Operational Considerations. Our operating results fluctuate within each quarter and from quarter-to-quarter making our future revenues and operating results difficult to predict While our sales cycle varies substantially from customer to customer, we usually realize a high percentage of our revenue in the third month of each fiscal quarter, and this revenue tends to be concentrated in the later part of that month. Our orders early in a quarter will not generally occur at a rate which, if sustained throughout the quarter, would be sufficient to assure that we will meet our revenue targets for any particular quarter. Moreover, our reorganization into business units, our shift in business emphasis to a more solutions-oriented sales process--undertaken in part to increase our average order size--and our transition from a one product to a multi-product company have resulted in longer and more unpredictable sales cycles for products and services. Accordingly, our quarterly results may be difficult to predict prior to the end of the quarter. Any inability to obtain large orders or orders in large volumes or to make shipments or perform services in the period immediately preceding the end of any particular quarter may cause the results for that quarter to fall short of our revenue targets. In addition, our operating expenses are based on expected future revenue and are relatively fixed for the short term. As a result, a revenue shortfall in any quarter could cause our earnings for that quarter to fall below expectations as well. Any failure to meet our quarterly revenue or earnings targets could adversely impact the market price of our stock. Other factors that may also cause quarter-to-quarter revenue and earnings fluctuation include the following: . our sales incentive structure is weighted more heavily toward the end of the fiscal year, and the rate of revenue growth for the first quarter historically has been lower and more difficult to predict than that for the fourth quarter of the immediately preceding fiscal year; . variability in the levels of professional service revenues and the mix of our license and service revenues; . declines in license revenue may adversely affect the size of our installed base and our level of service revenue; and . the increased utilization of third parties, such as systems integrators, resellers, strategic partners and application service providers, as distribution mechanisms for our software products and related services, may lessen the control we have over any particular sales cycle. In addition, the levels of quarterly or annual software or service revenue in general, or for particular geographic areas, may not be comparable to those achieved in previous periods. We may not be able to implement new initiatives successfully Part of our success in the past has resulted from our ability to implement new initiatives. Our future operating results will continue to depend upon: . the successful implementation of a divisionalized business unit structure, including the realignment of internal functions, the management of divisionalized processes and effective mitigation of disruption that may result from organizational change; . our ability to sustain the appropriate balance between our MCAD and Windchill businesses; . our ability to appropriately allocate and implement cost cutting measures that increase profitability while maintaining adequate resources for effective and coordinated organizational performance; . the success of our sales force reorganization initiatives, including: -- our shift from point sales to solution sales, -- the effectiveness of our organizational sales model, -- the ability of our sales reps to learn and sell our products, and -- Rands' and other distributors' ability to perform successfully in the MCAD arena; . our ability to anticipate and meet evolving customer requirements in the CPC arena and successfully deliver products and services at an enterprise level; . our ability to broaden indirect distribution channels through alliances with systems integrators, resellers, strategic partners and application service providers; . our ability to develop Windchill Netmarkets opportunities; and . our ability to identify and penetrate additional industry sectors that represent growth opportunities. We may not be successful in integrating recently acquired businesses or products We have increased our product range and customer base in the recent past due in part to acquisitions. We may acquire additional businesses or product lines in the future. The success of any acquisition may be dependent upon our ability to integrate the acquired business or products successfully and to retain key personnel and customers associated with the acquisition. If we fail to do so, or if the costs of or length of time for integration increase significantly, it could negatively affect our business. We are dependent on key personnel whose loss could cause delays in our product development and sales efforts Our success depends upon our ability to attract and retain highly skilled technical, managerial and sales personnel. Competition for such personnel in the high technology industry is intense. We assume that we will continue to be able to attract and retain such personnel. The failure to do so, however, could have a material adverse effect on our business. We must continually modify and enhance our products to keep pace with changing technology, and we may experience delays in developing and debugging our software We must continually modify and enhance our products to keep pace with changes in computer software, hardware and database technology, as well as emerging standards in the Internet software industry. Our ability to remain competitive will depend on our ability to: . enhance our current offerings and develop new products and services that keep pace with technological developments through: -- internal research and development, -- acquisition of technology, and -- strategic partnerships; . meet evolving customer requirements, especially ease-of-use; . provide adequate funding for development efforts; and . license appropriate technology from third parties. Also, as is common in the computer software industry, we may from time to time experience delays in our product development and "debugging" efforts. Our performance could be hurt by significant delays in developing, completing or shipping new or enhanced products. Among other things, such delays could cause us to incorrectly predict the fiscal quarter in which we will realize revenue from the shipment of the new or enhanced products and give our competitors a greater opportunity to market competing products. We may be unable to price our products competitively or distribute them effectively Our success is tied to our ability to price our products and services competitively and to deliver them efficiently, including our ability to: . provide products with functionality that our customers want at a price they can afford; . build appropriate direct distribution channels; . utilize the Internet for sales; and . build appropriate indirect distribution channels through Rand or others. We