MCAD Industry View - A DECEMBER 2008 Update
by Dr. Russ Henke and Dr. Jack Horgan
This December 2008 issue of the MCAD Industry Commentary recounts the financial performances of a selected group-of-six MCAD/PLM vendors for the nominal third quarter of 2008. Commentary on the Collapse of the Economy is also covered.
In the first MCAD Industry Commentary published May 2003 in MCADCafé.com, then-recent yearly and quarterly financial performances of a selected group of public Mechanical Computer Aided Design (MCAD) companies were analyzed and compared. Expectations of future financial performances of these same MCAD entities were documented.
The May 2003 MCAD Commentary was followed by twenty-one quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The entities covered were ANSYS, Autodesk, Dassault Systèmes, UGS PLM, ESI Group, Moldflow, MSC.Software, PTC and Tecnomatix.
As a result of the acquisition of Tecnomatix by UGS that closed April 1, 2005, Tecnomatix was eliminated from coverage thereafter as a separate entity.
On May 7, 2007 UGS announced the close of its acquisition by Siemens AG effective May 4. Thereafter, the business went to market as UGS PLM Software, a global division of the Siemens Automation and Drives (A&D) Group. Over the years UGS has bounced back and forth between being a public company and a private company under different ownerships. Although not required to do so, UGS has frequently reported on its financial results even when privately held. For the first quarter of 2007 there was only this terse statement from Tony Affuso, chairman and CEO of UGS PLM Software, “We had a very strong quarter in Q1, coming in near 11 percent on total revenue growth and 16 percent on software license growth.” This translates to about $300 million. According to a company spokesperson at the time, UGS would no longer report results separately from Siemens, a very common practice with large corporations. In the first quarter of this year, the entire A&D Group generated €3.9 billion of the €20.2 billion total Siemens revenue. Regrettably, we can expect very little insight into UGS performance itself from public Siemens' reports going forward.
On June 25, 2008 Autodesk completed its acquisition of Moldflow Corporation, so now Moldflow must be eliminated here from separate coverage.
Accordingly, this twenty-third MCAD Industry article in the sequel recounts the financial performances of the remaining group-of-six (G6) MCAD/PLM entities for the nominal third quarter of 2008.
The impacts of the current economic collapse on MCAD vendors are also discussed.
The Big News - The COLLAPSE of the ECONOMY
The financial results of the G6 MCAD vendors for nominal Q3 2008 are only just beginning to reveal a glimpse of the economic troubles ahead, as the data in the sequel herein will show. As a group, the G6 MCAD vendors generated combined revenues of $1.593 billion in nominal Q3 2008, a presumably healthy increase of almost 15% from the $1.386 billion in the year ago quarter (Q3 2007). But as a harbinger of future difficulty, in nominal Q3 2008, the G6 suffered collectively a 0.4% revenue decline from the $1.599 billion achieved in the just prior (second) quarter of 2008.
Moreover, the impending reality of the economic downturn has only slightly dented the MCAD revenue forecasts for Q4 of 2008, although only 4 of the G6 even offered forecasts. As a group, those four still forecast a combined revenue growth of 8% over the same period a year ago. On a sequential basis the combined forecast is for 6% growth; still, pretty meager for a traditionally strong fourth quarter.
Part of the reason that the fear of a world in increasing economic trouble may not be coloring the near-term MCAD vendor forecasts so much, may be the nature of longer term contracts and commitments involved with many MCAD customers.
But don't be fooled - worse times are coming fast!
Some vendor executives do acknowledge the advancing storm, speaking in mid-November 2008 rather than mid-October merely based on when their fiscal Q3's close. For example, Autodesk CEO Carl Bass said, “The sharp downturn of the global economy is substantially impacting our business. Demand for our products fell dramatically in October in all geographies as the financial crisis worsened. With many of our customers and partners unable to secure credit, projects are being delayed and our business is being impacted. While our currency hedge will provide a net benefit to our third quarter, the considerable strengthening of the U.S. dollar and our unusually low ending level of backlog will likely create a significant headwind for the next few quarters.” Bill Weyand, CEO and Chairman of MSC.Software, said, “We are mindful of the global macroeconomic environment; we believe that a prolonged economic downturn could adversely impact our customers, IT spending patterns, and thereby our business as well."
Of course falling stock prices are way ahead of the vendors' revenue forecasts in signifying impending gloom. In Q3 2008 alone, the combined stock prices of the G6 MCAD vendors fell in absolute terms by 14% year-over-year and 9% sequentially. On average, the G6 stock prices in Q3 fell 10% year-over-year and almost 5% sequentially. Despite these losses, the G6 themselves actually faired slightly better than the stock markets as a whole, which endured a year-over-year decline of 20% for the average of the major stock indexes, and a 7.4% decline from the just previous quarter.
