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11 May 2006

UGS Reports First Quarter Revenue of US$273.8 Million; Performance Marks 11th Consecutive Quarter of Revenue Growth for PLM Industry Leader

FOR RELEASE Thursday, May 11, 2006

PLANO, Texas – UGS Corp., a leading global provider of product lifecycle management (PLM) software and services, today announced first quarter 2006 results. 

First quarter financial highlights include:

  • Total revenue increased to US$273.8 million, an 8 percent growth over the same period a year earlier, or 13 percent growth on a constant currency basis.
  • Software revenue increased to US$205.2 million (including license and maintenance revenues), or an 11 percent growth as compared to the first quarter 2005.  On a constant currency basis the company saw an increase of 15 percent.
  • Total revenue and software revenue increased in each geographic region compared to the same period in 2005.
  • cPDM revenue increased 29 percent including acquisitions, or 8 percent growth without acquisitions, over the same period a year earlier.  On a constant currency basis cPDM revenue increased 33 percent with acquisitions, or 12 percent without acquisitions.
  • EBITDA (defined below) was US$48.1 million, or 3 percent growth over the same period a year earlier.
  • Operating loss was US$5.5 million and includes the impact of acquisition-related intangible amortization costs of US$39.3 million. 
  • These amounts are not adjusted for the impact of deferred revenues written off in connection with acquisitions.  These write-offs had the effect of reducing first quarter 2006 revenues by US$0.2 million and 2005 revenues by US$4.6 million.

“UGS’ solid results were led by overall software revenue growth and our relentless focus on customer success which is at the heart of our leadership and vision of enabling global innovation networks,” said Tony Affuso, chairman, CEO and president of UGS.  “Today, one year after closing the Tecnomatix acquisition, we announce an exciting competitive win at Northrop Grumman that underscores our momentum as the market leader in digital manufacturing.”

Customer Win Announcements

  • Northrop Grumman Ship Systems (NGSS), one of the leading full service companies for the design, engineering, construction and lifecycle support of major surface ships, standardized on Tecnomatix™ software, UGS’ comprehensive digital manufacturing solution, for all ship programs.  NGSS will combine Tecnomatix with UGS' Teamcenter® software, which provides NGSS the integrated data environment to manage all product information and processes related to the program lifecycle.
  • Sandvik Mining and Construction, the world’s leading supplier of mining equipment, will replace its current product data management solution with UGS’ Teamcenter portfolio to standardize its PLM program.
  • Peguform, a leading global supplier of interior systems for the automotive industry, has expanded its use of UGS’ Tecnomatix software.
  • Röhm GmbH, a leading global manufacturer and supplier of customized and standard tools for machinery, has expanded its use of Solid Edge® software, UGS’ industry-leading, value-based 3D computer-aided design (CAD) system for the mainstream PLM market, for its 3D design platform.
  • Research Designs & Standards Organization (RDSO), Lucknow, Research and Design Center of Ministry of Railways, Government of India, has selected NX™ software, UGS’ comprehensive digital product development solution for 3D computer-aided-design (CAD), and NX Nastran for solving its sophisticated engineering simulation models.