depend on sales from outside the United States that could be adversely affected by changes in the international markets A significant portion of our business comes from outside the United States. Accordingly, our performance could be adversely affected by economic downturns in Europe or the Asia/Pacific region. Another consequence of significant international business is that a large percentage of our revenues and expenses are denominated in foreign currencies that fluctuate in value. Although we may enter into foreign exchange forward contracts and foreign exchange option contracts to offset a portion of the foreign exchange fluctuations, unanticipated events may have a material impact on our results. Other risks associated with international business include: . changes in regulatory practices and tariffs; . staffing and managing foreign operations, including the difficulties in providing cost-effective, equity-based compensation to attract skilled workers; . longer collection cycles in certain areas; . potential changes in tax and other laws; . greater difficulty in protecting intellectual property rights; and . general economic and political conditions. We may not be able to obtain copyright or patent protection for the software products we develop or our other trademarks Our software products and our other trademarks, including our company names, product names and logos, are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection, as well as restrictions on disclosures and transferability contained in our agreements with other parties. Despite these measures, there can be no assurance that the laws of all relevant jurisdictions will afford adequate protection to our products and other intellectual property. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. While we have not, to date, had any significant claims of this type asserted against us, there can be no assurance that someone will not assert such claims against us with respect to existing or future products or other intellectual property or that, if asserted, we would prevail in such claims. In the event a lawsuit of this type is filed, it could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we ultimately prevail. Certain of our products also contain technology developed and licensed from third parties. We may likewise be susceptible to infringement claims with respect to these third party technologies.
Appears in 1 contract
Sources: Annual Report
Operational Considerations. Our operating results fluctuate within each quarter and from quarter-to-quarter making our future revenues and operating results difficult to predict While our sales cycle varies substantially from customer to customer, we usually realize a high percentage of our revenue in the third month of each fiscal quarter, and this revenue tends to be concentrated in the later part of that month. Our orders early in a quarter will not generally occur at a rate which, if sustained throughout the quarter, would be sufficient to assure that we will meet our revenue targets for any particular quarter. Moreover, our reorganization into business unitstransition from a one product to a multi-product company, our increased utilization of distributors and systems integrators and our shift in business emphasis to a more solutions-oriented sales process--undertaken in part to increase our average order size--and our transition from a one product to a multi-product company have resulted in longer and more unpredictable and often longer sales cycles for products and services. Accordingly, our quarterly results may be difficult to predict prior to the end of the quarter. Any inability to obtain large orders or orders in large volumes or to make shipments or perform services in the period immediately preceding the end of any particular quarter may cause the results for that quarter to fall short of our revenue targets. In addition, our operating expenses are based on expected future revenue and are relatively fixed for the short term. As a result, a revenue shortfall in any quarter could cause our earnings for that quarter to fall below expectations as well. Any failure to meet our quarterly revenue or earnings targets could adversely impact the market price of our stock. Other factors that may also cause quarter-to-quarter revenue and earnings fluctuation include the following: . our sales incentive structure is weighted more heavily toward the end of the fiscal year, and the rate of revenue growth for the first quarter historically has been lower and more difficult to predict than that for the fourth quarter of the immediately preceding fiscal year; . variability in the levels of professional service revenues and the mix of our license and service revenues; . declines in license revenue may adversely affect the size of our installed base and our level of service revenue; and . the increased utilization of third parties, such as systems integrators, resellers, strategic partners and application service providers, as distribution mechanisms for our software products and related services, may lessen the control we have over any particular sales cycle. In addition, the levels of quarterly or annual software or service revenue in general, or for particular geographic areas, may not be comparable to those achieved in previous periods. General economic and political conditions may impact our results Our revenue growth and profitability depends on the overall demand for software and related services. This demand can be adversely affected by unfavorable economic conditions, as customers reduce or defer spending on information technology improvements. We may be especially prone to this as a result of the relatively large license transactions we have historically relied upon. Accordingly, general economic and business conditions may affect our future operating results. If the recent unfavorable economic conditions continue, the economic slowdown has the potential to materially and adversely affect us. A softening demand for software caused by a prolonged slowdown of the economy would result in decreased revenue or lower revenue growth rates. Recent political/social events, including the September 11, 2001 tragedy, have put further pressure on economic conditions both domestically and internationally. The potential turmoil that may result from such events contributes to the uncertainty of the economic climate, further reducing predictability and our ability to develop and implement long-term strategies and business models. In light of the foregoing, the impact of these or future similar events may have a materially adverse impact on our business, operating results, and financial position. We may not be able to implement new initiatives successfully Part of our success in the past has resulted from our ability to implement new initiatives. Our future operating results will continue to depend upon: . the successful implementation of a divisionalized business unit structureunified CPD product strategy, including the realignment of internal functions, the management of divisionalized multiple development and distribution processes and effective mitigation