EDS (the whole company) reported that third quarter revenue rose 6% to $5.24 billion. EDS reported a net loss of $600K, essentially breakeven on a per share basis. During the same period a year ago, EDS had a pro forma profit of $86 million, or 18 cents a share, on sales of $5.33 billion. The company plans to cut 2,500 on top of the 2,700 job cuts announced last quarter for a total of ~4% of employees to save between $330 million and $360 million by the end of 2004. "We continue to implement our comprehensive transformation plan, covering all aspects of the business," said EDS Chairman and CEO Mike Jordan. "As a result, we are much better positioned to compete effectively for business in our pipeline. We also have streamlined our sales process, focusing the company's resources on its most strategic contract opportunities, where we are seeing an improved win rate."
On October 27th EDS announced the financial implications of adopting FASB accounting rule EITF 00-21 (Revenue Arrangements with Multiple Deliverables) retroactively to Jan. 1, 2003. The action resulted in a one-time, non-cash $2.24 billion cumulative accounting adjustment. An after-tax earnings impact of $1.42 billion, or $2.92 per share, is reflected in EDS' revised results for the first quarter of 2003. This rule primarily affects EDS contracts that involve up-front information technology (IT) system construction and ongoing processing and maintenance services, where the timing of billings is usually not consistent with the timing of costs.
Since the EDS PLM Solutions unit accounts for only 4% of EDS's business, EDS usually provides little financial information. On a constant currency basis revenue for the quarter was $212M, up 7.6% year over year and 3.4% sequentially. Operating profit was $33M, up 10%. If the EITF rule had been in effect last year, operating profit would have risen by 53%, according to EDS.
ESI Group reported on Sept 11 for the period ending July 31. Revenue was down nearly 8% sequentially mostly due to a drop in license revenue. However, total revenue was up almost 24% year over year due principally to growth in services and other revenue. At constant exchange rates, ESI Group's H1-2003 sales were up 29%. At constant exchange rates and excluding acquisitions, organic growth was 4%. The company provided no information on earnings. "Despite a persistently depressed economic environment and the negative impact of exchange rates, particularly in Asia, first semester sales rose sharply, mainly due to the good performance of the recently acquired companies. Sales growth was driven by a high proportion of repeat licenses, the successful deployment of the most recent 2G solutions and a significant increase in new business. Performance of the recently acquired units was further boosted by synergies within the group."
Roland Thomas, Moldflow's president and CEO said, "We are pleased to report results for the first fiscal quarter of 2004 that are in line with our expectations for the quarter and which reflect the improving long-term business conditions in many of our markets and the trends we have noted over the last several quarters. Our operating results are particularly gratifying as they reflect continued growth in product revenues on a year-over-year basis, both in absolute terms and on a constant currency basis. In addition, we achieved meaningful growth in earnings." This is the second consecutive quarter of double digit year over year growth. While small in dollar amount ($417K), net income shot up 67% compared to the previous quarter and by a factor of 28 relative to last year. Moldflow is unusual in the MCAD space in that Asia accounted for 40% of its business. On a geographical basis the Americas was the bright spot growing 20% sequentially and 40% year over year. The vast majority (79%) of revenue comes from the Design Solution versus 21% form Manufacturing Solutions. The latter tend to be characterized by a few large sales, which causes large quarterly revenue swings for that segment.
MSC.Software reported modest revenue growth both sequentially (2.9%) and year over year (.9%). "The third quarter results are a confirmation that the refocused MSC.Software strategy is gaining momentum and turning opportunity into revenue," said Frank Perna, chairman and CEO of MSC.Software. Net income improved enormously from the previous quarter wherein MSC.Software had taken a $25.4M charge for restructuring and impairment as a result of its decision to exit the Systems Business. That business was based largely upon the company acquisition of AES in July 2001 for ~$132M including $20M cash and $20M in promissory notes. The Systems Business had been generating around $20M/quarter of low margin business.
PTC reported results for 4Q and F2003. "We were pleased with our execution this quarter, as we met our revenue targets while implementing an aggressive cost reduction program," said C. Richard Harrison, president and chief executive officer. "In the fourth quarter, we achieved a sequential improvement in total license revenue, strong Windchill sales, and continued success in the adoption of Pro/ENGINEER Wildfire by our installed base." Note: 25% of the Pro/E installed base has migrated to Wildfire. On a sequential basis license revenues were up slightly while maintenance and service revenues were down slightly. However, year over year license revenue dropped 23% and total revenue by 13.5%. The largest decline (27%) was in North America. European revenue was flat but declined 11% in terms of constant currency. Windchill, particularly Windchill Link solutions, had strong performance during the quarter, up roughly 10% both sequentially and year over year, but Design Solutions continued its slide dropping 6% sequentially and 20% year over year. Net loss for the quarter was $37.9M and for the fiscal year $98.3M. According to Mr. Harrison the largest contributing factor was the number and size of major deals: In the quarter there were 10 deals greater than $1M for total of $18M versus 12 deals for total for $32M in 4Q02. On the positive side PTC Toyota Motor Corporation signed a joint research and development agreement to expand the solutions available to powertrain product and process designers. A D. H. Brown analyst estimates the contract at $10M. Toyota was PTC's largest customer in F2003. Also in the quarter US Dept of Energy Nuclear Weapons Complex (NWC) signed a $10M contract to upgrade Pro/E and replace some SolidWorks. One more negative item, the U.S. District Court for the District of Massachusetts issued a ruling rejecting PTC's request to dismiss RAND Worldwide's over US$100 million lawsuit on October 31.
For Q3 Tecnomatix reported revenues of $20.3M, slightly up sequentially and year over year. The loss for the quarter was $4.681M versus net income of $171K the previous quarter and net loss of $171K the year before. The loss is almost totally due to charges such as in-process R&D write associated with USDATA acquisition near the end of the quarter. "The third quarter was a productive quarter for Tecnomatix. During this quarter, which is typically a seasonally slow one, we maintained financial stability, reported a positive cash flow, booked a steady stream of new and repeat orders, and continued to execute on the initiatives that will drive our growth and profitability," said Harel Beit-On, chairman and chief executive officer of Tecnomatix Technologies. "During the quarter, we completed the acquisition of substantially all the assets and liabilities of USDATA corporation, as scheduled. We moved swiftly to integrate all USDATA processes into our existing operations and strengthened the USDATA team with some of Tecnomatix's senior executives. In addition, the USDATA products have been re-branded as Tecnomatix FactoryLink and Tecnomatix Xfactory. We believe that this acquisition will contribute to our profitability in the first half of 2004.
Graph 2 -- MCAD Quarterly Revenue Trend (above) and Relative Market Share (below)
The flat revenue performances of the covered MCAD vendors is revealed in the top frame of Graph 2, with PTC's decline clearly visible. The bottom frame of Graph 2 depicts the relative market share dominance of the top four vendors Autodesk, Dassault, EDS PLM and PTC. Note that PTC remains a formidable player despite its revenue reductions of recent quarters.
Details for each company's forecasts for future performance are provided below: