MCAD/MCAE Industry View - A June 2011 Update

"For nominal Q2 2011, we are providing guidance of $275 to $285 million in revenue with non-GAAP EPS of $0.28 to $0.32, excluding any impact from the acquisition of MKS," Glidden added. "From a revenue perspective, we are expecting approximately 15% to 25% year-over-year growth in license revenue in Q2, with our combined services and maintenance businesses up in the low teens, resulting in approximately 15% year-over-year growth in total revenue. We expect to resume our stock repurchases in Q2, with the goal of repurchasing approximately $55 million in total by yhe end of September 2011." For nominal Q2, the GAAP EPS target is $0.16 to $0.20.

The Q2 guidance assumes a GAAP tax rate of 20% and 121 million diluted shares outstanding.

Glidden continued, "Looking to the full year, we are increasing the low end of our revenue growth target from 10% to 11% growth, or $1,120 million. The mix of revenue is also changing, with lower license revenue growth being more than offset by stronger and more predictable services and maintenance revenue. We are now expecting total revenue growth of 11% to 12% driven by license revenue growth of 15% to 20%, low- to mid-teens services revenue growth and high single-digit maintenance revenue growth. We  will continue to balance investments to support future growth with our commitment to 20% non-GAAP EPS growth." For the fiscal year, the GAAP EPS target is $0.73 to $0.78.

May 23 Close =  $22.37            Market Cap = $2.66B

PTC self description

PTC (NASDAQ: PMTC) provides discrete manufacturers with software and services to meet the globalization, time-to-market and operational efficiency objectives of product development. Using the company's PLM and CAD and related solutions, organizations in the Industrial, High-Tech, Aerospace/Defense, Automotive, Retail/Consumer and Life Sciences industries are able to support key business objectives such as reducing costs and shortening lead times while creating innovative products that meet customer needs and comply with industry regulations.

Stock Prices and Market Caps

In each of the vendor’s financial reports in the foregoing, a graph of the vendor’s stock price vs. the last 12 months was included. In addition, the performance of the NASDAQ Composite was compared in each of those graphs. In general, each of our G5 vendors either kept pace with the NASDAQ or out-performed it.

Let’s look at the NASDAQ Composite for the last year by itself:

CLOSE MAY 23  2758.90     - 44.42 POINTS    - 1.58%

The index was hovering about the 2200 level from late May 2010 till around September 10, 2010. It then began an impressive climb, reaching 2800 in February 2011, and has hovered there since. The 500 point climb was itself impressive, adding nearly 23% in value in those five months. Happily, each of the MCAD/MCAE G5 did even better, as each of their individual graphs reveal.

Another way to view the financial performance of the G5 vendors, is to check the progress of each vendor’s market worth, or Market Capitalization. Among other factors, the Market Cap varies as a function of the share price was well as the number of shares outstanding. Table 3 below provides a snapshot.

The stock prices of the G5 MCAD/MCAE vendors each prospered during the three months between November 24, 2010 and February 25, 2011, commensurate with the vendors’ improved performances in revenues and earnings (along with other more esoteric factors). And all the G5 vendors save one enjoyed double-digit percentage rises in their Market Caps, with Autodesk leading the way with +21% improvement. Autodesk overtook Dassault in total Market Capitalization during that three month period, becoming, well, the MCAD company with the largest Market Cap (on that date)!

During the same three months, the NASDAQ Composite Index had risen 9.36%, from 2543.12 to 2781.05.

Taken together, the total Market Capitalization of the G5 stood at a formidable $27 Billion on February 25, 2011, up a tidy 15% since November 24, 2010.  (At the time, the writer noted that the only EDA or Electronics IP company that comes close to the MCAD leaders in Market Capitalization, was Arm Holdings plc of Cambridge, England.

Alas, also evident from Table 3, is that the G5’s collective improvement has flattened during the most recent three month period through May 23, 2011. Whereas the sum of the five Market Caps grew an impressive 15% during the former 3 month period, they squeaked out just over 1% improvement collectively since late February 2011.

Still, the collective worth of the G5 still stands just north of $27 Billion, nearly $4 Billion more than their worth only six months ago, an impressive record, to be sure.

# # # # # #

[1] Footnote: Virtually all US companies that have international operations, and any company whose HQ is outside the USA (e.g. Dassault Systemes, ESI Group, ARM Holdings plc, et al) encounter the need to express financial data in both GAAP as well as IFRS standard formats. Apparently, the world is moving more and more to merging the two accounting standards, with a definite bias toward IFRS.

(This is not to say that companies will totally abandon the use of non-GAAP or non-IFRS reporting when it suits their reporting presentation goals).

International Financial Reporting Standards (IFRS) have been affecting US companies for some time, whether through their business dealings with non-US customers and supply chains that use IFRS, or through their non-US subsidiaries' adoption of IFRS. If they have not done so already, US companies will feel the increasing effect of IFRS as key aspects of United States Generally Accepted Accounting Principles (US GAAP) and IFRS continue to converge. The US Securities and Exchange Commission's (SEC) roadmap for adopting IFRS recently called for adoption by 2014, although that date is of course subject to delay.

Despite such delay, the US government's acknowledgment of the need for a single set of high-quality global standards, in addition to the continuing globalization of capital markets, suggest that IFRS (not US GAAP) will eventually become the new global standard.

Most likely the end result will be a convergence of US GAAP and IFRS standards. In the meantime, many US companies and their investors will see, among other things, major changes in financial statements. The impact of the accounting changes caused by convergence will go beyond mere financial reporting. Tax policy, mergers and acquisitions, financial planning, systems requirements, and compensation structures are just some of the areas that will be affected. Get familiar with it; it's coming fast! Who said accounting was dry and boring?

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