Quarterly Report (Form 10-Q)

ptc-10q_20220331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2022

OR

For the transition period from_ to_

Commission File Number: 0-18059

PTC Inc.

(Exact name of registrant as specified in its charter)

121 Seaport Boulevard, Boston, MA02210

(Address of principal executive offices, including zip code)

(781) 370-5000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑

There were 116,975,944 shares of our common stock outstanding on May 4, 2022.

PTC Inc.

INDEX TO FORM 10-Q

For the Quarter Ended March 31, 2022

Table of Contents

PART I-FINANCIAL INFORMATION

PTC Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

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

1

Table of Contents

PTC Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

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

2

Table of Contents

PTC Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

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

3

Table of Contents

PTC Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

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

4

Table of Contents

PTC Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

(unaudited)

5

Table of Contents

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

6

Table of Contents

PTC Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

General

The accompanying unaudited condensed consolidated financial statements include the accounts of PTC Inc. and its wholly owned subsidiaries and have been prepared by management in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. While we believe that the disclosures presented are adequate in order to make the information not misleading, these unaudited quarterly financial statements should be read in conjunction with our annual consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair statement of our financial position, results of operations and cash flows at the dates and for the periods indicated. The September 30, 2021 Consolidated Balance Sheet included herein is derived from our audited consolidated financial statements.

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

Risks and Uncertainties - COVID-19 Pandemic

The COVID-19 pandemic that began in early 2020 continues to significantly affect global economic activity and create macroeconomic uncertainty.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the COVID-19 pandemic as of March 31, 2022 and through the date of this report. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, stock-based compensation, the carrying value of our goodwill and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While our assessment did not result in a material impact to our consolidated financial statements as of and for the quarter ended March 31, 2022, our future assessment could result in material impacts to our consolidated financial statements in future reporting periods.

Recently Adopted Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued Accounting Standards Update ASU 2019-12, Income Taxes (Topic 740) on Simplifying the Accounting for Income Taxes. The decisions reflected in ASU 2019-12 update specific areas of ASC 740, Income Taxes, to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. The new standard became effective for us in this first quarter of 2022 ending December 31, 2021 and did not have a material impact on our consolidated financial statements.

Pending Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides optional guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. ASU 2020-04 is effective for all entities upon issuance through December 31, 2022. We are still evaluating the impact, but do not expect the standard to have a material impact on our consolidated financial statements.

7

Table of Contents

Business Combinations

In October 2021, the FASB issued Accounting Standards Update ASU 2021-08, Business Combinations (Topic 805) on Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to 1) recognition of an acquired contract asset and liability, and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 will be effective for us in the first quarter of 2024, though we anticipate adopting the standard during 2022. We are currently evaluating the impact the standard will have on our consolidated financial statements, but at this time we do not expect it to be material based on contract assets and liabilities expected to be acquired.

2. Revenue from Contracts with Customers

Contract Assets and Contract Liabilities

As of March 31, 2022, $11.5 million of our contract assets are expected to be transferred to receivables within the next 12 months and therefore are included in other current assets. The remainder is included in other long-term assets and expected to be transferred within the next 24 months. Approximately $6.8 million of the September 30, 2021 contract asset balance was transferred to receivables during the six months ended March 31, 2022 as a result of the right to payment becoming unconditional. Additions to contract assets of approximately $10.1 million related to revenue recognized in the period, net of billings. The majority of the contract asset balance relates to two large professional services contracts with invoicing terms based on performance milestones. There were no impairments of contract assets during the six months ended March 31, 2022.

During the six months ended March 31, 2022, we recognized $357.9 million of revenue that was included in deferred revenue as of September 30, 2021 and there were additional deferrals of $394.9 million, primarily related to new billings. For subscription contracts, we generally invoice customers annually. The balance of total short- and long-term receivables as of March 31, 2022 was $726.9 million, compared to total short- and long-term receivables as of September 30, 2021 of $744.6 million.

Our multi-year, non-cancellable on-premise subscription contracts provide customers with an annual right to exchange software within the subscription with other software. As of March 31, 2022 and September 30, 2021, the total refund liability was $36.2 million and $40.3 million, respectively, primarily associated with the annual right to exchange on-premise subscription software.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic conditions, and accounts receivable aging trends. Our allowance for doubtful accounts on trade accounts receivable was $0.7 million as of March 31, 2022 and $0.3 million as of September 30, 2021. Uncollectible trade accounts receivable written-off and bad debt expense were immaterial in the three and six months ended March 31, 2022.

Costs to Obtain or Fulfill a Contract

We recognize an asset for the incremental costs of obtaining a contract with a customer if the benefit of those costs is expected to be longer than one year. These deferred costs are primarily related to commissions. As of March 31, 2022 and September 30, 2021, deferred costs of $40.6 million and $40.2 million, respectively, are included in other current assets and $78.0 million and $81.1 million, respectively, are included in other assets (non-current). Amortization expense related to costs to obtain a contract with a customer was $12.7 million and $24.3 million in the three and six months ended March 31, 2022, respectively, and $11.0 million and $21.4 million in the three and six months ended March 31, 2021, respectively. There were no impairments of the contract cost asset in the three and six months ended March 31, 2022 and March 31, 2021.

Remaining Performance Obligations

Our contracts with customers include transaction price amounts allocated to performance obligations that will be satisfied at a later date. As of March 31, 2022, the transaction price amounts include performance obligations of $534.7 million recorded in deferred revenue and $1,019.4 million that are not yet recorded in the Consolidated Balance Sheets. We expect to recognize approximately 83% of the total $1,554.1 million over the next 24 months, with the remaining amount thereafter.

8

Table of Contents

Disaggregation of Revenue

(1) Recurring revenue is comprised of subscription, perpetual support, SaaS, and cloud revenue.

For further disaggregation of revenue by geographic region and product group see Note 11. Segment and Geographic Information.

3. Restructuring and Other Charges

Restructuring and other charges, net includes restructuring charges (credits) and impairment and accretion expense charges related to the lease assets of exited facilities. Refer to Note 14. Leasesfor additional information about exited facilities.

In the three months ended March 31, 2022, restructuring and other charges, net totaled a credit of $1.6 million, of which $1.1 million is attributable to restructuring credits, and $0.5 million is attributable to sublease income related to exited lease facilities. We made cash payments related to restructuring charges of $17.3 million ($16.5 million related to the 2022 restructuring described below, $0.1 million related to a prior period restructuring, and $0.7 million in payments for facilities restructured in prior period).