Partnerships and Consortiums

  • UGS last week announced a multiyear, global strategic alliance with Microsoft that will help UGS deliver its full suite of PLM technology currently used by more than two million users — including digital lifecycle management — on the Microsoft® platform.  This equips manufacturers with the ability to create and manage all their product data in an easy to use and secure environment, while allowing global team members, customers, partners and vendors to participate in the creative process.
  • UGS today announced that India’s Tata Consultancy Services (TCS), a leading global services organization, joined the UGS Partner Program as a UGS System Integration Alliance Partner.  The two companies will work to create focused solutions for key vertical markets such as telecom, pharmaceutical, chemical, oil and gas and media and entertainment, using UGS’ PLM technology. The relationship will help UGS enhance its market presence, reach new markets and penetrate into TCS’ customer base with its PLM products while TCS will leverage its global delivery capability and industry domain expertise to deliver customer specific solutions that provide strong return on investment. This agreement, which further strengthens the long-standing relationship between the two companies, defines a more closely aligned sales, marketing and delivery strategy.
  • Robert Bosch GmbH, the world’s largest automotive supplier, has joined Caterpillar, DaimlerChrysler, Ford, General Motors, Siemens and several other influential organizations to become a Corporate member of the JTTM™ Open Program, the rapidly expanding PLM industry initiative that is committed to making 3D product data easily accessible to a broad and diverse global audience.
  • In March UGS and A.T. Kearney Procurement Solutions, a leading global sourcing services firm, launched the Asian Sourcing Network (ASN), a groundbreaking initiative designed to enable manufacturers to connect companies from low-cost countries to their global innovation networks through a first-ever joint solution of information technology, software and consulting services.  TCS opened the first ASN center in Coimbatore, India.  Powered by UGS software and category-specific sourcing best practices from A.T. Kearney, the ASN center offers suppliers access to PLM technology for product and process automation and enables them register their capability on UGS’ technology.  The three companies will help Western-based companies find, develop and on-board suppliers for engineered parts.
  • During the first quarter UGS announced its Lifecycle Simulation strategy to provide the PLM industry’s first end-to-end integrated digital simulation solution, enabling real-time product development simulation in a collaborative, visual, managed and open environment.  The company also opened its Computer Aided Engineering (CAE) Center of Excellence that has led to business with companies such as Freightliner, General Atomics Aeronautical Systems and Orbital Sciences. Awards

UGS announced or received several awards during the first quarter of 2006.

  • General Motors selected UGS as a 2005 Supplier of the Year for its overall business performance in enabling GM to transform its process of innovation by significantly reducing up-front vehicle development time.
  • Ford Motor Company honored UGS with the Ford Q1 Certification which designates UGS as a preferred supplier of engineering software products and services, and recognizes the company for achieving excellence in four critical areas: capable systems, continuous improvement, ongoing performance and customer satisfaction.
  • Teamcenter, UGS’ digital lifecycle management solution, was recognized in the first quarter as the winner of IndustryWeek magazine’s Technology of the Year Award for 2005.
  • UGS’ NX™ 4 software was voted 2005 Product of the Year by the readers of NASA Tech Briefs.  NX 4 received more votes from NASA Tech Brief readers than any other nominated product.
  • UGS and its products received several awards from prominent Chinese media including “AI (Automobile Industry) Outstanding Solutions Provider” and “Top 100 IT Provider” in the automobile industry for 2005 by Automobile Industry; “TOP 10 International IT Supplier of 2005” by MIE of China; “Best PLM Provider of 2005” by ERP World; “Golden Software of 2005” by Software World; “Recommended Best Design Software of 2005” by e-Manufacturing, for NX software; and “Star Product of 2005” by CWEEK for Teamcenter software.
  • Frost & Sullivan, a global growth consulting company, presented UGS with the 2006 Product Lifecycle Management Solutions Company of the Year Award. The company expects to realize revenue from the contracts highlighted above over multiple quarters.

UGS will host its first quarter 2006 earnings call with securities analysts live on the Internet at 10:30 a.m. Central time, Thursday, May 11, 2006.  Presentation slides will be posted on www.ugs.com at 8:00 a.m. Central time.  See below for webcast/teleconference access information. 

