PTC INC. Business Overview PTC is a global software and services company that delivers solutions to power our industrial customers' digital transformations, helping them to better design, manufacture, operate, and service their products. Our Internet of Things (IoT) and Augmented Reality (AR) solutions enable companies to connect factories and plants, smart products, and enterprise systems to transform their businesses. These products, along withOnshape , are considered our Growth Products. The primary products in our Core Products portfolio are innovative Computer-Aided Design (CAD) and Product Lifecycle Management (PLM) solutions that enable manufacturers to create, innovate, and service products. OurFocused Solutions Group (FSG) is a family of software products that target specific vertical industries where we can deliver unique domain expertise and a competitive advantage with Application Lifecycle Management (ALM) products, Service Lifecycle Management (SLM) products, and other niche tailored solutions. Forward-Looking Statements Statements in this Quarterly Report on Form 10-Q that are not historic facts, including statements about our future financial and growth expectations and targets, 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 deteriorate due to, among other factors, the geopolitical environment, including theU.S. Administration's focus on technology transactions with non-U.S. entities and potential expanded prohibitions, and ongoing trade tensions and tariffs; customers may not purchase our solutions or convert existing support contracts to subscription when or at the rates we expect; our Internet of Things (IoT), Augmented Reality andOnshape businesses may not expand and/or generate the revenue we expect; if customers are slower to adopt these technologies than we expect or adopt competing technologies, which would adversely affect our ARR, revenue and cash flows; customers may not renew subscription or support contracts with us as we expect if they elect to switch to competing technologies or otherwise cease using our software, which would adversely affect our ARR, revenue and cash flows; foreign currency exchange rates may vary from our expectations and thereby affect our reported revenue and expense; the mix of revenue between license and subscription solutions, support and professional services could be different than we expect, which could impact our EPS results; license purchases associated with minimum ACV commitments under our Strategic Alliance Agreement with Rockwell Automation may not result in subscription contracts sold through to end-user customers; our strategic initiatives and investments may not generate the revenue we expect; we may be unable to expand our partner ecosystem as we expect and our partners may not generate the revenue we expect; and technologies we acquire may not provide the access to new customers and markets that we expect if those customers and markets are not receptive to the technology; we may be unable to integrate the acquired technologies or entities when or as we expect, which could adversely affect our ability to offer additional products or solutions; customers may not adopt acquired technologies as we expect, which would adversely affect our revenue. 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 1 A. Risk Factors of this report. Operating and Non-GAAP Financial Measures Our discussion of results includes discussion of our ARR operating measure and non-GAAP financial measures. ARR and non-GAAP financial measures, including the reasons we use those measures, are described below in Results of Operations - Operating Measure and Results of Operations - Non-GAAP Financial Measures, respectively. You should read those sections to understand those operating and non-GAAP financial measures. Executive Overview
Revenue was up 6% year over year (8% constant currency), despite a 78% decrease year over year in perpetual software revenue due to last time purchases of perpetual licenses in the first quarter of 2019,
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at the end of which we ceased substantially all perpetual license sales.
Operating margin for the quarter was flat year over year despite $7.1 million of
acquisition-related charges and increased intangible asset amortization expense
associated with our acquisition of Onshape , a SaaS CAD and data management
platform. Non-GAAP operating margin of 26% increased 200 basis points over the
fourth quarter of 2019 and declined 100 basis points compared to the prior year
period due to the significant amount of perpetual license revenue in the first
quarter of 2019. EPS was up year over year, primarily due to a $21 million tax
benefit related to the reversal of the U.S. valuation allowance associated with
the acquisition of Onshape , and lower share count due to share buybacks in 2019.
Non-GAAP EPS was up 2% year over year.
We generated $8 million of cash from operations in the first three months of
2020 compared to $21 million in the first three months of 2019. Cash from
operations for the first three months of 2020 includes $3 million of
restructuring payments and $6 million of acquisition-related payments compared
to $8 million of restructuring payments in the prior year period. In the first
quarter of 2020, we amended our credit facility to increase the revolving loan
commitment from $700 million to $1 billion (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). As of December 28, 2019 , the
balance outstanding under our credit facility was $628 million and total debt
outstanding was $1,128 million .