In the six months ended March 31, 2022, restructuring and other charges, net totaled $32.4 million of which $33.1 million is attributable to restructuring charges, offset by a $0.7 million credit attributable to sublease income related to exited lease facilities. We made cash payments related to restructuring charges of $27.1 million ($25.6 million related to the 2022 restructuring described below, $0.1 million related to a prior period restructuring, and $1.4 million in payments for facilities restructured in prior periods).

In the three and six months ended March 31, 2021, restructuring and other charges, net totaled $0.5 million and $0.7 million, respectively, of which $0.2 million and $0.4 million is attributable to restructuring charges, respectively, and $0.3 million and $0.3 million is attributable to impairment and accretion expense related to exited facilities, respectively.

Restructuring Charges

In the first quarter of 2022, we committed to a plan to restructure our workforce and consolidate select facilities to align our customer facing and product-related functions with the SaaS industry best practices and accelerate the opportunity for our on-premise customers to move to the cloud. The restructuring plan resulted in credits of $0.5 million and charges of $33.6 million in the second quarter and first six months of 2022, primarily associated with the termination benefits of approximately 330 employees, in addition to the $1.7 million of professional fees recorded in the fourth quarter of 2021 in connection with the re-organization. We are anticipating total restructuring charges for this plan to be $35 to $40 million.

In the first quarter of 2020, we initiated a restructuring program as part of a realignment associated with expected synergies and operational efficiencies related to the Onshape acquisition. The restructuring plan resulted in charges of $30.8 million through fiscal year 2020 for termination benefits associated with approximately 250 employees. During the six months ended March 31, 2022 and March 31, 2021, we incurred credits of $0.1 million and charges of $0.2 million respectively, in connection with this restructuring plan.

9

Table of Contents

The following table summarizes restructuring accrual activity for the six months ended March 31, 2022:

The following table summarizes restructuring accrual activity for the six months ended March 31, 2021:

The accrual for employee severance and related benefits is included in accrued compensation and benefits in the Consolidated Balance Sheets.

The accrual for facility closures and related costs is included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.

4. Stock-based Compensation

Our equity incentive plan provides for grants of nonqualified and incentive stock options, common stock, restricted stock, restricted stock units (RSUs) and stock appreciation rights to employees, directors, officers and consultants. We award RSUs as our principal equity incentive awards.

The following table shows RSU activity for the six months ended March 31, 2022:

The following table presents the number of RSU awards granted by award type:

10

Table of Contents

The weighted-average fair value of the TSR RSUs was 136.43 per target RSU on the grant date. The fair value of the TSR RSUs was determined using a Monte Carlo simulation model.

The significant assumptions used in the Monte Carlo simulation model were as follows:

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

Stock-based compensation expense includes $1.3 million and $3.2 million in the second quarter and first six months of 2022, respectively, and $1.8 million and $3.8 million in the second quarter and first six months of 2021, respectively, related to our employee stock purchase plan.

5. Earnings per Share (EPS) and Common Stock

EPS

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

Anti-dilutive shares for the three and six months ended March 31, 2022 and for the three and six months ended March 31, 2021 were immaterial.

Common Stock Repurchases

Our Articles of Organization authorize us to issue up to 500 million shares of our common stock. Our Board of Directors has authorized us to repurchase up to $1 billion of our common stock in the period October 1, 2020 through September 30, 2023. In the second quarter and first six months of 2022 we repurchased 43 thousand shares for $5.3 million and 1,046 thousand shares for $125.0 million, respectively. We did not repurchase any shares in the second quarter and first six months of 2021. All shares of our common stock repurchased are automatically restored to the status of authorized and unissued.

6. Acquisitions

Acquisition and transaction-related costs in the second quarter and first six months of 2022 totaled $3.9 million and $5.0 million, respectively, compared to $10.3 million and $14.2 million, respectively, in the second quarter and first six months of 2021. These costs are classified in general and administrative expenses in the accompanying Consolidated Statements of Operations.

11

Table of Contents

Acquisitionand transaction-related costs include direct costs of potential and completed acquisitions (e.g., investment banker fees and professional fees, including legal and valuation services), expenses related to acquisition integration activities (e.g., professional fees and severance), and other transactional charges include third-party costs related to structuring unusual transactions. In addition, subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition-related charges.

Our results of operations include the results of acquired or sold businesses beginning on their respective acquisition or sale date. Our results of operations for the reported periods if presented on a pro forma basis would not differ materially from our reported results.

Arena

On January 15, 2021, we acquired Arena Holdings, Inc. ("Arena") pursuant to the Agreement and Plan of Merger dated as of December 12, 2020 by and among PTC, Arena, Astronauts Merger Sub, Inc., and the Representative named therein, the material terms of which are described in the Form 8-K filed by us on December 14, 2020 and which is filed as Exhibit 1.1 to that Form 8-K. We paid approximately $715 million, net of cash acquired of $11.1 million, for Arena, which amount was financed with cash on hand and $600 million borrowed under our existing credit facility. Arena had approximately 170 employees on the close date. The acquisition of Arena added revenue of approximately $29.8 million in FY'21, which is net of approximately $9.1 million in fair value adjustments related to purchase accounting for the acquisition.

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

The purchase price allocation resulted in $562.8 million of goodwill, $155.0 million of customer relationships, $38.3 million of purchased software, $4.2 million of trademarks, $41.3 million of deferred tax liabilities, $15.5 million of deferred revenue, $11.4 million of accounts receivable, and $0.4 million of other net liabilities. The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 13 years, 9 years, and 12 years, respectively, based on the expected economic benefit pattern of the assets. The acquired goodwill was allocated to our software products segment and will not be deductible for income tax purposes. The resulting amount of goodwill reflects the expected value that will be created by participation in expected future growth of the PLM SaaS market and expansion into the mid-market for PLM, where SaaS solutions are becoming the standard.

Refer to Note 16. Subsequent Eventsfor additional information regarding the acquisition of Intland Software in April 2022.

7. Goodwill and Intangible Assets

We have two operating and reportable segments: (1) Software Products and (2) Professional Services. We assess goodwill for impairment at the reporting unit level. Our reporting units are determined based on the components of our operating segments that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by segment management. Our reporting units are the same as our operating segments.

As of March 31, 2022, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $2,496.7 million and attributable to our Professional Services segment was $44.8 million. As of September 30, 2021, goodwill and acquired intangible assets in the aggregate attributable to our Software Products segment was $2,525.7 million and attributable to our Professional Services segment was $45.2 million. Acquired intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We evaluate goodwill for impairment in the third quarter of our fiscal year, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of a reporting segment below its carrying value. Factors we consider important, on an overall company basis and segment basis, when applicable, that could trigger an impairment review include significant under-performance relative to historical or projected future operating results, significant changes in our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period and a reduction of our market capitalization relative to net book value.