Since December 31, 2007, through November 26, 2008, the following has occurred to the share prices of these MCAD vendors:
|Dassault Systemes||- 35.4%|
“Tells” Long Visible…
Of course, the “tells” indicating that the US economy (followed by the rest of the industrial world) is now collapsing around our ears, have long been visible to those who were looking. An economy as intrinsically great as the US economy cannot forever withstand the years of extraordinary unchecked greed on Wall Street, rampant deregulation, continued outsourcing of the US manufacturing base, and deep government deficits that we have endured. It's just that these seeds sown so widely over the last eight years in the United States are now reaping their most devastating negative results in 2008.
Remember, the US unemployment rate zoomed to a 14-year high in October 2008 as another 240,000 jobs were cut, far worse than expected, providing unquestionable evidence of Bush 43's deepening second recession. The new data, released November 7, 2008 by the US Labor Department, showed the US jobless rate rose to 6.5% in October from 6.1% in September. Current unemployment has now surpassed the high seen after Bush 43's first recession in 2001, when the US jobless rate peaked at 6.3% in June 2003.
The October 2008 decline marked the 10th straight month of payroll reductions, and Labor Department revisions showed that job losses in August and September 2008 were actually much deeper than first estimated. Employers cut 127,000 positions in August, compared with 73,000 previously reported. And some 284,000 jobs were cut in September, compared with the 159,000 job cuts first reported. So far in 2008, 1.2 million jobs have disappeared; over half the decrease occurred in the past three months alone. The total number of US unemployed in October was just over 10 million, the most in 25 years. November's jobless numbers, due on December 5, 2008, are likely going to continue the heartbreaking trend.
The US economy actually shrank in Q3 2008 even more than previously believed, and consumers reduced their spending by the largest amount in 28 years. During the same period, home prices fell to levels not seen since early 2004. The updated reading on the US economy's performance from the Commerce Department showed the gross domestic product shrank at a 0.5% annual rate in the July-September quarter, weaker than the 0.3% rate of decline first estimated, and it marked the worst showing since the economy contracted at a 1.4% pace in the third quarter of 2001, when the nation was suffering through Bush 43's first recession. Even in Q2 2008, the economy was already struggling, growing at a measly 2.8%.
Meanwhile, the FDIC said the list of banks it considers to now be in trouble shot up nearly 50% to 171 during Q3 2008. The FDIC also said that US commercial banks and savings institutions suffered a 94% drop in third-quarter profits to $1.7 billion. Except for the fourth quarter of 2007, it was the lowest profit since the fourth quarter of 1990. On average, about 13% of “troubled banks” end up failing. Nine banks failed in the third quarter, reducing the FDIC's deposit insurance fund to $34.6 billion from $45.2 billion in the second quarter. Twenty-two banks have failed so far this year compared with three for all of 2007, and more failures are expected.
The New York-based Conference Board said its Consumer Confidence Index fell to 38.8 in October 2008, the lowest since the research group started tracking the index in 1967, and Americans' views on the economy remain the gloomiest in decades as they grapple with massive layoffs, slumping home prices and dwindling retirement funds. American consumers slashed spending in the third quarter at a 3.7% pace, the biggest reduction in 28 years. Americans' disposable income fell at an annual rate of 9.2% in the third quarter, the largest quarterly drop on record dating back to 1947.
Home builders slashed spending at a 17.6% pace in Q3 2008, marking the 11th straight quarterly cut and fresh evidence of the depth of the US housing slump.
The AP reported on December 1, 2008, "A gauge of US manufacturing activity that fell to a 26-year low today followed similarly weak readings in Europe and China, fueling fears of a deepening global downturn. The Institute for Supply Management's (ISM) index of manufacturing activity for November (2008) fell to 36.2 from October's 38.9." Economists said that, "the manufacturing survey showed that the US economy is in a steep recession and that tough times will continue for manufacturers.”
Simultaneously, the “news” also emerged on December 1, 2008 from the National Bureau of Economic Research, (despite repeated denials throughout 2008 from Bush 43) that the United States economy officially sank into a recession last December (2007), which means that the downturn is already longer than the average for all recessions since World War II, according to the committee of economists responsible for dating the nation's business cycles. Private forecasters warned that this downturn was likely to set a new postwar record for length and likely to be more painful than any recession since 1981.
On cue, the Dow Jones industrial average promptly plunged nearly 680 points, or 7.7%, closing at 8,149 on December 1, 2008.
