Commentary: MCAD Industry View - An August 2007 Update

Commentary:

MCAD Industry View - An August 2007 Update


by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates


In the first MCAD Industry Commentary published May 2003 in MCADCafé.com, then-recent yearly and quarterly financial performances of a selected group of public Mechanical Computer Aided Design (MCAD) companies were analyzed and compared. Expectations of future financial performances of these same MCAD entities were documented. The May 2003 MCAD Commentary was followed by sixteen quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The entities covered were ANSYS, Autodesk, Dassault Systèmes, UGS PLM, ESI Group, Moldflow, MSC.Software, PTC and Tecnomatix.

As a result of the acquisition of Tecnomatix by UGS that closed April 1, 2005, Tecnomatix was eliminated from coverage thereafter as a separate entity.

On May 7, 2007, UGS announced the close of its acquisition by Siemens AG, effective May 4, 2007. As a result, the business has since gone to market as 'UGS PLM Software', a global division of the Siemens Automation and Drives (A&D) Group. Over the years, UGS has bounced back and forth between being a public company and a private company under different ownerships. Although not required to do so, UGS had reported on its financial results even when privately held. However, for the first quarter of 2007, there was only a terse statement from Tony Affuso, chairman and CEO of UGS PLM Software, that, "We had a very strong quarter in Q1 (2007), coming in near 11% on total revenue growth and 16% on software license growth." This translates to about $300 million in revenue for Q1 2007. Unfortunately, according to a recent statement form a Siemens' company spokesperson, now UGS will no longer report financial results separately from Siemens. Unfortunately, this is not an uncommon practice with very large corporations. In the first quarter of this year, the Siemens A&D Group generated euro 3.9 billion of the euro 20.2 billion total Siemens' revenue. So UGS itself is "small change". Alas, we can expect very little insight into UGS quarterly financial performances from public Siemens' reports, going forward.

Accordingly, this seventeenth article in the MCAD Commentary sequel recounts the financial performances of the now remaining group-of-seven (G7) MCAD/PLM entities for the nominal second quarter of 2007.


Recent MCAD & PLM News Highlights

On July 11, 2007, Dassault Systèmes announced the appointment of Jeff Ray as CEO of SolidWorks. Ray is replacing John McEleney. Previously, Ray served as SolidWorks' chief operating officer, responsible for expanding the company's sales, distribution, and marketing infrastructure. Ray joined SolidWorks in 2003 from business software vendor Progress Software Corp., where he was responsible for all customer-facing field operations in dozens of countries as vice president of worldwide field operations. Solidworks did very well under John McEleney.

On August 7, 2007, MSC.Software announced the acquisition of pioneerSOLUTIONS, Inc.

On August 20, 2007, Autodesk announced that it has completed the acquisition of technology and product assets of Opticore, a wholly-owned subsidiary of Design Communication, based in Gothenburg, Sweden. Opticore is a software provider of advanced technology used to produce highly interactive and realistic 3D digital product visualizations and presentations. The Opticore team will be integrated into the Autodesk Manufacturing Solutions business. The purchase price and financial terms were not disclosed.



MCAD Vendors' Financial Performances in Q2 2007

As a group, the G7 MCAD vendors generated combined revenues of $1.35 billion, an increase of 14.6% year-over-year and a 2.8% increase sequentially. ANSYS was the year-over-year percentage growth leader at 48%. Autodesk, Dassault, Moldflow, and ESI Group had year-over-year growth rates in the mid-teens. MSC.Software was the only year-over-year decliner with a drop of almost 11%. On a sequential basis, ESI-Group suffered a major drop of almost 50%. PTC endured a slight decline. All the rest had small percentage sequential increases, with Dassault leading the gainers at 8.3%.


Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 2.


For the quarter, Autodesk was the clear revenue share leader, followed in order by Dassault Systemes and PTC. UGS probably exceeded PTC in revenues for the last quarter, but as mentioned earlier, UGS results are no longer disclosed separately by Siemens. The others had low single digit share.

(As always, it needs to be pointed out that unlike the other vendors in this report, Autodesk earns a major portion of its revenue outside of the MCAD space. Autodesk does not break out its mechanical contribution. Also, both Autodesk and Dassault Systemes sell mostly through third parties, while PTC sells mostly direct). Figure 1 excludes UGS which no longer reports revenue for the quarter.


Turning to profitability, the combined earnings of the G7 was remarkably more-than-double the earnings for the same quarter last year, and a 56% increase sequentially. All the firms reporting earnings were profitable for the quarter. All but Moldflow had increased earnings both year-over-year and sequentially. Note that ANSYS booked a $28 million IPRD charge against earnings in the year ago quarter.




Details on Individual Vendors' Q1 2007 Performances



On August 2, 2007 ANSYS, Inc. reported financial results for the second quarter, the period ending June 30, 2007. Total revenue for the quarter was a record $92.2 million, an increase of 48% from the $62 million in the second quarter of 2006 and a 5% increase from the $88 million in the just previous quarter. The $92.2 million was above the high end of the revenue guidance given last quarter. License revenue, accounting for 64% of total revenue, was $59 million, an increase of 71% year-over-year and an almost 4% rise sequentially. Maintenance and service revenue was $33 million, a 19% increase year-over-year and a 7% increase sequentially. Year-over-year ANSYS comparisons are impacted by acquisition of Fluent in May 2006. Fluent had sales of $121.9 million in 2005 year.

On a geographic basis, 2nd quarter revenue from North America was up 24%, from Europe 45% and Asia Pacific 37% (Japan alone was up 30%).

Paid up license revenue was up 44%, and lease revenue (40% of total revenue) was up 55%. Direct sales accounted for 70% of total sales, versus 30% from indirect sales.

Net income for the quarter was $18.2 million, a huge turnaround from the loss of over $19 million reported in the year ago quarter, and a 13% increase from $16 million in earnings in the just prior quarter. As previously noted, the year ago quarter contained a $28 million in-process research and development (IPRD) charge related to the acquisition of Fluent in May 2006.

On May 14, 2007 ANSYS announced that its Board of Directors had approved a 2-for-1 stock split of the Company's common shares. The stock split will be in the form of a stock dividend to be distributed on June 4, 2007 to holders of record at the close of business on May 25, 2007.

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