ARR was $1,158 million as of the end of the first quarter of 2020. This
represents 11% growth (11% constant currency) compared to the end of the first
quarter of 2019, reflecting solid performance in our Growth and Core Product
groups and in our global channel. ARR growth in our Growth Products was up 35%
year over year (36% constant currency). ARR for our Core Products was up 9% year
over year (10% constant currency). ARR in FSG was up 1% year over year (1%
constant currency).
We acquired Onshape on November 1, 2019 for $468 million , net of cash acquired.
The acquisition is expected to accelerate our ability to attract new customers
with a SaaS-based product offering and position the company to capitalize on an
industry transition to SaaS. In connection with the acquisition, we borrowed
$455 million under our credit facility. Onshape is not expected to be material
to our 2020 results.
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 adjusted free
cash flow for the reported periods. These non-GAAP financial measures exclude
the items described in Non-GAAP Financial Measures below. Investors should use
these non-GAAP financial measures only in conjunction with our GAAP results.
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(Dollar amounts in millions, except per
share data) Three months ended
Percent Change
December 28, 2019 December 29, 2018 Actual Constant CurrencyTotal recurring revenue $ 305.4 $ 251.4 21 % 23 % Perpetual license 9.0 41.8 (78 )% (78 )% Professional services 41.7 41.4 1 % 2 % Total revenue 356.1 334.7 6 % 8 % Total cost of revenue 87.4 77.4 13 % 14 % Gross margin 268.7 257.3 4 % 6 % Operating expenses 238.3 227.3 5 % 5 % Total costs and expenses 325.7 304.6 7 % 7 % Operating income 30.4 30.0 1 % 12 % Non-GAAP operating income (1) $ 93.1 $ 91.2 2 % 6 % Operating margin 8.5 % 9.0 % Non-GAAP operating margin (1) 26.1 % 27.2 % Diluted earnings (loss) per share $ 0.31 $
0.18
Non-GAAP diluted earnings per share (1) (2) $ 0.57 $
0.56
Cash flow from operations (3) $ 7.5 $ 21.2 Adjusted free cash flow (1) $ 12.5 $ (0.8 )
(1) See Non-GAAP Financial Measures below for a reconciliation of our GAAP
results to our non-GAAP financial measures.
(2) We have recorded a full valuation allowance against our
assets. As we are profitable on a non-GAAP basis, the 2020 and 2019 non-GAAP
tax provisions are calculated assuming there is no valuation allowance.
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.
(3) Cash flow from operations for the first three months of 2020 includes
million of restructuring payments and
payments. Cash flow from operations for the first three months of 2019
includes $8.3 million of restructuring payments.
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, Sheqel, and Rupee relative to the U.S. Dollar, affects our reported
results. Starting in the first quarter of 2020, our constant currency
disclosures are calculated by multiplying the results in local currency for the
first three months of 2020 and 2019 by the exchange rates in effect on September
30, 2019 , excluding the effect of any hedging. The results of operations in the
table above and revenue by line of business, product group, and geographic
region in the tables that follow present both actual percentage changes year
over year and percentage changes on a constant currency basis.
Revenue
Our results have been impacted, and we expect will continue to be impacted, by
our ability to close large transactions. The amount of revenue attributable to
large transactions, and the number of such transactions, may vary significantly
from quarter to quarter based on customer purchasing decisions and macroeconomic
conditions. Such transactions may have long lead times as they often follow a
lengthy product selection and evaluation process and, for existing customers,
are influenced by contract expiration cycles. In addition, our revenue results
quarter to quarter are impacted by contract terms, including duration and start
dates of our subscription contracts. These factors may cause volatility in our
results.
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We discuss our revenue results by line of business, by product group and by
geographic region below.
Revenue by Line of Business
(Dollar amounts in millions) Three months ended
Percent Change
December 28, December 29, Constant
2019 2018 Actual Currency
Software revenue $ 314.4 $ 293.2 7 % 9 %
Professional services 41.8 41.4 1 % 2 %
Total revenue $ 356.1 $ 334.7 6 % 8 %
Software
Software revenue consists of subscription, support, and perpetual license
revenue. Our subscription revenue includes an immaterial amount of Software as a
Service (SaaS) and cloud services.