Despite their recent ineffectiveness, the Federal Reserve is expected to lower interest rates still again when its meets on December 16, 2008, its last session of the year. Last month, the Fed dropped its key rate to 1%, a level seen only once before in the last half-century (in 2003!). MOREOVER, LOW INTEREST RATES ARE DEVASTATING TO THOSE WHO WERE FRUGAL FOR 30 OR 40 YEARS AND STRUGGLED TO BUILD UP A FIXED-INCOME NEST EGG.
So far, though, these cuts and other Bush administration's financial bailout packages and radical actions seem unable to break though a dangerous credit clog, restore stability to financial markets and help the sinking US economy.
The US federal government just committed an additional $800 billion to two new loan programs on November 25, 2008 alone, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion. (That sum represents 60% of the nation's entire estimated gross domestic product!).
Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it's impossible to predict how much they will help now or how much they will eventually cost hapless US taxpayers. The final cost won't be known for many years. The alleged curbs on executive pay and golden parachutes for entities receiving bailouts are also not being enforced. The money has been committed to a wide array of programs, including loans and loan guarantees, asset purchases, equity investments in financial companies, tax breaks for banks, grudging help for struggling homeowners and a currency stabilization fund. Oh yeah, Citibank still gets billions in bailout money to use part of the money ($400 million) for naming the new NY Mets' baseball stadium.
Note also that most of the trillions in rescue money, about $5.5 trillion, comes from the Federal Reserve, which as an independent entity does not need congressional approval to lend money to banks or, in "unusual and exigent circumstances," to other financial institutions.
Of course, at press time for this issue of the MCAD INDUSTRY COMMENTARY, the failing Big 3 US auto companies, wherein the cores of American manufacturing expertise and security are at stake, along with 3 million US jobs, are as yet deemed somehow less worthy than Wall Street and banks to deserve financial loans from Washington!
Fighting for survival, Detroit's automakers appealed to Congress with a new case for a bailout on December 2, 2008, pledging to slash workers, car lines and executive pay in return for a federal lifeline. GM said it wouldn't last till New Year's without an immediate $4 billion and could drag the entire industry down if it fails.
General Motors asked for as much as $18 billion to keep afloat and survive even worse economic storms. “There isn't a Plan B,” said COO Fritz Henderson. “Absent support, frankly, the company just can't fund its operations.” Without help, he warned, “the company will default in the near term, very likely precipitating a total collapse of the domestic industry and its extensive supply chain, with a ripple effect that will have severe, long-term consequences to the U.S. economy.”
Ford said its November US light vehicle sales tumbled 31%, while even sales at Toyota fell 34% in November.
By the way…don't blame the unions! The last auto contract included so many painful givebacks that the gap in labor costs between the Big 3 US auto companies and the “foreign transplants” like Toyota and others, will be largely eliminated by the end of the contract.
The US auto companies are resisting calls that they file for bankruptcy, arguing that no one would buy a car from an automaker that might not survive the life of the vehicle. We agree.
This November - January lame duck period is hard to stomach. One supposes the lame-duck-in-chief is too busy adding to his list of 171 pardons and eight criminal sentence commutations so far, issuing midnight regulations to further weaken national environmental rules, and saving selected turkeys from the holiday dining table.
Too bad President-elect Obama has to wait till January 20, 2009 to take office!
