Commentary: MCAD Industry View - A November 2006 Update

William Weyand, CEO and Chairman of MSC.Software, said, "We believe that the software revenue decreases in the quarter are the result of our transition to selling enterprise platform applications, overall weakness in our Asia Pacific operations, and challenges with revenue recognition as it relates to transitioning our legacy contracts and products. Selling enterprise simulation solutions results in larger transaction sizes that typically require a longer decision making process within our customers' organizations. That process has caused a general lengthening of the overall sales cycle from what was approximately three to six months, to about six to 12 months."

"The decrease in our services revenue is the result of a managed transition away from low margin simulation services contracts in favor of higher margin consulting engagements. We want our services business to be based on a contemporary practice model that is in alignment with our new enterprise solution strategy," continued Mr. Weyand. "Although it is hard to predict with certainty when larger enterprise software and services transactions will close, we do know that we have not lost any major customers and our pipeline for transactions that exceed $100,000 is bigger than ever."

On November 1, 2006 PTC reported financial results for its fourth quarter and the entire year of fiscal 2006. Total revenue for the quarter was $245 million, an increase of 26% from the $195 million in the same quarter a year ago, and an increase of 13% from the $217 million in the just prior quarter. The $245 million was above the range given as guidance a quarter ago. License revenue was $84 million, accounting for 34% of total revenue. This was a 39% increase year-over-year and a 29% increase sequentially. Maintenance revenue was $98 million, accounting for 40% of total revenue. This was a 12% increase year-over-year and just over 2% increase sequentially. Global services revenue was $63 million, accounting for 26% of total revenue and representing a 26% increase year-over-year, and a 12% increase sequentially.

Desktop Solutions revenue was $159 million, accounting for 65% of total revenue, while Enterprise Solutions revenue was $86 million, accounting for 35% of total revenue. Desktop license revenue of $52 million grew 38% year-over-year. Enterprise license revenue of $32 million was a 40% increase year-over-year.

$K

3Q06

2Q06

Delta

3Q05

Delta

Desktop

159,353

143,876

10.8%

129,326

23.2%

Enterprise

86,148

72,828

18.3%

66,208

30.1%

Total

245,501

216,704

13.3%

195,534

25.6%

Table 7 PTC Revenue by Segment

In the quarter PTC sold 4,800 seats of Pro/Engineer and 32,050 seats of Windchill. Cumulative seats of Pro/Engineer reached 348,950 and of Windchill 434,500.

North American revenue was $116 million, accounting for 47% of total; European revenue was $74 million, accounting for 30% of total revenue; and Asia Pacific revenue was $56 million, accounting for 23% of total revenue. NA revenue was up 37% year-over-year, European revenue up 30% year-over-year and AP revenue up 12% year-over-year. On a sequential basis, North America was up 27%, Europe up 2.5% and AP up 4.2%.

Net income for the quarter was $28 million. a 62% increase from the $17 million in the same quarter last year, and an increase of 66% from the $16.9 million in the just prior quarter.

For fiscal year 2006, total revenue was $854 million, an increase of nearly 19% from the $721 million in fiscal 2005. License revenue was $263 million, accounting for 31% of total revenue and an increase of 26%. Service revenue was $591 million, accounting for 69% of total revenue and an increase of nearly 16%. Desktop revenue was $561 million, accounting for 66% of total revenue and an increase of nearly 12%. Enterprise revenue was $278 million, accounting for 34% of total revenue and an increase of 28%. However, net income for the year was $63 million, a decrease of 26% from the $86 million in fiscal 2005.

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