Lastly, New Business is amplifying sector diversification, with new clients and new domains from sectors such as Transport, Aerospace, Heavy Industry, Energy and Electronics.

Very strong increase in profitability and optimization of the cost structure

The very sharp improvement in profitability is a result of the growth in revenue with improved efficiency of the Group’s cost structure and product mix resulting in the substantial improvement in the gross margin.

It should be noted that 37% of ESI’s workforce is now employed in low-cost countries, thus enabling the Group to combine its local support for major OEMs in very dynamic zones, with increased competitiveness.

This proportion should continue to increase during 2011, notably with the strengthening of our near-shore Services line in Tunisia and the Group’s Indian presence.

Industrial innovation and presence within Competitive Clusters

As a leader in the strategic movement towards virtual engineering, ESI has strengthened its presence amongst industrial players by creating a Bordeaux-based R&D center for the Simulation of composite materials for the aerospace and nautical sectors and by participating in the Rennes-based iD4CAR competitive cluster for the digital design, shaping and multi-material assembly of new-generation vehicles.

The Group is also participating in innovative projects carried out within 9 other competitive clusters in France.

ESI self description

ESI is a pioneer and world-leading player in virtual prototyping that take into account the physics of materials. ESI has developed an extensive suite of coherent, industry-oriented applications to realistically simulate a product’s behaviour during testing, to fine-tune manufacturing processes in accordance with desired product performance, and to evaluate the environment’s impact on product performance. This offer represents a unique collaborative and open environment for Simulation-Based Design, enabling virtual prototypes to be improved in a continuous and collaborative manner while eliminating the need for physical prototypes during product development. Present in over 30 countries, ESI employs over 800 high-level specialists throughout its worldwide network. ESI Group is listed on compartment C of NYSE Euronext Paris. For further information, go to www.esi-group.com.

Highlights

• Q1 2011 Results: Revenue of $269.2 million and GAAP EPS of $0.16
  • GAAP operating margin of 9.0%
  • Relative to Q1 2011 guidance ($260 - $270 million in revenue), currency fluctuations did not materially impact results
  • Q1 2010 Revenue was $240.56 million, 89.4% of Q1 2011
  • Q1 2011 $269.2 million was 11.9% above $240.56 Q1 2010
• Nominal Q2 2011 Guidance: Revenue of $275 to $285 million
  • GAAP EPS of $0.16 to $0.20
  • Assumes $1.45 USD / EURO
• Q1 2011 Net Income $19.017 million, up 111% vs $9.002 million Q1 2010
  
  
• Full Year 2011 Targets: Revenue of $1,120 to $1,130 million and
  • GAAP EPS of $0.73 to $0.78
  • Expecting license revenue growth of 15% to 20%, low- to mid-teens services revenue growth, and high single-digit maintenance revenue growth
  • GAAP operating margin of 11% to 12%
  • Assumes $1.45 USD / EURO for H2 '11
    
    

Results Commentary

James Heppelmann, president and chief executive officer, commented, "PTC had a strong nominal Q1 2011, with revenue and EPS at the high-end of our guidance range. Our license revenue of $74.2 million was up 15% on a year-over-year basis, and included 40% year-over-year growth in Desktop license revenue. This was our 5^th consecutive quarter of year-over-year improvement in Desktop license revenue and in our Channel business. Our Enterprise license revenue was down 15% year-over-year, and was significantly impacted by lower than expected Federal, Aerospace & Defense revenue in North America, as well as the dilutive effect of the strong Desktop revenue on PLM sales capacity. Overall, we delivered 12% total growth compared to the year ago period." On a constant currency basis, total growth was 11% and license growth was 13% compared to nominal Q1 2010.”

Heppelmann added, "We had 24 large deals (license + services revenue of more than $1 million) in nominal Q1'11, compared to 22 last quarter and 18 in nominal Q1'10. We believe this is an indicator of the strength of our pipeline for business opportunities with new and existing customers. During the quarter we recognized revenue from leading organizations such as ITT Corporation, Liebherr, Bandai Co. Ltd., Target Corporation, Tata Motors Limited, TJX Companies, Toyota Motor Corporation, and Volkswagen."

Jeff Glidden, chief financial officer, commented, "From a profitability standpoint we had a very strong quarter; we delivered $78 million in cash flow from operations during the quarter, and we ended Q1 2011 with $260 million of cash, up from $183 million in Q4 2010."

Outlook Commentary

"From a product portfolio perspective, this is an exciting year," said Heppelmann. "We have already launched Mathcad Prime 1.0 and Windchill 10, and will be launching Creo 1.0 this summer. In addition, our pending acquisition of MKS [2] , which we expect will close in early June, adds important breadth and depth to an already robust product portfolio, and further extends PTC's long-term growth opportunity. Given the market momentum we are experiencing and the extent of our technology leadership position, we remain confident in our ability to achieve our longer-term goal of 20% non-GAAP EPS CAGR through 2014."