MCAD Industry View - A November 2007 Update
by Dr. Russ Henke and Dr. Jack Horgan
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 seventeen quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The G9 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. So we covered the G8.
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. 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 relatively "small change" within Siemens. Alas, we can expect very little insight into UGS' quarterly financial performances from public Siemens' reports, going forward.
Accordingly, this eighteenth article in the MCAD Commentary sequel recounts the financial performances of the now remaining group-of-seven (G7) MCAD/PLM entities for the nominal third quarter of 2007.
Recent MCAD & PLM News Highlights
In October 2007, Autodesk made three acquisitions, namely PlassoTech (a supplier of analysis and simulation software for the mechanical design market), Skymatter Limited (developer of Mudbox 3D modeling software), and Hanna Strategies (an engineering services firm that offers software development with centers in Shanghai, China, Atlanta, Georgia and Pune, India). On November 15, 2007, Autodesk announced its intent to acquire Robobat, a privately held company based in Grenoble, France that specializes in analysis, design, and steel and concrete detailing software for the structural engineering industry.
On October 2, 2007, Dassault announced it had acquired venture backed Seemage, Inc. The firm has about 30 employees, 2006 revenue under �2 million and ~100 customers.
On October 31, 2007, PTC announced its intent to acquire CoCreate Software, GmbH, for $250 million. CoCreate offers a 3rd generation approach to product lifecycle management (3G PLM) streamlines the process of planning, developing and manufacturing products. It also provides Dynamic Modeling based 3D CAD software.
MCAD Vendors' Financial Performances in Q3 2007
As a group, the G7 MCAD vendors generated combined revenues of $1.4 billion, an impressive increase of 15.5% from the $1.2 billion a year earlier, but a more modest 3.6% increase from the $1.35 billion in the just previous quarter. ANSYS was by far the year-over-year percentage revenue growth leader at 34%. Autodesk, Dassault Systemes, ESI Group and Moldflow delivered double digit percentage revenue growth year over year. MSC.Software was the only decliner at -2.1%. On a sequential basis, PTC was the only G7 vendor to reach double digit revenue growth. Moldflow and MSC.Software (again) were decliners at -10.8% and -5.9%, respectively.
Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 1.
Figure 2 below shows the relative share of each vendor's revenue based on Q3 2007 performance.
For the quarter, Autodesk was the clear share leader followed in order by Dassault Systemes and PTC. 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). The figure excludes UGS who did not report revenue for the quarter.
Turning to profitability, the G7 did an about-face from its performance last quarter. The combined earnings of the G7 in Q3 2007 was only $183 million, down a whopping 33% from the combined earnings of $272 million in Q3 last year, and down 27% from the $251 million in the just prior quarter. PTC's fall off in earnings drastically affected the G7's totals (see Table 2).
Details on Individual Vendors' Q3 2007 Performances
On November 1, 2007 ANSYS, Inc. reported financial results for the third quarter, the period ended September 30, 2007. Total revenue for the quarter was $94 million, an increase of 34% from the $70 million in the third quarter of 2006, and a 2% increase from the $92 million in the just prior quarter. Software license revenue was $61 million, or 65% of total revenue. This was an increase of 45% year-over-year, and a 2.8% increase sequentially. Maintenance and service revenue was $33 million, up 18% year-over-year, and up 0.4% sequentially.
Net income for the quarter was $18.7 million, up 123% from the $10.3 million in the year ago quarter, and up 2.4% from the prior quarter.
Note this third quarter is the first quarter of apples-to-apples comparison since the ANSYS acquisition of Fluent.
Direct sales in Q3 2007 accounted for 70% of total revenue, while indirect sales accounted for 30%. Revenue from paid-up licenses was up 48% in the quarter, software maintenance grew by more than 20%, and service revenue was up around 10%. Lease revenue accounted for 42% of the total.
On a geographic basis in Q3 2007, North America was up 16% year-over-year, Europe up 26%, and the General International area was up 23% (Japan +9%). There was a $2 million impact in favorable exchange rate in Europe.
Jim Cashman, President and CEO provided this sanguine comment on the company's third quarter 2007 performance by saying, "This was a very solid quarter for ANSYS. Most notably, this quarter's performance stands out as it represents an 'apples- to-apples' comparison of our business with Non-GAAP organic revenue growth at 21.5% (18% in constant currencies). We believe that the strength of the results hints at increasing potential and validates our strategy to engage our customers at new levels, driven by the breadth and depth of our world-class simulation capabilities. It also reinforces the importance of our continued focus on integration to build the foundation for the future."