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14 November 2005

UGS Reports Third Quarter 2005 Consolidated Revenue of US$290.2 Million, or 23.4 Percent Year-over-year Growth

FOR RELEASE Monday, November 14, 2005

 

PLANO, Texas – UGS Corp., a leading global provider of product lifecycle management (PLM) software and services, today announced financial results for the third quarter ended September 30, 2005.  In the third quarter, UGS marked its ninth consecutive quarter of year-over-year total revenue growth and expanded its market leadership position in the high-growth collaborative Product Development Management (cPDM) space with a year-over-year 73.8 percent revenue increase including acquisitions, or 45.9 percent without acquisitions.

 

UGS’ performance was driven by continued growth in its two key product segments (cPDM and CAx) and growth in each of its geographic regions.

 

Third quarter financial highlights include:

  • Total revenue increased to US$290.2 million, or 23.4 percent growth over the same period a year earlier.  That includes US$89.8 million in license software revenue, or a 24.9 percent year-over-year increase.  The acquisition of Tecnomatix Technologies Ltd. added US$20.5 million in overall revenue and US$7.5 million in license software revenue.  The company saw an increase in total revenue in each geographic region compared to the same period in 2004. 
  • Reported operating income was US$19.3 million, a 153.9 percent year-over-year increase, and includes the impact of acquisition-related intangible amortization costs of US$39.2 million.  
  • EBITDA (defined below) was US$63.8 million, or 23.6 percent growth over the same period a year earlier.  This was in line with company expectations and includes its decision to increase the investment in research and development, selling and marketing, and the increase in costs associated with being an independent company.    
  • In the figures presented above, the company has not made adjustments for the impact of deferred revenues written off in connection with the acquisition of the company and acquisitions by the company.  These write-offs had the effect of reducing third quarter 2005 revenues and earnings by US$2.2 million and third quarter 2004 revenues and earnings by US$16.5 million. 

 

“We remain focused on growing our business through enabling global innovation networks for our customers.  Following the quarter where we marked our one-year anniversary of operating independently, we continue to see a steady stream of cPDM growth and enterprise contracts,” said Tony Affuso, chairman, CEO and president of UGS.  “Our customer focus and our leadership position in the PLM market is driving our continued growth and fueling the customer innovation announcements that highlight our success in creating value through global innovation networks.”    

 

Customer Innovation Leadership Announcements

UGS issued two announcements today (see separate releases) highlighting key milestones from the third quarter:

·         In a separate announcement today, UGS announced that MTU Aero Engines GmbH, Germany’s leading aircraft engine manufacturer, standardized on UGS for digital product development as part of €1 million (US$1.2 million) contract extension.  Under the new extension MTU Aero Engines will add another 85 seats of NXTM software, replacing the existing computer-aided design (CAD) software. 

·         In a separate announcement today, UGS announced that Renishaw, the world’s leading supplier of metrology and spectroscopy products, selected UGS Tecnomatix™ solutions to streamline its new product introduction (NPI) processes.  The company will use Tecnomatix digital manufacturing software to better manage its manufacturing systems by shortening the design cycle, removing wasteful processes and reducing the number of file formats required to produce new products.

 

Additional Customer Innovation Leadership Announcements

In the third quarter UGS announced major customer innovation leadership contracts (the company expects to realize revenue from the contracts highlighted below over multiple quarters) and executed key product launches.  Contract announcement highlights:

·         Announced that it extended its PLM agreement with General Motors (GM) and that GM will leverage the Open Manufacturing BackboneTM (OMB), UGS’ globally-scalable digital manufacturing technology platform, to enhance collaboration at the plant floor level.

·         Announced that Patria Vehicles Oy, part of the Patria Group, standardized on UGS’ NX and Teamcenter PLM software.  The agreement reinforces UGS’ position as leading PLM provider in Finland and creates a framework to deploy NX and Teamcenter for armored wheeled vehicles, Patria Vehicles’ flagship product.  NX replaced Patria Vehicles’ existing CAD solutions.

