November 07, 2005
PTC Posts Positive Results
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Jeff Rowe - Managing Editor


by Jeff Rowe - Contributing Editor
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PTC reported revenue of $195.1 million for the fourth fiscal quarter ended September 30, 2005, up 15% from $170.1 million for the same period last year. The growth was driven by a combination of strong organic growth as well as the addition of revenue from Arbortext, which PTC acquired during the quarter. For the fiscal year, revenue grew 9% to $720.7 million, compared to $660.0 million in fiscal 2004.


"2005 was a great year for PTC," said C. Richard Harrison, president and chief executive officer. "We exceeded our goals for organic revenue growth and also expanded our business through strategic acquisition. We strengthened our ability to serve existing customers with new product and service offerings. And we leveraged our own solutions as well as those we acquired to enter new markets, such as Retail, Footwear & Apparel, and Life Sciences."


As previously announced, PTC adopted FAS 123(R) during the fourth quarter, which requires the expensing of stock-based compensation. Additionally, as previously announced, commencing with fourth quarter 2005 results, PTC has begun to provide a non-GAAP income statement to supplement its GAAP income statement. Accordingly, earnings and expense results are provided below on both a GAAP and a non-GAAP basis, and we have provided a reconciliation between GAAP and non-GAAP results in the attached financial tables.


GAAP net income for the fourth quarter was $17.3 million, or $0.06 per diluted share, compared with GAAP net income of $42.0 million, or $0.15 per diluted share, in the year-ago period. Non-GAAP net income, which excludes restructuring charges, stock-based compensation, acquisition-related amortization, in-process research and development, and their related tax effects, as well as the effect of one-time tax items, was $24.6 million for the fourth quarter, or $0.09 per diluted share, compared to $25.4 million in the year-ago period, or $0.09 per diluted share.


For the fiscal year, GAAP net income was $83.6 million, or $0.30 per diluted share, compared to $34.8 million, or $0.13 per diluted share, in fiscal 2004. Non-GAAP net income was $87.2 million, or $0.31 per diluted share, compared to $61.1 million, or $0.22 per diluted share, in fiscal 2004. Cash and investments were $204.4 million at the end of the fourth quarter, down from $403.0 million at the end of the third quarter, reflecting the cost of the Arbortext acquisition ($190 million) and the employee stock option buyback ($12.7 million).


With the acquisition of Arbortext and the launch of Pro/INTRALINK 8.0, PTC has begun to classify its revenue into two new categories:
  • "Desktop Solutions", which includes Pro/ENGINEER, Arbortext Editor and all other solutions that help companies create content and improve desktop productivity. In the commentary below, this category is compared to the revenue category formerly called Design Solutions.
  • "Enterprise Solutions", which includes Windchill, Pro/INTRALINK, Arbortext Publishing Engine and all other solutions that help companies collaborate, manage and publish information across an extended enterprise. In the commentary below, this category is compared to the revenue category formerly called Collaboration and Control Solutions.
  • Total Desktop Solutions revenue for the fourth quarter was $129.3 million, which includes $37.8 million of license revenue. Both license revenue and total revenue grew 6% from the year-ago period. For fiscal year 2005, PTC delivered total Desktop Solutions revenue of $503.1 million, up 5% from fiscal 2004.


    Total Enterprise Solutions revenue grew 37% in the fourth quarter to $65.8 million from $47.9 million in the fourth quarter of 2004. Enterprise Solutions license revenue was $23.0 million, up 40% from $16.4 million in the year-ago period. For the fiscal year 2005, PTC delivered total Enterprise Solutions revenue of $217.6 million, or 21% growth from fiscal 2004.


    Revenue growth in both categories reflects organic growth as well as growth through acquisition, primarily from the contribution of Arbortext, which PTC acquired on July 19, 2005.


    In the fourth quarter, PTC received orders from leading organizations, including AGCO Corporation, Alion Science and Technology Corporation, Boeing Company, Casio Hitachi Mobile Communications Co., Ltd., Fila USA Inc., Hino Motors, Ltd., Mitsubishi Electric Engineering Co., Ltd., NASA, Naval Reactors Program (U.S. Navy), Northrop Grumman Corporation, Novellus Systems Inc., Pfizer Inc., Siemens VDO Automotive AG, Turbomeca SA, and Volkswagen AG. PTC's reseller channel delivered $34.8 million in total revenue during the quarter. For the fiscal year, PTC's channel delivered $138.6 million in total revenue.