of disruption that may result from organizational change; . our ability to sustain the appropriate balance between our MCAD deliver an integrated and Windchill businessescomprehensive suite of solutions and to capitalize on existing synergies through a common product strategy; . our ability to appropriately allocate and implement cost cutting measures that increase profitability while maintaining adequate resources for effective and coordinated organizational performance; . the success of our sales force reorganization initiatives, including: -- our shift from point sales to solution sales, -- the effectiveness of our organizational sales model, -- the ability of our sales reps to learn and sell our products, and -- Rands' and other distributors' ability to perform successfully in the MCAD arenaperform; . our ability to anticipate and meet evolving customer requirements in the CPC CPD arena and successfully deliver products and services at an enterprise level; . our ability to broaden indirect distribution channels through alliances with systems integrators, resellers, strategic partners and application service providersproviders and our effective management of a balanced sales model that optimizes sales coverage and most effectively utilizes these third parties; . our ability to develop Windchill Netmarkets opportunitiesrapidly implementable point solutions that adequately address specific business challenges; and . our ability to identify and penetrate additional industry sectors that represent growth opportunities. . our ability to execute on customer satisfaction initiatives and programs in order to retain our customer base. We may not be successful in integrating recently acquired businesses or products We have increased our product range and customer base in the recent past due in part to acquisitions. We may acquire additional businesses or product lines in the future. The success of any acquisition may be dependent upon our ability to integrate the acquired business or products successfully and to retain key personnel and customers associated with the acquisition. If we fail to do so, or if the costs of or length of time for integration increase significantly, it could negatively affect our business. We are dependent on key personnel whose loss could cause delays in our product development and sales efforts Our success depends upon our ability to attract and retain highly skilled technical, managerial and sales personnel. Competition for such personnel in the high technology industry is intense. We assume that we will continue to be able to attract and retain such personnel. The failure to do so, however, could have a material adverse effect on our business. We must continually modify and enhance our products to keep pace with changing technology, and we may experience delays in developing and debugging our software We must continually modify and enhance our products to keep pace with changes in computer software, hardware and database technology, as well as emerging standards in the Internet software industry. Our ability to remain competitive will depend on our ability to: . enhance our current offerings and develop new products and services that keep pace with technological developments through: -- internal research and development, -- acquisition of technology, and -- strategic partnerships; . meet evolving customer requirements, especially ease-of-use; . provide adequate funding for development efforts; and . license appropriate technology from third parties. Also, as is common in the computer software industry, we may from time to time experience delays in our product development and "debugging" efforts. Our performance could be hurt by significant delays in developing, completing or shipping new or enhanced products. Among other things, such delays could cause us to incorrectly predict the fiscal quarter in which we will realize revenue from the shipment of the new or enhanced products and give our competitors a greater opportunity to market competing products. We may be unable to price our products competitively or distribute them effectively Our success is tied to our ability to price our products and services competitively and to deliver them efficiently, including our ability to: . provide products with functionality that our customers want at a price they can afford; . build appropriate direct distribution channels; . utilize the Internet for sales; and . build appropriate indirect distribution channels through Rand or others. We depend on sales from outside the United States that could be adversely affected by changes in the international markets A significant portion of our business comes from outside the United States. Accordingly, our performance could be adversely affected by economic downturns in Europe or the Asia/Pacific region. Another consequence of significant international business is that a large percentage of our revenues and expenses are denominated in foreign currencies that fluctuate in value. Although we may enter into foreign exchange forward contracts and foreign exchange option contracts to offset a portion of the foreign exchange fluctuations, unanticipated events may have a material impact on our results. Other risks associated with international business include: . changes in regulatory practices and tariffs; . staffing and managing foreign operations, including the difficulties in providing cost-effective, equity-based compensation to attract skilled workers; . longer collection cycles in certain areas; . potential changes in tax and other laws; . greater difficulty in protecting intellectual property rights; and . general economic and political conditions. We may not be able to obtain copyright or patent protection for the software products we develop or our other trademarks Our software products and our other trademarks, including our company names, product names and logos, are proprietary. We protect our intellectual property rights in these items by relying on copyrights, trademarks, patents and common law safeguards, including trade secret protection, as well as restrictions on disclosures and transferability contained in our agreements with other parties. Despite these measures, there can be no assurance that the laws of all relevant jurisdictions will afford adequate protection to our products and other intellectual property. The software industry is characterized by frequent litigation regarding copyright, patent and other intellectual property rights. While we have not, to date, had any significant claims of this type asserted against us, there can be no assurance that someone will not assert such claims against us with respect to existing or future products or other intellectual property or that, if asserted, we would prevail in such claims. In the event a lawsuit of this type is filed, it could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we ultimately prevail. Certain of our products also contain technology developed and licensed from third parties. We may likewise be susceptible to infringement claims with respect to these third party technologies.
Appears in 1 contract
Sources: Annual Report