By the way
While the above “tells” over the last 11 months were very visible, the burgeoning problems occurring over the previous seven years were also there for all those willing to notice, foretelling the ultimate disaster we're experiencing now. These latter crises date back to the 2001-2007 years and include but are not limited to the following enervating economic and/or geopolitical issues, many of which have been mentioned here in previous quarterly publications of the MCAD Industry Commentary:
(1) unremitting government extravagance and unwarranted tax cuts in the face of the shift from US federal budget surplus to deep deficit; (2) the definite long-term trend of a rich-get-richer, poor-get-poorer US income distribution; (3) sluggish net job growth chronically below the requirements of US population increases; (4) a net US disadvantage in globalization; (5) weakened US environmental stewardship and deteriorating US infrastructure; (6) the ballooning real and psychic costs of recent and current wars, in lives and treasure, including the 5-year-old IRAQ quagmire and resurgence of the Taliban in Afghanistan; (7) reduced worldwide and domestic admiration for US leadership, with an astonishing lack of accountability, conflating IRAQ with 9/11, and appalling ignorance of history in understanding or even talking to foreign countries (Syria, Palestine, Iran, North Korea, et al); (8) the weaker US dollar; (9) serially elevated energy, oil & gas prices, with record profits for “big oil”; (10) a still-deteriorated domestic tech-laden NASDAQ market vs. 2001; (11) ongoing corporate fraud, including but not limited to widespread options back-dating; (12) scandals, indictments, criminal investigations and even some guilty pleas in the White House and Congress; (13) double-digit annual rises in the cost of US health care and ongoing increases in the number of US medical & dental uninsured; (14) stunning US federal incompetence (revolving-door cronyism, inept disaster relief, the bumbled Medicare drug plan, mishandled offshore oil leases, ignoring global warming, homeland security lapses, incompetent nation building, Osama still on the loose, condoning or ordering extraordinary foreign rendition, Abu Ghraib, Haditha, Guantanamo, water-boarding, etc.); (15) illegalities in reduced US civil liberties & personal privacy; (16) unrelenting illegal immigration into the US, with no reform in sight; (17) the rise of religious fundamentalism in the US, resulting in the blurring of constitutional separation between church and state; (18) deterioration of the US K-12 education system, especially in math & science, and ominous reductions in college affordability by low & medium income US citizens; all resulting in abridged future global US competitiveness; (19) rapidly falling US home prices during 2005-2008, and coming soon, the same fate for commercial property; (20) the rise of secretive, unregulated hedge fund investment partnerships and sub-prime mortgages, derivatives and credit default swaps that create widespread financial disruptions; and (21) unceasing record-high US trade deficits, requiring the US to borrow billions of dollars every week from abroad, just to name a few.
Recent MCAD & PLM News Highlights
On November 18, 2007 Autodesk announced that it has completed the acquisition of substantially all of the assets of Softimage - a developer of 3D technology for the film, television and games markets - for approximately $35 million. On October 23, 2008, Autodesk announced it had signed a definitive agreement to acquire Softimage from Avid Technology, Inc.
On November 24, 2008 Dassault Systèmes launched V6R2009x, the latest release of its new platform. Release 2009x is said to demonstrate the continuing momentum of the V6 portfolio and its production-proven online collaborative platform.
MCAD Vendors' Financial Performances in Q3 2008
As reported above, the G6 MCAD vendors generated combined revenues of $1.593 billion, an increase of almost 15% from the $1.386 billion in the year ago quarter, but a 0.4% decline from the $1.599 billion in the prior sequential quarter. On a year-over-year basis, ANSYS was the clear revenue percentage growth leader at 30%. All the others sported year-over-year increases in the low double digit range.
On a sequential basis, PTC with 10.2% growth edged out ANSYS at 9.9%. ESI-Group was essentially flat in US dollars. The others suffered small percentage declines. Dassault Systemes endured the largest sequential decline at -6.2%. See Table 1.
Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 1.
For the third quarter of 2008, Autodesk was the clear revenue share leader of the G6 at 38%, with Dassault Systemes in second place at 30%, followed by PTC at 19%. See Figure 2.
Table 2 reveals that the combined Q3 earnings of the G6 MCAD vendors was $232 million, a still-healthy 29% increase from the $179 million in the third quarter of 2007 and even a 16% increase from the $200 million in the second quarter of 2008. All the earnings-reporting vendors generated net income for the 2008 third quarter. On a year-over-year basis Dassault Systemes had the largest percentage increase at 52%, followed by ANSYS at 39%, and then by Autodesk at 23%. MSC.Software was the only firm to see a drop in earnings.
On a sequential basis, PTC delivered the largest percentage growth in earnings at 152%. Autodesk was a distant second at +16%.
Details on Individual Vendors' Q3 2008 Performances
On November 6, 2008 ANSYS, Inc. reported financial results for the third quarter, the period ended September 30, 2008. Total revenue for the quarter was $122 million, an increase of 30% from the $94 million in the third quarter of 2007 and an increase of nearly 10% from the $111 million in the second quarter of 2008. The $122 million in Q3 revenue was $1 million above the guidance range given last quarter. Software license revenue was $80 million, accounting for 66% of total revenue. This was an increase of over 31% year-over-year, and an increase of 8.5% from the prior quarter. Maintenance and services revenue was $42 million, or 34% of total revenue, an increase of almost 28% from the year ago quarter, and an increase of 12.6% sequentially.
Net income for the quarter was $25.8 million, an increase of nearly 38% from the $18.6 million in the year ago quarter, but a drop of 8.4% from the $28.1 million in the prior quarter.
Jim Cashman, president and CEO, commented on the Company's third quarter 2008 performance, stating, "This quarter was another important milestone in the ANSYS journey as we completed the strategic acquisition of Ansoft. We remain optimistic that today's quarterly report, which includes two months of operations as a combined company, is only the beginning as we continue to focus and execute on our integration plan and long-term strategy for the Company.”