Professional Services
Professional services engagements typically result from sales of new licenses;
revenue is recognized over the term of the engagement. Our results are in line
with our expectation that professional services revenue will trend flat-to-down
over time due to our strategy to expand margins by migrating more services
engagements to our partners and delivering products that require less consulting
and training services.
Revenue by Product Group
(Dollar amounts in millions) Three months ended
Percent Change
Constant
December 28, 2019 December 29, 2018 Actual Currency
Core (CAD and PLM) $ 262.6 $ 250.9 5 % 6 %
Growth (IoT, AR, Onshape) 48.2 35.4 36 % 37 %
FSG (Focused Solutions Group) 45.3 48.4 (6 )% (5 )%
Total revenue $ 356.1 $ 334.7 6 % 8 %
Core Product revenue growth was driven by growth in subscription revenue, offset
by an expected decline in perpetual revenue due to the end of sales of perpetual
licenses at the end of the first quarter of 2019. Total recurring revenue for
Core Products grew 24% (26% on a constant currency basis) compared to the prior
year period.
Growth Product revenue growth was driven by 54% (55% constant currency)
subscription revenue growth compared to the prior year period, offset by a
decline in support revenue.
The decline in FSG revenue reflects an 80% decline in perpetual license revenue,
partially offset by 9% growth in subscription revenue compared to the prior year
period.
Revenue by Geographic Region
A significant portion of our total revenue is generated outside the U.S. In 2019
and in the first three months of 2020, approximately 40% of total revenue was
generated in Americas , 40% in Europe , and 20% in Asia Pacific .
(Dollar amounts in millions) Three months ended
Percent Change
Constant
December 28, 2019 December 29, 2018 Actual Currency
Americas $ 156.0 $ 141.9 10 % 10 %
Europe 136.5 111.4 23 % 28 %
Asia Pacific 63.6 81.5 (22 )% (22 )%
Total revenue $ 356.1 $ 334.7 6 % 8 %
29--------------------------------------------------------------------------------Americas revenue growth was driven by 22% growth in subscription revenue, partially offset by a decline in support revenue resulting in 10% overall growth in recurring revenue compared to the prior year period.Europe revenue growth was driven by 92% (101% constant currency) growth in subscription revenue, offset by a decline in support revenue resulting in 33% (39% constant currency) growth in recurring revenue compared to the prior year period.Asia Pacific revenue declined primarily due to comparison to the strong first quarter of 2019, which benefited from the last time purchases of perpetual licenses in that quarter associated with the discontinuation of perpetual license sales as ofJanuary 1, 2019 . Gross Margin (Dollar amounts in millions) Three months ended December 28, 2019 December 29, 2018 Gross margin: License gross margin $ 110.3 $ 92.8 License gross margin percentage 89 % 88 % Support and cloud services gross margin 152.0 156.7 Support and cloud services gross margin percentage 80 % 83 % Professional services 6.4 7.9 Professional services gross margin percentage 15 % 19 % Total gross margin $ 268.7 $ 257.3 Total gross margin percentage 75 % 77 % Non-GAAP gross margin (1) $ 278.5 $ 267.4 Non-GAAP gross margin percentage 78 % 80 % (1) Non-GAAP financial measures are reconciled to GAAP results under Non-GAAP Financial Measures below. License gross margin increased for the first three months of 2020 compared to the first three months of 2019 as revenue increased due to the maturity of the subscription model, expenses decreased due to lower compensation costs related to lower headcount, offset by increasing royalty expenses. Support and cloud services gross margin decreased for the first three months of 2020 compared to the first three months of 2019, primarily due to an increase in costs associated with our cloud services business. Professional services gross margin decreased for the first three months of 2020 compared to the first three months of 2019, primarily due to an increase in compensation costs related to higher headcount. Operating Expenses (Dollar amounts in millions) Three months ended Percent December 28, 2019 December 29, 2018 Change Sales and marketing $ 107.6 $ 104.2 3 % % of Total Revenue 30 % 31 % Research and development 65.3 60.8 7 % % of Total Revenue 18 % 18 % General and administrative 44.6 37.9 18 % % of Total Revenue 13 % 11 % Amortization of acquired intangible assets 6.8 5.9 14 % % of Total Revenue 2 % 2 % Restructuring and other charges, net 14.0 18.5 (24 )% % of Total Revenue 4 % 6 % Total operating expenses $ 238.3 $ 227.3 5 %
Headcount increased 4% between
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Operating expenses in the first three months of 2020 compared to operating
expenses in the first three months of 2019 increased primarily due to the
