Commentary: MCAD Industry View – A May 2007 Update


MCAD Industry View – A May 2007 Update

by Dr. Russ Henke and Dr. Jack Horgan
Henke Associates

In the first MCAD Industry Commentary published May 2003 in MCADCafé.com, then-recent yearly and quarterly financial performances of a selected group of public Mechanical Computer Aided Design (MCAD) companies were analyzed and compared. Expectations of future financial performances of these same MCAD entities were documented. The May 2003 MCAD Commentary was followed by fifteen quarterly updates in MCADCafé.com, one for each subsequent calendar quarter. URL's on all past articles are available. The nine entities covered were ANSYS, Autodesk, Dassault Systèmes, UGS PLM, ESI Group, Moldflow, MSC.Software, PTC and Tecnomatix.

As a result of the acquisition of Tecnomatix by UGS that closed April 1, 2005, Tecnomatix was eliminated from coverage thereafter as a separate entity.

Accordingly, this seventeenth article below recounts the financial performances of the remaining group-of-eight (G8) MCAD/PLM entities for the nominal first quarter of 2007.

Recent MCAD & PLM News Highlights

On April 27, 2007 Dassault Systèmes and ICEM, announced an agreement pursuant to which Dassault Systèmes would acquire ICEM. The proposed acquisition, for an estimated price of 51.4 million Euros, should be completed in June 2007 subject to specific closing conditions. The transaction, to be paid in cash, is expected to be non-dilutive on DS non-GAAP earnings.

On May 7, 2007 UGS announced the close of its acquisition by Siemens AG, effective May 4. As a result, the business will go to market as UGS PLM Software, a global division of the Siemens Automation and Drives (A&D) Group. The companies had announced on January 25, 2007 a definitive agreement for Siemens AG to acquire UGS for US$3.5 billion, including assumption of existing debt. More recently, the European Commission announced on April 27, 2007 that it had approved the planned acquisition of UGS by Siemens AG, thus completing the standard anti-trust reviews of the transaction.

On May 16, 2007 PTC announced it had acquired NC Graphics Ltd., headquartered in Cambridge, England. NC Graphics delivers software for optimizing tool making and high-speed precision machining processes.

On May 15, 2007 Agile Software Corporation, the largest remaining independent cPDm vendor, announced a definitive agreement for Oracle to acquire Agile through a cash merger for approximately $495 million, about a 14% premium over its market capitalization. Oracle President Charles Phillips said, “The addition of Agile, which will serve as the foundation of our PLM offering, will further Oracle's strategy of delivering industry-specific enterprise applications and allows us to offer yet another strategic application to SAP customers.” Agile reported preliminary results for the fourth quarter of its fiscal 2007 year, with total revenues expected to be in the range of $37.0 million to $38.0 million. The firm also expects total fiscal 2007 revenues to be in the range of $133.7 million to $134.7 million, or approximately $2.0 million higher than fiscal 2006. The firm has had cumulative losses of $130 million from fiscal 2002 through fiscal 2006. For the first nine months of fiscal 2007, Agile had revenues of $96.7 million and a net loss of $11.1 million.

Agile had acquired Cimmetry Systemes in February 2005 for $41 million and Eigner in August 2003 for $19.3 million. According to Agile CEO Jay Fulcher, the company today has over 1,250 PLM customers and over 10,000 visualization customers globally.

For perspective on the price paid by Oracle for Agile, recall that Dassault Systemes acquired MatrixOne about this time last year for $408 million. Then an independent PLM vendor, MatrixOne's revenue had been around $125 million in the previous year.

Oracle's principal competition remains SAP AG, the leading ERP company headquartered in Walldorf, Germany, with annual revenues of around £.6.6 billion.

(For an overview of PLM and cPDm, see PLM and cPDM Update

MCAD Vendors' Financial Performances in Q1 2007

As a group, the G8 MCAD vendors generated combined revenues of $1.61 billion, a healthy increase of 18% from the $1.37 billion in the first quarter of 2006, but a 5.2% decrease from the traditionally-strong fourth quarter of 2006. ANSYS was by far the year-over-year percentage growth leader, due largely to its acquisition of Fluent in May 2006. Autodesk, Dassault, PTC and UGS all had year-over-year growth above 10%. The only decliner was MSC.Software at -14.4%. On a sequential basis, ESI-Group was the runaway percentage growth leader. Three of the leading high-end firms (Dassault, PTC and UGS) saw a low double-digit percentage drop in revenue from the fourth quarter 2006, whereas Autodesk eked out a small increase and eclipsed a half-billion dollars in quarterly revenue. See Table 1.

Figure 1 below provides a bar graph showing the revenue trend for each of the covered vendors, for the periods mentioned in Table 2.

For the Q1 2007 quarter, Autodesk was the clear share leader among the G8, followed in order by Dassault Systemes, UGS PLM Software and PTC. The others had low single digit shares.

(As always, it needs to be pointed out that unlike the other vendors in this report, Autodesk earns a major portion of its revenue outside of the MCAD space. Autodesk does not break out its mechanical contribution. Also, both Autodesk and Dassault Systemes sell mostly through third parties, while UGS sells mostly direct).

Turning to earnings, the picture is not so bright. First of all, Autodesk, ESI-Group and UGS did not report earnings results for the quarter. In absolute terms ANSYS, Dassault and PTC had net income while Moldflow and MSC.Software had net losses. On a sequential basis ANSYS was the growth leader at +32%. PTC was the only other sequential gainer. See Table 2.

Details on Individual Vendors' Q1 2007 Performances

On May 3, 2007 ANSYS, Inc reported results for the first quarter of 2007. Total revenue was $87.9 million, an increase of 91% from the $46 million in the first quarter of 2006 and a 3.1% from the $85.2 million in the last quarter of 2006. The $87.9 million was above the guidance range given last quarter. Software license revenue was $57 million, accounting for 65% of total revenue. This was an increase of 114% year-over-year, and a 7.5% increase sequentially. Maintenance and services revenue was $30.6 million, or 35% of total revenue. This was an increase of 59% year-over-year, but a decrease of 4.3% sequentially. Much of the year-over-year increase was due to the acquisition of Fluent for $565 million, a transaction that was completed in May 2006.

On May 14, 2007 ANSYS announced that its Board of Directors has approved a 2-for-1 stock split of the Company's common shares. The stock split will be in the form of a stock dividend to be distributed on June 4, 2007 to holders of record at the close of business on May 25, 2007.

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