MCAD/MCAE Industry View - A June 2011 Update
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MCAD/MCAE Industry View - A June 2011 Update


Commentary: MCAD/MCAE Industry View - A June 2011 Update


by Dr. Russ Henke
Henke Associates

Introduction:


This June 2011 issue of the MCAD/MCAE Industry Commentary recounts the financial performances of a selected group-of-five MCAD/PLM/MCAE vendors (G5) for the nominal First Quarter of calendar 2011.


In the very first MCAD Industry Commentary published in May 2003 in MCADCafé.com, then-recent yearly and quarterly financial performances of a selected group of public Mechanical Computer Aided Design (MCAD) and Mechanical Computer Aided Engineering (MCAE) vendor companies were analyzed and compared. Expectations of future financial performances of these same entities were documented.

The May 2003 MCAD Commentary was followed by thirty-one (31) quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The entities initially 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, 2007. Thereafter, the business went to market as UGS PLM Software (and later as Siemens PLM Software), a global division of the Siemens Automation and Drives (A&D) Group. Over the years UGS itself had bounced back and forth between being a public company and a private company under different ownerships. Regrettably, we have been able to gain very little insight into UGS' financial performance itself from public Siemens' corporate reports after the Siemens acquisition. Occasionally we will include Siemens PLM Software news items that bear on the industry as a whole.

Then on June 25, 2008 Autodesk completed its acquisition of Moldflow Corporation, so thereafter Moldflow was eliminated here from separate coverage.

On July 07, 2009 MSC.Software announced that it had entered into a definitive agreement with affiliates of Symphony Technology Group (STG) under which a company controlled by STG would acquire all of MSC's outstanding shares in a one-step cash merger transaction. This acquisition of MSC.Software by STG was finally consummated on October 14, 2009. No financial results for MSC.Software were published for Q3 2009, and none since. Unless and until such data are subsequently made available, MSC.Software has been dropped from financial reporting coverage herein, although occasionally MSC.Software news items that bear on the industry as a whole will be mentioned.

Henke Associates recognizes that some MCAD/PLM/MCAE vendors have expanded their offerings into the world of “multi-physics” by moving beyond pure MCAD into other disciplines, such as fluid dynamics and electronic analysis (e.g. ANSYS). This Commentary will also report on these new areas as appropriate. (The EDA WEEKLY article posted on EDACafe.com on July 19, 2010, entitled, “ANSYS turns 40!” dealt with ANSYS multi-physics, and it is available in the EDACafe.com EDA WEEKLY archives).

This thirty-third (33RD) MCAD/MCAE Industry article in the sequel recounts mainly the financial performances of the remaining group-of-five (G5) MCAD/PLM/MCAE entities for the nominal first quarter of calendar 2011:



The timing of the posting date of the MCAD/MCAE Commentary each quarter is driven by the release date of quarterly financials of the last G5 vendor reporting. Again this quarter it was Autodesk, which released its nominal Q1 2011 results on May 19, 2011.

Enjoy!


G5 MCAD/MCAE Vendors' Financials in Q1 2011

Measured in $US except where indicated, Table 1 below reveals that the combined total revenue of the G5 was US$1564.3 million in Nominal Q1 2011, down less than 3% from the $1610.8 million total in the just prior, traditionally strong Q4 of the previous year, and a robust 18.2% above the total year-over-year figure of $1323.6 million for Q1 2010.

Indeed, the G5’s US$1564.3 million for nominal Q1 2011 was $132.5 million above the average quarter for the 2010 year ($1431.8 million). All each quarter of 2011 has to be is $52.5 million each larger than the equivalent quarters in 2010, for the full year 2011 revenue total to eclipse the G5’s revenue total of 2008, a feat which both 2009 and 2010 failed to accomplish.

Table 1 further reveals that every member of the G5 experienced an excellent Q1 2011 relative to the previous year’s counterpart, with each vendor scoring at least a double digit year-over-year (YOY) percentage increase in revenues, led by Dassault’s 31.3% increase measured in Euros. In fact, both Autodesk and PTC posted more revenue in Q1 2011 than they did in their seasonally-strong sequential 2010 Q4’s:



Turning to earnings in Table 2 below, while the total earnings for the G4 in Q1 2011 did not eclipse the sequential total in Q4 2010, the G4 Q1 figure was only off by some $13 million of doing so. Individually, both Autodesk and PTC did do it! The G4 in Q1 2011 achieved a ROS of 14.37% vs. 14.49% in Q4 2010, a remarkable performance for the first quarter of a year.

