| Abstract: | Despite the shortfall in new license sales, both product lifecycle management providers post revenue and earnings gains in the shadow of recent market consolidation. |
| Keywords: | PTC, Dassault, earnings report, new license sales, product lifecycle management, PLM software, product data management, new product introductions, UGS, Siemens, Oracle, Agile |
The fates of two of the biggest players in the product lifecycle management market appeared intertwined in their recently closed quarters, as both PTC Corp. and Dassault Systemes saw license revenues fall, but managed single-digit growth in overall revenue as well as earnings increases.
PTC announced this week that in its third quarter, ended June 30, license revenue fell 5% year over year to $62.1 million. Record maintenance revenue — up 15% to $103 million — salvaged the overall numbers, allowing PTC to eek out a 4% revenue gain to $225 million. GAAP-based operating income jumped 47% to $19.8 million, boosted mainly by lower stock-based executive compensation due to lower-than-expected sales.
Contributing to the license shortfall in the quarter were a 4% drop-off in North American sales and a 3% decline in Asia. Only a strong performance in the European market, which yielded 20% higher revenue year over year, kept the top line pointed upward.
PTC attributed its sales struggles to a number of anticipated deals that did not close in the quarter and a poor showing in North America and Japan for its desktop products, mainly comprising its Pro/Engineer CAD/CAM/CAE technology. The company's enterprise offerings, led by its Windchill collaborative design suite, helped to counteract the desktop decline, growing 18% year over year.
On a conference call with analysts to discuss the results, CEO C. Richard Harrison brushed off any intimation that the quarter's numbers showed a downward trend.
"We believe we continue to have a great opportunity ahead of us," he said, "because manufacturing companies are compelled to invest in solutions that help drive globalization and lean product development programs."
That said, PTC did reduce revenue guidance for the remainder of the year. For the fourth quarter, the company said it expects flat year-over-year revenue of $240 million to $250 million. For the full fiscal year, PTC anticipates total revenue of $915 million to $925 million, significantly less than the $950 million officials had predicted at the end of quarter two.
"Regarding the longer-term outlook, we are not changing our 2010 targets at this time," CFO Neil Moses said on the call. The company will wait until after the fourth quarter, which closes in September, to assess that outlook and offer 2008 guidance.
To rein in costs in the meantime, PTC will reduce discretionary spending on items such as travel and meetings, slow the hiring process, and reduce head count, Moses said. Just this week, in fact, the company cut its staff by 200, and is looking increasingly to move its workforce offshore.
Across the pond, Paris-based PLM provider Dassault saw second-quarter new license sales plunge 16% to €96.2 million, from €114.1 million a year earlier. But like its rival, Dassault managed to report top-line growth on strong sales of maintenance, services, and license renewals. Overall revenue for the company grew 9% to €305.7 million.
Net income on a GAAP basis soared 29% to &euo;37.9 million. On a conference call to announce the results, Dassault CEO Bernard Charles singled out the CATIA and ENOVIA products as growth drivers. Revenue from ENOVIA, the company's core PLM offering, rose 32% from the second quarter of 2006. He further cited ENOVIA Matrix One, which hails from Dassault's 2006 acquisition of Matrix One, as a ticket to market expansion. "We see this as a significant growth driver for expansion of PLM in new markets," he said, pointing to a recent deal with apparel company Gucci.
Charles shrugged off the second-quarter drop in new license sales, saying that the comparison was skewed by a large deal with Airbus in the like period last year. The company's upward revision of its full-year revenue guidance underscored his confidence. Dassault now expects full-year, non-GAAP revenue to total €1.285 billion to €1.30 billion, up from previous guidance of €1.275 billion to €1.285 billion. The new numbers represent 14% to 15% year-over-year growth.
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