UGS Reports Revenue Growth And Other Good News

July 26, 2004

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by Jeff Rowe - Contributing Editor
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UGS Reports Revenue Growth And Other Good News

UGS announced financial results for the second quarter ended June 30, 2004. Financial highlights from the second quarter include:

Revenue of US$236.2 million, or 11 percent growth over the same period a year earlier.

The fourth consecutive quarter of strong revenue growth over the same period a year earlier.

EBITDA of US$52.4 million, or 22 percent growth over the same period a year earlier.

Operating income of US$29.3 million, or 16 percent growth over the same period a year earlier, excluding the effects of purchase accounting relating to the UGS acquisition. The acquisition had the effect of increases in amortization costs by US$4.0 million and in depreciation by US$0.6 million, and an in-process research and development charge of US$43.7 million.

"UGS continues to provide strong value to our world-class client base, which is enabling us to excel by exceeding market growth rates in a growing market," said Tony Affuso, chairman, CEO and president of UGS. "In the second quarter, we continued to leverage our strategy and leadership position in the PLM market globally by winning key contracts, developing and introducing new products, further integrating our product line and driving major initiatives to fruition. We're off to a strong start in our new world."

In addition, for the last six months ending June 30, 2004, UGS reported revenue of US$470.9 million, or 13 percent growth as compared to the same period a year earlier; and EBITDA of US$109.3 million, or 18 percent growth as compared to the same period a year earlier.

The company said its performance reflects continuing strong demand for its software, including Teamcenter digital product data management and collaboration software and NX knowledge-driven digital product development software.

UGS announced on May 27 the closing of its acquisition by a group of private equity firms, Bain Capital, Silver Lake Partners and Warburg Pincus. The firms acquired UGS from EDS for US$2.05 billion in cash. The transaction represents the largest private equity investment ever made in a technology company.

Among other business highlights from the second quarter, UGS:

Signed 20 contracts valued at greater than US$1 million each.

Announced contracts with clients in industries ranging from automotive (Renault and Shenyang Brilliance Jinbei Automobile Co., Ltd); to transportation (Doppelmayr/Garaventa Group, the leading global manufacturer of surface and aerial ropeway transportation systems such as ski-lifts and cable cars); to high-tech electronics (Sanyo Electric Co., Ltd, Japan's leading home appliance company); to consumer packaged goods (Crown UCP, manufacturers of packaging products to the consumer marketing industry).

Completed the acquisition of D-Cubed, a Cambridge, England-based supplier of embedded component software technology used by many of the world's leading computer-aided design, manufacturing and engineering analysis (CAD/CAM/CAE) application developers.

Introduced new products including Teamcenter Requirements Engineering, the first PLM software to integrate requirements/systems engineering capabilities with enterprise-wide lifecycle information and process management; and Teamcenter In-Service, a new solution extending the value of PLM to maintenance, repair and overhaul (MRO) organizations.

Announced key product enhancements, including new versions of E-factory digital manufacturing software (Version 4.1 of Jack and Versions 9.0 of Factory CAD and Factory Flow); Solid Edge digital product design software (Version 16); NX (Ideas 11 NX Series); and Teamcenter (Version 4 of Teamcenter Aerospace & Defense); as well as the first availability of a Mac-based version of Parasolid, the world's leading 3D geometric modeling component software.

Launched the UGS Partner Program, a completely redesigned partnership program uniting the company's more than 300 business partners worldwide under a common, integrated structure.

Added four new corporate members -- automakers DaimlerChrysler and Renault, auto supplier Visteon and heavy equipment manufacturer Caterpillar -- to the JT Open initiative. Launched in November 2003, JT Open unites global manufacturers and PLM industry leaders behind UGS-developed JT, a common data format for visual collaboration and interoperability.

Witnessed record attendance by UGS client companies and users at the annual PLM World conference, held in May in Anaheim, CA.

"The second quarter was a landmark quarter for UGS in several ways, most notably with our launch as an independent software business in partnership with our new sponsors, and one of significant strategic achievement across the board," Affuso said. "We are extremely enthusiastic about our prospects for continued long-term growth as more leading organizations realize the value of PLM as a true enterprise strategy."

The global market for PLM software and services is expected to grow by a compound annual growth rate of 8 percent through 2007 to more than US$9.2 billion, according to Daratech. Through 2007, Daratech expects the product data management and collaboration segment of the PLM market, which UGS leads on the strength of its Teamcenter portfolio, to grow 16 percent, compounded annually.

Well, if nothing else, this has certainly been an exciting past few months for the folks at UGS. What with events that have included the acquisition, new product announcements, new partnerships, and a fourth consecutive quarter of revenue growth, things seem to going in the right direction for the "new" UGS. Customers also should be heartened by all of this news, as well. As a provider of PLM software and services with 3 million+ licensed seats and 40,000+ customers worldwide, UGS is proving that what seemed like a period of uncertainty just a few months ago is turning out to be a well-orchestrated series of moves on several different levels - business, product, and customer

relations.

Surprise PDM Revenue Growth Leader Forecast For 2004

According to a report by technology market research firm, Daratech, think3 is expected to lead its industry in PDM revenue growth by a wide margin next year. In a report released July 8, 2004, Daratech projects the product data management (PDM) market will grow 15 percent by 2008, but think3's expected 60 percent revenue growth in 2004 with its thinkteam product ranked above several other PDM providers, including Dassault's ENOVIA and SMARTEAM, MatrixOne's Matrix platform and CoCreate's OneSpace.net.

Daratech believes that vendors emphasizing the ability of PDM tools to reduce risk, cost, schedule, rework and product failures will play a key role in the market's future. PDM users, specifically small and medium sized businesses, are currently looking for short-term returns and less expensive implementations causing providers to create "lighter" versions of their traditional PDM systems.

"Rather than just scaling down a more expensive and cumbersome product, think3 creates solutions to specifically meet the needs of SMB organizations," said Dan Meyer, Vice President of Worldwide Marketing at think3. "Our thinkteam product provides customers with better data management and collaboration capabilities but without the hefty expense and lengthy installation of traditional PDM, helping to break down barriers to product lifecycle management (PLM) adoption."

thinkteam is think3's ready-to-use PDM system, which provides a "CAD neutral" platform for successfully implementing a PLM solution to manage product information regardless of the authoring system used to produce it, should it be AutoCAD, PRO/Engineer, MS Office, or thinkdesign (think3's flagship MCAD product).

thinkteam reduces time and cost from the product development process, freeing engineers to focus on what they do best -- design new products. think3's product provides the right foundation for an integrated product development environment and delivers a powerful platform for product innovations, enabling companies to bring better products to market faster.

This is an interesting and somewhat surprising announcement by Daratech regarding the PDM market in general, and think3 in particular in terms of pure year-over-year revenue growth. Currently, think3 is in the midst of its second (or maybe third) reinvention of itself and re-emergence into the MCAD/PDM market space from its former branding and identity as CADLAB. Generally, think3 is concentrating its marketing and sales efforts on small- to medium-sized companies - say in the $50 to $500 million range. On the MCAD side, the company is focused on two main design/engineering areas, namely, industrial design (with its thinkid application) and machine design (with its thinkdesign

application). On the PDM side, thinkteam has a broader market appeal, because it is quite neutral in the data that it is capable of managing - whether it originates from AutoCAD, Pro/E, or Microsoft Office. The products combined, along with some relatively recent and ongoing management changes seem to be pointing the company in a positive direction toward the future.

Jeffrey Rowe is the editor and publisher of MCADCafé and MCAD Weekly Review. He can be reached at

Email Contact or 408.850.9230.