FOR RELEASE Monday, August 14, 2006
PLANO, Texas – UGS Corp., a leading global provider of product lifecycle management (PLM) software and services, today announced second quarter 2006 results. Second quarter financial highlights include:
- Total revenue increased to US$296.7 million, 4 percent growth over the same period a year earlier.
- Software revenue increased to US$221.2 million (including license and maintenance revenues), or 5 percent growth as compared to the second quarter 2005.
- Total revenue and software revenue increased in each geographic region compared to the same period in 2005.
- cPDM software revenue grew 18 percent over the same period a year earlier. (cPDM represents Teamcenter software revenue and excludes digital manufacturing software revenue.)
- EBITDA (defined below) was US$69.3 million, or an 80 percent growth over the same period a year earlier.
- Operating income increased to US$10.1 million and includes the impact of acquisition-related intangible amortization costs of US$39.1 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 second quarter 2006 revenues by US$0.2 million and 2005 revenues by US$3.4 million.
“We continue our drive to sustain solid growth and improve operating income while we focus on executing our strategic plan to position the company for enhanced growth,” said Tony Affuso, chairman, CEO and president of UGS. “As we complete the reorganization of our sales force to focus on verticals and mid-market channels, we are currently adding needed sales capacity. We have seen early progress in our mid-market channel strategy marked by strong double digit software growth in the quarter. During the second quarter we also continued to receive third-party accolades for our software and service through such prestigious designations as being named a Caterpillar Strategic Supplier, the Honda Engineering Supplier of the Year Award, Ford’s Q1 Certification, GM’s Supplier of the Year Award and Frost & Sullivan’s PLM Company of the Year Award.”
Business Highlights
- UGS mid-market approach continued to gain steam through UGS Velocity Series™ portfolio wins as well as increased channel expansion. Second quarter indirect channel revenue increased by 30 percent, and the company signed more than 50 new partners in the first half of the year. (see separate release)
- Kaltenbach Maschinenfabrik GmbH & Co. KG, a global supplier of machine tools, has selected Solid Edge® 3D CAD software to develop its range of circular and band saw machines as well as sectional steel processing systems. Following evaluation of several competing products, Kaltenbach selected Solid Edge for its flexibility, user-friendly design and support. (see separate release)
- Radkersburger Metallwarenfabrik, an Austrian-based die manufacturer, has selected NX CAM Express® software for manufacturing its deep drawing dies. (see separate release)
- UGS today announced an original equipment manufacturer (OEM) agreement with China’s Jilin University (JLU) to integrate one-step formability analysis technology developed by JLU into NX™ software, UGS’ digital product development solution. The technology, developed by JLU’s Institute of Auto-body and Die Engineering (IADE), helps improve design and manufacturing processes and is expected to be available in NX commercially in the third quarter of 2006. (see separate release)
The company expects to realize revenue from the contracts highlighted above over multiple quarters.
UGS will host its second quarter 2006 earnings call with securities analysts live on the Internet at 10:30 a.m. Central time, Monday, August 14, 2006. Presentation slides will be posted on www.ugs.com at 8:30 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, 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. 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 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
June 30, 2006
June 30, 2005
Revenue:
License
$ 86,017
$ 81,777
Maintenance
135,142
128,301
Services and other
75,500
74,932
Total revenue
296,659
285,010
Cost of revenue:
License
2,175
5,944
Maintenance
15,695
14,495
Services and other
57,167
66,701
Amortization of capitalized software and acquired intangible assets
37,713
31,038
Total cost of revenue
112,750
118,178
Gross profit
183,909
166,832
Operating expenses:
Selling, general and administrative
117,850
110,410
Research and development
47,388
38,659
In-process research and development
—
4,100
Restructuring
—
1,774
Amortization of other intangible assets
8,547
8,739
Total operating expenses
173,785
163,682
Operating income
10,124
3,150
Interest expense and amortization of deferred financing fees
(26,520)
(25,216)
Other income (expense), net
7,703
(8,583)
Loss before income taxes
(8,693)
(30,649)
Benefit for income taxes
(2,274)
(8,625)
Net loss
$ (6,419)
$ (22,024)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Six months
Six months
ended
ended
June 30, 2006
June 30, 2005
Revenue:
License
$ 165,527
$ 154,896
Maintenance
260,831
239,908
Services and other
144,095
142,771
Total revenue
570,453
537,575
Cost of revenue:
License
6,099
10,400
Maintenance
30,800
27,858
Services and other
113,105
122,697