12

Table of Contents

We completed our annual goodwill impairment review as of June 30, 2021based on a qualitativeassessment. Our qualitative assessment included company-specific (e.g., financial performance and long-range plans), industry, and macroeconomic factors, as well as consideration of the fair value of each reporting unit relative to its carrying value at the last valuation date (June 27, 2020). Based on our qualitative assessment, we believe it is more likely than not that the fair values of our reporting units exceed their carrying values and nofurther impairment testing is required.Through March 31, 2022, there were no eventsor changes in circumstances that indicated that the carrying values of goodwill or acquired intangible assets may not be recoverable.

Goodwill and acquired intangible assets consisted of the following:

Goodwill

Changes in goodwill presented by reportable segments were as follows:

Amortization of Intangible Assets

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

8. Fair Value Measurements

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. GAAP prescribes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. There are three levels of inputs that may be used to measure fair value:

13

Table of Contents

A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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

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

Our significant financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and September 30, 2021 were as follows:

Level 3 Investments

Convertible Note

In the fourth quarter of 2021, we invested $2.0 million into a non-marketable convertible note. This debt security is classified as available-for-sale and is included in other assets on the Consolidated Balance Sheet. There were no changes in the fair value of this level 3 investment in the three and six months ended March 31, 2022.

Non-Marketable Equity Investments

The carrying value of our non-marketable equity investments is recorded in other assets on the Consolidated Balance Sheets and totaled $2.2 million for the periods ended March 31, 2022 and September 30, 2021, respectively.

14

Table of Contents

Equity Securities

During the quarter ended March 31, 2022, PTC sold all shares held in a publicly-traded company, Matterport. The shares sold included those held as of September 30, 2021, as well as additional shares which PTC earned during the quarter based on contingent earn-outs achieved in January based on achievement of stock value milestones. Shares related to the original investment were restricted from sale until January 2022 (six months after Matterport, Inc. became a public company). At expiration of this lock-out we sold all shares held from the original investment for $39.1 million at an average price of $9.1 per share. In February 2022, we additionally sold $3.6 million of shares at an average share price of $7.6 per share. Due to the decline in the price per share during fiscal 2022, for the three and six months ended March 31, 2022 we recognized a loss of $44.6 million and $34.8 million respectively, in other expense, net on the Consolidated Statements of Operations. The aggregate realized gain from the original investment of $8.7 million was $34.0 million.

The following table provides a summary of changes in the fair value of our Level 3 investment in the Matterport, Inc. shares from October 1, 2021 to March 31, 2022:

9. Marketable Securities

We did not hold any marketable securities as of September 30, 2021 or March 31, 2022. In December 2020, we sold our remaining marketable securities to partially fund the Arena acquisition, resulting in proceeds of $56.2 million. Neither gross realized gains nor gross realized losses related to the sale were material.

10. Derivative Financial Instruments

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

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

Non-Designated Hedges

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

15

Table of Contents

We hedge our forecasted U.S. Dollar cash flows with foreign exchange options to reduce the risk that they will be adversely affected by changes in Euro or Japanese Yen exchange rates. These contracts have maturities of up to approximately seven months. We do not designate these foreign currency options as hedges for accounting purposes and changes in the fair value of these instruments are recognized immediately in earnings. Because we enter into options as an economic hedge, currency impacts on the Euro or Japanese Yen-denominated operations as compared to the forecasted plan rate may be partially offset by the gain on the put option. Gain on put options are included in Other expense, net.

As of March 31, 2022 and September 30, 2021, we had outstanding forward contracts and options with notional amounts equivalent to the following:

The following table shows the effect of our non-designated hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2022 and March 31, 2021:

In thethree months ended March 31, 2022 and March 31, 2021, foreign currency gains, net were $0.4 million and foreign currency losses, net were $2.4 million, respectively. In the six months ended March 31, 2022 and March 31, 2021 foreign currency losses, net were $4.0 million and $4.2 million, respectively.

Net Investment Hedges

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

16

Table of Contents

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

As of March 31, 2022 and September 30, 2021, we had outstanding forward contracts designated as net investment hedges with notional amounts equivalent to the following:

The following table shows the effect of our derivative instruments designated as net investment hedges in the Consolidated Statements of Operations for the three and six months ended March 31, 2022 and March 31, 2021:

As of March 31, 2022, we estimate that all amounts reported in accumulated other comprehensive loss will be applied against exposed balance sheet accounts upon translation within the next three months.

Offsetting Derivative Assets and Liabilities

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

The following table sets forth the offsetting of derivative assets as of March 31, 2022:

The following table sets forth the offsetting of derivative liabilities as of March 31, 2022:

17

Table of Contents

11. Segment and Geographic Information

We operate within a single industry segment - computer software and related services. Operating segments as defined under GAAP are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our President and Chief Executive Officer. We have two operating and reportable segments: (1) Software Products, which includes license, subscription and related support revenue (including updates and technical support) for all our products; and (2) Professional Services, which includes consulting, implementation and training services. We do not allocate sales and marketing or general and administrative expense to our operating segments as these activities are managed on a consolidated basis. Additionally, segment profit does not include stock-based compensation, amortization of intangible assets, restructuring charges and certain other identified costs that we do not allocate to the segments for purposes of evaluating their operational performance.

The revenue and profit attributable to our operating segments are summarized below. We do not produce asset information by reportable segment; therefore, it is not reported.

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

18

Table of Contents

12. Income Taxes

In the second quarter and first six months of 2022 and 2021, our effective tax rate differed from the statutory federal income tax rate of 21% due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and the Cayman Islands. In 2022 and 2021, the foreign rate differential predominantly relates to these earnings.

In 2022 and 2021, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.

In the second quarter and first six months of 2021, our results also include the effects of the full valuation allowance which was maintained against our U.S. net deferred tax assets at that time. In the second quarter of 2021, we reduced our previously established U.S. valuation allowance by $42.3 million as a result of the Arena acquisition. Additionally, in the first six months of 2021, our results also include a charge of $36.1 million related to the effects of an unrecognized tax benefit in the Republic of Korea (South Korea), primarily related to foreign withholding taxes.

We reassess our valuation allowance requirements each financial reporting period. We assess available positive and negative evidence to estimate whether sufficient future taxable income will be generated to use our existing deferred tax assets. In the assessment for the period ended September 30, 2021, we concluded it was more likely than not that our deferred tax assets related to United States federal and state income would be realizable, and therefore, the United States federal and the majority of the state valuation allowances were released in the fourth quarter of 2021. In the second quarter of 2022, we continue to maintain this conclusion.