following:
• an increase in total sales and marketing costs primarily related to a
million increase in compensation, benefit costs and travel expenses due to
an increase in headcount,
• an increase in research and development costs primarily related to a
million increase in compensation, benefit costs and travel expenses due to
higher salaries and stock compensation,
• an increase in general and administrative expenses primarily driven by
months of 2020 associated with the acquisition of
million in the prior year period, and
• an increase in intangible amortization related to the acquisition of
partially offset by: • lower restructuring charges. We initiated a voluntary restructuring
program in the quarter, which resulted in
first three months of 2020, compared to $16.3 million incurred in the
first three months of 2019 related to a prior restructuring plan. We
expect to incur an additional $16.0 million of restructuring charges in
the remainder of fiscal 2020. The anticipated cost savings resulting from2020 restructuring actions are expected to partially offset the expected
2020 operating run rate of the
Interest Expense
(in millions) Three months ended
December 28, 2019 December 29, 2018
Interest expense $ (12.1 ) $ (10.3 )
Interest expense includes interest under our credit facility and senior notes.
We had
Other Income (Expense)
(in millions) Three months ended
December 28, 2019 December 29, 2018
Interest income $ 0.9 $ 1.0
Other expense, net (0.2 ) (0.3 )
Other income (expense), net $ 0.7 $ 0.7
Income Taxes
(Dollar amounts in millions) Three months ended
December 28, 2019 December 29, 2018
Income before income taxes $ 19.0 $ 20.4
Benefit from income taxes $ (16.4 ) $ (0.6 )
Effective income tax rate (86 )% (3 )%
In the first three months of 2020 and 2019, our effective tax rate differed from
the statutory federal income tax rate of 21% due to U.S. tax reform, our
corporate structure in which our foreign taxes are at a net effective tax rate
lower than the U.S. rate, the excess tax benefit related to stock-based
compensation and the indirect effects of the adoption of ASC 606. Additionally,
in the first three months of 2020 and 2019, we reduced the U.S. valuation
allowance by $21.0 million and $1.8 million as the result of the Onshape and
Frustum acquisitions, respectively. A significant amount of our foreign earnings
is generated by our subsidiaries organized in Ireland . In 2020 and 2019, the
foreign rate differential predominantly relates to these Irish earnings.
Operating Measures
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--------------------------------------------------------------------------------ARR
ARR represents the annualized value of our portfolio of recurring customer arrangements as of the end of the reporting period, including subscription software, cloud, and support contracts. 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, existing customer expansions, and includes the impact of total churn, which reflects churn, offset by the impact of any pricing increases. Because this measure represents the annualized value of recurring customer contracts as of the end of a reporting period, ARR does not represent revenue for any particular period or remaining revenue that will be recognized in future periods. 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 endedSeptember 30, 2019 . The non-GAAP financial measures presented in the discussion of our results of operations and the respective most directly comparable GAAP measures are: • non-GAAP revenue-GAAP revenue
• 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
The non-GAAP financial measures exclude, as applicable, fair value adjustments
related to acquired deferred revenue and deferred costs, 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, and income tax
adjustments as defined in our Annual Report on Form 10-K for the fiscal year
ended September 30, 2019 .
Free cash flow is net cash provided by (used in) operating activities less
capital expenditures; adjusted free cash flow is free cash flow excluding
restructuring payments, certain acquisition-related payments and certain
identified non-ordinary course payments. Free cash flow and adjusted free cash
flow are not measures of cash available for discretionary expenditures. We
provide information on "free cash flow" and "adjusted free cash flow" to enable
investors to assess our ability to generate cash without incurring additional
external financings and to evaluate our performance against our announced
long-term goals.
The items excluded from these non-GAAP 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 the non-GAAP financial measures often have a material
impact on our financial results and such items often recur. Accordingly, the
non-GAAP financial measures included in this 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.