    "We are executing very well and are in a position to deliver accelerated revenue growth in 2006," continued Harrison. "We have articulated a highly differentiated vision with our integral product development system. Our solutions are unmatched in breadth, ease-of-use and ease-of-deployment, and we are building momentum in new and existing accounts of all sizes. We are enthusiastic about our outlook as a result, and we are poised to deliver 12% revenue growth in 2006."


    First Quarter and Fiscal Year 2006 Financial Outlook

    PTC's revenue forecast for the first quarter of fiscal 2006 is between $190 million and $195 million. On a GAAP basis, first quarter total costs and expenses are expected to be approximately $177 million to $182 million, and earnings per share are expected to be between $0.02 and $0.04. Total non-GAAP first quarter operating costs are expected to be approximately $165 million to $170 million. The Company expects non-GAAP first quarter earnings per share to be between $0.06 and $0.08. These non-GAAP operating cost and earnings expectations exclude the following first quarter estimated expenses:
  • Approximately $10 million of expense related to stock-based compensation. This expense is slightly higher than previously expected because the Company has decided to implement a mix of performance-based and time-based equity incentive plans. PTC previously used only time-based equity incentives, which carry a lower initial accounting expense than do performance-based equity incentives.
  • Approximately $2 million of acquisition-related amortization expense.
  • For the fiscal year ending September 30, 2006, PTC expects revenue to be between $805 and $815 million. On a GAAP basis, fiscal year 2006 earnings per share are expected to be between $0.18 and $0.20. The Company expects non-GAAP earnings per share to be between $0.35 and $0.37 for the fiscal year. These non-GAAP earnings expectations exclude the following full-year estimated expenses:
  • Approximately $40 million of expense related to stock-based compensation.
  • Approximately $9 million of acquisition-related amortization expense.
  • Other Financial Information

    Separately, PTC has identified irregularities in certain sales orders in the Asia-Pacific region, principally related to PTC's 2001-2003 fiscal years. The orders identified are not material to the results for these fiscal years, but PTC's investigation has not been completed. PTC expects to complete its investigation in time for the filing of its Annual Report on Form 10-K in December.


    It's taken a few years to come together, but it seems like PTC has aligned a number of things for a positive financial result and a more promising future. I think the company is pleasantly surprised that the newest version of Pro/INTRALINK has done so well in terms of sales. Also, its PLM On Demand initiatives appear to have become increasingly popular, especially with small and medium sized businesses who can access(and pay) for them only when they really need them as hosted services. Finally, recent acquisitions continue to diversify the company and add to its bottom line. The Arbortext acquisition is proof of this last statement. (I will be speaking with executives from both PTC and
    Arbortext in the near future to get a better understanding of the reasoning behind the acquisition, how things have fared so far, and what the future might hold)


    At least part of PTC's success can be attributed to the fact that it now offers a more comprehensive line of products and services beyond Pro/ENGINEER and Windchill. A new version of Pro/ENGINEER Wildfire is due out in the next few months and will be interesting to see how it affects the traditional/flagship CAD product side of the company.


    So, has PTC turned the corner to sustained growth in a positive direction? It's a little premature to declare that, but this quarterly financial result points to a continuing trend in this direction, and 2005 has been, without question, a good year for PTC on both the desktop and enterprise levels.



    The Week's Top 5

    At MCADCafé we track many things, including the stories that have attracted the most interest from our subscribers. Below are the five news items that were the most viewed during last week.



    MSC.Software Corp. announced that Airbus extended their strategic partnership with a multi-million dollar agreement. This strategic partnership enables Airbus engineers to use a comprehensive range of products from the MSC.Software portfolio under the MSC.MasterKey system. Since the introduction of the A300 in 1974, Airbus today produces 13 aircraft models, from the 100-seat A318 jetliner to the 555-seat A380. MSC.MasterKey is a flexible solution for manufacturing organizations requiring single source access to a diverse range of virtual product development (VPD) solutions. MSC.MasterKey lets customers replace
    individual product licenses with software tokens, providing access to multiple simulation software tools, on demand. The agreement concludes an extensive technology and business value evaluation, and Airbus engineers will be able to use a full range of stand-alone and CAD-embedded simulation tools from the SimOffice and SimDesigner product suites.


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    -- Jeff Rowe, MCADCafe.com Contributing Editor.


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