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

As of March 31, 2022 and September 30, 2021, we had unrecognized tax benefits of $24.1 million and $21.2 million, respectively. If all our unrecognized tax benefits as of March 31, 2022 were to become recognizable in the future, we would record a benefit to the income tax provision of $24.1 million, which would be partially offset by an increase in the U.S. valuation allowance of $4.8 million.

Although we believe our tax estimates are appropriate, the final determination of tax audits and any related litigation could result in favorable or unfavorable changes in our estimates. We believe it is reasonably possible that within the next 12 months the amount of unrecognized tax benefits related to the resolution of multi-jurisdictional tax positions could be reduced by up to $3 million.

13. Debt

At March 31, 2022 and September 30, 2021, we had the following long-term debt obligations:

19

Table of Contents

Senior Unsecured Notes

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

As of March 31, 2022, the total estimated fair value of the 2028 and 2025 notes was approximately $488.0 million and $495.6 million, respectively, based on quoted prices for the notes on that date.

We were in compliance with all the covenants for all of our senior notes as of March 31, 2022.

Terms of the 2028 and 2025 Notes

Interest on the 2028 and 2025 notes is payable semi-annually on February 15 and August 15. The debt indenture for the 2028 and 2025 notes includes covenants that limit our ability to, among other things, incur additional debt, grant liens on our properties or capital stock, enter into sale and leaseback transactions or asset sales, and make capital distributions.

We may, on one or more occasions, redeem the 2028 and 2025 notes in whole or in part at specified redemption prices. In certain circumstances constituting a change of control, we will be required to make an offer to repurchase the notes at a purchase price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest. Our ability to repurchase the notes upon such event may be limited by law, by the indenture associated with the notes, by our then-available financial resources or by the terms of other agreements to which we may be party at such time. If we fail to repurchase the notes as required by the indenture, it would constitute an event of default under the indenture which, in turn, may also constitute an event of default under other obligations.

Credit Agreement

In February 2020, we entered into a Third Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., as Administrative Agent, for a new secured multi-currency bank credit facility with a syndicate of banks. We expect to use the new credit facility for general corporate purposes, including acquisitions of businesses, share repurchases and working capital requirements.

The credit facility consists of a $1 billion revolving credit facility, which may be increased by up to an additional $500 million in the aggregate if the existing or additional lenders are willing to make such increased commitments. The maturity date of the credit facility is February 13, 2025, when all remaining amounts outstanding will be due and payable. The revolving loan commitment does not require amortization of principal and may be repaid in whole or in part prior to the scheduled maturity date at our option without penalty or premium. As of March 31, 2022, the fair value of our credit facility approximates its book value.

PTC and certain eligible foreign subsidiaries are eligible borrowers under the credit facility. Any borrowings by PTC Inc. under the credit facility would be guaranteed by PTC Inc.'s material domestic subsidiaries that become parties to the subsidiary guaranty, if any. As of the filing of this Form 10-Q, there are no subsidiary guarantors of the obligations under the credit facility. Any borrowings by eligible foreign subsidiary borrowers would be guaranteed by PTC Inc. and any subsidiary guarantors. As of the filing of this Form 10-Q, no funds were borrowed by an eligible foreign subsidiary borrower. In addition, owned property (including equity interests) of PTC and certain of its material domestic subsidiaries' owned property is subject to first priority perfected liens in favor of the lenders under this credit facility. 100% of the voting equity interests of certain of PTC's domestic subsidiaries and 65% of its material first-tier foreign subsidiaries are pledged as collateral for the obligations under the credit facility.

Loans under the credit facility bear interest at variable rates which reset every 30 to 180 days depending on the rate and period selected by PTC as described below. As of March 31, 2022, the annual rate for borrowings outstanding was 1.81%. Interest rates on borrowings outstanding under the credit facility range from 1.25% to 1.75% above an adjusted LIBO rate (or an agreed successor rate) for Euro currency borrowings or range from 0.25% to 0.75% above the defined base rate (the greater of the Prime Rate, the NYFRB rate plus 0.5%, or an adjusted LIBO rate plus 1%) for base rate borrowings, in each case based upon PTC's total leverage ratio. A quarterly commitment fee on the undrawn portion of the credit facility is required, ranging from 0.175% to 0.30% per annum based upon PTC's total leverage ratio.

The credit facility limits PTC's and its subsidiaries' ability to, among other things: incur additional indebtedness, incur liens or guarantee obligations; pay dividends (other than to PTC) and make other distributions; make investments and enter into joint ventures; dispose of assets; and engage in transactions with affiliates, except on an arms-length basis. Under the credit facility, PTC and its material domestic subsidiaries may not invest cash or

20

Table of Contents

property in, or loan to, PTC's foreign subsidiaries in aggregate amounts exceeding $100million for any purpose and an additional $200million for acquisitions of businesses. In addition, under the credit facility, PTC and its subsidiaries must maintain the following financial ratios:

As of March 31, 2022, our total leverage ratio was 1.84 to 1.00, our senior secured leverage ratio was 0.41 to 1.00 and our interest coverage ratio was 14.46 to 1.00 and we were in compliance with all financial and operating covenants of the credit facility.

Any failure to comply with the financial or operating covenants of the credit facility would prevent PTC from being able to borrow additional funds, and would constitute a default, permitting the lenders to, among other things, accelerate the amounts outstanding, including all accrued interest and unpaid fees, under the credit facility and to terminate the credit facility. A change in control of PTC, as defined in the agreement, also constitutes an event of default, permitting the lenders to accelerate the indebtedness and terminate the credit facility.

In the second quarter and first six months of 2022, we paid $21.5 million and $23.8 million of interest on our debt, respectively, and $19.8 million and $20.5 million in the second quarter and first six months of 2021, respectively. The average interest rate on borrowings outstanding was approximately 3.2% and 3.2% during the second quarter and first six months of 2022, respectively, and 3.3% and 3.5% during the second quarter and first six months of 2021, respectively.

Refer to Note 16. Subsequent Eventsfor additional information regarding additional borrowing in April 2022 under the existing credit facility for the purchase of Intland Software.

14. Leases

Our operating leases expire at various dates through 2037 and are primarily for office space, cars, servers, and office equipment.

Our headquarters are located at 121 Seaport Boulevard, Boston, Massachusetts. In February 2019, we subleased a portion of our headquarters through June 30, 2022. We will receive approximately $9.1 million in sublease income over the term of the sublease. In March 2022, we have extended the sublease through June 30, 2023, and we will receive additional sublease income over the term of the extension of approximately $2.9 million.

