PTC Financials Portend Engineering Software Upturn

PTC reports positive results for its third quarter of Fiscal 2010. Enterprise revenue jumped 64% from a year earlier.

By L. Stephen Wolfe P.E.
Contributing Analyst

Parametric Technology Corporation’s Pro/ENGINEER software has a reputation among CAD users for being fast to load and rebuild models. Less appreciated is the fact that PTC’s financial team also is fast. PTC tends to report earnings before any of the other big engineering software companies such as Dassault Systèmes, Autodesk, and ANSYS. Consequently, its earnings are a good indicator of how the other firms fared in the most recent quarter.

PTC’s new license revenues soared 36% compared with the like quarter a year ago. License revenues are a harbinger of better times, because in the software business, consulting and annual maintenance (which includes support and software updates) are almost sure to follow. During the economic downturn, large customers delayed big software projects, from which PTC derives a growing share of its business.

In the quarter ended July 3, 2010, what PTC calls its enterprise software revenues jumped 64% year-to-year to $36.5 million. This classification consists mainly of PTC’s Windchill Product Lifecycle Management (PLM) software that is used by manufacturing firms primarily to store and organize CAD files and related manufacturing data. PTC’s desktop license revenues, which consist of computer-aided design (CAD) software such as Pro/E and CoCreate, and other programs such as MathCAD and Arbortext, rose a healthy 14% to $31 million.

PTC’s service revenues, which consist of annual maintenance fees ($121.3 million) and low-margin consulting services ($54.2 million), were unchanged from the prior year. Consequently, PTC’s overall revenues rose a modest 7% year-over-year.

PTC’s executives like to boast about being the “technology leader in attractive growth markets” (PLM) and claim they are gaining market share at the expense of competitors. I take these statements with a grain of salt.

Large companies rarely change brands of CAD or PLM software. The cost of converting data from one proprietary format to another and of retraining workers to use functionally similar but procedurally different software is higher than any benefits that could be derived. Mergers and acquisitions are more often the primary reason that companies switch engineering software brands. They believe that standardizing across divisions can save money and enhance their flexibility to redeploy workers and software.

PTC’s recent revenue turnaround is more likely due to the fact that manufacturing companies are enjoying a resurgence in demand for their products. This sales boost has given them the cash to upgrade their CAD and PLM systems from PTC. As a result, we can probably expect similarly better quarters from the other companies that make and sell engineering software.

Cash per share on July 3, 2010 $1.88, down for the third straight quarter. This is based on cash and cash equivalent holdings of $219 million. By comparison, Dassault Systèmes and Autodesk each have approximately $1 billion in cash and equivalents.

Although overall revenues remain lackluster, PTC's new license revenues rose sharply from $49 million last year.
PTC's enterprise revenues resumed their upward trend.
PTC's desktop revenues continue to drift lower despite year-to-year gains in new licenses.
PTC's balance sheet strengthened as it paid down its line of credit.
Although PTC is a US company, Europe remains its most important geographic region.