Showing significant progress towards its goal of becoming a $1 billion company by fiscal 2008, Parametric Technology Corp. (PTC) finished fiscal 2006 with flourish, posting exceptionally strong top- and bottom-line results in its recently completed fourth quarter, buoyed by robust growth across nearly all product lines, services, and geographies.
For the period ended September 30, the product development software provider earned $28.1 million on a GAAP basis, or 24 cents a diluted share -- a 62% increase from the like period last year. Revenues reached $245.5 million, a 26% spike from the same period last year. License revenue soared 39% to $84.6 million, driven by both desktop and enterprise products.
For the full year, however, PTC's net earnings declined due to changes in the way it accounts for stock-based compensation. For fiscal 2006, the company earned $63.2 million on a GAAP basis, or 56 cents per diluted share -- down 24% from the like period last year. Last year's results do not include the cost of stock-based compensation for the first nine months of the year, the company said.
PTC's revenues for the year increased 19% to $854.9 million, advancing the company toward its long-stated goal of surpassing the $1 billion mark in fiscal 2008. The company's archrivals Dassault and UGS passed the billion dollar milestone earlier this year.
For PTC, the $1 billion mark would cap a significant reversal of fortune following a trying period that was marked by heavy cost cutting, a redefinition of its product strategy, and changes in its product distribution model. Two years into the turnaround plan, the company is seeing healthy organic revenue and profit growth across multiple product lines and geographies, CEO Richard Harrison told analysts on a conference call this morning.
"It seems we are well past the inflection point in our financial turnaround and we are very confident in our ability to achieve our 2008 goal," he said.
One reason for PTC's ebullience is its continuing license revenue growth. Total license revenue for fiscal 2006 increased 26% year over year to $263.5 million, reflecting accelerating organic growth and the contribution of recently acquired Mathsoft, the company said in a prepared statement.
Strong performances across most of the company's product and services categories during the fourth quarter also boosted fiscal 2006 results. The company's Desktop Solutions business, for instance, grew 23% in the fourth quarter to $159.4 million, driven by 38% license revenue growth. The company pointed to strong sales of new seats, modules, and upgrades of its Pro/ENGINEER CAD software package as well as revenue generated by Mathsoft as the primary growth drivers. Desktop training and consulting service revenue, meanwhile, increased 33%, and maintenance revenue rose 12% in the period.
Enterprise Solutions revenues jumped 31% to a record $86.1 million in the period, driven by license revenue growth of 40%. The company pointed to its Windchill family -- Windchill PDMLink and related modules and Windchill ProjectLink -- as well its visualization software for the growth spurt. Training and consulting service revenues jumped 34%, while maintenance revenue increased 13% in the period, the company said.
PTC is also benefiting from the development of its reseller channel. Resellers generated $46.8 million in revenue in the fourth quarter, up 34% from the like period last year, reflecting PTC's downward push into the SMB market worldwide, the company said.
Moreover, continuing vendor consolidation and PTC's single data model, which spans its entire product line -- a major differentiator with its nearest PLM rivals, Harrison claimed -- is also bringing business PTC's way. Harrison pointed to a recent contract extension with Dell, which is a long-standing user of PTC's Pro/ENGINEER CAD software and Pro/Intralink product data management products, as a primary example.
Earlier in the fiscal year, Dell standardized on Pro/ENGINEER for mechanical CAD, and later upgraded from Intralink to Windchill for workgroup product development management. Later in the year, Dell adopted PTC's recently acquired Arbortext technical publishing solution to create and manage documentation for every custom-configured PC the company produces and ships. In Q4, the company selected Windchill for enterprise PLM, Harrison said.
Dell, he said, determined that it could "take a best-of-breed approach without sacrificing on total cost of ownership due to the individual strength and breadth of [PTC's] solution on a single architecture." Dell couldn't have been sold on this value proposition until PTC released Windchill 8.0, which offers a common executable for managing Pro/ENGINEER files, Harrison noted.
The Dell enterprise deal was among the major contracts signed in the fourth quarter, which included agreements with Daihatsu Motor Co.; LTD., KG, Herman Miller, Inc.; Ingersoll Rand; OKI Electric Industry Co., Ltd.; Qingdao Beihai Ship Building Heavy Ind. Co. Ltd.; and Tontec International, the company said.
This list is indicative of PTC's fourth-quarter growth across all major geographies. Revenues were up 38% in North America, 21% in Europe, and 12% in Asia-Pacific. Asia-Pacific revenue growth was particularly noteworthy, given an 18% year-over-year revenue decline in Japan, which Harrelson attributed to management issues (which he said have recently been rectified). That decline was more than offset by a 53% increase in revenue in the Pacific Rim and growth in China, the company said.
"China was a small percentage of revenue a few years ago and today is a thriving and significant PTC business," Harrison noted.
The only negative in PTC's financial report was cash and equivalents, which declined to $183.4 million at the end of fiscal 2006 from $225.4 million at the end of the year-earlier period. CFO Neil Moses attributed the decline to payments for acquisitions, income tax, pension plan contributions, and a new term-financing option for larger customers. Expenses were also above expectations, which Moses chalked up to a good news scenario: higher-than-projected sales commissions and bonuses. Organizational productivity improvements helped to offset much of the increased expense, he noted.
Fiscal 2006's strengths should spill over into fiscal 2007, the company said. "Customer spending remained healthy [in fiscal 2006] and we believe PLM ... is growing as an IT spending priority" Harrison explained.
That optimism is reflected in the company's fiscal 2007 guidance. PTC expects first-quarter revenue to be in the $215 million to $220 million range, with earnings per share of between nine and 11 cents. For the year, the company expects revenues of about $945 million, with earnings per share of between 70 cents and 75 cents.