The components of lease cost reflected in the Consolidated Statement of Operations for the three and six months ended March 31, 2022 and March 31, 2021 were as follows:

21

Table of Contents

Supplemental cash flow and right-of-use assets information for the three and six months ended March 31, 2022 was as follows:

Supplemental balance sheet information related to the leases as of March 31, 2022 was as follows:

Maturities of lease liabilities as of March 31, 2022 are as follows:

Exited (Restructured) Facilities

As of March 31, 2022, we had net liabilities of $1.7 million related to excess facilities (compared to $3.6 million at September 30, 2021), representing $0.3 million of right-of-use assets and $2.0 million of lease obligations, all of which is classified as short term. Variable costs related to these exited facilities are included in our restructuring accrual. All expenses and income associated with exited facilities are included in restructuring and other charges, net (refer to Note 3. Restructuring and Other Charges).

In determining the amount of right-of-use assets for restructured facilities, we are required to estimate such factors as future vacancy rates, the time required to sublet properties and sublease rates. Updates to these estimates may result in revisions to the value of right-of-use assets recorded. The amounts recorded are based on the net present value of estimated sublease income. As of March 31, 2022, the right-of-use assets for exited facilities reflects discounted committed sublease income of approximately $0.7 million.

In the three and six months ended March 31, 2022, we made payments of $0.6 million and $1.3 million, respectively, related to lease costs for exited facilities. In the three and six months ended March 31, 2021, we made payments of $2.5 million and $6.3 million, respectively.

22

Table of Contents

15. Commitments and Contingencies

As March 31, 2022 and March 31, 2021, we had letters of credit and bank guarantees outstanding of $15.2 million (of which $0.5 million was collateralized) and $16.3 million (of which $0.5 million was collateralized), respectively, primarily related to our corporate headquarters lease.

Legal and Regulatory Matters

Legal Proceedings

With respect to legal proceedings and claims, we record an accrual for a contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

401(k) Plan

On September 17, 2020, three individual plaintiffs filed a putative class action lawsuit against PTC, the Investment Committee for the PTC Inc. 401(k) Plan ("Plan"), and the Board of Directors (collectively, the "PTC Defendants") in the U.S. District Court for the District of Massachusetts alleging claims regarding the Plan. Plaintiffs allege that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA") in the oversight of the Plan, principally by allegedly selecting and retaining certain investment options despite their higher fees and costs than other available investment options, causing participants in the Plan to pay excessive recordkeeping fees and suffer lower returns on their investments, and by allegedly failing to monitor other fiduciaries. The plaintiffs sought unspecified damages on behalf of a class of Plan participants from September 17, 2014 through the date of any judgment. The plaintiffs and the PTC Defendants reached an agreement in principle to settle the lawsuit on September 22, 2021 and filed a motion for preliminary approval on December 17, 2021. The ultimate outcome by judgment or settlement is not expected to be material to our financial position, results of operations or cash flows.

Other Legal Proceedings

In addition to the matters listed above, we are subject to legal proceedings and claims against us in the ordinary course of business. As of March 31, 2022, we estimate that the range of possible outcomes for such matters is immaterial and we do not believe that resolving them will have a material adverse impact on our financial condition, results of operations or cash flows. However, the results of legal proceedings cannot be predicted with certainty. Should any of these legal proceedings and claims be resolved against us, the operating results for a reporting period could be adversely affected.

Guarantees and Indemnification Obligations

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

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

23

Table of Contents

16. Subsequent Events

Acquisition of Intland Software

On April 29, 2022, we acquired Intland Software, GmbH, and Eger Invest GmbH (together, "Intland Software") pursuant to a Share Sale and Purchase Agreement. Intland Software develops and markets the Codebeamer^® Application Lifecycle Management (ALM) family of software products. We paid approximately $280 million for Intland Software, net of cash acquired.

Borrowings under Credit Facility

In April 2022, we borrowed $264 million under our existing credit facility to acquire Intland Software, bringing our total outstanding indebtedness to approximately $1.5 billion.

24

Table of Contents

Business Overview

PTC is a global software and services company that enables industrial companies to improve growth and profitability with a portfolio of innovative digital solutions that work together to transform how physical products are engineered, manufactured, and serviced. Our award-winning technology portfolio spans the computer-aided design (CAD), product lifecycle management (PLM), Industrial Internet of Things (IIoT), and Augmented Reality (AR) markets.

Our customer base includes some of the world's most innovative manufacturers in the aerospace and defense, automotive, electronics and high tech, industrial machinery and equipment, life sciences, oil and gas, retail and consumer products industries. Our solutions enable industrial companies to create a closed loop of information shared across their organization's entire value chain. This "digital thread" can drive excellence in engineering, efficiency in manufacturing operations and service delivery, and innovation across product offerings and business models. With our solutions, digital transforms physical.

We generate revenue through the sale of software subscriptions, which include license access and support (technical support and software updates); support for existing perpetual licenses; professional services (consulting, implementation, and training); and cloud services (hosting for our software and Software as a Service (SaaS)).

Forward-Looking Statements

Statements in this document that are not historic facts, including statements about our future financial and growth expectations and targets, and potential stock repurchases, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks include: the macroeconomic and/or global manufacturing climates may not improve when or as we expect, or may deteriorate, due to, among other factors, the COVID-19 pandemic and the effects of the Russia/Ukraine conflict, which could cause customers to delay or reduce purchases of new software reduce the number of subscriptions they carry, or delay payments to us, which would adversely affect ARR and/or our financial results, including cash flow; our businesses, including our SaaS businesses, may not expand and/or generate the revenue or ARR we expect if customers are slower to adopt our technologies than we expect or if they adopt competing technologies; the transaction with ITC Infotech may not close when or as we expect due to the failure to achieve the applicable closing conditions; the Intland Software and ITC Infotech transactions may not have expected effects on our business or results of operations; our strategic initiatives and investments, including our restructuring and our accelerated investments in our transition to SaaS, may not deliver the results when or as we expect; we may be unable to generate sufficient operating cash flow to repay amounts under our credit facility or to return 50% of free cash flow to shareholders, and other uses of cash or our credit facility limits or other matters could preclude such repayment and/or repurchases; we may be unable to attract and retain employees in the current competitive hiring environment, which could adversely impact our operations and our financial results; and foreign exchange rates may differ materially from those we expect. In addition, our assumptions concerning our future GAAP and non-GAAP effective income tax rates are based on estimates and other factors that could change, including the geographic mix of our revenue, expenses and profits, as well as other risks and uncertainties described below throughout or referenced in Part II, Item 1A. Risk Factors of this report.