·         Announced that Pilatus Aircraft Ltd., the world's leading manufacturer of single-engine turboprop aircraft, awarded UGS a $1 million expansion contract as the company continued its standardization on UGS’ Teamcenter for PLM.

·         Announced that leading Swedish contract manufacturer, Partnertech, signed a three-year extension for UGS® digital manufacturing solutions.

 

Product announcement highlights:

·         Launched Version 4 of NX, the latest release of the company’s comprehensive software solution for digital product development.  Building on its industry-leading ability to capture knowledge and simulate performance throughout the product development process, NX 4 includes hundreds of customer-driven enhancements that improve manufacturers’ ability to differentiate their products and to transform their process of innovation.  New features address product styling, design, simulation and manufacturing, along with data migration tools that benefit I-deas® software users transitioning to NX.

·         Through the launch of UGS’ new mid-market product portfolio – UGS Velocity SeriesTM – UGS became the first company to bring enterprise PLM to the mid-market.  UGS Velocity Series includes the industry’s first comprehensive, preconfigured portfolio of digital product design, analysis and data management software.  New products within UGS Velocity Series include:

¾      Teamcenter Express, a breakthrough mid-market solution for cPDM that applies  pre-configured industry best practices to provide ease of installation, setup, ease of use and support, for a lower total cost of ownership.  It manages the complete design process for engineering organizations currently experiencing a data explosion brought on by rapidly expanding product complexity.

¾      Solid Edge® Version 18, which includes integrated cPDM technology and delivers hundreds of enhancements, including new analysis and data management features.

¾      FEMAP® 9.1, the latest version of the world’s most popular PC-based computer-aided engineering application - a robust pre- and post-processing finite element modeling application.  FEMAP 9.1 delivers in-depth finite element modeling for both full time experts and occasional users.

 

 

UGS will host its third quarter 2005 earnings with securities analysts live on the Internet at 10:30 a.m. Central time, Monday, November 14, 2005.  Presentation slides will be posted on www.ugs.com at 8:00 a.m. Central time.  See below for webcast/teleconference access information. 

 

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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, Femap, I-deas, JT, NX, Open Manufacturing Backbone, OMB, Solid Edge, Teamcenter, Tecnomatix, Velocity Series and Transforming the process of innovation are registered trademarks or trademarks of UGS Corp. 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 our business, results of operations expected financial performance 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 developments in the PLM industry, loss or downsizing of customers, competition, failure to innovate, international operations and exchange rate fluctuations, terrorist activities, acquisitions, changes in pricing models, intellectual property and losses of key employees. UGS has included a discussion of these and other pertinent risk factors in its registration statement on Form S-4 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)

 

 

Successor

 

UGS Corp.

 

 

 

 

Three months

Three months

 

ended

ended

 

September 30, 2005

September 30, 2004

Revenue:

 

 

Software

  $        89,842

  $        71,890

Maintenance

          129,706

            95,749

Services and other

            70,701

            67,483

Total revenue

          290,249

          235,122

Cost of revenue:

 

 

Software

              4,761

              5,017

Maintenance

            14,459

            12,843

Services and other

            58,451

            54,443

Amortization of capitalized software and acquired intangible assets

            32,059

            25,471

Total cost of revenue

          109,730

            97,774

Gross profit

          180,519

          137,348

Operating expenses:

 

 

Selling, general and administrative

          107,803

            88,976

Research and development

            44,350

            33,464

Amortization of other intangible assets

              9,018

              7,274

Total operating expenses

          161,171

          129,714

Operating income

            19,348

              7,634

Interest expense and amortization of deferred financing fees

           (25,197)

           (22,452)

Other (expense) income, net

                (919)

              7,045

Loss before income taxes

             (6,768)

             (7,773)

Provision (benefit) for income taxes

             (2,002)

             (2,942)

Net loss

  $         (4,766)

  $         (4,831)

 

 

 

 

 

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

 

Successor

 

 

Predecessor

 

UGS Corp.