Amortization of capitalized software and acquired intangible assets
74,759
57,224
Total cost of revenue
224,673
218,179
Gross profit
345,780
319,396
Operating expenses:
Selling, general and administrative
225,661
205,579
Research and development
98,613
74,640
In-process research and development
—
4,100
Restructuring
(535)
1,774
Amortization of other intangible assets
17,366
16,309
Total operating expenses
341,105
302,402
Operating income
4,675
16,994
Interest expense and amortization of deferred financing fees
(52,967)
(46,379)
Other income (expense), net
9,937
(13,407)
Loss before income taxes
(38,355)
(42,792)
Benefit for income taxes
(12,782)
(12,599)
Net loss
$ (25,573)
$ (30,193)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
June 30,
December 31,
Assets:
2006
2005
Current assets
Cash and cash equivalents
$ 61,472
$ 61,532
Accounts receivable, net
258,645
251,763
Prepaids and other
29,206
22,389
Deferred income taxes
17,351
26,471
Total current assets
366,674
362,155
Property and equipment, net
32,031
36,645
Goodwill
1,416,422
1,393,472
Capitalized and acquired software, net
434,919
464,994
Customer accounts, net
190,095
203,064
Other intangible assets, net
124,032
135,265
Other assets
36,910
39,623
Total assets
$ 2,601,083
$ 2,635,218
Liabilities and Stockholder’s Equity:
Current liabilities
Accounts payable and accrued liabilities
$ 146,489
$ 159,976
Deferred revenue
173,827
133,027
Income taxes payable
9,245
11,895
Current portion of long-term debt
6,500
—
Total current liabilities
336,061
304,898
Other long-term liabilities
63,770
48,511
Deferred income taxes
107,706
147,440
Long-term debt
1,180,970
1,212,046
Stockholder’s equity
Common stock, $ .01 par value, 3,000 shares authorized; 100 issued and outstanding at June 30, 2006 and December 31, 2005
—
—
Additional paid-in capital
1,011,626
1,005,991
Retained deficit
(88,775)
(63,202)
Accumulated other comprehensive loss, net of tax
(10,275)
(20,466)
Total stockholder’s equity
912,576
922,323
Total liabilities and stockholder’s equity
$ 2,601,083
$ 2,635,218
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, such as adjustments for purchase accounting, all of which are required in calculating covenant compliance under our senior secured credit facility. 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
June 30,
June 30,
2006
2005
Reconciliation of net loss to EBITDA:
Net loss
$ (6,419)
$ (22,024)
Interest expense
26,520
25,216
Benefit for income taxes
(2,274)
(8,625)
Depreciation and amortization
51,441
43,869
EBITDA
$ 69,268
$ 38,436
Reconciliation of EBITDA to Adjusted EBITDA:
EBITDA
$ 69,268
$ 38,436
Impact of revenue reduction resulting from purchase accounting (a)
158
3,438
Impact of in-process research
and development (b)
—
4,100
Restructuring (c)
—
1,774
Other items (d)
1,893
2,226
Currency translation impact (e)
(7,057)
3,027
Initial Sarbanes-Oxley certification (f)
—
400
Tecnomatix cost savings (g)
—
4,650
Compensatory payments to managers (h)
3,819
—
Adjusted EBITDA
$ 68,081
$ 58,051
Six months
Six months
ended
ended
June 30,
June 30,
2006
2005
Reconciliation of net loss to EBITDA:
Net loss
$ (25,573)
$ (30,193)
Interest expense
52,967
46,379
Benefit for income taxes
(12,782)
(12,599)
Depreciation and amortization
102,726
81,403
EBITDA
$ 117,338
$ 84,990
Reconciliation of EBITDA to Adjusted EBITDA:
EBITDA
$ 117,338
$ 84,990
Impact of revenue reduction resulting from purchase accounting (a)
347
8,076
Impact of in-process research
and development (b)
—
4,100
Restructuring (c)
(535)
1,774
Other items (d)
5,838
4,263
Currency translation impact (e)
(10,524)
6,109
Initial Sarbanes-Oxley certification (f)
—
875
Tecnomatix cost savings (g)
—
4,650
Compensatory payments to managers (h)
3,819
—
Adjusted EBITDA
$ 116,283
$ 114,837
(a) Removes the impact of recording the deferred revenue balance at its fair value in connection with the acquisition of UGS PLM Solutions Inc. and Tecnomatix Technologies, Ltd. (Tecnomatix), which had the effect of reducing revenue in periods subsequent to those acquisitions.
(b) Removes the impact of the write-off of acquired in-process research and development that resulted from the acquisition of Tecnomatix.
(c) Removes the impact of the restructuring.
(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, severance related expenses, and 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 non-U.S. dollar denominated intercompany debt that resulted from the acquisition of UGS PLM Solutions Inc. and from related hedging obligations used to offset foreign exchange currency balance sheet exposures.
(f) Includes one time costs associated with our initial Sarbanes-Oxley compliance.
(g) We acquired Tecnomatix on April 1, 2005. Accordingly, the operating results of Tecnomatix were included in our results of operations from the date of acquisition. This figure represents additional cost savings we anticipate achieving related to the Tecnomatix acquisition.
(h) Represents compensatory payments to certain managers of UGS Corp. from the capital contribution received from the parent companies. The contribution was made with proceeds from UGS Capital Corp. II’s issuance of floating rate senior PIK notes.