MCAD/MCAE Industry View – A November 2010 Update

  • Q3 2010 Results: Revenue $268 million but GAAP EPS of ($0.11)
    • GAAP operating margin of +10.8%
    • $268 million exceeded Q3 2010 guidance ($255 - $265 million) in revenue
  • FY'10 Results: Revenue of $1,010 million and GAAP EPS of $0.20
    • GAAP operating margin of 7.4%
  • Q4 2010 Guidance: Revenue of $255 to $265 million
    • GAAP EPS of $0.11 to $0.15
    • Assumes $1.37 USD / EURO
  • FY'11 Targets: Revenue of $1,110 to $1,130 million
    • GAAP EPS of $0.75 to $0.80
    • License revenue growth target of 20% to 25% year-over-year growth
    • GAAP operating margin of 11% to 12%

Results Commentary

James Heppelmann
, now president and chief executive officer, commented, "Calendar Q3 was another solid quarter for PTC with total revenue up 9% year-over-year and license revenue up 26%. Importantly, our services and maintenance revenues were up on a year-over-year basis for the first time since calendar Q1'09. Our PLM license revenue in calendar Q3 2010 was $44.3 million, up 27% year-over-year, continuing to highlight our leadership position in a large and growing segment of the enterprise software market. Our CAD license revenue was $44.7 million, up 25% year-over-year, with growth in every region." On a constant currency basis, total calendar Q3 2010 revenue was up 11% and license revenue was up 27% compared to the year ago period.

"Our continued revenue momentum in the PLM market is further bolstered by an additional three strategically-important 'domino' account wins during calendar Q3 2010 and another one completed early in calendar Q4 2010," Heppelmann continued. "Since 2009, we have won 19 domino accounts, all of which are large multinational companies who have chosen to standardize their PLM initiatives on our Windchill platform. Dominoes represent the largest of many competitive displacement opportunities, and we believe they are a clear indicator of our momentum in the PLM market. They also demonstrate that PTC is gaining share and becoming recognized as the industry leader for both our technology and product development process expertise. We are further engaged in more than 250 other opportunities world-wide with companies that are looking to replace their existing PLM solution to help improve their competitive position in their own markets."

Heppelmann added, "Our pipeline for new business opportunities with new and existing customers remains strong. During the quarter we recognized revenue from leading organizations such as Bombardier, Bosch, Deere & Company, NASA, Raytheon, Steelcase, the US Army, the US Navy, and Whirlpool."

Jeff Glidden
, chief financial officer, commented, "From a profitability standpoint, while we outperformed our revenue targets, our EPS result was (nevertheless) in line with our original guidance due to higher incentive compensation expense. As a result of our over-performance, we elected to provide a profit sharing bonus to our employees, who have not received a merit increase in two years given the belt tightening we did as a result of the macro-economic environment."

"We ended the third calendar quarter of 2010 with $240 million of cash," continued Glidden. "During calendar Q3 2010 we repurchased $2 million worth of our stock. Additionally, we resolved the litigation with GE Japan, which resulted in a GAAP benefit of $9 million to other income in calendar Q3 2010; this resolution will reduce our cash balance by approximately $48 million in calendar Q4 2010. Our non-GAAP tax rate was lower than expected during the quarter as a result of lower than expected taxes in several foreign jurisdictions. Additionally, we completed a business realignment initiative during the quarter, primarily in Europe, to simplify our corporate structure for tax efficient cash repatriation. This realignment resulted in a significant non-cash GAAP tax rate increase in calendar Q3 2010."

Total PTC headcount was 5,317 as of September 30, 2010, up slightly from 5,289 as of June 30, 2010.

Outlook Commentary

"Based on the market momentum we are seeing, the strength of our pipeline, our increased sales capacity, many important product initiatives, including the launches of Windchill 10 and Project Lightning [aka Creo], as well as the significant interest we are seeing in other products such as Arbortext, Relex and InSight, we continue to be excited about our long-term growth opportunity," said Heppelmann. "Given our 25% year-over-year non-GAAP EPS growth in FY'10 (calendar October 2009 to September 2010) and our expected 20% to 25% year-over-year non-GAAP EPS growth in FY'11 (calendar October 2010 to September 2011), we remain confident and committed to achieving our goal of a 20% non-GAAP EPS CAGR through 2014." (GAAP figures were not given here).

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