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(in millions, except per share amounts) Three months ended
December 28, 2019 December 29, 2018
GAAP revenue $ 356.1 $ 334.7
Fair value of acquired deferred revenue - 0.3
Non-GAAP revenue $ 356.1 $ 335.0
GAAP gross margin $ 268.7 $ 257.3
Fair value of acquired deferred revenue - 0.3
Fair value of acquired deferred costs - (0.1 )
Stock-based compensation 3.0 3.1
Amortization of acquired intangible assets included in
cost of revenue 6.8 6.7
Non-GAAP gross margin $ 278.5 $ 267.4
GAAP operating income $ 30.4 $ 30.0
Fair value of acquired deferred revenue - 0.3
Fair value of acquired deferred costs - (0.1 )
Stock-based compensation 27.9 29.4
Amortization of acquired intangible assets included in cost of revenue
6.8 6.7
Amortization of acquired intangible assets 6.8 5.9
Acquisition-related and other transactional charges included in general and administrative expenses
7.1 0.4
Restructuring and other charges, net 14.0 18.5
Non-GAAP operating income $ 93.1 $ 91.2
GAAP net income $ 35.5 $ 21.0
Fair value of acquired deferred revenue - 0.3
Fair value of acquired deferred costs - (0.1 )
Stock-based compensation 27.9 29.4
Amortization of acquired intangible assets included in cost of revenue
6.8 6.7
Amortization of acquired intangible assets 6.8 5.9
Acquisition-related and other transactional charges included in general and administrative expenses
7.1 0.4
Restructuring and other charges, net 14.0 18.5
Income tax adjustments (1) (32.0 ) (14.9 )
Non-GAAP net income $ 66.2 $ 67.3
GAAP diluted earnings per share $ 0.31 $ 0.18
Stock-based compensation 0.24 0.25
Amortization of acquired intangible assets 0.12 0.11
Acquisition-related and other transactional charges included in general and administrative expenses
0.06 -
Restructuring and other charges, net 0.12 0.16
Income tax adjustments (1) (0.28 ) (0.12 )
Non-GAAP diluted earnings per share $ 0.57 $ 0.56
(1) We have recorded a full valuation allowance against our
assets. As we are profitable on a non-GAAP basis, the 2020 and 2019 non-GAAP
tax provisions are calculated assuming there is no valuation allowance.
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.
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Operating margin impact of non-GAAP adjustments:
Three months ended
December 28, 2019 December 29, 2018
GAAP operating margin 8.5 % 9.0 %
Fair value of acquired deferred revenue - % 0.1 %
Stock-based compensation 7.8 % 8.8 %
Amortization of acquired intangible assets 3.8 % 3.8 %
Acquisition-related and other transactional charges included in general and administrative expenses
2.0 % 0.1 %
Restructuring and other charges, net 3.9 % 5.6 %
Non-GAAP operating margin 26.1 % 27.2 %
Reconciliation from cash from operations to adjusted free cash flow:
(in millions, except per share amounts) Three months ended
December 28, 2019 December 29, 2018
Cash provided by operating activities $ 7.5 $ 21.2
Capital expenditures (4.7 ) (30.3 )
Free cash flow 2.8 (9.1 )
Restructuring payments (1) 3.3 8.3
Acquisition-related payments 6.4 -
Adjusted free cash flow $ 12.5 $ (0.8 )
(1) Restructuring payments include lease payments associated with exited
facilities.
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 Estimates in Part II, Item 7: Management's
Discussion and Analysis of Financial Condition and Results of Operations of our
2019 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,
some of which are expected to have a material impact on our consolidated
financial statements. Refer to Note 1. Basis of Presentation to the Condensed
Consolidated Financial Statements of this Quarterly Report on Form 10-Q for all
recently issued accounting pronouncements, which is incorporated herein by
reference.