Operating and Non-GAAP Financial Measures

Our discussion of results includes discussion of our ARR (Annual Run Rate) operating measure, non-GAAP financial measures, and disclosure of our results on a constant currency basis. ARR and our non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measureand Results of Operations - Non-GAAP Financial Measures, respectively. The methodology used to calculate constant currency disclosures is described in Results of Operations - Impact of Foreign Currency Exchange on Results of Operations. You should read those sections to understand our operating measure, non-GAAP financial measures, and constant currency disclosures.

25

Table of Contents

Executive Overview

We delivered another strong financial performance in Q2'22 despite macro and geopolitical concerns and currency headwinds, once again demonstrating the benefit of our recurring revenue model. Q2'22 ARR increased to $1.53 billion, representing 11% growth (13% on a constant currency basis) compared to Q2'21, driven by strength in new bookings. ARR at the end of Q2'22 includes a $4 million reduction associated with discontinuing our business operations in Russia. Q2'22 revenue of $505 million was up 9% (13% constant currency) over Q2'21, driven by higher revenue from our recurring revenue business lines, particularly in Digital Thread where contract durations on on-premise subscriptions increased over Q2'21. Q2'22 operating margin was 32% compared to 22% in Q2'21, and Q2'22 non-GAAP operating margin was 42% compared to 37% in Q2'21. Year-over-year operating margin improvements were primarily due to year-over-year revenue increases and expense reductions resulting from the restructuring we announced in Q1'22 in alignment with our SaaS-acceleration initiatives and operational discipline. Q2'22 EPS decreased to $0.76 compared to $0.92 in Q2'21 primarily due to the effect of a non-cash reduction in value of a publicly-traded equity investment on non-operating expenses. Non-GAAP EPS in Q2'22 was $1.39 compared to $1.08 in Q2'21 and benefited from year-over-year revenue increases and expense reductions. Discontinuing our operations in Russia during Q2'22 had an immaterial effect on our on revenue, operating margins, EPS and cash flows.

We generated $142 million of cash from operations compared to $122 million in Q2'21, with the increase driven by strong operational execution. Included in operating cash flow are payments related to restructuring, which were higher by $13 million year-over-year, and acquisition and transaction-related payments, which were $8 million lower. In Q2'22, we had proceeds of $43 million from the sale of a publicly-traded equity investment and used those proceeds and cash from operations to repay $175 million of our revolving credit facility balance. We completed stock repurchases of $5 million in Q2'22, reflecting the settlement of repurchases that were initiated in Q1'22, bringing year-to-date total share repurchases to $125 million.

Subsequent to the end of Q2'22, we entered into an agreement to acquire Intland Software, maker of the Codebeamer^® suite of application lifecycle management solutions, and completed the acquisition on April 29, 2022. We paid approximately $280 million for Intland, net of cash acquired, using $264 million borrowed under our revolving credit facility and cash on hand. We also entered into an agreement with ITC Infotech to transition a portion of our PLM services business to them to accelerate our SaaS initiatives, which transaction is expected to close in Q3'22.

Results of Operations

The following table shows the financial measures that we consider the most significant indicators of our business performance. In addition to providing operating income, operating margin, diluted earnings per share and cash from operations as calculated under GAAP, we provide non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share, and free cash flow for the reported periods. We also provide a view of our actual results on a constant currency basis. These non-GAAP financial measures exclude the items described in Non-GAAP Financial Measuresbelow. Investors should use these non-GAAP financial measures only in conjunction with our GAAP results.

26

Table of Contents

Impact of Foreign Currency Exchange on Results of Operations

Approximately 60% of our revenue and 40% of our expenses are transacted in currencies other than the U.S. Dollar. Because we report our results of operations in U.S. Dollars, currency translation, particularly changes in the Euro, Yen, Shekel, and Rupee relative to the U.S. Dollar, affects our reported results. Our constant currency

27

Table of Contents

disclosures are calculated by multiplying the results in local currency for thequarterly and year-to-dateperiods for FY'22and FY'21 by the exchange rates in effect on September 30, 2021. Changes in foreign currency exchange rates have been a headwind to results in the first half of FY'22, with reported revenue, total costs and expenses and operating margin lower than at constant currency based on plan rates. We anticipate foreign currency exchange rates will continue to be a headwind for the remainder of FY'22.

The results of operations in the table above and revenue by line of business, product group, and geographic region in the tables that follow present both actual percentage changes year over year and percentage changes on a constant currency basis.

Revenue

Under ASC 606, the volume, mix, and duration of contract types (support, SaaS, 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. We recognize revenue for the license portion of 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 subscription contracts and stand-alone support contracts ratably over the term. We continue to convert existing support contracts to subscriptions resulting in a shift to up-front recognition of subscription license revenue in the period converted compared to ratable recognition for a perpetual support contract. Revenue from our SaaS contracts is recognized ratably. We are expanding our SaaS offerings and are releasing additional cloud functionality into our products and customers are migrating from subscription to SaaS products. As a result, over time a higher portion of our revenue will be recognized ratably. Given the different mix, duration and volume of new and renewing contracts in any period, year-over-year or sequential revenue comparisons can vary significantly.

Revenue by Line of Business

Software revenue in the second quarter and first six months of FY'22 increased compared to the year-ago periods primarily due to contribution from Arena, as well as subscription support growth in Digital Thread - Core, offset by a decline in perpetual support revenue due to conversions of support contracts to subscriptions. On-premise subscription contract durations for Digital Thread - Core year over year were shorter in Q1'22, but higher in Q2'22, driving variability in the amount of up-front license revenue recognized. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annual values are the same.

Professional servicesin the second quarter and first six months of FY'22 increased compared to the year-ago periods by 7% (12% constant currency) and 15% (19% constant currency), respectively, as revenue in the first half of 2021 was negatively impacted by services delivery challenges associated with the COVID-19 pandemic. In addition, in the three and six months ended Q2'22 there was an increase in revenue associated with large PLM consulting engagements, particularly with automotive, aerospace and defense customers.

We expect that professional services revenue will be higher in FY'22 than FY'21 or FY'20 as we expect demand for services will increase to a level that is more consistent with pre-pandemic levels. Our longer-term expectation is that professional services revenue will trend down over time as we migrate more services engagements to our partners, including through our pending transaction with ITC Infotech, and as we deliver products that require less consulting and training services.

28

Table of Contents

Software Revenue by Product Group

Digital Thread

Core Productsoftware revenue growth in the second quarter and first six months of FY'22 compared to the year-ago periods was driven by subscription license revenue growth of 15% (20% constant currency) and 3% (5% constant currency), respectively, which is impacted by the duration and mix of contract types for new and renewal contracts started in the quarter. On-premise subscription contract durations year over year were lower in Q1'22, but higher in Q2'22, driving variability in the amount of up-front revenue recognized. For the second quarter and first six months of FY'22, subscription support revenues increased 17% (22% constant currency) and 18% (21% constant currency), respectively, and cloud revenues grew by 23% (25% constant currency) and 34% (35% constant currency, respectively. Growth in subscription and cloud services revenues were offset by a decrease in perpetual support revenue as customers continue to convert from perpetual support to subscriptions.

