Despite global volatility on both economic and political fronts, manufacturers are readily making investments in product lifecycle management (PLM) systems, as illustrated by better-than-expected quarterly financial results posted by two of the category's leaders: PTC and Dassault Systemes.
PTC (Needham, MA), which is staging an earnings and market share comeback, logged its highest total license and revenue quarter in the last five years. For the third fiscal quarter ended July 1, 2006, PTC reported a 20% boost in revenue to $216.7 million, up from $180.3 million, with GAAP (generally accepted accounting principles) net income of $16.9 million. GAAP net income for the third fiscal 2005 quarter was $26.7 million, but those results were reported prior to a change in PTC's accounting practices, and thus do not include the cost of stock-based compensation and other factors which impacted the 2006 results, officials said.
PLM rival Dassault (Paris) continued its strong financial showing for the year, enjoying a GAAP revenue spike of 29% for its second fiscal 2006 quarter, ended June 30, jumping to €280 million from the €217.3 million posted in the similar 2005 period. Dassault's GAAP net income was €29.4 million, down from €37.8 million a year ago. On a non-GAAP basis, Dassault's revenue grew 32% during the quarter to €286 million compared to the like period last year. Non-GAAP net income for the quarter was €43.4 million.
Quizzed by financial analysts on whether this quarter's strong results were an aberration or a trend, executives from both companies remained bullish on the PLM sector, projecting continued momentum for their respective firms. Market-research firms such as AMR Research Inc. (Boston) estimate that growth rates for the PLM sector will hover around 13% annually, with CAD applications, another staple of many of the PLM vendors, holding in the single-digit levels.
This quarter's robust performances by PTC and Dassault indicate that manufacturers are finally beginning to understand the promise of PLM, executives at both companies said, and are starting to factor it in as a necessary enterprise software expense, along with ERP and CRM.
"Clearly PLM is focused on top-line revenue generation for companies," said Dassault President and CEO Bernard Charles in remarks on the company's quarterly financial Webcast, where Dassault also raised its 2006 revenue growth objective to between 27% and 28%, up from 25% to 26%, because of the steady uptick in activity. "If companies don't create efficient, new business models to design and produce products, it becomes difficult to be competitive, even in industries where there is incredible competitive pressure. [PLM] can provide significant value."
PTC's fiscal third-quarter performance was the bigger surprise, although some analysts were hesitant to call it a trend until fourth quarter results are in. Even so, PTC had a number of highlights, including double-digit growth for both its Windchill enterprise PLM platform and ProEngineer, its desktop CAD system. Desktop Solutions revenue for the third quarter was $143.9 million, up 14% from the like period last year.
In an interview with Managing Automation, PTC Executive Vice President and CTO Jim Heppelmann said the CAD numbers were most telling. "We had bad times where ProE market share declined one year by almost 20%," Heppelmann said. "Now [with the Wildfire release of ProE], people are coming back and our growth rate in CAD is almost double that of the industry."
PTC's Total Enterprise Solutions revenue was a record $72.8 million, representing 34% year-over-year growth. The numbers reflect organic Windchill growth, officials said, along with revenue attributable to the Arbortext products, which were brought into the PTC product fold via acquisition last year.
Dassault also experienced steady growth on the PLM side. Non-GAAP PLM revenue increased 35% to €229.9 million and 36% in constant currencies, up from €170.7 million in the year-ago quarter. New CATIA and SolidWorks seat licenses increased 15% to 20,485 seats in the 2006 second quarter, compared to 17,755 in the year-ago period.
In his remarks to analysts, Dassault's Charles played up the success of the MatrixOne acquisition, which was completed in May. MatrixOne achieved break-even status in the first period post-acquisition and the products were the impetus for Dassault's wins in new verticals -- officials said seven of the 10 largest transactions for the quarter were outside of its core market segments, including the semiconductor and apparel markets.
Looking ahead, both PTC and Dassault are optimistic about the balance of 2006. Dassault projected that third-quarter non-GAAP revenue would be between €280 million and €285 million with non-GAAP EPS (earnings per share) around €0.33; its 2006 non-GAAP total revenue objective is between €1.175 billion and €1.185 billion.
For the year ending September 30, PTC said it expects revenue to be between $826 million and $834 million.