The G4 total for Q1 2011 also delivered a huge increase of $87.4 million in absolute net income vs. the year ago Q1 2010.



Individual G5 Vendors' Q1 2011 Performances


 

On May 5, 2011 ANSYS, Inc. (NASDAQ: ANSS) announced over-performance against its guidance in both revenue and diluted earnings per share for the first quarter of 2011.  Total revenue increased by 16.1% over the first quarter of 2010.  GAAP net income and diluted earnings per share increased 30.5% and 28.6%, respectively, over the first quarter of 2010. The growth in the first quarter was spread across all major geographic regions and among a broad array of industries.

Highlights

- Revenue of $158.0 million

- GAAP diluted earnings per share of $0.45

- Record operating cash flows of $84.9 million, +42% v Q1

- GAAP operating profit margin of 39.4%

"ANSYS' first quarter results are an excellent start to 2011 and represent early momentum from the focus and investments in 2010," commented Jim Cashman, ANSYS President and CEO. "During the first quarter of 2011, all major metrics of the business showed continued improvement, highlighted by revenues and earnings that were above our guidance, a record deferred revenue balance of $236.4 million, and all time high cash flows from operations."


"We also saw improvement in the UK and North America markets over last quarter and, most notably,
our Japan team delivered a very strong contribution to our first quarter results. We are extremely proud of their continued dedication and ongoing efforts in the face of such extraordinary circumstances.  Supporting our Japanese employees and customers as they focus on rebuilding will be a new and important priority as we look into the remainder of 2011.  Despite the various political turmoil and macroeconomic concerns, our diversified global reach, our resilient business model and our technological leadership continue to drive customer engagements. With the growing need for energy efficiency, stricter environmental and regulatory mandates, and ever-increasing consumer expectations, our customers are increasingly using simulation to enable innovation and value creation. These increasing business pressures, coupled with the dedication and efforts of our global team, have continued to enable us to deliver on our commitments," stated Mr. Cashman.

ANSYS' first quarter financial results are presented below.  GAAP results reflect:

The Company's GAAP results reflect stock-based compensation charges of approximately $5.1 million ($4.0 million after tax) or $0.04 diluted earnings per share for the first quarter of 2011.

During the first quarter of 2011, the Company repurchased 247,443 shares of stock at an average price of $51.34.  The Company currently has approximately 1.1 million shares remaining in its authorized repurchase program.

Second Quarter and Fiscal Year 2011 Guidance

The Company currently expects the following for the quarter ending June 30, 2011:

The Company currently expects the following for the fiscal year ending December 31, 2011:

ANSYS turns 40!

In case you missed it, readers may be interested in the “ANSYS turns 40!” profile of ANSYS first posted by this writer in an EDA WEEKLY on July 19, 2010 (be sure to bookmark this page before clicking on the URL below, so you can return here easily):

http://www10.edacafe.com/nbc/articles/view_weekly.php?articleid=841475




May 23 Close =  $55.67            Market Cap = $5.11B



ANSYS, Inc. self-description

ANSYS, Inc., founded in 1970, develops and globally markets engineering simulation software and technologies widely used by engineers and designers across a broad spectrum of industries. The Company focuses on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company and its global network of channel partners provide sales, support and training for customers. Headquartered in Canonsburg, Pennsylvania, U.S.A., with more than 60 strategic sales locations throughout the world, ANSYS, Inc. and its subsidiaries employ over 1,700 people and distribute ANSYS products through a network of channel partners in over 40 countries. Visit www.ansys.com for more information.



On May 19, 2011 Autodesk, Inc. (NASDAQ: ADSK) reported financial results for the first quarter of its 2012 fiscal year which ended April 30, 2011. This is “nominal Q1 2011” for our purposes.

"Strong demand for manufacturing, horizontal design products, suites, and animation products, led to solid growth in the quarter," said Carl Bass, Autodesk president & CEO.


"We launched our 2012 product line this quarter, including the new family of design and creation suites, and are pleased with the initial feedback we're hearing from our partners and customers. The first quarter was a solid start to our year, and we look to build on our momentum through the next three quarters."

First Quarter Operational Overview

Europe, Middle East and Africa (EMEA) revenue was $215 million, an increase of 8% compared to the first quarter last year as reported and 10% on a constant currency basis. Revenue in the Americas was $181 million, an increase of 13% compared to the first quarter last year. Revenue in Asia Pacific was $132 million, an increase of 15% compared to the first quarter last year as reported and 11% on a constant currency basis. Revenue from emerging economies was $77 million, an increase of 13% compared to the first quarter last year as reported and 13% on a constant currency basis. Revenue from emerging economies represented 15% of total revenue in the first quarter.