 

 

UGS PLM

 

 

 

 

 

Solutions Inc.

 

 

 

 

 

 

 

 

Period of

 

 

 

 

Nine months

May 27, 2004

 

 

Period of

 

ended

through

 

 

January 1, 2004

 

September 30, 2005

September 30, 2004

 

 

through        May 26, 2004

Revenue:

 

 

 

 

 

Software

  $      244,738

  $      112,360

 

 

  $      100,780

Maintenance

          369,614

          130,548

 

 

          163,012

Services and other

          213,472

            94,188

 

 

            94,011

Total revenue

          827,824

          337,096

 

 

          357,803

Cost of revenue:

 

 

 

 

 

Software

            15,161

              7,493

 

 

              7,163

Maintenance

            42,317

            18,222

 

 

            21,177

Services and other

          181,148

            75,504

 

 

            81,259

Amortization of capitalized software and acquired intangible assets

            89,283

            34,461

 

 

            23,540

Total cost of revenue

          327,909

          135,680

 

 

          133,139

Gross profit

          499,915

          201,416

 

 

          224,664

Operating expenses:

 

 

 

 

 

Selling, general and administrative

          313,382

          120,899

 

 

          136,817

Research and development

          118,990

            44,470

 

 

            52,851

In-process research and development

              4,100

            50,819

 

 

                   —

Restructuring

              1,774

                 —

 

 

                   —

Amortization of other intangible assets

            25,327

            10,798

 

 

              2,500

Total operating expenses

          463,573

          226,986

 

 

          192,168

Operating income (loss)

            36,342

           (25,570)

 

 

            32,496

Interest expense and amortization of deferred financing fees

           (71,576)

           (30,408)

 

 

             (2,021)

Other (expense) income, net

           (14,326)

              7,265

 

 

              2,010

(Loss) income before income taxes

           (49,560)

           (48,713)

 

 

            32,485

Provision (benefit) for income taxes

           (14,601)

                 806

 

 

            10,092

Net (loss) income

  $       (34,959)

  $       (49,519)

 

 

  $        22,393

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

Successor

 

September 30,

December 31,

Assets:

2005

2004

Current assets

 

 

Cash and cash equivalents

   $       76,253

   $       58,400

Accounts receivable, net

          230,688

          233,180

Prepaids and other

            18,903

            23,869

Deferred income taxes

            43,696

            62,890

Total current assets

          369,540

          378,339

 

 

 

Property and equipment, net

            35,309

            33,751

Goodwill

       1,429,059

       1,317,948

Capitalized and acquired software, net

          482,221

          435,816

Customer accounts, net

          209,548

          217,961

Other intangible assets, net

          141,072

          116,501

Other assets

            40,806

            42,696

Total assets

   $  2,707,555

   $  2,543,012

 

 

 

Liabilities and Stockholder’s Equity:

 

 

Current liabilities

 

 

Accounts payable and accrued liabilities

   $     171,061

   $     150,290

Deferred revenue

          143,398

          110,027

Income taxes payable

              1,117

                 337

Current portion of long-term debt

                   —

              5,000

Total current liabilities

          315,576

          265,654

 

 

 

Other long-term liabilities

            48,103

            41,011

Deferred income taxes

          198,066

          217,122

Long-term debt

       1,232,086

       1,049,623

 

 

 

Stockholder’s equity

 

 

Common stock, $ .01 par value, 3,000 shares authorized; 100 issued and outstanding at September 30, 2005 and December 31, 2004

                  —

                  —

Additional paid-in capital

       1,005,751

       1,005,479

Retained deficit

           (76,096)

          (41,136)

Accumulated other comprehensive (loss) income, net of tax

           (15,931)

              5,259

Total stockholder’s equity

          913,416

          969,602

Total liabilities and stockholder’s equity

   $  2,707,555

   $  2,543,012

 

 

 

