Commentary: Can PTC Stage a Turnaround in 2003?

With an estimated $33 Million in overstated earnings and a loss of $11.4 Million in Q1, what's ahead for PTC?

by Ira Breskin

Executives at Parametric Technology Corp. hope the worst is behind them. PTC should break even during its 2003 fiscal second quarter ending March 30, C. Richard Harrison, company president and CEO, said during an analyst presentation on Tuesday, January 14th. More specifically, PTC must generate about $180 million in quarterly sales to break even, added Thomas Beaudoin, PTC's acting CFO.

PTC's inability to hit that target during the fiscal first quarter, when it generated $171.9 million in sales, resulted in the company's net loss of $11.4 million, or 4 cents a share. The loss comes after PTC officials in October predicted a break fiscal first quarter. "Beyond the current quarter, we see the challenge for shares of PTC as meeting Wall Street estimates on a consistent basis. We believe a fundamental turn around (i.e., growing revenue) is secondary to the story for driving shares higher," said Gene Munster, an analyst with US Bancorp Piper Jaffray.

Moreover, comparable historic results aren't available because PTC now is completing the restatement of financial results for past three years. It's doing so after learning that it prematurely booked sales of maintenance services for its MCAD and PLM software packages.

The upshot: PTC must restate a total of $33 million in previous sales that should have been deferred and recognized during this and subsequent years. The projected $33 million restatement is higher than the $20 million to $25 million estimate that company management offered late last month.

The timing of such a restatement is bad given investors' decreased tolerance for such adjustments following unrelated accounting scandals at Enron and Worldcom.

PTC discovered the overstatement after installing a sophisticated automated accounting system for maintenance services.

"While the magnitude of the increase in restated maintenance revenue appears minimal, investors may perceive this as a more significant discrepancy," US Bancorp's Munster said.

"It's just a credibility issue" that will retard PTC winning back investors, Munster said during a telephone interview. He continues to rate PTC a long-term buy. The upside potential for PTC's fiscal 2003 performance is tied, in part, to the company's planned introduction next month of Pro E Wildfire. This application software is an Internet-enabled version of PTC's popular Pro/Engineer mechanical CAD software that incorporates much of the capability of Windchill, its leading-edge collaborative development tool.

Ira Breskin, a freelance editor/writer specializing in business and technology issues, is a frequent contributor to Business Week, Newsday, and the New York Times. He holds a B.A. from Columbia University and a Knight-Bagehot Fellowship in Economics and Business Journalism, Columbia University Business School. He may be reached at Email Contact.

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PTC Reports Fiscal 2003 First Quarter Results --- [14 Jan 2003]

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