AUDIO ACCESS INFORMATION – WEB STREAMING URL: https://e-meetings.mci.com CONFERENCE NUMBER: 8235432 PASSCODE: UGS Note:  Pop-up blockers must be disabled. To join: • Go to the URL listed above • Select Join an Event from the Events tab • Enter all requested registration information and follow instructions to proceed    AUDIO ACCESS INFORMATION – DIAL-IN NUMBER: +1-517-268-4880 PASSCODE: UGS

NET CONFERENCE ACCESS INFORMATION URL: https://e-meetings.mci.com/nc/join/ CONFERENCE NUMBER: PA8235432 PASSCODE: UGS

Audience members can join the event directly at: https://e-meetings.mci.com/nc/join.php?i=PA8235432&p=UGS&t=c

NET REPLAY ACCESS INFORMATION To access the Net replays of this call, go to: https://e-meetings.mci.com/nc/join.php?i=PA8235432&p=UGS&t=r The replay will be available for 30 days, ending June 10, 2006.

About UGS UGS is a leading global provider of product lifecycle management (PLM) software and services with nearly 4 million licensed seats and 46,000 customers worldwide.  Headquartered in Plano, Texas, UGS’ vision is to enable a world where organizations and their partners collaborate through global innovation networks to deliver world-class products and services while leveraging UGS’ open enterprise solutions, fulfilling the mission of enabling them to transform their process of innovation.    Note:  UGS, JT, NX, Solid Edge, Teamcenter, Tecnomatix, Velocity Series and Transforming the process of innovation are trademarks or registered trademarks of UGS Corp. or its subsidiaries in the United States and in other countries.  Microsoft is a trademark or registered mark of Microsoft Corporation or its subsidiaries in the United States and in other countries.  Nastran is a trademark or registered mark of NASA.  Catia is a trademark or registered mark of Dassault Systèmes or its subsidiaries in the United States and in other countries.  All other trademarks, registered trademarks or service marks belong to their respective holders.

The statements in this news release that are not historical statements, including statements regarding the expected benefits of the customer relationship, the successfulness of the implementation and other statements identified by forward looking terms such as "may," "will," "expect," "plan," "anticipate" or "project," are forward-looking statements. These statements are subject to numerous risks and uncertainties which could cause actual results to differ materially from such statements, including, among others, risks relating to loss or downsizing of customers, competition, international operations and exchange rate fluctuations, changes in pricing models, and intellectual property. UGS has included a discussion of these and other pertinent risk factors in its annual report on Form 10-K most recently filed with the SEC.  UGS disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

 

 

 

 

 

 

 

 

Three months

Three months

 

ended

ended

 

March 31, 2006

March 31, 2005

Revenue:

 

 

License

  $        79,510

  $        73,119

Maintenance

          125,689

          111,607

Services and other

            68,595

            67,839

Total revenue

          273,794

          252,565

Cost of revenue:

 

 

License

              3,924

              4,456

Maintenance

            15,105

            13,363

Services and other

            55,848

            55,996

Amortization of capitalized software and acquired intangible assets

            37,046

            26,186

Total cost of revenue

          111,923

          100,001

Gross profit

          161,871

          152,564

Operating expenses:

 

 

Selling, general and administrative

          107,811

            95,169

Research and development

            51,225

            35,981

Restructuring

                (535)

                   —

Amortization of other intangible assets

              8,819

              7,570

Total operating expenses

          167,320

          138,720

Operating (loss) income

             (5,449)

            13,844

Interest expense and amortization of deferred financing fees

           (26,447)

           (21,163)

Other income (expense), net

              2,234

             (4,824)

Loss before income taxes

           (29,662)

           (12,143)

Benefit for income taxes

           (10,508)

             (3,974)

Net (loss) income

  $       (19,154)

  $         (8,169)

 

 

 

 

 

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

 

 

March 31,

December 31,

Assets:

2006

2005

Current assets

 

 

Cash and cash equivalents

   $       61,282

   $       61,532

Accounts receivable, net

          254,062

          251,763

Prepaids and other

            20,401

            18,622

Deferred income taxes

            21,846

            26,471

Total current assets

          357,591

          358,388

 

 

 

Property and equipment, net

            34,236

            36,645

Goodwill

       1,391,040

       1,393,472

Capitalized and acquired software, net

          446,626

          464,994

Customer accounts, net

          196,581

          203,064

Other intangible assets, net

          129,457

          135,265

Other assets

            38,146

            39,623

Total assets

   $  2,593,677

   $  2,631,451

 