On November 20, 2008 Autodesk, Inc. reported financial results for the third quarter, the period ended September 30, 2008. Total revenue for the quarter was $607 million, a 12.6% increase from the $539 million in the third quarter of 2007, but a 2% drop from the $620 million in the pervious quarter. The Q3 revenue of $607 million was well below the range of $625 million to $635 million given last quarter, but it was at the high end of the revised range given as preliminary results on November 4, 2008. License revenue was $421 million, accounting for 69% of total revenue, an increase of 6.3% year-over-year, but a decrease of 4.4% sequentially. Maintenance revenue was $186 million, or 31% of total revenue. This was a 30% increase over the year ago quarter, and a 3.7% increase from the just prior quarter.
The Platform segment, which accounts for about 44% of total revenue, includes AutoCAD and AutoCAD LT products that service multiple markets. Other segments are AEC (previously two segments: Building and Infrastructure) and Media/Entertainment (previously named Discreet). The Manufacturing segment (which includes the Inventor product lines) accounted for 20% of total revenue and grew 22% year-over-year, but fell 5.3% from the prior quarter. See Table 3.
A “guesstimate” of MCAD revenue for the quarter would be about $250 million.
Design segment revenues increased almost 13% over the third quarter of last year to $527 million, accounting for 87% of total revenue, but fell 3.3% sequentially. Combined revenue from model-based 3D design solutions, including Inventor, Revit, Civil 3D, Moldflow, NavisWorks, and Robobat, increased 26% over the third quarter of fiscal 2008 to $163 million and comprised 27% of total revenue for the quarter. Excluding $12 million from Moldflow, which was acquired earlier this year, revenue from model-based 3D design solutions grew 16% to $151 million. Autodesk shipped approximately 41,000 commercial seats of its model-based 3D design products, including approximately 9,000 commercial seats of Inventor and Moldflow and 32,000 seats of its Architecture Engineering and Construction products - Revit, Civil 3D, NavisWorks, and Robobat.
Revenue from AutoCAD and AutoCAD LT increased 10% and 12%, respectively, compared to the third quarter of last year. Revenue from 2D vertical products decreased 6% year-over-year.
Revenue from emerging economies increased 25% over the third quarter of fiscal 2008 (calendar 2007) to $114 million, and represented 19% of total revenue. EMEA revenue was $258 million, an increase of 27% as reported over the third quarter of last year (+20% at constant currency). Revenue in Asia Pacific was $133 million, an increase of 12% as reported year-over-year, and 9% at constant currency. Revenue in the Americas decreased 1% to $216 million, compared to the third quarter of last year.
Upgrade revenue and maintenance revenue combined increased 22% over the third quarter of fiscal 2008, to $227 million. Total upgrade revenue decreased 4% compared to the third quarter of fiscal 2008. Maintenance revenue increased 31% compared to the third quarter of fiscal 2008, to $186 million, or 31% of total revenue. Deferred maintenance revenue decreased $55 million sequentially, but increased $67 million compared to the third quarter of fiscal 2008.
Net income for the quarter was $104.5 million, a 23% increase from the $84.8 million in the same quarter last year, and a 16% increase from the $89.8 million in the prior quarter.
Autodesk announced December 2, 2008 that it had signed a definitive agreement to acquire the iLogic software and related technology from Canada-based Logimetrix, Inc. iLogic is Logimetrix's desktop rules-based design automation technology. Terms were not disclosed. The agreement is said to demonstrate Autodesk's commitment to providing a comprehensive Digital Prototyping solution to manufacturers of all sizes. iLogic technology will supplement the current Autodesk solution for Digital Prototyping.
Autodesk instituted a hiring freeze in October 2008 and reduced discretionary expenses for a combined 5% expense reduction. Autodesk is still searching for a replacement for CFO Al Castino, whose departure was announced in May 2008.
Carl Bass, Autodesk president and CEO, said, “The sharp downturn in the global economy had a substantial impact on our results for the quarter. Our business in the United States slowed as a result of the economic climate. In addition, we started to experience headwinds in some of our international markets.”
On October 29, 2008 Dassault Systemes reported financial results for the third quarter, the period ended September 30, 2008. Total revenue for the quarter was $477 million, an increase of 16.5% from the $410 million in the year ago quarter, but a decrease of 6.2% from the $509 million in the previous quarter. The Q3 2008 revenue was above the guidance given last quarter in terms of euros. Software revenue was $415 million, accounting for 87% of total revenue, an increase of 18% year-over-year, but a decrease of 4.4% sequentially. New license revenue was 33% of software revenue, while recurring revenue was 67%. In PLM the recurring revenue figure is even higher at 71%.
Dassault Systemes, a French company, reports its financial results in euros but provides average conversion factors to dollars for each quarter and year. These factors were used to calculate US dollar numbers. Revenue growth in terms of constant currency non-GAAP was 13%, which was the guidance given last quarter.
Revenue from North America at $152 million accounted for 32% of total revenue. This was an increase of over 15.5% year-over-year and an increase of 1.7% sequentially. Revenue from Europe was $219 million accounting for 46% of total revenue. This was an increase of 22% year-over-year, but a decrease of 10.6% sequentially. Revenue from Asia was $106 million accounting for 22% of total revenue. This was an increase of 7.5% year-over-year, but a decrease of 7% from the prior quarter.
The Enovia brand, which includes Enovia, MatrixOne and SmarTeam, generated $66 million in the quarter, or almost 14% of total revenue. This was a 27% increase year-over-year, but a decrease of 2.7% sequentially. Note that MatrixOne was acquired in May 2006 for $410 million. Dassault has now combined SolidWorks and CosmosWorks into Mainstream 3D. This category generated $101 million, accounting for 21% of total revenue. This represented an increase of 19% year-over-year, but a decrease of 2.1% sequentially. CAD generated $184 million, or 38% of total revenue, up almost 16% year-over-year but down 7% sequentially.
Net income for the quarter was $65 million, an increase of 53% from the $43 million in the third quarter of 2007, but a decrease of 2% from the $66 million in the prior quarter.
Joel Lemke, CEO of ENOVIA, will be heading up a new, independent business partner organization focused on new industries. The new CEO for ENOVIA is Michel Tellier. Mr. Tellier has been with DS since 1997, coming from the aerospace industry. He most recently headed up the PLM consulting services organization
Bernard Charlès, Dassault Systèmes President and Chief Executive Officer, commented, “Dassault Systèmes software revenue growth of 12% in constant currencies during the quarter reflected the increasing momentum of our strategy of diversification into new industries. Further, we saw particular strength coming from our collaboration and simulation software offerings in both the PLM and Mainstream 3D markets. Thanks to our brands and applications strategy, the strengthening of our sales channels, particularly in the mid-market, and growth in our customer base, we were able to deliver third quarter revenue at the high end of our objectives notwithstanding the economic crisis which started to impact our operations early September.
Thibault de Tersant, Senior Executive Vice President and CFO, commented, “Our third quarter financial performance came in well in line with our objectives, in fact, at the high end with software revenue up 12% in constant currencies and earnings per share rising 26%, demonstrating the inherent earnings leverage of our business model.”
On September 26, 2008 ESI Group reported financial results for its half-year 2008/2009, the period ended July 31, 2008. The information was provided in euros. The data for the first quarter of 2008/2009 is in terms of sales, not revenue, while the latest report is for half-year revenue. Total revenue for the quarter was $23 million, an increase of 19% from the $19.3 million in the same quarter a year earlier and essentially flat relative to the $22.9 million in the prior quarter. License revenue was $10.5 million or 69% of total revenue. This was an increase of 1% year-over-year but a decrease of 2.8% sequentially. Service and other revenue was $4.1 million.
Alain de Rouvray, Chairman and Chief Executive Officer of ESI Group, states, "We are very pleased to announce these results, which show a strong improvement in profitability. They demonstrate the effectiveness of our strategic decisions with the strengthening of the Services business, and regarding financials, the firm grip on costs and effective currency hedging".
On November 4, 2008 MSC.Software Corporation reported the financial results for the third quarter, the period ended September 30, 2008. Total revenue for the quarter was $63.7 million, an increase of 11.4% from the $57.1 million in the third quarter of 2007, but a decrease 1.1% from the $64.4 million in the second quarter of 2008. Software revenue was $21.5 million, accounting for almost 34% of total revenue, an increase of 8.4% year-over-year and an increase of 2.2% sequentially. Maintenance revenue was $34.6 million, or 54% of total revenue, an increase of almost 9.4% year-over-year, but a decrease of 3.7% from the prior quarter. Services revenue was $7.5 million, or almost 12% of total revenue. This was an increase of 33% from the year ago quarter, and an increase of 2.1% from the previous quarter.
The Americas accounted for 32% of total revenue, Europe for 40%, and Asia Pacific for 28%. Foreign exchange favorably impacted total revenue by $4.6 million in the quarter. Changes in the Euro increased EMEA revenue by $2.6 million in the quarter and changes in the Japanese Yen increased Asia revenue by $2.0 million in the quarter. Foreign currency impacts increased total operating expenses by $1.9 million in the third quarter.
