SANTA ANA, Calif., Nov. 9 /PRNewswire-FirstCall/ -- MSC.Software Corporation , the leading global provider of enterprise simulation solutions including simulation software and services, today announced financial results for the third quarter ended September 30, 2006.

REVENUE

Total revenue for the three months ended September 30, 2006 was $58.4 million compared to $75.6 million for the same period in 2005. Software revenue for the third quarter of 2006 totaled $22.7 million compared to $36.8 million for the third quarter of 2005. Software revenue in the 2005 period included $1.5 million of PLM software revenue. In addition, the 2005 period benefited by $7.0 million in net restatement adjustments, which reflect the difference between the restatement adjustments in 2005 and the restatement adjustments in 2006. For the three months ended September 30, 2006, maintenance revenue totaled $28.9 million and services revenue totaled $6.8 million, compared to $28.2 million of maintenance revenue and $10.5 million of services revenue for the same period in 2005. The 2005 period included $1.1 million of PLM services revenue.

Total revenue for the nine months ended September 30, 2006 was $193.7 million compared to $210.8 million for the same period last year. Software revenue for the nine months ended September 30, 2006 totaled $83.3 million compared to $97.7 million for the same period in 2005, which included $2.7 million of PLM software. In addition the 2005 period benefited by $5.1 million of net restatement adjustments, which reflect the difference between the restatement adjustments in 2005 and the restatement adjustments in 2006. For the nine months ended September 30, 2006 maintenance revenue totaled $85.7 million and services revenue totaled $24.7 million compared to $80.0 million of maintenance revenue and $33.1 million of services revenue in the 2005 nine month period. The 2005 period included $2.0 million of PLM services revenue.

"We believe that the software revenue decreases in the quarter are the result of our transition to selling enterprise platform applications, overall weakness in our Asia Pacific operations, and challenges with revenue recognition as it relates to transitioning our legacy contracts and products," said Bill Weyand, CEO and Chairman of MSC.Software. "Selling enterprise simulation solutions results in larger transaction sizes that typically require a longer decision making process within our customers' organizations. That process has caused a general lengthening of the overall sales cycle from what was approximately three to six months, to about six to 12 months."

"The decrease in our services revenue is the result of a managed transition away from low margin simulation services contracts in favor of higher margin consulting engagements. We want our services business to be based on a contemporary practice model that is in alignment with our new enterprise solution strategy," continued Mr. Weyand. "Although it is hard to predict with certainty when larger enterprise software and services transactions will close, we do know that we have not lost any major customers and our pipeline for transactions that exceed $100,000 is bigger than ever."

REVENUE BY GEOGRAPHY

Total revenue in the Americas for the third quarter of 2006 was $17.1 million, a decrease of 15.8% compared to $20.3 million last year. After adjusting the 2005 period for software and services revenue totaling $2.6 million for the PLM business, total revenue in the Americas decreased by 3.4%. Total revenue in EMEA for the third quarter was $23.1 million, a decrease of 13.4% compared to $26.7 million last year. In the Asia Pacific region, total revenue for the third quarter was $18.2 million, a decrease of 36.5% compared to $28.6 million last year.

Total revenue in the Americas for the nine months ended September 30, 2006 was $58.0 million, a decrease of 6.1% compared to $61.8 million last year. After adjusting the 2005 period for software and services revenue totaling $4.8 million for the PLM business, total revenue in the Americas increased by 1.8%. Total revenue in EMEA for the nine months was $74.4 million, a decrease of 5.5% compared to $78.7 million last year. In the Asia Pacific region, total revenue for the third quarter was $61.2 million, a decrease of 12.9% compared to $70.3 million last year.

"We believe that conditions in the Americas are improving, and we've gained traction selling our enterprise simulation solutions," said Mr. Weyand. "Further, we believe that although the third quarter was challenging in Europe, our EMEA operations are poised to benefit from enterprise sales in the fourth quarter and in 2007, both within key aerospace accounts and alongside our IBM partnership activity. Our Asia Pacific operations were most heavily impacted by the longer sales cycles and a significant decrease in services activities."

OPERATING EXPENSES, OPERATING INCOME and EPS

Total operating expenses for the third quarter 2006 were $48.9 million, compared to $44.6 million last year. The 2006 period included $2.7 million of additional stock based compensation recognized pursuant to FAS 123(R) and $2.4 million of consulting expenses related to the Oracle implementation. The 2005 period included expenses totaling $4.5 million related to the special investigation and restatement audit. Excluding such expenses, total operating expenses for the 2006 third quarter were $43.8 million compared to $40.1 million last year.