All constant currency calculations remove the impact of foreign currency fluctuations and any gains or losses recorded to revenue within the current period as a result of Autodesk's hedging program.

Revenue from the Platform Solutions and Emerging Business segment was $211 million, an increase of 15% compared to the first quarter last year. Revenue from the Architecture, Engineering and Construction business segment was $141 million, an increase of 3% compared to the first quarter last year. Revenue from the Manufacturing business segment was $123 million, an increase of 14% compared to the first quarter last year. Revenue from the Media and Entertainment business segment was $53 million, an increase of 15% compared to the first quarter last year.

"The combination of solid revenue growth and continued focus on cost controls resulted in a strong increase in profitability and better than expected cash flow from operating activities," said Mark Hawkins, Autodesk Executive Vice President, Chief Financial Officer.

"Over the past several quarters we have made steady improvement to our operating margin. We are focused on driving further margin expansion while balancing investments in future growth opportunities."

Business Outlook

Second Quarter

Net revenue for the second quarter is expected to be in the range of $530 million and $545 million. GAAP earnings per diluted share are expected to be in the range of $0.25 and $0.29.  

Full Year

Net revenue for 2012 is expected to increase by approximately 12% compared to 2011. Autodesk anticipates 2012 operating margins to increase by at least 200 basis points compared to 2011.

Outlook assumes an effective tax rate of approximately 23% for GAAP results.



May 23 Close =  $42.37            Market Cap = $9.63B

 

Autodesk self description

Autodesk, Inc., is a leader in 3D design, engineering and entertainment software. Customers across the manufacturing, architecture, building, construction, and media and entertainment industries - including the last 15 Academy Award winners for Best Visual Effects - use Autodesk software to design, visualize, and simulate their ideas. Since its introduction of AutoCAD software in 1982, Autodesk continues to develop the broadest portfolio of state-of-the-art software for global markets. For additional information about Autodesk, visit www.autodesk.com.



On April 27, 2011 Dassault Systèmes (Euronext Paris: #13065, DSY.PA) reported IFRS unaudited financial results for the first quarter ended March 31, 2011{Note: “IFRS” stands for “International Financial Reporting Standards”. See Footnote [1]}. These results were reviewed by the Company’s Board of Directors on April 26, 2011.

Summary Highlights

 Strong revenue, earnings and operating margin performance

 New licenses revenue up 28% & recurring revenue up 32% (IFRS)

 EPS up 59% to €0.51 (IFRS) 

 2011 financial growth objectives reconfirmed

 Q1 Version 6 contracts signed with BMW and Jaguar Land Rover

     and agricultural engineering leader CLAAS

 Board of Directors’ recommends shareholders approve 17%

    increase in the cash dividend


First Quarter 2011 Financial Summary

Bernard Charlès
, Dassault Systèmes President and Chief Executive Officer, commented, “Revenue and earnings came in ahead of our first quarter financial objectives. All regions were important drivers of our growth, including Asia. CATIA’s performance and record quarterly revenues at SolidWorks illustrate the progressive strengthening of the SMB market since the initial signs of recovery in mid-2010.



“The first quarter was also a time of extraordinary efforts by our Japanese employees and sales partners who quickly resumed operations in order to provide support and assistance to our customers in a number of areas. I would like to publicly thank them.

“Key to our performance and market leadership is a continuous focus on leveraging the talents of our executives and regularly evolving management responsibilities, consistent with the dynamic of our market. In this regard, we recently made some brand and channel responsibilities changes to further support our market expansion objectives.

“Finally, leading companies continue to adopt our Version 6, PLM 2 offerings. Two of the world’s foremost automotive companies are moving forward with Version 6 initiatives. In February we outlined BMW’s decision to use V6 as its new platform for Embedded Systems architecture, integration and design. In March, I was very pleased to join Jaguar Land Rover’s CEO Dr. Ralf Speth in announcing a new strategic partnership between our two companies. And most recently, CLAAS, a global leader in agricultural engineering, selected V6 – including CATIA, ENOVIA, DELMIA and SIMULIA.”


