| Abstract: | UGS reports second quarter financial results of $296.7 million in revenue, driven by demand by mid-tier companies. This was below previous quarter revenue. Pre-tax profits of $69.2 million came in 80% above the year ago period. |
| Keywords: | UGS financial results 2006 second quarter |
UGS Corp. logged its twelfth consecutive period of year-over-year growth in the recently closed second quarter, but comparatively, its performance lagged the prior period's results and was less robust than what several of its key product lifecycle management (PLM) competitors enjoyed during the same period.
For the quarter ended June 30, 2006, UGS (Plano, TX) posted $296.7 million in total revenue, a 4% rise from the year-earlier period. Software revenue (including license and maintenance sales) was the primary growth driver, increasing 5% to $221.2 million compared with the corresponding quarter of 2005.
Like it has been for many of its PLM competitors, UGS's revenue from cPDM software was a particular bright spot. For the quarter, cPDM software revenue (representing sales of Teamcenter software and not including digital manufacturing applications) jumped 18% over the same period in 2005.
In comparison, sales of its CAx (CAD/CAM/CAE) software were stalled in the low-single digits, growing only 3% year-over-year. Service revenue for the second fiscal 2006 quarter was another soft spot, inching up only slightly from $74.9 million in the year-ago quarter to $75.5 million this fiscal period.
While revenue growth was stuck in the single digits, UGS officials painted a rosier picture around EBITDA (earnings before interest, taxes, depreciation, and amortization). For the quarter, EDITDA was a healthy $69.2 million, an 80% boost compared to the $38.4 million in the 2005 second fiscal quarter.
At the same time, however, UGS posted a $6.4 million net loss for the quarter; this compares to a $22 million net loss logged in the year-ago period. (Read about the most recent financial results posted by UGS competitors Dassault and PTC.)
UGS President, CEO, and Chairman Tony Affuso acknowledged on a conference call yesterday with analysts that a 4% revenue gain for the quarter was "not good enough," but even so, he called the results solid and said that UGS was on track with its strategic plan for the future.
"Despite the weaknesses on our top line this quarter, the fundamentals of our business remain strong," Affuso said. "Our strategic plan is a work in progress. To ensure that we move to consistently higher numbers, we're reorganizing our sales organization, reorienting to more of a vertical focus, growing the mid-market channel, and establishing a system integrator ecosystem. We're on course for this transition."
Affuso played up UGS's growing success in mid-market PLM. He said the company has had strong, double-digit growth in its Velocity product line, which is targeted at mid-market companies. "It's one of the success stories of our strategic plan for the quarter," Affuso said, "and the fastest-growing segment in PLM."
To support the mid-market segment, UGS has embarked on an ambitious campaign to establish an indirect sales channel and court a new community of systems integrators. Earlier in the year, Affuso promised to increase its indirect sales channel capability by 50%, and yesterday he reiterated that UGS was "absolutely on track to that" and might, in fact, actually beat that estimate. UGS has already signed up 50 reseller companies this year, he said, and year-over-year growth from indirect channel revenue was up 30% this quarter.
Affuso attributed some of UGS's decline in services revenue to increased sales activity within the system integrator channel the PLM vendor is actively courting as part of its strategic plan. He said UGS signed up six additional systems integrator partners in the quarter and acknowledged that some of the service revenue is moving to them.
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