ARR increased 10% (13% constant currency) for Q2'22 compared to Q2'21, reflecting growth in both CAD and PLM.

Growth Product software revenue growth in the second quarter and first six months of FY'22 compared to the year-ago periods was driven by ratably recognized cloud revenue growth of 16% (18% constant currency) and 21% (23% constant currency), respectively. This was offset by a year-over-year decrease in subscription license revenue of 16% (13% constant currency) and 6% (4% constant currency) for the three and six months ended Q2'22, respectively. The majority of the year-over-year decreases in Growth subscription license revenue was driven by the discontinuance at the beginning of FY'22 of certain AR products with up-front revenue recognition.

Growth Product ARR increased 13% (15% constant currency) for Q2'22 compared to Q2'21, driven primarily by growth in IoT.

FSG Product software revenue fluctuations in the second quarter and first six months of FY'22 were driven by ratably recognized cloud revenue growth of 27% (29% constant currency) and 24% (25% constant currency), respectively. Subscription license revenue decreased by 9% (5% constant currency) and increased 7% (10% constant currency), for the three and six months ended Q2'22 due to the duration and mix of contract types for new and renewal contracts started in the quarter. Under ASC 606, shorter duration contracts result in less up-front license revenue, even if the annual values are the same.

FSG product ARR increased by 6% (8% constant currency) for Q2'22 compared to Q2'21 driven primarily by strength in the Americas and Europe.

Velocity

Velocity Productsoftware revenue growth in the second quarter and first six months of FY'22 compared to the year-ago periods was driven by the acquisition of the Arena business in January 2021. Additionally, Onshape revenue grew by 45% (actual and constant currency) and 48% (49% constant currency) during the three and six months ended Q2'22, respectively.

ARR grew in Q2'22 compared to Q2'21 by 27% (actual and constant currency) reflecting strong growth in both Arena and Onshape.

29

Table of Contents

Software Revenue by Geographic Region

A significant portion of our software revenue is generated outside the U.S. In the first six months of FY'22 and FY'21, approximately 45% of software revenue was generated in the Americas, 40% in Europe, and 15% in Asia Pacific.

Americas software revenue growth in the second quarter and first six months of FY'22 compared to the year-ago periods was driven by the acquisition of Arena business in January 2021. Digital Thread revenue in the Americas increased 7% (actual and constant currency) and 1% (actual and constant currency) during the three and six months ended Q2'22, respectively.

Q2'22 Americas ARR was up 12% (actual and constant currency) over Q2'21, led by double digit percentage growth in Digital Thread - Core and mid-20s percentage growth in Velocity.

Europesoftware revenue growth in the second quarter and first six months of FY'22 compared to the year-ago periods was driven by growth in Digital Thread - Core of 13% (21% constant currency) and 4% (18% constant currency), respectively.

Q2'22 ARR in Europe was up 9% (15% constant currency) over Q2'21, led by approximately 30% growth in our Digital Thread - Growth products and strength in our Digital Thread - Core products.

Asia Pacific software revenue growth in the second quarter and first six months of FY'22 compared to the year-ago periods was primarily driven by growth in Digital Thread - Core by 4% (8% constant currency) and 17% (31% constant currency), respectively.

Q2'22ARR in Asia Pacific was up 9% (14% constant currency) over Q2'21, led by double-digit growth in Digital Thread - Core.

Gross Margin

License gross margin increased in the second quarter and first six months of FY'22 compared to the year-ago periods due to increases in license revenue of $20.4 million and $12.3 million, respectively, along with decreases in cost of license revenueof $2.2 million and $5.7 million, respectively, which were driven by lower royalty and compensation costs.

Support and cloud services gross margin increased in the second quarter and first six months of FY'22 compared to the year-ago periods due to increases in subscription support and cloud revenue of $20.1 million and $48.4 million, respectively, partially offset by increases in cost of support and cloud services of $4.8 million and $12.3 million, respectively.

30

Table of Contents

Professional services gross margin increased in the secondquarter and first sixmonths of FY'22compared to the year-ago periods primarily due to the impact of the COVID-19 pandemic on Q1'21 revenue, as professional services revenue increased by $3.0million and $11.5 millionover the year-ago periods, respectively. This was partially offset by increasesin professional services cost of$1.3 million and $5.5million, respectively.

Operating Expenses

Headcount decreased 4% between Q2'22 and Q2'21.

Operating expenses in Q2'22 compared to operating expenses in Q2'21 decreased primarily due to the following:

partially offset by:

Operating expenses in the first six months of FY'22 compared to operating expenses in the first six months of FY'21 increased primarily due to the following:

partially offset by:

31

Table of Contents

Interest Expense

Interest expense includes interest on our credit facility and senior notes. We had $1.3 billion of total debt at March 31, 2022, compared to $1.5 billion at March 31, 2021. We repaid $175 million of our revolving credit facility in Q2'22. The average interest rate on borrowings outstanding was approximately 3.2% and 3.2% during the second quarter and first six months of FY'22, respectively, and 3.3% and 3.5% during the second quarter and first six months of FY'21, respectively. We expect the average interest rates will increase during the rest of the year, driven by our variable-rate revolving credit facility.

Other Income (Expense)

The increase in other expense, net, in FY'22 over the FY'21 periods is driven by a recognized loss on our equity investment in a publicly-traded company of $44.6 million and $34.8 million in the three and six months ended March 31, 2022, respectively. We sold our investment for $42.7 million in Q2'22.

Income Taxes

In the second quarter and first six months of FY'22 and FY'21, our effective tax rate differed from the statutory federal income tax rate of 21% due to our corporate structure in which our foreign taxes are at a net effective tax rate lower than the U.S. rate. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and the Cayman Islands. In 2022 and 2021, the foreign rate differential predominantly relates to these earnings.

In FY'22 and FY'21, in addition to the foreign rate differential, the effective tax rate was impacted by the net effects of the Global Intangible Low-Taxed Income (GILTI) and Foreign Derived Intangible Income (FDII) regimes and the excess tax benefit related to stock-based compensation.

Our results for the second quarter and six months ended March 31, 2021, include the effects of the full valuation allowance, which was maintained against our U.S. net deferred tax assets at that time. In the second quarter of FY'21 we reduced our previously established U.S. valuation allowance by $42.3 million as a result of the Arena acquisition. Additionally, in the first six months of FY'21, our results included a charge of $36.1 million related to the effects of an unrecognized tax benefit in the Republic of Korea (South Korea), primarily related to foreign withholding taxes.