Dassault Systèmes completed the acquisition of the IBM PLM operations on March 31, 2010 and these operations were merged into the Company’s operations within its PLM business segment commencing April 1, 2010. Due to the deep integration of former IBM PLM employees into the Company’s operations, involving many changes in sales territories and responsibilities, it is not possible to isolate the IBM PLM revenue and profit since the acquisition date. As previously disclosed, the IBM PLM share of Dassault Systèmes software revenue was estimated at approximately €50 million for the 2010 first quarter.

First Quarter 2011 Financial Review

 IFRS total revenue increased 29%, reflecting software revenue growth of 31%, and services and other revenue growth of 14% (all figures in constant currencies).

 IFRS new license revenue increased 28% in constant currencies and IFRS recurring software revenue grew 32% in constant currencies.

 IFRS PLM software revenue increased 35% in constant currencies.

 Mainstream 3D software revenue increased 16% in constant currencies. New SolidWorks commercial seats licensed in the first quarter increased 23% to 12,128 seats.

 The IFRS operating margin was 22.2%, up from 15.9% in the first quarter of 2010.

 IFRS earnings per diluted share increased 59% to €0.51 up from €0.32.

Cash Flow and Other Financial Highlights

Net operating cash flow was €134 million for the 2011 first quarter, compared to €133 million in the year-ago period.

The Company’s net financial position, comprised of cash, cash equivalents and short-term investments less long-term debt, was €873.9 million at March 31, 2011, compared to a net financial position of €845.7 million at December 31, 2010. The Company’s cash, cash equivalents and short-term investments and long-term debt were €1.16 billion and €286.4 million, respectively at March 31, 2011 compared to €1.14 billion and €293.4 million, respectively at December 31, 2010.

Dassault Systèmes 2011 Management Organizational Changes to Further Position PLM at the Core of Sustainable Innovation in All Businesses.

The following appointments have been made: Etienne Droit, member of the Executive Committee, has been appointed Chief Executive Officer CATIA; Bruno Latchague, member of the Executive Committee, has been appointed Executive Vice President, PLM Value Solutions; Sylvain Laurent has been promoted to Executive Vice President, PLM Enterprise Business Transformation and new member of the Executive Committee; Ken Clayton has been appointed as Vice-President, Professional Channel and Laurent Couillard has been appointed as Exalead CEO.

 

Other Key Business and Corporate Highlights

In a separate press release issued April 27, 2011, Dassault Systèmes announced the acquisition of Enginuity, to accelerate innovation for formulated products.


Demonstrating its broad industry focus, the addition of Enginuity expands Dassault Systèmes’ already extensive suite of collaborative business process solutions based on the ENOVIA V6 platform. Using ENOVIA V6, formula-centric companies in the pharmaceutical, personal care, cosmetics, food and beverage, flavor/fragrance industries will be able to accelerate product innovation and product launches while successfully navigating complex regulatory requirements and more effectively managing and leveraging their formula, packaging and consumer Intellectual Property in a single, global PLM solution.

Dassault Systèmes Acquired Intercim, LLC, a market leader in manufacturing and production operations management software solutions for advanced and highly regulated industries to integrate with its V6 DELMIA software applications.


The combining values of DELMIA and Intercim bring together the factory communities with the manufacturing and product engineers, for an immediate common understanding of the products being built with their potential non-conformance and deviations. This translates for customers into faster turn-around time to correct issues, improved product quality, higher production efficiency and conformity information for certification purposes.

CLAAS Boosts Innovation with V6 Solutions from Dassault Systèmes.

CLAAS, one of the world’s leading manufacturers of agricultural equipment and products, has committed to shaping its entire product creation process worldwide – from design, construction and simulation to system validation and production planning – with CATIA V6, ENOVIA V6, DELMIA V6, and SIMULIA V6.

Jaguar Land Rover and Dassault Systemes Agree to New Strategic Partnership.

The agreement, signed by Dassault Systèmes President and CEO Bernard Charlès and Jaguar Land Rover CEO Dr. Ralf Speth, will see advanced digital 3D simulation and development tools transform Jaguar Land Rover’s Product Development processes. The two companies will work together to jointly develop industry-leading product creation solutions. Jaguar Land Rover will deploy Dassault Systèmes’ V6 solutions for Product Lifecycle Management - the process which drives and controls all vehicle creation processes - to increase operational efficiency and reduce complexity through enhanced innovation and accelerated development capabilities.

Lockheed Martin Expands Use of Dassault Systèmes DELMIA Robotics Implementation.