 

 

Liabilities and Stockholder’s Equity:

 

 

Current liabilities

 

 

Accounts payable and accrued liabilities

   $     160,957

   $     159,976

Deferred revenue

          170,808

          133,027

Income taxes payable

                 864

              3,528

Total current liabilities

          332,629

          296,531

 

 

 

Other long-term liabilities

            51,645

            48,511

Deferred income taxes

          118,531

          152,040

Long-term debt

       1,181,051

       1,212,046

 

 

 

Stockholder’s equity

 

 

Common stock, $ .01 par value, 3,000 shares authorized; 100 issued and outstanding at March 31, 2006 and December 31, 2005

                  —

                  —

Additional paid-in capital

       1,006,329

       1,005,991

Retained deficit

           (82,356)

           (63,202)

Accumulated other comprehensive loss, net of tax

           (14,152)

           (20,466)

Total stockholder’s equity

          909,821

          922,323

Total liabilities and stockholder’s equity

   $  2,593,677

   $  2,631,451

 

 

 

 

EBITDA represents net income (loss) before interest expense, income taxes, depreciation and amortization.  Adjusted EBITDA is defined as EBITDA further adjusted to give effect to certain items that are required in calculating covenant compliance under our senior secured credit facility entered into May 2004.  Adjusted EBITDA is calculated by subtracting from or adding to EBITDA items of income or expense as described below.  EBITDA and Adjusted EBITDA are not recognized terms under generally accepted accounting principles, or GAAP.  EBITDA and Adjusted EBITDA do not represent net income, as that term is defined under GAAP, and should not be considered as an alternative to net income as an indicator of our operating performance.  Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow available for management or discretionary use as such measures do not consider certain cash requirements such as capital expenditures (including capitalized software expense), tax payments and debt service requirements. UGS Corp. considers EBITDA and Adjusted EBITDA to be key indicators of our ability to pay our debt.  We have included information concerning EBITDA and Adjusted EBITDA because we use such information in determining compensation of our management and in our review of the performance of our business.  EBITDA and Adjusted EBITDA as presented herein are not necessarily comparable to similarly titled measures.  The following is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the GAAP measure we believe to be most directly comparable to EBITDA and Adjusted EBITDA (in thousands).

 

 

 

Three months

 

Three months

 

ended

 

ended

 

March 31,

 

March 31,

 

2006

 

2005

Reconciliation of net loss to EBITDA:

 

 

Net loss

   $    (19,154)

 

   $      (8,169)

Interest expense

           26,447

 

           21,163

Benefit for income taxes

         (10,508)

 

           (3,974)

Depreciation and amortization

          51,285

 

          37,534

EBITDA

   $     48,070

 

   $     46,554

 

 

 

 

Reconciliation of EBITDA to Adjusted EBITDA:

 

 

EBITDA

   $     48,070

 

   $     46,554

Impact of revenue reduction resulting from purchase accounting (a)

                189

 

             4,638

Restructuring (b)

              (535)

 

                 —

Other items (c)

             3,970

 

             2,037

Currency translation impact (d)

           (3,467)

 

            3,082

Adjusted EBITDA

   $     48,227

 

   $     56,311

 

 

 

 

 

 

(a) Removes the purchase accounting impact for the adjustment to deferred revenue.

(b) Removes the impact of the restructuring.

(c) Represents the impact of management, consulting and advisory fees and related expenses paid to our parent companies and affiliates of each of our sponsors, severance related expenses, and expenses associated with our retention incentive plan for certain members of management.

(d) Represents the net effect of unrealized gains and losses from revaluing the intercompany debt that resulted from the acquisition of UGS PLM Solutions Inc. and from hedging obligations used to offset foreign exchange currency balance sheet exposures