into foreign currency forward contracts to manage our exposure to fluctuations in foreign exchange rates that arise from receivables and payables denominated in foreign currencies. We do not enter into or hold foreign currency derivative financial instruments for trading or speculative purposes, nor do we enter into derivative financial instruments to hedge future cash flows or forecast transactions.
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.
As of September 30, 2022, the annual rate on the credit facility loans was 4.14%. If there were a 100 basis point change in interest rates, the annual net impact to earnings and cash flows would be $3.6 million.
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.
Our foreign currency hedging program uses forward contracts to manage the foreign currency exposures that exist as part of our ongoing business operations. The contracts are primarily denominated in Japanese Yen and European currencies, and have maturities of less than four months.
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.
Foreign currency exchange risk Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign currency exposures relate to Western European countries, Japan, Israel, China and Canada.
Foreign currency exchange risk Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Our most significant foreign currency exposures relate to Eurozone countries, Japan, Sweden, Switzerland, China and India.
Dollar 3,269 2,086 All other 4,432 2,016 Total $ 483,178 $ 563,921 Debt In addition to the $1 billion due under our 2025 and 2028 Senior Notes, as of September 30, 2022, we had $359 million outstanding under our credit facility.
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.
At September 30, 2022, we had cash and cash equivalents of $11 million in the United States, $105 million in Europe, $128 million in Asia Pacific (including India), and $28 million in other non-U.S. countries.
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.
Dollar 23,965 23,297 New Taiwan Dollar / U.S. Dollar 13,906 3,369 Russian Ruble/ U.S. Dollar — 2,614 Korean Won/ U.S. Dollar 4,919 — Danish Krone/ U.S. Dollar 3,192 2,380 Australian Dollar/ U.S.
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.
Dollar $ 2,731 $ 4,894 Euro / U.S. Dollar 316,869 387,466 British Pound / U.S. Dollar 7,368 23,141 Israeli Shekel / U.S. Dollar 12,052 10,475 Japanese Yen / U.S. Dollar 25,566 46,450 Swiss Franc / U.S. Dollar 25,559 18,039 Swedish Krona / U.S. Dollar 35,713 34,196 Singapore Dollar / U.S. Dollar 3,637 3,498 Chinese Renminbi / U.S.
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.
Added
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.

Other PTC 10-K year-over-year comparisons