Product lifecycle management (PLM) heavyweights Dassault Systemes and UGS Corp. closed out 2005 on a high note, both hitting the billion-dollar mark, enjoying double-digit revenue gains that surpassed the industry average as well as benefiting from healthy increases in sales of PDM (product data management) software.
Dassault (Paris) capped off 2005 with GAAP (Generally Accepted Accounting Principles) revenue of €934.5 million (or $1.12 billion), a 17% increase over the €796.6 million logged in 2004. GAAP operating income for the year grew by 9% to €251 million (a 26.9% operating margin) compared to €229.8 million in 2004 (a 28.8% operating margin).
Net profit on a GAAP basis was also up, with Dassault reporting a 12% gain over 2004 to €175.5 million.
UGS (Plano, TX) had similar success in its first full calendar year as an independent entity. The company grew revenue by 18% over calendar 2004 to reach $1.15 billion, with operating income increasing to $83.5 million, -- 166% better than the same period last year (including the impact of acquisition-related intangible amortization costs of $150.8 million). Net loss for the year was $22 million versus an $18.7 million loss in 2004.
For the fourth quarter, ended Dec. 31, 2005, UGS grew revenue 15% to $326.7 million, with operating income of $47.1 million, a 93% increase over the year-ago period (including the impact of acquisition-related intangible amortization costs of $39.2 million). For its part, Dassault reported fourth-quarter GAAP revenue of €304.2 million (up 27% over the fourth quarter 2004), while GAAP operating income increased 14% to €100.7 million compared with the year-ago period.
Software revenue growth was a highlight for both companies. Dassault officials said software revenue increased 18% on a non-GAAP basis in 2005 to €792.7 million, and 19% in constant currencies, while UGS enjoyed a slightly larger gain, reporting a 21% spike in software revenue (including license and maintenance) over 2004. Dassault's non-GAAP software revenues increased 27% to €261.3 million in the quarter (24% in constant currencies), driven by strong growth across all products, including recently acquired ABAQUS Inc. For its part, UGS' software revenues reached $248.8 million in the quarter, a 20% increase from the year-earlier period.
Both companies cited healthy gains in sales of PDM and collaborative product development management (cPDM) software. UGS' cPDM revenue increased 58% over 2004 (including acquisitions), while Dassault's 2005 PDM revenue grew 20% as reported and in constant currencies to €121.9 million.
Dassault also pointed to SolidWorks as one of its stronger performers for the year, with revenue increases for the CAD tool up 25% to 181.8 million euros (in constant currencies), and licensed seats also growing by 25% over last year to 37,280 based on strong demand across all major geographic markets.
High-end CAD performance was not as notable. Dassault's CATIA licenses only increased 6% to 34,798 in 2005, while UGS' CAx line also managed single-digit growth. UGS CEO Tony Affuso told financial analysts during a conference call to discuss his company's results that an important global design win this quarter -- Nissan's selection of its NXTM 3D CAD offering -- should spark an uptick in demand for that category.
UGS' Affuso also said the company inked 44 contracts in new markets in 2005 --a 63% increase over 2004. In addition, the company is making headway with its Velocity Series aimed at the mid-market, which debuted in September, and has been adding new channel partners to its Velocity distribution channels -- with the goal of reaching 100 by the end of 2006.
PLM analysts were pleased with both companies' performances, but said the results were in line with expectations. High-end CAD, they said, is a maturing market and presents some challenges to vendors for future growth. PDM will continue to be the bright spot in the PLM market and presents the biggest opportunity moving into 2006 and beyond. "While the CAD market has matured, the story of PLM is that it's a cross-functional process and there's less mature adoption," said Mike Burkett, research director at AMR Research Inc. (Boston), in an interview with Managing Automation. "These two vendors are doing well because their key markets are heavily engineering-oriented markets, and engineering understands the value of this. But selling PLM to a broader cross-functional group is harder when you can't define who owns the problem."
During a conference call with financial analysts to discuss his company's results, Bernard Charles, Dassault's president and CEO, said PLM's message is resonating with customers thanks to reports of customer deployments yielding 40% to 90% reductions in development time and/or decreases in engineering changes by as much as 80%. "We're truly at the beginning of the PLM opportunity with significant growth ahead of us," Charles said . "PLM is truly about bringing value to a company from the perspective of both its top and bottom lines."
Dassault and UGS should also realize new growth opportunities by expanding their presence in non-traditional PLM markets, including the SMB space and in verticals such as consumer packaged goods, apparel, and pharmaceuticals, according to Ken Amann, director of research at market researcher CIMdata Inc. (Ann Arbor, MI). "2006 should be another good year," Amann said. "The market is still good, companies are beginning to make progress with PLM in Asia Pacific, particularly China, and they're getting into some non-traditional areas which expands the market opportunity."
While UGS didn't provide any guidance for calendar 2006, Dassault did, noting that it expected first quarter non-GAAP total revenue to reach between €248 million and €253 million, including deferred revenue write downs.
Meanwhile, PLM competitor PTC (Needham, MA) got off to a good start in its fiscal 2006. For the first fiscal quarter ended December 31, PTC's sales were up 14% to $192.5 million, which the Needham, MA company attributed in part to organic growth and to additional revenue from its July acquisition of Arbortext Inc. GAAP net income for the quarter was $7.5 million compared with $19.2 million in the year-ago period.