 Adjusted operating income represents operating income (loss) adjusted for amortization of acquisition related intangible assets, restructuring charges, and charges for in-process research and development.  Adjusted operating income is not a recognized term under generally accepted accounting principles, or GAAP.  Adjusted operating income does not represent operating income (loss), as that term is defined under GAAP, and should not be considered as an alternative to operating income (loss) as an indicator of our operating performance.  We have included information concerning adjusted operating income because we use such information when evaluating operating income to better evaluate the underlying performance of the Company.  Adjusted operating income as presented herein is not necessarily comparable to similarly titled measures.  The following is a reconciliation between adjusted operating income and operating income (loss), the GAAP measure we believe to be most directly comparable to adjusted operating income (in thousands).

 

Successor

 

Three months

 

Three months

 

ended

 

ended

 

September 30

 

September 30

 

2005

 

2004

Reconciliation of operating income to adjusted operating income:

 

 

 

Operating income

   $     19,348

 

   $       7,634

Acquisition related intangible amortization

          39,175

 

          33,402

Adjusted operating income

   $     58,523

 

   $     41,036

 

 

 

 

 

 

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 a 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).

 

Successor

 

Three months

 

Three months

 

ended

 

ended

 

September 30,

 

September 30,

 

2005

 

2004

Reconciliation of net loss to EBITDA:

 

 

Net loss

   $      (4,766)

 

   $      (4,831)

Interest expense

           25,197

 

           22,452

(Benefit) provision for income taxes

           (2,002)

 

           (2,942)

Depreciation and amortization

          45,389

 

          36,974

EBITDA

   $     63,818

 

   $     51,653

 

 

 

 

Reconciliation of EBITDA to Adjusted EBITDA:

 

 

EBITDA

   $     63,818

 

   $     51,653

Impact of revenue reduction resulting from purchase accounting (a)

             2,169

 

           16,501

Other items (d)

             1,050

 

             3,540

Currency translation impact (e)

            1,109

 

           (4,912)

Adjusted EBITDA

   $     68,146

 

   $     66,782

 

 

 

 

 

 

 

 

Successor

 

 

Predecessor

 

 

 

Period of

 

 

 

 

Nine months

 

May 27, 2004

 

 

Period of

 

ended

 

through

 

 

January 1, 2004

 

September 30

 

September 30

 

 

through

 

2005

 

2004

 

 

May 26, 2004

Reconciliation of net (loss) income to EBITDA:

 

 

 

 

 

Net (loss) income

   $    (34,959)

 

   $    (49,519)

 

 

   $     22,393

Interest expense

           71,576

 

           30,408

 

 

             2,021

(Benefit) provision for income taxes

         (14,601)

 

                806

 

 

           10,092

Depreciation and amortization

        126,792

 

          50,979

 

 

          33,471

EBITDA

   $   148,808

 

   $     32,674

 

 

   $     67,977

 

 

 

 

 

 

 

Reconciliation of EBITDA to Adjusted EBITDA:

 

 

 

 

 

EBITDA

   $   148,808

 

   $     32,674

 

 

   $     67,977

Impact of revenue reduction resulting from purchase accounting (a)

             8,076

 

           26,914

 

 

                 —

Impact of in-process research and development (b)

             4,100

 

           50,819

 

 

                 —

Restructuring (c)

             1,774

 

                 —

 

 

                 —

Other items (d)

             4,445

 

             6,980

 

 

                 —

Currency translation impact (e)

            7,865

 

           (4,912)

 

 

                 —

Adjusted EBITDA

   $   177,237

 

   $   112,475

 

 

   $     67,977

 

 

 

 

 

 

 

 

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

(b) Removes the impact of acquired in-process research and development that resulted from the acquisition of UGS PLM Solutions Inc. for the period of May 27, 2004 through September 30, 2004 and from the acquisition of Tecnomatix Technologies, Ltd. for the nine months ended September 30, 2005.

(c) Removes the impact of the restructuring charge.

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

(e) 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