The third quarter 2006 generated an operating loss of $2.3 million, compared to operating income of $13.5 million in the third quarter last year. For the third quarter 2006, the loss from continuing operations totaled $1.8 million or ($0.04) per diluted share, compared to income from continuing operations of $6.1 million or $0.15 per diluted share in the third quarter last year.

For the nine months ended September 30, 2006, total operating expenses were $142.5 million compared to $143.4 million for the same period last year. Included in the 2006 period was a $4.4 million gain on the sale of assets of our PLM business. The 2006 period also included $6.0 million of audit and non-recurring professional services and audit fees, $4.3 million of consulting expenses related to the Oracle implementation, $4.3 million of additional stock based compensation related to the implementation of FAS 123(R) and $0.7 million to settle previously disclosed claims. The 2005 period included severance expenses totaling $3.9 million, a provision of $2.6 million for facilities closures, $6.6 million of expenses related to the special investigation and restatement audit and $2.0 million of expense related to termination of product distribution agreement. Excluding these items, operating expenses for the nine months of 2006 totaled $131.6 million compared to $128.3 million last year.

Operating income for the nine months of 2006 was $5.6 million compared to $15.9 million for the same period last year. For the nine months of 2006, income from continuing operations totaled $2.1 million or $0.06 per diluted share, compared to $6.0 million or $0.16 per diluted share last year.

SHARE REPURCHASE PROGRAM

On November 8, 2006, the Board of Directors of MSC authorized a stock repurchase program for up to 1.25 million shares. Share repurchases will be made from time to time in the open market, based on stock availability and price. It is anticipated that the repurchases will be made during the next twelve months, although no assurance can be given as to when they will be made or the total number that will be repurchased. The Company may enter into one or more Rule 10b5-1 trading plans in order to facilitate the repurchase of shares.

THIRD QUARTER 10-Q FILING

The Company completed its financial statements subsequent to the Form 10-Q filing deadline and expects to file its quarterly report on Form 10-Q on Monday November 13th.

CONFERENCE CALL

The Company will host a conference call to discuss the third quarter financial results tomorrow, November 10 at 8:30 am pacific (11:30 am eastern). The call will be web cast and can be accessed at the following URL: http://www.mscsoftware.com/ir/, or by dialing in to (800) 374-0151. The international dial-in number to access the live call is (706) 634-4981. To participate in the live conference call, use the following conference ID code: 1245056.

An archived version of the conference call will be available through November 14th and can be accessed at: U.S. (800) 642-1687 using the conference ID code: 1245056.

