Parametric Technology Corp. (PTC) closed the books on 2005 on a high note, testament, company officials said, to the success of a multi-year strategy to retune its product set to the needs of its core engineering audience and aggressive steps taken to get its fiscal house in order.
For the fiscal fourth quarter ended September 30, 2005, PTC earned $17.3 million on a GAAP (Generally Accepted Accounting Principles) basis as sales jumped 15% to $195.1 million. In the same period last year, PTC posted GAAP net income of $42 million. The company attributed the net profit decline to an increase in acquisition-related expenses.
Revenue for the year grew 9% to $720.7 million, with GAAP net income of $83.6 million, more than doubling earnings posted last year.
"We're pleased with our progress on both the top line and bottom line," said Richard Harrison, president and CEO of PTC (Needham, MA), in prepared remarks made during a year-end earnings call. "We're looking to deliver strong growth and increased profitability in 2006."
PTC's continued momentum comes as the entire PLM space profits from a growing appetite for engineering software products and services that boost design collaboration and productivity, analysts have said. For instance, Autodesk, Dassault and UGS have all posted upbeat financials over the last few quarters. (Click here for more details on Autodesk; here for details on Dassault; and here for more on UGS.)
Among the 2005 highlights Harrison cited were strides made by PTC in cracking new vertical markets, including electronics and high-tech, medical products and footwear and apparel, the latter due to its June acquisition of Aptavis Technology Corp. PTC also posted profits for the first time in two years in its services business, which was up 22% for the year to $168 million in sales, and it orchestrated three strategic acquisitions: Aptavis, Polyplan Technologies Inc. for manufacturing process planning capabilities, and Arbortext Inc., for an enterprise content publishing platform.
Sales of desktop solutions, which include the Pro/Engineer CAD tool, were up 6% year-over-year in the fourth quarter to $129 million, and for the year grew 5% to $503 million. Pro/Engineer seat volume for the year grew 12% over 2004, due primarily to success in tapping the SMB market, PTC officials said.
For the fourth quarter, enterprise solutions (which include Windchill) surged 37% year-over-year to $66 million; for the full year, Windchill revenues represented 21% of PTC's total sales.
PTC's strong showing for the quarter and year is a reflection of robust overall growth in the PLM category and recognition that its "back to basics" strategy is working, said Mike Burkett, vice president of PLM for AMR Research Inc. (Boston). For years, PTC neglected its bread and butter Pro/Engineer installed base in favor of promoting its Windchill PLM platform, which had its own initial struggles and lost PTC ground.
The company shifted gears over the last couple of years, making much-needed ease-of-use improvements to its CAD platform and integrating it more smoothly into the Windchill PLM environment. "All these things have come together in terms of helping them execute on sales and reinvigorate their current client base around Pro-Engineer," Burkett said in an interview with Managing Automation.
However, Burkett and others see some challenges ahead. To further extend PTC's reach into non-engineering environments, the company has to continue to build out its domain expertise in markets that are not as dependent on or familiar with CAD. While PTC has certainly made progress on this front, Burkett says there's far more work to be done.
The company also needs to carve out a solid manufacturing and digital simulation (computer-aided engineering) strategy and get back to funding significant research and development efforts around new products.
"It's a little worrisome over the next two years because PTC's competitors didn't have that blip in their financials, thus have maintained forward-going research for new products," said Ken Versprille, PLM research director for CPD Associates (Stamford, CT), a market-research firm focused on product development. "PTC did a lot of cost cutting and that may hurt their ability in the future in terms of organic growth."
Not so, according to PTC officials, who said they are more than optimistic about the company's potential moving forward. In the earnings call, PTC executives set a lofty 12% revenue growth target for 2006, reachable, they said, through both organic growth and additional acquisitions.
PTC is forecasting revenue for Q1 2006 in the $190 million to $195 million range, with guidance of between $805 million and $815 million in sales for the year.
If PTC does what it takes and continues to ride this track, analysts see a bright future for the once-beleaguered company. "Now that they've got the basics under control and their financials are looking better, they can start to move into growth pattern," Burkett said. "It looks positive for them moving forward."