Lockheed Martin has migrated its F-35 Lightning II robotic painting workcells to Dassault Systèmes’ DELMIA Robotics. A long-time user of DELMIA manufacturing simulation solutions, Lockheed Martin’s new implementation of DELMIA Robotics has made the company’s manufacturing processes more efficient, leveraging a common interface across its CATIA design authoring and DELMIA digital manufacturing solutions.

Dassault Systèmes Assists Parker Aerospace in Managing Regulatory Compliance.

Parker Aerospace, an operating unit of Parker Hannifin Corporation, the world’s leading producer of motion and control technology solutions, is implementing ENOVIA V6 to better manage regulatory compliance, consolidate disparate systems and enable quicker product data inquiries.

Vodafone McLaren Mercedes to Deploy Dassault Systèmes V6 Solution.

McLaren Racing, the operating arm of the Vodafone McLaren Mercedes Formula 1 team, and Dassault Systèmes announced a new partnership to further enhance racing car development efficiency. The agreement sees McLaren Racing committing to Dassault Systèmes’ open V6 PLM solutions for integrated design development, analysis and management. ENOVIA V6 forms McLaren Racing’s collaborative innovation backbone by providing a single IP reference for managing engineering, intellectual property and business processes. CATIA V6 will be used for innovative design and concurrent engineering, enhancing McLaren’s development efficiency.

Business Outlook

Thibault de Tersant,
Senior Executive Vice President and CFO, commented, “Our first quarter financial results reflected a number of positive dynamics across our businesses and solid operational management. Our strong revenue performance in combination with good expense management led to our non-IFRS operating margin coming in at 28.3% and non-IFRS earnings per share growing 47%.



“Based upon our first quarter results, business trends and recently completed acquisitions, we believe we are positioned to offset the potential impact on revenues that may arise as a consequence of the earthquake in Japan. Therefore, although reducing the reported revenue range outlook to reflect currency assumption changes, we are reconfirming our 2011 constant currency revenue growth objective, including our 15% constant currency new licenses revenue growth goal, as well as our non-IFRS 29% operating margin and our non-IFRS earnings per share objectives. At the same time we will continue to make the appropriate investments to expand our addressable market.”


The Company’s current objectives are the following:

 Second quarter 2011 non-IFRS total revenue objective of about €400 to €410 million, non-IFRS operating margin of about 26-27% and non-IFRS EPS of about €0.56 to €0.61;

 Reconfirming 2011 non-IFRS revenue growth objective range of about 9% to 11% in constant currencies; (adjusting the reported revenue range to €1.67 to €1.70 billion from €1.68 to €1.71 billion previously, based upon the 2011 currency exchange rate assumptions outlined below);

 Reconfirming 2011 non-IFRS operating margin of about 29%;

 Reconfirming 2011 non-IFRS EPS range of €2.64 to €2.75, representing growth of about 6% to 10%;

 Objectives are based upon exchange rate assumptions for the 2011 second quarter of US$1.45 per €1.00 and JPY120 per €1.00 and a full year average of US$1.43 per €1.00 and JPY118 per €1.00.

The Company’s objectives are prepared and communicated only on a non-IFRS basis and are subject to the standard cautionary statements.

The Company has assumed an average U.S. dollar to euro exchange rate of US$1.43 per €1.00 and an average Japanese yen to euro exchange rate of JPY118 to €1.00 for 2011; however, currency values fluctuate, and the Company’s results of operations may be significantly affected by changes in exchange rates. The Company’s actual results or performance may also be materially negatively affected by changes in the current global economic context, difficulties or adverse changes affecting its partners or its relationships with its partners, changes in exchange rates, new product developments, and technological changes; errors or defects in its products; growth in market share by its competitors; and the realization of any risks related to the integration of any newly acquired company and internal reorganizations. Unfavorable changes in any of the above or other factors described in the Company’s regulatory reports, including the 2010 Document de référence, as filed with the French Autorité des marchés financiers (AMF) on April 1, 2011, could materially affect the Company’s financial position or results of operations.



May 23 Close =  $80.64            Market Cap = $9.77B



Dassault Systèmes self description

As a world leader in 3D and Product Lifecycle Management (PLM) solutions, Dassault Systèmes brings value to more than 130,000 customers in 80 countries. A pioneer in the 3D software market since 1981, Dassault Systèmes applications provide a 3D vision of the entire lifecycle of products from conception to maintenance to recycling. The Dassault Systèmes portfolio consists of CATIA for designing the virtual product - SolidWorks for 3D mechanical design - DELMIA for virtual production - SIMULIA for virtual testing - ENOVIA for global collaborative lifecycle management, EXALEAD for search-based applications and 3DVIA for online 3D lifelike experiences. For more information, visit http://www.3ds.com.