About MSC.Software Corporation

MSC.Software Corporation is a leading global provider of enterprise simulation solutions, including simulation software and services, that helps companies make money, save time and reduce costs associated with designing and testing manufactured products. MSC.Software works with thousands of companies in hundreds of industries to develop better products faster by utilizing information technology, software and services. MSC.Software employs more than 1200 people in 23 countries. For additional information about MSC.Software's products and services, please visit http://www.mscsoftware.com/.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties. The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this press release are based on information available to us on the date hereof. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "targets," "goals," "projects," "continue," or variations of such words, similar expressions, or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Neither we nor any other person can assume responsibility for the accuracy and completeness of forward-looking statements. Important factors that may cause actual results to differ from expectations include, but are not limited to, those discussed in "Risk Factors" on our 2005 Form 10-K filed with the Securities and Exchange Commission. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Investor Contact: Joanne Keates Vice President, Investor Relations MSC.Software (714) 444-8551 joanne.keates@mscsoftware.com Financial Tables follow MSC.SOFTWARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share value amounts) September 30, December 31, 2006 2005 ASSETS Current Assets: Cash and Cash Equivalents $114,938 $99,478 Investments 12,294 12,820 Trade Accounts Receivable, less Allowance for Doubtful Accounts of $876 and $1,296, respectively 56,076 73,141 Deferred Tax Assets 18,005 18,059 Other Current Assets 9,711 8,815 Current Assets of Discontinued Operations -- 5,803 Total Current Assets 211,024 218,116 Property and Equipment, Net 19,878 16,271 Goodwill and Indefinite Lived Intangibles 180,491 180,491 Other Intangible Assets, Net 27,391 31,829 Deferred Tax Assets 8,388 7,917 Other Assets 10,264 14,579 Long Term Assets of Discontinued Operations -- 6,385 Total Assets $457,436 $475,588 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable 9,619 12,097 Compensation and Related Costs 17,547 18,921 Restructuring Reserve 5 11 Income Taxes Payable 6,764 9,145 Deferred Revenue 76,085 94,625 Other Current Liabilities 13,633 18,572 Current Liabilities of Discontinued Operations 1,974 2,866 Total Current Liabilities 125,627 156,237 Deferred Income Taxes 16,588 16,641 Long-Term Debt 7,511 107,375 Other Long Term Liabilities 12,845 12,254 Long-Term Liabilities of Discontinued Operations -- 1,393 Total Liabilities 162,571 293,900 Shareholders' Equity: Preferred Stock, $0.01 Par Value, 10,000,000 Shares Authorized; No Shares Issued and Outstanding -- -- Common Stock, $0.01 Par Value, 100,000,000 Shares Authorized; 43,209, 000 and 30,926,000 Issued and 43,173,000 and 30,886,000 Outstanding, respectively. 432 309 Additional Paid-in Capital 408,352 300,793 Deferred Compensation (669) (3,029) Accumulated Other Comprehensive Income (Loss): Currency Translation Adjustment, net of Tax (14,805) (15,863) Unrealized Investment Gain, net of Tax 10,256 10,782 Minimum Pension Liability, net of Tax (272) (272) Total Accumulated Other Comprehensive Loss (4,821) (5,353) Accumulated Deficit (108,182) (110,755) Treasury Shares, At Cost (36,000 and 40,000 Shares, respectively) (247) (277) Net Shareholders' Equity 294,865 181,688 Total Liabilities and Shareholders' Equity $457,436 $475,588 MSC.SOFTWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenue: Software $22,650 $36,832 $83,336 $97,710 Maintenance and Services 35,724 38,742 110,351 113,076 Total Revenue 58,374 75,574 193,687 210,786 Cost of Revenue: Software 2,632 3,925 9,882 12,228 Maintenance and Services 9,206 13,607 35,753 39,251 Total Cost of Revenue 11,838 17,532 45,635 51,479 Gross Profit 46,536 58,042 148,052 159,307 Operating Expense: Research and Development 9,883 11,461 31,817 34,523 Selling, General and Administrative 38,810 32,911 110,074 108,335 Amortization of Intangibles 187 186 562 556 Total Operating Expense 48,880 44,558 142,453 143,414 Operating Income (Loss) (2,344) 13,484 5,599 15,893 Other (Income) Expense : Interest Expense 255 1,056 3,329 3,297 Other Income, net (1,346) (703) (3,892) (349) Total Other (Income) Expense, net (1,091) 353 (563) 2,948 Income (Loss) From Continuing Operations Before Provision (Benefit) For Income Taxes (1,253) 13,131 6,162 12,945 Provision (Benefit) For Income Taxes 540 7,023 4,025 6,959 Income From Continuing Operations (1,793) 6,108 2,137 5,986 Income From Discontinued Operations, Net of Income Taxes -- 230 436 596 Net Income $(1,793) $6,338 $2,573 $6,582 -- -- -- -- Basic Earnings Per Share From Continuing Operations $(0.04) $0.20 $0.06 $0.19 Diluted Earnings Per Share From Continuing Operations $(0.04) $0.15 $0.06 $0.16 Basic Earnings Per Share From Discontinued Operations $-- $0.01 $0.01 $0.02 Diluted Earnings Per Share From Discontinued Operations $-- $0.01 $0.01 $0.01 Basic Earnings Per Share $(0.04) $0.21 $0.07 $0.21 Diluted Earnings Per Share $(0.04) $0.15 $0.07 $0.18 Basic Weighted-Average Shares Outstanding 42,872 30,879 36,416 30,704 Diluted Weighted-Average Shares Outstanding 45,420 44,523 45,594 43,942

CONTACT: Joanne Keates, Vice President, Investor Relations of
MSC.Software, +1-714-444-8551, joanne.keates@mscsoftware.com

Web site: http://www.mscsoftware.com/ir

Web site: http://www.mscsoftware.com/