Schnitger Corporation

MSC Software reports a mixed bag for Q2 2008

On August 5, 2008, MSC Software reported revenue of $64.4 million, up 6% due primarily to
growth in the maintenance revenue stream, with a quarterly profit that topped Wall Street
expectations by a penny – yet the share price declined 20 cents. Clearly, investors were
unhappy about the $1.9 million decline in overall license revenue, led by a $4.8 million
decrease in revenue from engineering tools; an operating loss for the quarter and the fact that
the revenue increase was significantly helped strength in the Euro and the Yen.

Overall, the picture painted by MSC in its earnings release was a tad gloomy but represents
a company in transition. On the plus side, the company reported the following:

– Revenue from the Americas was stronger than anticipated, up 17% from Q2 2007

– Large transactions are up 40% from Q2 2007 to almost 150, which leads to

– An average transaction size of almost $250,000, up 18% from a year ago.

MSC Software still faces an uphill climb, as it seeks to sell its customers on a two-fold
message: the engineering applications are strong and continually being developed even as
MSC itself focuses its messaging on its enterprise products (which, of course, include the
engineering applications – a fact that seems to be overlooked quite often). By branding the
MD tools – updated versions of NASTRAN, Patran, etc. – as “enterprise” apps, MSC is
confusing its customers and the market in general.

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