There were 100 bookings in the quarter over $100K, compared to 79 in the same quarter a year ago. The average transaction size was $228,000 versus $193,000 for the same time periods.
In the quarter Engineering applications represented 65% of software revenue, MD 14% and SimEnterprise 21%. From a percentage of software revenue perspective, SimEnterpise has increased it share from 0% to 21% in a year.
Net income for the quarter was only $62 thousand, a steep decline of 97% from the $2.3 million in the year ago quarter and a drop of 94% from $1.0 million in the prior quarter. There was an $870,000 tax benefit in the quarter.
Bill Weyand, CEO and Chairman of MSC.Software, said, “Revenue growth of 11% in the third quarter indicates better acceptance of our business across both SimEnterprise and MD solutions, as well as increases in maintenance revenue and services activities. With our enterprise solutions being deployed under multi-phase, multi-year implementation programs, we believe this can provide a good base of business for us going forward."
On October 28, 2008 PTC reported financial results for its fourth fiscal quarter and for all of its fiscal year 2008, the periods ended September 30, 2008. Total revenue for the quarter was $300 million, an increase of 12% from the $267 million in the same quarter a year ago, and increase of 10% from the $272 million in the previous quarter. The $300 million was just above the guidance range given last quarter. License revenue was $99 million, accounting for 33% of total revenue. This was an increase of 2.5% year-over-year, and an increase of 27% from the $78 million in the prior quarter. Maintenance revenue was $132 million, or 44% of total revenue. This was an increase of 25% year-over-year, and an increase of 1.5% sequentially. Services revenue was $69 million, or 23% of total revenue. This was an increase of 6.5% year-over-year, and an increase of 7.8% relative to the previous quarter.
On a geographic basis, North America accounted for 34% of total revenue, Europe 43%, Japan 9% and Pacific Rim 13%.
There were 25 customers from which PTC recognized more than $1 million of license and services revenue in fiscal Q4 (calendar Q3). This compares to 13 customers last quarter, and 22 in the same period last year.
Reseller revenue was $75 million, or 25% of total revenue. This was an increase of 46% year-over-year, and an increase of 7% sequentially.
Net income for the quarter was $36.5 million, an increase of 19% from the $30.6 million in the year ago quarter, and increase of 152% from the $14.4 million in the prior quarter. During the quarter, PTC recorded a $4.7 million restructuring charge related to ongoing globalization.
For fiscal 2008, PTC reported total revenue of $1,070 million, an increase of almost 14% from the $941 million in fiscal 2007. License revenue was $316 million, or almost 30% of total revenue. This was an increase of 6.8%. Maintenance and service revenue was $754 million, an increase of almost 17% over the prior year. Net income of the year was $79.7 million, a 44% drop from the $144 million in the fiscal 2007.
Richard Harrison, PTC president and chief executive officer, commented, "We achieved record revenue in our fourth quarter and full fiscal year. Our non-GAAP year-over-year revenue growth was 13% in the fourth quarter and 14% for the full year, reflecting contribution from the CoCreate Software business acquired on November 30, 2007, favorable currency impact and organic growth.” MCAD Vendor Stock Performances
As revealed in the discussion of the economy earlier, the combined stock prices of five of the MCAD vendors fell in absolute terms in Q3 2008 by 14% year-over-year and 9% sequentially. On average the stock prices fell 10% year-over-year and almost 5% sequentially. ANSYS stock price increased nearly 11% year-over-year. PTC saw a 5.6% increase. Autodesk had the steepest stock price decline at 33%. MSC.Software and Dassault Systemes saw drops around 20%. On a sequential basis, PTC was only firm to see a rise (+10.4%) in stock price. ANSYS saw the largest decline at nearly 20%. See Table 7.
This MCAD stock performance slightly outperformed a year-over-year decline of 20% for the average of the major indexes, and to a 7.4% decline from the previous quarter. See Table 8.
The month of October 2008 was also not been kind to those with money in the stock market. The three major indexes fell an average of 16%. The MCAD vendor stock prices fell an average 29%. The largest decliner was Autodesk at -36.5% and the smallest decliner was MSC.Software at -19.6%.
Forecast Guidance from Individual MCAD Providers
Only four MCAD firms offered guidance for the next quarter. As a group they forecast a combined revenue growth of 8% over the same period a year ago and an average growth rate of 11%. ANSYS is the most bullish compared to the fourth quarter of last year with a forecast of revenue growth at over 25%. The other three are more cautious with single digit growth expectations. On a sequential basis the combined forecast is for 6% growth. PTC expects a downturn of nearly 15%. Dassault is the most optimistic at 18% growth expectation with ANSYS second at 13.7%.
Individual Company Guidance
As guidance ANSYS expects revenue for the quarter ending December 31, 2008 to be in the range of $137million to $141 million. This compares to $122 million in the quarter just reported and to $111 million in the same quarter a year earlier. For fiscal 2008 ANSYS expects revenue in the range of $480 million to $484 million. This is a 25% increase relative to the $385 the previous year. For fiscal 2009 the company expects revenue to be in the range of $602 million to $622 million, a 26% rise from the projection for fiscal 2008.
As guidance Autodesk expects revenue for the fourth quarter of fiscal to be in the range of $525 million and $550 million, compared to $607 million in the quarter just reported and compared to $599 million in the same quarter a year earlier. For the year this forecast translates into annual revenue in the range of $1.818 billion to $1.843 billion, versus $2.172 billion million in the previous year.
Thibault de Tersant, Dassault Systemes Senior Executive Vice President and CFO, said, “Turning to our outlook, we expect 2008 to be a year of strong, organic software growth for DS. We have factored into our fourth quarter and full year outlook the signs of weakening we saw in September due to the economic crisis. However, thanks to our diversification strategy, sales channels expansion, recurring revenue model and year-to-date results, we continue to target a non-GAAP software revenue growth objective of 12% in constant currencies.”
More specifically Dassault revenue objective for the fourth quarter is about €385 to €395 million. The objective for the year is about €1.340 to €1.350 billion. These objectives are based upon exchange rate assumptions for the 2008 fourth quarter of US$1.45 per €1.00 and full year exchange rate assumptions of US$1.50 per €1.00. Therefore the fourth quarter objective in US currencies is $558 million to $572 million compared to $477 million in the quarter just reported and compared to $526 million in the fourth quarter of last year. The forecast for the full fiscal year becomes $2.01 billion to $2.02 billion compared to $1.725 billion for fiscal 2007.
While MSC.Software did not give guidance, Bill Weyand, CEO and Chairman of MSC.Software, said, “While we are mindful of the global macroeconomic environment, we believe a number of important factors will allow MSC to weather this storm. As a software company with more than 45 years serving the aerospace and automotive industries, we have seen these cycles before and we know how our customers behave. We believe they will look at their internal processes to improve productivity by reducing physical prototype testing in order to save costs, speed time to market and accelerate product innovation. However, we believe that a prolonged economic downturn could adversely impact our customers, IT spending patterns, and thereby our business as well."
As guidance for next quarter PTC CEO Harrison said, "Looking forward to (fiscal) Q1, we are currently expecting revenue to be between $250 million and $260 million”. This compares to $300 million in the quarter just reported and compares to $252 million in the first quarter of fiscal 2008. For the fiscal year ending September 30, 2009, PTC currently expects revenue to be approximately $1,100 million, compared to $1,070 million in fiscal 2008.”
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About the Authors:
Since 1996, Dr. Russ Henke has been president of HENKE ASSOCIATES, a San Francisco Bay Area high-tech business & management consulting firm. The number of client companies for Henke Associates now numbers more than forty. During his corporate career, Henke operated sequentially on "both sides" of MCAE/MCAD and EDA, as a user and as a vendor. He's a veteran corporate executive from Cincinnati Milacron, SDRC, Schlumberger Applicon, Gould Electronics, ATP, and Mentor Graphics.
Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. He is also a member of the IEEE and a Life Fellow of ASME International. In April 2006, Dr. Henke received the 2006 Lifetime Achievement Award from The CAD Society, presented by CAD Society president Jeff Rowe at COFES2006 in Scottsdale, AZ. In February 2007, Henke became affiliated with Cyon Research's select group of experts on business and technology issues as a Senior Analyst. This Cyon Research connection aids and supplements Henke's ongoing, independent consulting practice (HENKE ASSOCIATES).
An affiliate of the HENKE ASSOCIATES team since 2001, LA-based Dr. John R. (Jack) Horgan co-authored this December 2008 MCAD Industry Commentary. Dr. Horgan's prior corporate career has included executive positions at Applicon, Aries Technology, CADAM and MICROCADAM, as well as a stint at IBM. Dr. Horgan is also an editor of EDAcafé Weekly.
Since May 2003 the authors have now published a total of seventy-one (71) independent articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafè and EDACafè. Further information on HENKE ASSOCIATES, and URL's for past Commentaries, are available at http://www.henkeassociates.net. March 31, 2009 will mark the 13th Anniversary of the founding of HENKE ASSOCIATES.