<SEC-DOCUMENT>0001654954-17-002097.txt : 20170731
<SEC-HEADER>0001654954-17-002097.hdr.sgml : 20170731
<ACCEPTANCE-DATETIME>20170316161720
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001654954-17-002097
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20170316

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			PTC INC.
		CENTRAL INDEX KEY:			0000857005
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-PREPACKAGED SOFTWARE [7372]
		IRS NUMBER:				042866152
		STATE OF INCORPORATION:			MA
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		140 KENDRICK STREET
		CITY:			NEEDHAM
		STATE:			MA
		ZIP:			02494
		BUSINESS PHONE:		7813705000

	MAIL ADDRESS:	
		STREET 1:		140 KENDRICK STREET
		CITY:			NEEDHAM
		STATE:			MA
		ZIP:			02494

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	PARAMETRIC TECHNOLOGY CORP
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
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<font style="font-family: Times New Roman; font-size: 13px">March
16, 2017</font></div>
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<font style="text-decoration: underline; font-weight: bold; font-family: Times New Roman; font-size: 13px">
By EDGAR</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Securities
and Exchange Commission</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">100 F
Street, N.E.</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Washington,
DC 20549</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Attention:&#xA0;Kathleen
Collins, Accounting Branch Chief</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
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<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Re:&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;&#xA0; &#xA0; PTC
Inc.</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 48px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">Form
10-K for the Fiscal Year Ended September 30, 2016</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 48px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">Filed
November 18, 2016</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 48px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">File
No. 000-18059</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Ladies
and Gentlemen:</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">This
letter is submitted in response to Kathleen Collins&#x2019; letter
dated March&#xA0;2, 2017 setting forth the comments of the staff of
the Securities and Exchange Commission (the &#x201C;Staff&#x201D;)
regarding the Form&#xA0;10-K filed November&#xA0;18, 2016 (the
&#x201C;2016 Form&#xA0;10-K&#x201D;) by PTC Inc. (the
&#x201C;Company&#x201D;). Please find our response to the
Staff&#x2019;s comments below. For your convenience, each of the
comments in Ms.&#xA0;Collins&#x2019; letter is restated below,
followed by our response.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="text-decoration: underline; font-weight: bold; font-family: Times New Roman; font-size: 13px">
Form 10-K for the Fiscal Year Ended September 30, 2016</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Item 7. Management&#x2019;s Discussion and Analysis of Financial
Condition and Results of Operations</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Liquidity and Capital Resources, page 34</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 36px; margin-right: 0px; text-indent: -36px;">
<font style="font-family: Times New Roman; font-size: 13px">1.&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;
We note that although you had $582 million undrawn on your credit
facility, only approximately $40 million was available for
borrowing due to covenant limitations. Please explain further the
covenants that limit your borrowing capacity and tell us what
consideration you have given to providing additional detail
regarding such covenants. Also, tell us whether similar limitations
existed at December 31, 2016 and your consideration to include a
discussion of available credit, if limited in your Form 10-Q
disclosures. Refer to Item 303(a)(1) of Regulation S-K and Section
IV.C of SEC Release 33-8350.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px"><font style="font-weight: bold">Response:</font></font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">The
covenants that limit our borrowing capacity under the credit
facility consist of a Total Leverage Ratio, a Fixed Charge Coverage
Ratio and a Senior Secured Leverage Ratio, which are described on
page&#xA0;37 of the 2016 Form&#xA0;10-K and on page&#xA0;40 of the
Q1FY17 Form&#xA0;10-Q. Each of these ratios relies on
&#x201C;consolidated trailing four quarters EBITDA&#x201D;
(&#x201C;Consolidated EBITDA&#x201D;) and the Total Leverage Ratio
has had the greatest effect on our borrowing capacity. This ratio
limited our borrowing capacity under the credit facility as of the
end of fiscal 2016 and similarly limited our borrowing capacity as
of the end of the quarter ended December&#xA0;31, 2016. Our
borrowing capacity under the credit facility has been limited due
to the fact that our</font></div>
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<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px;">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px;">
<font style="font-family: Times New Roman; font-size: 13px">earnings have been
adversely impacted as we transition to subscription licensing from
a perpetual license and support model. This transition and its
impact on revenue, operating margin and EPS are discussed under
&#x201C;<font style="font-style: italic">Future Expectations,
Strategies and Risks &#x2013; Subscription</font>&#x201D; on
page&#xA0;16 of the 2016 Form&#xA0;10-K and on page&#xA0;25 of the
Q1FY17 Form&#xA0;10-Q. The decrease in revenue and earnings reduces
Consolidated EBITDA for the purposes of the financial
covenants.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">We
expect our borrowing capacity under the credit facility will
continue to be limited due to our subscription transition.
Accordingly, while we believe the covenants and their effect on our
borrowing capacity are clearly described in our periodic filings,
as required by Item 303(a)(1) of Regulation&#xA0;S-K and SEC
Release 33-8350, and that, because we disclose both the required
ratios and the results of our calculations under the ratios,
additional detail about those covenants would not enhance the
quality of the disclosure we provide to investors, in future
periodic filings, we will also include a summary of the factors
that constrain our borrowing capacity along with the actual
borrowing capacity, which we will disclose if limited under our
covenants. An example of such disclosure is set forth on
<font style="text-decoration: underline">Appendix&#xA0;A</font>.</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px;">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">We do
not believe additional discussion of available credit is required
by Section IV.C of SEC Release 33-8350 as we believe we have
sufficient access to additional credit and capital given our cash
flow and business performance. We also believe we have sufficient
working capital, notwithstanding any limits on our ability to
borrow under the credit facility from time to time, given that we
use the credit facility primarily for acquisitions and share
repurchases, rather than operating liquidity.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Item 15. Exhibits and Financial Statement Schedules</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Consolidated Statements of Operations, page F-43</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 36px; margin-right: 0px; text-indent: -36px;">
<font style="font-family: Times New Roman; font-size: 13px">2.&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;
Your subscription revenue line item appears to include both product
(i.e., term licenses) and service arrangements (i.e., cloud
services). Also, your cost of software revenue includes the cost of
support services, subscription service arrangements, subscription
product arrangements and perpetual license revenues. Please tell
how you considered Rule 5-03(b)(1) and (2) of Regulation S-X to
separately present product and service revenues and their related
costs on the face of your consolidated statement of
operations.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px"><font style="font-weight: bold">Response:</font></font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">Historically,
revenue from cloud arrangements has not represented a material
component of our revenue. In Fiscal 2016, 2015 and 2014, hosting
and SAAS (collectively, &#x201C;cloud&#x201D;) represented 4%, 3% and
1%, respectively, of our consolidated revenue. Because cloud
revenue is not more than 10% of our total revenue, we have combined
it with other recurring revenue amounts as allowed by the
introduction to Rule 5-03(b) of Regulation S-X. We will continue to
monitor such arrangements and, if cloud revenue becomes a material
component of our consolidated revenue in the future, we will
separately disclose cloud revenue in our Consolidated Financial
Statements and MD&amp;A.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">Our
cost of software revenue includes costs related to our support,
subscription, perpetual license offerings, and cloud, including
salaries, benefits, computer equipment and facility costs
associated with providing support, royalties paid to third parties
for technology embedded in or licensed with our software products,
and amortization of intangible assets associated with acquired
products. These costs are incurred in support of all of our
software products. Further, our costs are substantially similar
across our product lines and our gross margin for our software
products is greater than 80%. Accordingly, we do not feel that
reporting gross margin by the different lines of business would
provide additional material information to investors.</font></div>
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<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 24px; margin-right: 0px; text-indent: -24px">
<font style="font-family: Times New Roman; font-size: 13px">3.&#xA0;&#xA0;&#xA0;
Also, please consider renaming the &#x201C;total recurring software
revenue&#x201D; and &#x201C;total software revenue&#x201D; line items
to more appropriately reflect the inclusion of both software and
service revenues in these amounts.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 24px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">Response:</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 24px">
<font style="font-family: Times New Roman; font-size: 13px">In
future filings, we will rename the income statement line items to
&#x201C;subscription and cloud&#x201D;, &#x201C;total recurring
software and cloud&#x201D; and &#x201C;total software and cloud
revenue&#x201D; to make it clear that such amounts include our cloud
offerings.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Notes to Consolidated Financial Statements</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Note B. Summary of Significant Accounting Policies</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Subscription, page F-9</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 36px; margin-right: 0px; text-indent: -36px">
<font style="font-family: Times New Roman; font-size: 13px">4.&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;&#xA0;
We note that VSOE of fair value for subscription-based licenses is
established through use of a substantive renewal clause within the
customer contract, and VSOE for cloud service arrangements
accounted for under ASC 985-605 is established through a
substantive stated renewal rate or stated contract overage rate.
Please clarify the elements in a typical multiple-element
arrangement for your subscription and cloud service arrangements.
