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Acquisitions and Disposition of Business | 6 Months Ended
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Mar. 31, 2023
Business Combinations [Abstract] |
Acquisitions and Disposition of Business | 6. Acquisitions and Disposition of Business Acquisition and transaction-related costs in the second quarter and first six months of 2023 totaled $11.9 million and $17.7 million, respectively, compared to $3.9 million and $5.0 million in the second quarter and first six months of 2022, respectively. These costs are classified in general and administrative expenses in the accompanying Consolidated Statements of Operations. Acquisition and transaction-related costs include direct costs of potential and completed acquisitions and dispositions (e.g., investment banker fees and professional fees, including diligence, legal and valuation services), expenses related to acquisition integration activities (e.g., professional fees and severance), and third-party costs related to structuring transaction s. Our results of operations include or exclude, as applicable, the results of acquired or sold businesses beginning on their respective acquisition or sale date. ServiceMax On January 3, 2023, we acquired ServiceMax, Inc. pursuant to a Share Purchase Agreement dated November 17, 2022 by and among PTC, ServiceMax, Inc., and ServiceMax JV, LP. ServiceMax develops and licenses cloud-native, product-centric field service management (FSM) software, which is included within our PLM product group. The purchase price of $1,448.2 million, net of cash acquired, is payable in two installments. Upon closing of the transaction, PTC paid the first installment of $828.2 million, as adjusted for working capital, indebtedness, cash, and transaction expenses as set forth in the Share Purchase Agreement. The remaining installment of $650.0 million, of which $620.0 million represents the fair value as of the acquisition date and $30.0 million is imputed interest, is payable on October 2, 2023. The fair value of the deferred acquisition payment was calculated based on our borrowing rate at the time of the acquisition. PTC borrowed $630 million under the revolving line of our new credit facility and $500 million under the term loan of the new credit facility to repay amounts under the prior credit facility and to pay the closing purchase price a nd transaction expenses related to the acquisition. ServiceMax had approximately 500 employees on the close date. In the three months ended March 31, 2023, S erviceMax revenue was $45.2 million and ServiceMax earnings were immaterial. The acquisition of ServiceMax 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, future costs, and an applicable discount rate. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The purchase price allocation is considered preliminary, and additional adjustments may be recorded during the measurement period as we receive additional information relevant to the value of deferred tax assets and liabilities. The following table outlines the preliminary purchase price allocation for ServiceMax. We have also recorded a liability of $620.0 million related to the fair value of the $650.0 million deferred purchase price payment.
(in thousands) |  |
Goodwill | $ | 975,132 |
Customer relationships |  | 509,200 |
Purchased software |  | 106,900 |
Accounts receivable |  | 58,722 |
Trademarks |  | 9,000 |
Other net assets |  | 5,540 |
Net tax liability |  | (118,437 | )
Deferred revenue |  | (97,829 | )
Total | $ | 1,448,228 |
The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 19 years, 10 years, and 10 years, respectively, based on the expected economic benefit pattern of the ass ets. 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 expected future growth as ServiceMax expands our closed-loop product lifecycle management (PLM) strategy. Unaudited Pro Forma Financial Information The unaudited pro forma financial information in the table below summarizes the combined results of operations for PTC and ServiceMax. The unaudited pro forma financial information for all periods presented includes adjustments to reflect certain business combination effects, including: amortization of acquired intangible assets, including the elimination of related ServiceMax expenses; acquisition-related costs incurred by both parties; reversal of certain costs incurred by ServiceMax which would not have been incurred had the acquisition occurred at the beginning of fiscal 2022; interest expense under the new combined capital structure; stock-based compensation charges; and the related tax effects as though ServiceMax was acquired as of the beginning of fiscal 2022. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal 2022. The unaudited pro forma financial information for the three and six months ended March 31, 2023 and 2022 combines the historical results of PTC for those periods and the historical results of ServiceMax for the three and six months ended April 30, 2022, respectively, and the effects of the pro forma adjustments listed above. The unaudited pro forma financial information was as follows:
(in thousands) |  | Pro forma three months ended |  |  | Pro forma six months ended |
|  | March 31, 2023 |  |  | March 31, 2022 |  |  | March 31, 2023 |  |  | March 31, 2022 |
Revenue |  | $ | 542,181 |  |  | $ | 546,685 |  |  | $ | 1,051,776 |  |  | $ | 1,044,400 |
Net income |  | $ | 74,805 |  |  | $ | 71,839 |  |  | $ | 132,436 |  |  | $ | 76,591 |
The impact from acquisitions other than ServiceMax for the reported periods if presented on a pro forma basis would not differ materially from our reported results. 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 developed and marketed the Codebeamer™ Application Lifecycle Management (ALM) family of software products, which is included within our PLM product group. The purchase price was $278.1 million, net of cash acquired, which was financed with cash on hand and $264 million borrowed under our credit facility. Intland Software had approximately 150 employees on the close date. The acquisition of Intland Software 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 following table outlines the purchase price allocation for Intland Software:
(in thousands) |  |
Goodwill | $ | 240,971 |
Customer relationships |  | 38,800 |
Purchased software |  | 19,100 |
Accounts receivable |  | 6,506 |
Trademarks |  | 1,300 |
Net tax liability |  | (20,811 | )
Deferred revenue |  | (6,925 | )
Other net liabilities |  | (818 | )
Total | $ | 278,123 |
The acquired customer relationships, purchased software, and trademarks are being amortized over useful lives of 11 years, 10 years, and 10 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 expanding our ALM offerings, which are complementary to our PLM offerings. PLM Services Business Disposition On June 1, 2022, we sold a portion of our PLM services business to ITC Infotech India Limited ("ITC Infotech") pursuant to the Strategic Partner Agreement dated as of April 20, 2022 by and among PTC and ITC Infotech India Limited. Consideration received from ITC Infotech for the sale was approximately $60.4 million, consisting of $32.5 million cash paid on closing and $28.0 million of services to be provided by ITC Infotech to PTC for no additional charge. We recognized a gain on the sale of $29.8 million in Q3'22, which consisted of $60.4 million of consideration received, less net assets of the business of $30.6 million. Net assets included $33.0 million of goodwill allocated to the business, less $2.4 million of liabilities associated with approximately 160 employees who transferred to ITC Infotech. Goodwill was allocated to the sold business based on a relative fair value allocation of total goodwill of the Professional Services segment. Additional future contingent consideration of up to $20 million may be received through June 1, 2024, based on certain performance milestones. We have elected to defer the recognition of gains associated with contingent consideration until they become realizable.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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