32

Table of Contents

Critical Accounting Policies and Estimates

The financial information included in Item 1 reflects no material changes in our critical accounting policies and estimates as set forth under the heading Critical Accounting Policies and Estimatesin Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsof our 2021 Annual Report on Form 10-K.

Recent Accounting Pronouncements

In accordance with recently issued accounting pronouncements, we will be required to comply with certain changes in accounting rules and regulations. Refer to Note 1. Basis of Presentation to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for all recently issued accounting pronouncements.

Liquidity and Capital Resources

33

Table of Contents

Cash, Cash Equivalents and Restricted Cash

We invest our cash with highly rated financial institutions. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. At March 31, 2022, cash and cash equivalents totaled $307 million, compared to $327 million at September 30, 2021.

A significant portion of our cash is generated and held outside the U.S. As of March 31, 2022, we had cash and cash equivalents of $34.2 million in the U.S., $103.2 million in Europe, $138.8 million in Asia Pacific (including India) and $30.8 million in other non-U.S. countries. We have substantial cash requirements in the U.S., but we 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 credit facility will be sufficient to meet our ongoing U.S. operating expenses and known capital requirements.

Cash Provided by Operating Activities

Cash provided by operating activities was $280.1 million in the first six months of FY'22, compared to $235.5 million in the first six months of FY'21. Cash from operations for the first six months of FY'22 includes $28.4 million of restructuring payments and $0.4 million of acquisition-related payments compared to $11.7 million of restructuring payments and $11.1 million of acquisition and transaction-related payments in the prior-year period. The increase in cash from operations in the first six months of FY'22 compared to the same period in FY'21 was primarily driven by increased collections of $134 million in collections, offset by a $51 million increase in salaries, primarily severance related to restructuring, bonus payments in FY'22, a $23 million increase in disbursements largely related to timing of subscription payments, and a $9 million increase in tax-related payments.

Cash Provided by (Used In) Investing Activities

Cash provided by investing activities in the first six months of FY'22 reflects proceeds from sale of investments of $42.7 million and proceeds from net investment hedges of $11.3 million, offset by fixed asset additions of $5.5 million and purchases of intangible assets of $4.5 million.Cash used in investing activities in the first six months of FY'21 reflects approximately $715 million used for the Arena acquisition and $56 million in proceeds from the sale of marketable securities.

Cash (Used In) Provided by Financing Activities

Cash used in financing activities in the first six months of FY'22 reflects a $175 million repayment of the amounts outstanding under our revolving credit facility, repurchase of common stock of $125 million and payment of withholding taxes related to stock-based awards of $50 million.Cash provided by financing activities in the first six months of FY'21 reflects net borrowings of $502 million under our credit facility.

34

Table of Contents

Outstanding Debt

As of March 31, 2022, we were in compliance with all financial and operating covenants of the credit facility and the note indentures. Any failure to comply with such covenants under the credit facility would prevent us from being able to borrow additional funds under the credit facility, and, as with any failure to comply with such covenants under the note indentures, could constitute a default that could cause all amounts outstanding to become due and payable immediately.

Our credit facility and our senior notes described in Note 13. Debt to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

We borrowed $264 million under the credit facility in April 2022 to complete the acquisition of Intland Software, leaving $461 million undrawn and $446 million available to borrow under the credit facility.

Future Expectations

We believe that existing cash and cash equivalents as of March 31, 2022, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our payment obligations associated with the acquisition of Intland Software, working capital and capital expenditure requirements (which we expect to be approximately $25 million in FY'22) through at least the next twelve months and to meet our known long-term capital requirements.

Related to restructuring, we expect to incur an additional approximately $5 million of charges and make approximately $15 million in payments for the remainder of fiscal 2022. Cost savings resulting from the 2022 restructuring action are expected to help align our customer facing and product-related functions with the SaaS industry best practices and accelerate the opportunity for our on-premise customers to move to the cloud.

Our expected uses and sources of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, engage in additional strategic transactions, or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved in any debt retirement or issuance, share repurchases, or strategic transactions may be material.

Operating Measure

ARR

ARR (Annual Run Rate) represents the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period. ARR in FY21 includes orders placed under our Strategic Alliance Agreement with Rockwell Automation, including orders placed to satisfy contractual minimum commitments.

We believe ARR is a valuable operating metric to measure the health of a subscription business because it captures expected subscription and support cash generation from customers. Because this measure represents the annualized value of customer contracts as of a point in time, it does not represent revenue for any particular period or remaining revenue that will be recognized in future periods.

35

Table of Contents

Non-GAAP Financial Measures

Our non-GAAP financial measures and the reasons we use them and the reasons we exclude the items identified below are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2021.

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 is cash flow from operations net of capital expenditures, which are expenditures for property and equipment and consist primarily of facility improvements, office equipment, computer equipment, and software. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations.

The non-GAAP financial measures other than free cash flow exclude, as applicable, stock-based compensation expense; amortization of acquired intangible assets; acquisition-related and other transactional charges included in general and administrative expenses; restructuring and other charges, net; non-operating charges (credits); and income tax adjustments as defined in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. In Q1'21, we incurred tax expense related to a reserve for a South Korean tax exposure established in the quarter which is excluded from our non-GAAP financial measures as it was related to prior periods and not included in management's view of Q1'21 results for comparative purposes.

We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their GAAP results.

The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included in this Quarterly Report on Form 10-Q should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable GAAP measure on our financial statements.

36

Table of Contents

Operating margin impact of non-GAAP adjustments:

37

Table of Contents

There have been no significant changes in our market risk exposure as described in Item 7A. Quantitative and Qualitative Disclosures about Market Riskof our 2021 Annual Report on Form 10-K.

Evaluation of Effectiveness of Disclosure Controls and Procedures

Our management maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is processed, recorded, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), as appropriate, to allow for timely decisions regarding required disclosure.

We evaluated, under the supervision and with the participation of management, including our principal executive and principal financial officers, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a or 15(d) of the Exchange Act that occurred during the period ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

38

Table of Contents

PART II-OTHER INFORMATION

Information on legal proceedings can be found in Note 15.Commitments and Contingencies- Legal Proceedings- 401(k) Planof Notes to Consolidated Financial Statements in this Form 10-Q, which information is incorporated herein by reference.

In addition to other information set forth in this report, you should carefully consider the risk factors described in Part I. Item 1A. Risk Factorsin our 2021 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

The table below shows the shares of our common stock we repurchased in the second quarter of 2022.

39

Table of Contents

40

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: May 5, 2022

41