PTC Reports Q3 FY 2006 Results

NEEDHAM, Mass.—(BUSINESS WIRE)—July 26, 2006— PTC (Nasdaq: PMTC), the Product Development Company(TM), today reported revenue of $216.7 million for the third fiscal quarter ended July 1, 2006, up 20% from $180.3 million for the same period last year. Total license revenue for the third quarter was $65.7 million, up 33% from the same period last year. PTC's overall revenue growth was driven by accelerated organic license and service revenue across both Desktop and Enterprise Solutions categories, as well as revenue attributable to the acquired businesses of Arbortext and Mathsoft.

"By almost every measure, our third quarter results were outstanding," said C. Richard Harrison, president and chief executive officer. "We executed well across product lines, major geographies, and in both large accounts and our reseller channel. Additionally, our recent acquisitions are becoming important to our customers. We are clearly seeing positive results from our strategic efforts."

GAAP operating income for the third quarter was $13.5 million, compared with $26.5 million in the year-ago period. GAAP net income for the third quarter was $16.9 million, or $0.15 per diluted share, compared with GAAP net income of $26.7 million, or $0.24 per diluted share, in the year-ago period. PTC adopted SFAS 123R in the fourth quarter of fiscal year 2005 and, therefore, the GAAP results from the year-ago period do not include the cost of stock-based compensation in accordance with SFAS 123R. In the third quarter of 2006, PTC recorded stock-based compensation expense of $10.1 million, amortization of acquisition-related intangible assets of $2.8 million, a net restructuring charge of $5.9 million related to a previously announced cost-reduction program, a $2.1 million write-off of in-process research and development associated with the acquisition of Mathsoft, and a one-time tax benefit of $6.1 million due to the favorable resolution of IRS tax audits in the United States. PTC recorded an unrelated tax benefit of $4.4 million in the third quarter of 2005 due to the favorable resolution of a foreign jurisdiction tax audit.

Non-GAAP operating income, which excludes stock-based compensation cost, amortization of acquisition-related intangible assets, in-process research and development write-offs associated with acquisitions, and restructuring charges, was $34.4 million for the third quarter, a 28% increase from $26.8 million in the year-ago period. Non-GAAP net income, which excludes the items excluded from non-GAAP operating income and the related tax effect of these items, as well as the effect of one-time tax items, was $29.5 million for the third quarter, or $0.26 per diluted share, compared to $22.5 million in the year-ago period, or $0.20 per diluted share. We have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.

Cash and cash equivalents were $174 million at the end of the third quarter, down from $224 million at the end of the second quarter. During the third quarter, PTC made a $63 million cash payment for the acquisition of Mathsoft and a $10 million cash payment related to the settlement of the aforementioned IRS audits in the United States.

Revenue Metrics

Total Desktop Solutions revenue for the third quarter was $143.9 million, up 14% from the same period last year. Desktop Solutions revenue growth was led by strong license revenue, which grew 30% to $43.5 million from the same period last year. The license revenue growth reflected strong sales of Pro/ENGINEER new seats, upgrades, and modules, as well as the addition of revenue attributable to Mathsoft and Arbortext products. Desktop Solutions consulting and training service revenue grew 15% from the year-ago period to $23.3 million. The growth reflected increased sales of training and consulting offerings that help customers improve proficiency in the use of our products and optimize their product development processes.

Total Enterprise Solutions revenue was a record $72.8 million, representing 34% year-over-year growth. Enterprise Solutions license revenue was $22.2 million, up 41% over the same period last year. The Enterprise Solutions license revenue growth reflects organic Windchill revenue growth as well as the addition of revenue attributable to Arbortext products. Enterprise Solutions consulting and training service revenue was $33.1 million, up 35% from the year-ago period, reflecting continued customer demand for process consulting, implementation and training services that accompany new customer investments in content and process management solutions.

In the third quarter, PTC received orders from leading organizations, including Audi AG, Boeing Company, Festo AG & Co. KG, Huawei Co., Ltd., Inventec Corporation, Knorr Bremse AG, MiTAC International Corporation, Mitsubishi Heavy Industries, Ltd., Motorola Inc., Piaggio & C Spa, Robert Bosch GmbH, Toyota Motor Corporation, and Tyco International. PTC's reseller channel delivered $46.0 million in total revenue during the quarter, up 28% from the year-ago period as the result of solid growth around the world.

PTC's revenue grew across all major geographies during the third quarter of fiscal 2006: North America delivered 37% year-over-year revenue growth, European revenue grew 8% year over year, and Asia-Pacific revenue grew 13% year over year. PTC's performance in Asia Pacific reflected 40% year-over-year growth in the Pacific Rim partially offset by a revenue decline of 9% in Japan.

Year-to-Date Results

PTC delivered the following results for the first nine months of fiscal 2006 compared to the same period last year:

-- Total revenue growth of 16%, driven by license revenue growth of 20%, training and consulting service revenue growth of 30%, and maintenance revenue growth of 7%;

-- GAAP net income of $35.1 million and non-GAAP net income of $70.8 million, compared to $66.3 million and $62.9 million, respectively, for the first nine months of fiscal 2005. PTC adopted SFAS 123R in the fourth quarter of fiscal year 2005, and therefore the GAAP results from the year-ago period do not include the cost of stock-based compensation in accordance with SFAS 123R;

-- Desktop Solutions total revenue growth of 8%, driven by license revenue growth of 14%, training and consulting service revenue growth of 12%, and maintenance revenue growth of 4%;

-- Enterprise Solutions total revenue growth of 37%, driven by license revenue growth of 34%, training and consulting service revenue growth of 46%, and maintenance revenue growth of 25%;

-- Total revenue from our reseller channel of $124.7 million, up 20% from the same period last year;

-- Revenue growth across all major geographies: 30% growth in North America, 11% growth in Europe, and 4% growth in Asia-Pacific. Asia-Pacific revenue growth reflects a 13% revenue decline in Japan for the first nine months of 2006, offset by a 27% increase in revenue in the Pacific Rim.

"As fiscal 2006 has progressed, we have become increasingly confident in our competitive position and opportunity for near- and long-term revenue and earnings growth," continued Harrison. "We are competing in a growing market with a truly differentiated offering. This has improved our existing customer satisfaction and our new customer win rate. We have carefully selected acquisitions that have the potential not only to add stand-alone growth, but also to make our integrated product offering even stronger. We are currently growing faster than the overall PLM market, whether we include acquisitions or not. As a result, we continue to have a high degree of confidence in our ability to succeed in the foreseeable future."

Fourth Quarter and Fiscal Year 2006 Financial Outlook

PTC's revenue forecast for the fourth quarter of fiscal 2006 is between $217 million and $225 million. On a GAAP basis, fourth quarter total costs and expenses are expected to be approximately $193 million to $198 million, and earnings per share are expected to be between $0.15 and $0.19. Total non-GAAP fourth quarter operating costs and expenses are expected to be approximately $180 million to $185 million. The Company expects non-GAAP fourth quarter earnings per share to be between $0.26 and $0.30. These non-GAAP operating cost and earnings expectations exclude the following fourth quarter estimated expenses and their tax effects:

-- Approximately $10 million of expense related to stock-based compensation

-- Approximately $3 million of acquisition-related amortization expense

For the fiscal year ending September 30, 2006, PTC expects revenue to be between $826 million and $834 million. On a GAAP basis, fiscal year 2006 earnings per share are expected to be between $0.46 and $0.50. The Company expects non-GAAP earnings per share to be between $0.88 and $0.92 for the fiscal year. These non-GAAP earnings expectations exclude the following full-year estimated or actual items and their tax effects:

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