CATIA, DELMIA, ENOVIA, EXALEAD, SIMULIA, SolidWorks and 3D VIA are registered trademarks of Dassault Systèmes or its subsidiaries in the US and/or other countries.



On March 14, 2011 the ESI GROUP (Compartment C of NYSE Euronext Paris) reported financial results for its 2010/2011 fiscal year, the period ending January 31, 2011. The chart below was presented first:

It has been the practice of the writer of the MCAD/MCAE Commentary to call the ESI Group’s “Quarter N”, as our nominal “Quarter N+1”. Thus the ESI Group’s fiscal Q4 ending January 31, 2011 is our nominal Q1 2011 for consistent reporting purposes.

By using the annual sales figure of 59 million euros from the above ESI chart reported on March 14, 2011, and subtracting the three previous quarterly revenue amounts, we calculate the nominal Q1 2011 figure for this issue of the MCAD Commentary as 34.9 million euros.

ESI asserts strong growth in 2010/11 annual results

Alain de Rouvray, ESI Group’s Chairman and CEO, declared,: “2010/11 was a good year for ESI, in terms of both the growth in activity and the improvement in profitability. The substantial increase in Licenses sales, the significant improvement in new business and the signing, at the end of the year, of a number of major multiyear contracts all lay witness to a more favorable market context for the upramping of our virtual prototyping solutions.”

 

“At the same time, we are reaping the benefits of the high level of R&D and Sales & Marketing investments we have carried out for many years, and which are now providing us with a leverage effect on our margins. These positive evolutions again reaffirm the pertinence of our strategic positioning and our business model. We are confident that our revenues will continue to grow and our profitability will keep improving.

Growth in Revenue and License activity

As announced on March 14, 2011, ESI consolidated annual revenue saw purely organic growth of +12.1% to €84.2 million in the 12 months ending January 31, 2011

The key indicators that were positive over the financial year:

Note that activity also benefited from a positive exchange rate effect.

Sharp increase in the gross margin

The split in business activity reflects the good strategic alignment of the ESI product mix: 73.5% for Licenses and 26.5% for Services. The gross margin jumped +18.3% to €59.0 million, benefitting from the re-allocation of resources to S&M (Product Marketing and Sales), R&D activities and a better utilization of the Services teams.

EBITDA margin: 10.2% and EBIT margin : 9.2%

Benefitting from the effects of the improvement in the product mix, a better allocation of Sales & Marketing cost resources and an operating cost structure under control, EBITDA totaled €8.5 million, up +46.6% on the figure of €5.8 million recorded in the prior year. The EBITDA margin was 10.2%.

The Group continued to benefit from the leverage of the substantial R&D investments it has carried out for many years in order to maintain the Group’s leadership position in the emerging virtual prototyping market. Research & Development investments (before the impact of IFRS rules and Research Tax Credits) were up +11.6%, and represented 28.5% of Licenses sales, a figure that has continued to decrease in recent years. The increase in the IFRS costs of R&D was 14.2% in the year just ended.

Reflecting the Group’s intention of accelerating its sales penetration worldwide, notably with sales investments in Europe, the United States and the BRIC emerging markets, and given its diversification initiatives, Sales & Marketing costs exceptionally increased by +16.8% to €26.4 million.

General and Administrative costs were almost unchanged at €10.7 million, versus €10.2 million in the prior year.

Once net provisions and depreciations, which were down on the previous year, are taken into account, operating profit was up +67.2% at €7.7 million. The operating margin was thus 9.2% in thr year just ended, versus 6.1% in prior year.

Sharp increase in net profit to €5.4 million (+365%)

The sharp increase in net profit was due to the substantial increase in operating profitability, the stable financial result at -€1.3 million and non-recurrent tax savings associated with financial support for the Group’s Chinese activity.

All in all, attributable net profit increased by +€4.3 million over the year, with a net margin of 6.5% for the financial year just ended versus 1.6% the previous year.

Sound financial structure

The Group had €6.8 million in available cash at the end of the this financial year, stable during the year when restated after divestment of exceptional accounts receivables carried out at the end of the prior financial year. The financial structure was further strengthened, with a gearing (long-term financial debt over shareholders equity) of 6.4%, compared to 14% at the end of last year. The improvement in this figure was notably the result of the reimbursement of bank loans enabled by the operating cash generated by the Group, which totaled €3.6 million over the year.

At January 31 2011, ESI Group held 6.57% of its own capital.

Key points and recent events

Validation of the strategy and the offer – Signing of major multiyear contracts in the Automotive and Energy sectors

Licenses activity improved substantially, in terms of revenue growth and the improvement in the gross margin. A market context that has become more favorable resulted in a higher rate of repeat business for the installed base (91%), reflecting OEMs’ increasing desire to call upon ESI’s virtual prototyping solutions. This trend, observed throughout the year, was reinforced by the signing of two large multiyear license-renewal contracts, both with associated innovative services, with major automotive OEMs: Renault and the Volkswagen Group. These 3-year contracts are the subject of annual revenue recognition. In the Metal Stamping domain, ESI has also signed a multiyear contract with the PSA Group for the supplying of licenses and high value-added and innovative services.

In the energy business sector, EDF signed with ESI a 10 year framework contract in the domain of nuclear safety.

Substantial increase in New Business and sector diversification

Licenses new business increased substantially over the year as a whole (+31.7%). Also a major indicator of a more favorable market context, it reflects the sales efforts undertaken, with the addition of new clients and of new products for existing clients. It also illustrates the deployment effect inherent to ESI’s business model, with solutions initially adopted by the sector’s main OEMs before then being gradually adopted by the main suppliers and subcontractors; thereby supporting optimization of the workflow between OEMs.

Lastly, New Business is amplifying sector diversification, with new clients and new domains from sectors such as Transport, Aerospace, Heavy Industry, Energy and Electronics.

Very strong increase in profitability and optimization of the cost structure

The very sharp improvement in profitability is a result of the growth in revenue with improved efficiency of the Group’s cost structure and product mix resulting in the substantial improvement in the gross margin.

It should be noted that 37% of ESI’s workforce is now employed in low-cost countries, thus enabling the Group to combine its local support for major OEMs in very dynamic zones, with increased competitiveness.

This proportion should continue to increase during 2011, notably with the strengthening of our near-shore Services line in Tunisia and the Group’s Indian presence.

Industrial innovation and presence within Competitive Clusters

As a leader in the strategic movement towards virtual engineering, ESI has strengthened its presence amongst industrial players by creating a Bordeaux-based R&D center for the Simulation of composite materials for the aerospace and nautical sectors and by participating in the Rennes-based iD4CAR competitive cluster for the digital design, shaping and multi-material assembly of new-generation vehicles.

The Group is also participating in innovative projects carried out within 9 other competitive clusters in France.



May 20 Close =  13.85 Euro            Market Cap = 75.45M Euro

$ = 1.4237 X Euro  May 20

May 20 Close =  $19.72             Market Cap = $107.42M


ESI self description

ESI is a pioneer and world-leading player in virtual prototyping that take into account the physics of materials. ESI has developed an extensive suite of coherent, industry-oriented applications to realistically simulate a product’s behaviour during testing, to fine-tune manufacturing processes in accordance with desired product performance, and to evaluate the environment’s impact on product performance. This offer represents a unique collaborative and open environment for Simulation-Based Design, enabling virtual prototypes to be improved in a continuous and collaborative manner while eliminating the need for physical prototypes during product development. Present in over 30 countries, ESI employs over 800 high-level specialists throughout its worldwide network. ESI Group is listed on compartment C of NYSE Euronext Paris. For further information, go to www.esi-group.com.




On April 27, 2011 PTC (NASDAQ: PMTC) reported results for its second fiscal quarter ended April 2, 2011, which for our purposes in nominal Q1 2011.

Highlights

Results Commentary

James Heppelmann, president and chief executive officer, commented, "PTC had a strong nominal Q1 2011, with revenue and EPS at the high-end of our guidance range. Our license revenue of $74.2 million was up 15% on a year-over-year basis, and included 40% year-over-year growth in Desktop license revenue. This was our 5th consecutive quarter of year-over-year improvement in Desktop license revenue and in our Channel business. Our Enterprise license revenue was down 15% year-over-year, and was significantly impacted by lower than expected Federal, Aerospace & Defense revenue in North America, as well as the dilutive effect of the strong Desktop revenue on PLM sales capacity. Overall, we delivered 12% total growth compared to the year ago period." On a constant currency basis, total growth was 11% and license growth was 13% compared to nominal Q1 2010.