Also, tell us how you determined that the contractually stated
renewal provisions were substantive and tell us what percentage of
your customers have actually renewed at such rates.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px"><font style="font-weight: bold">Response:</font></font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">A
typical multiple-element arrangement includes subscriptions and
renewal support of a customers&#x2019; existing perpetual licenses,
or subscriptions and cloud services. A multiple-element arrangement
for a subscription or cloud service arrangement may also include
perpetual licenses, consulting and/or training.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">ASC
985-605-55-58 provides that if a contractually stated renewal rate
and term are substantive, it provides VSOE for an element in a
multiple element arrangement. To determine whether
contractually-stated renewal rates for subscriptions and cloud
services are substantive, we consider if the discount provided from
list price results in a commercially reasonable profit, whether
customers are renewing at the stated renewal rates and how the
renewal rate compares to our historical pricing. Of the
subscription and cloud services contracts that have been renewed,
98% of subscriptions and 100% of cloud services renewed at the
stated contractual renewal rates. To evaluate the rates, we also
consider our pricing of stand-alone support and discounts from list
price. The support services that we provide for a perpetual license
are the same as for a subscription offering.&#xA0; The annual
renewal rate that we charge for a subscription typically exceeds
what we charge for annual support on a stand-alone basis.&#xA0;
Additionally, we monitor discounts from list price. The average
discounts from list price provided for subscriptions have been
lower than the discounts from list price that we historically
provided for perpetual licenses.<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font>Further,
not all customers renew, which is an indication that the renewal
rates are economically substantive to their decision.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">When
considering whether the renewal term is substantive, we consider
the length of the initial term in the contract as compared to the
renewal term. Typically, subscriptions and cloud services have an
initial term of one to three years with the right to renew for one
year periods beyond the committed term, in many cases in
perpetuity. The renewal period is substantive</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px;">&#xA0;</font></div>
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<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">relative to the
initial term and the initial term is relatively short compared to
the economic life of the subscription as customers typically use
our software for more than five years.</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
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<font style="font-weight: bold; font-family: Times New Roman; font-size: 13px">
Note C. Restructuring Charges, page F-18</font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">5.&#xA0;&#xA0;&#xA0;
&#xA0;Tell us how you considered the disclosure requirements of ASC
420-10-50-1(d) to disclose the total amount of restructuring
charges expected to be incurred, the amount incurred for each
period presented, and the cumulative amount incurred to date for
each of your reportable segments.</font></div>
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<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px"><font style="font-weight: bold">Response:</font></font></div>
<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 36px">
<font style="font-family: Times New Roman; font-size: 13px">Our
restructuring actions are driven by business realignments and
expense reduction initiatives established on a total company basis.
Expense reduction targets (primarily headcount-related) and
resulting restructuring costs are established by functional cost
area (e.g., sales and marketing, research and development, general
and administrative) and not by reportable segment. We disclose the
amount of restructuring charges expected to be incurred, the amount
incurred for each period presented, and the cumulative amount
incurred to date in total; we do not disclose such amounts by
reportable segments as contemplated in ASC 420-10-50-1(d) because
we do not internally report and track restructuring charges by
reportable segment. Further, for purposes of evaluating segment
performance, we do not allocate restructuring charges to our
reportable segments nor do we view restructuring charges by segment
as material to investors&#x2019; understanding of our segment
results and profitability. In Note&#xA0;O. Segment Information, we
disclose the following regarding restructuring charges
&#x201C;Additionally, the 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.&#x201D;</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">* * * *
* * *</font></div>
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<div><font style="font-family: Times New Roman; font-size: 10">&#xA0;</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">If you
have any questions, please do not hesitate to call me at (781)
370-5070.</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Very
truly yours,</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">&#xA0;</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">PTC
INC.</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">/s/
Andrew Miller</font></div>
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<font style="font-family: Times New Roman; font-size: 13px">Andrew
Miller</font></div>
<div style="text-align: justify; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Chief
Financial Officer</font></div>
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<font style="font-family: Times New Roman; font-size: 10">&#xA0;</font><font style="text-decoration: underline; font-weight: bold; font-family: Times New Roman; font-size: 13px">Appendix
A</font></div>
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<div style="text-align: left; margin-left: 0px; margin-right: 0px; text-indent: 0px">
<font style="font-family: Times New Roman; font-size: 13px">Our
transition to a subscription licensing model has had, and will
continue to have, an adverse impact on revenue, operating margin
and EPS relative to periods in which we primarily sold perpetual
licenses until the expected transition of our customer base to
subscription is completed. This also affects consolidated EBITDA as
calculated under our credit facility and, as a result of the
financial covenants under the facility, limits the amount we can
borrow under the facility. As of the end of the second quarter,
[and after giving effect to subsequent borrowings,] only $xxx
million of the $xxx million not borrowed under the credit facility
was available to us due to those financial covenants.</font></div>
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