Liquidity and Capital Resources
(in thousands) December 28, 2019 December 29, 2018
Cash and cash equivalents $ 237,017 $ 276,990
Restricted cash 902 1,143
Short- and long-term marketable securities 57,480 55,652
Total $ 295,399 $ 333,785
(in thousands) Three months ended
December 28, 2019 December 29, 2018
Cash provided by operating activities $ 7,512 $ 21,214
Cash used by investing activities (473,419 ) (101,212 )
Cash provided by financing activities 431,146 94,997
34-------------------------------------------------------------------------------- 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. In addition, we hold investments in marketable securities totaling approximately$57 million with an average maturity of 11 months. AtDecember 28, 2019 , cash and cash equivalents totaled$237 million , compared to$270 million atSeptember 30, 2019 . A significant portion of our cash is generated and held outside theU.S. AtDecember 28, 2019 , we had cash and cash equivalents of$44 million in theU.S. ,$89 million inEurope ,$83 million inAsia Pacific (includingIndia ), and$21 million in other non-U.S. countries. All the marketable securities are held inEurope . We have substantial cash requirements inthe United States , but we believe that the combination of our existingU.S. cash and cash equivalents, marketable securities, our ability to repatriate cash to theU.S. more cost effectively with the recentU.S. tax law changes, futureU.S. operating cash flows and cash available under our credit facility, will be sufficient to meet our ongoingU.S. operating expenses and known capital requirements. Cash provided by operating activities Cash provided by operating activities was$8 million in the first three months of 2020, compared to$21 million in the first three months of 2019. Cash from operations for the first three months of 2020 includes$3 million of restructuring payments and$6 million of acquisition-related payments compared to$8 million of restructuring payments in the prior year period. The decrease in cash from operations in the first three months of 2020 over the same period in 2019 is primarily due to lower accounts receivable collections, partially offset by lower accounts payable payments during the first three months of 2020. Net income for the first three months of 2020 was$35 million compared to net income of$21 million for the first three months of 2019. Cash used in investing activities Cash used in investing activities reflects$468 million used for theOnshape acquisition in the first three months of 2020, compared to$70 million used for the Frustum acquisition in the first three months of 2019. Capital expenditures were down approximately$25 million for the first three months of 2020, compared to the first three months of 2019, which included construction of our new worldwide headquarters in theBoston Seaport District in 2019. Cash used in financing activities The net borrowings in the first three months of 2020 reflect borrowings of$455 million under our credit facility to fund the acquisition ofOnshape , compared to net borrowings of$135 million in the first three months of 2019 for working capital requirements and Frustum acquisition. We amended the credit facility inNovember 2019 to increase the borrowing capacity from$700 million to$1 billion (which may be increased up to an additional$500 million in the aggregate if the existing or additional lenders are willing to make such increased commitments). Outstanding Debt As ofDecember 28, 2019 , we had: (in millions) December 28, 2019 6.000% Senior notes due 2024 $ 500.0 Credit facility revolver 628.1 Total debt 1,128.1 Unamortized debt issuance costs for the Senior notes (3.8 ) Total debt, net of issuance costs $
1,124.3
Undrawn under credit facility revolver $
355.7
Undrawn under credit facility revolver available for borrowing $ 275.2
As ofDecember 28, 2019 , we were in compliance with all financial and operating covenants of the credit facility and the note indenture. 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 35
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failure to comply with such covenants under the note indenture, could constitute a default that could cause all amounts outstanding to become due and payable immediately. Our credit facility and our 6.00% Senior Notes due 2024 are described in Note 13. to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Future Expectations We believe that existing cash and cash equivalents, together with cash generated from operations and amounts available under the credit facility, will be sufficient to meet our working capital and capital expenditure requirements (which capital expenditures we expect to be approximately$27 million in 2020) through at least the next twelve months and to meet our known long-term capital requirements. Cash outflows related to our prior headquarters, which we exited inJanuary 2019 , could be higher than we expect if we are unable to sublease our prior headquarters as estimated. We currently estimate the undiscounted cash outflows related to the remaining term of the lease at our prior headquarters (throughNovember 2022 ) to be approximately$30 million (reflecting rent obligations and operating expenses net of estimated sublease income of approximately$7 million ). Additional expense could be incurred and net cash outflows could be higher if we do not generate the estimated sublease income. The$30 million and any additional amounts will be paid over the remaining term of the lease; we expect those amounts will not materially adversely affect our ability to fund our working capital and capital expenditure requirements over the period. Further, our expected uses of cash could change, our cash position could be reduced, and we could incur additional debt obligations if we decide to retire debt, to engage in strategic transactions or repurchase shares, any of which could be commenced, suspended or completed at any time. Any such repurchases or retirement of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We also evaluate possible strategic transactions on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible strategic transactions. The amounts involved in any debt retirement, share repurchases, or strategic transactions may be material.
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