"Our momentum in the PLM market continued with the announcement of 3 new strategically important 'domino' accounts during nominal Q1," Heppelmann continued. "Since 2009, we have won 25 domino accounts and we continue to expect to win a cumulative total of 30 domino accounts by the end of September 2011. Dominoes represent the largest of many competitive displacement opportunities, and we believe they demonstrate that PTC is gaining share and becoming recognized as the industry leader for both our technology and product development process expertise."

Heppelmann added, "We had 24 large deals (license + services revenue of more than $1 million) in nominal Q1'11, compared to 22 last quarter and 18 in nominal Q1'10. We believe this is an indicator of the strength of our pipeline for business opportunities with new and existing customers. During the quarter we recognized revenue from leading organizations such as ITT Corporation, Liebherr, Bandai Co. Ltd., Target Corporation, Tata Motors Limited, TJX Companies, Toyota Motor Corporation, and Volkswagen."

Jeff Glidden, chief financial officer, commented, "From a profitability standpoint we had a very strong quarter; we delivered $78 million in cash flow from operations during the quarter, and we ended Q1 2011 with $260 million of cash, up from $183 million in Q4 2010."


Outlook Commentary

"From a product portfolio perspective, this is an exciting year," said Heppelmann. "We have already launched Mathcad Prime 1.0 and Windchill 10, and will be launching Creo 1.0 this summer. In addition, our pending acquisition of MKS [2], which we expect will close in early June, adds important breadth and depth to an already robust product portfolio, and further extends PTC's long-term growth opportunity. Given the market momentum we are experiencing and the extent of our technology leadership position, we remain confident in our ability to achieve our longer-term goal of 20% non-GAAP EPS CAGR through 2014."

"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.


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[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?

[2] Footnote:

MKS OBTAINS FINAL COURT ORDER APPROVING PLAN OF ARRANGEMENT

Waterloo, ON – May 26, 2011: MKS Inc. (TSX:MKX) (“MKS”) today announced that it has obtained a final order of the Ontario Superior Court of Justice approving the previously announced statutory plan of arrangement (the “Arrangement”) pursuant to which Parametric Technology Corporation will acquire all of the outstanding common shares of MKS for Cdn $26.20 cash per share.

Assuming that all conditions to the Arrangement are satisfied or waived, the Arrangement is expected to become effective on or about May 31, 2011.

About MKS

MKS enables organizations to reduce the overwhelming complexity of developing software intensive products thereby removing barriers to rapid innovation.

MKS Integrity manages all systems and software development processes and connects all engineering artifacts, including requirements, models, code and tests, ensuring comprehensive lifecycle traceability. MKS Integrity's open architecture integrates disparate tools into a streamlined engineering process, allowing orchestration of engineering change and collaboration across the technology supply chain. With MKS Integrity, engineering teams improve productivity and quality, streamline compliance and gain complete product visibility, which ultimately drives more innovative products into the market.

With offices worldwide, MKS supports customers across industries including, Automotive, Aerospace and Defense, High Tech Electronics and Medical Devices. For more information about MKS and MKS Integrity, visit our web site at http://www.mks.com.

 

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About the Writer

Since March 31, 1996, Dr. Russ Henke has been and remains active as 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 nearly fifty.

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 (Research Scientist), SDRC (President & COO), Schlumberger Applicon (Executive Vice President), Gould Electronics Imaging & Graphics (President and General Manager), ATP (Chairman & CEO), and Mentor Graphics (Vice President & General Manager).

Dr. Henke is a Fellow of the Society of Manufacturing Engineers (SME) and served on the SME International Board of Directors. Henke was also a board member of SDRC, PDA, ATP, and the MacNeal Schwendler Corporation, and he currently serves on the board of Stottler Henke Associates, Inc. Henke is also a member of the IEEE and a Life Fellow of ASME International.

In April 2006, Dr. Henke received the Lifetime Achievement Award from the CAD Society, presented by CAD Society 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).

Dr. Henke is also a contributing editor of the EDACafé EDA WEEKLY, and he has written and published EDA WEEKLY articles every four weeks since November 2009; URL's available. Since May 2003 HENKE ASSOCIATES has also published or co-published ninety-six (96) independent COMMENTARY articles on MCAD, PLM, EDA and Electronics IP on IBSystems' MCADCafé and EDACafé. Further information on HENKE ASSOCIATES, and URL's for past articles and Commentaries, are available at http://www.henkeassociates.net.






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-- Russ Henke, EDACafe.com Contributing Editor.