Commentary: MCAD Industry View - An August 2007 Update

North America accounts for about 20% of total sales, Europe 30% and Asia 50%.

Net income for the quarter was $571K compared to a net loss of $440K in the year ago quarter, and compared to $8K in the previous quarter.

For the full fiscal year, total revenue was $55.9 million, an increase of 14% from the $49 million in the previous fiscal year. Product revenue was $28.4, an increase of 16%, while Services revenue was $27.5, an increase of 12%. Net income for the year was $3.8 million, up almost triple from the prior year.

On June 21, 2007, Moldflow announced the promotion of Gregory Magoon to Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary. Mr. Magoon joined the Company's executive management team, effective June 21. Mr. Magoon has worked in the capacity of Corporate Controller for Moldflow Corporation for the past 6 years.

On June 25, 2007, Moldflow Corporation announced that it has signed an asset purchase agreement pursuant to which it will sell substantially all of the assets related to its Manufacturing Solutions division to Husky Injection Molding Systems Ltd. (TSX: HKY) located in Bolton, Ontario, Canada. The sale, which is expected to be completed during the fourth quarter of fiscal 2007, is for $7.0 million and the assumption of certain Moldflow liabilities by Husky, and is subject to certain closing conditions.

In December 2006, Moldflow received a comment letter from the US SEC's Division of Corporation Finance which was made in the normal course of the SEC's review of the Company's periodic filings. Specifically, the firm is currently discussing with the SEC its policies for determining the fair value of maintenance contracts when they are sold to customers together with perpetual licenses for software products. As a consequence, any announced financial results should be considered preliminary until the company issues its 10K report.

Roland Thomas, Moldflow Corporation's president and CEO, said, "We are very pleased with the (fiscal) fourth quarter results which were in line with the upper range of our expectations. Particularly noteworthy was the strength of the sales performances in North America, which provided its highest quarterly year-on-year growth rate in Moldflow's history, and in Asia which continues to produce strong results quarter after quarter.”

Thomas concluded, "The sale of our Manufacturing Solutions business division to Husky Injection Molding Systems Ltd. in the fourth quarter, and the subsequent transition of this business division, have been smooth. … The sale, which included substantially all of the net assets of the division, did not include the software portion of the Moldflow Plastics Xper (MPX) product, which Husky will resell.”

On August 7, 2007 MSC.Software Corporation reported its financial results for the second quarter, the period ending June 30, 2007. Total revenue for the quarter was only $60.7 million, a 10.6% drop from the $67.9 in the second quarter of 2006, but a 5.4% increase from the $57.6 million in the just prior quarter. Software revenue at $23 million accounted for a mere 38% of total revenue. This $38 million was a massive 27% decline year-over-year, and essentially flat compared to the previous quarter. Maintenance revenue was $31.8 million, accounting for 52% of total revenue, a 9% increase year-over-year, and an almost 11% rise sequentially. (Relatively speaking, when software revenue declines and maintenance revenue increases, these are definitely areas of real concern for management). Revenue from services was $5.9 million, accounting for about 10% of total revenue. This was a 20% decline year-over-year, and a 0.6% drop sequentially.

On a geographic basis, America accounted for 28% of total revenue, EMEA 41% and AP 31%.

There were 105 transactions over $100K in the quarter, versus 118 in the year ago quarter. The average transaction size was $211K, versus $272K in the previous quarter. SimEnterprise accounted for only 13% of software license revenue in the last two quarters. There are now only 17 resellers in the Americas, out of a total of 122 originally.

On August 7, 2007, MSC.Software announced the acquisition of pioneerSOLUTIONS, Inc. Bruce Webster, founder and CEO of pioneerSOLUTIONS, said, “FluidConnection, our innovative OpenCFD product, fits perfectly into MSC.Software's SimEnterprise strategy complementing its simulation based design paradigm with abstract modeling for CFD. This combination will not only extend SimEnterprise to be CFD compliant, but will do so in ways that MSC.Software's customers will have unprecedented ease of use, reuse, flexibility and choice. This acquisition is a win/win for us, our customers and the CAE/PLM community at large."

On August 10, 2007, MSC.Software announced the signing of 16 new channel partners since the inception of the new channel partners program six months ago.

Net income for the quarter was $2.3 million, an increase of 180% over the same quarter in 2006, and a large turnaround from the net loss of $6.2 million in the just prior quarter. The previous quarters had restructuring charges of about $7 million.

Bill Weyand, CEO and Chairman of MSC.Software, said, "We are pleased that the cost reduction program and operational improvement initiatives we implemented over the past several quarters have resulted in a decrease in our operating expenses in the second quarter. These improvements and efficiencies in infrastructure have resulted in SG&A decreasing by about $6 million sequentially from the first quarter. However, our revenue results continue to be impacted by our product evolution from engineering tools to enterprise solutions. Our experience to date shows that selling enterprise solutions results in lengthening our sales cycle and leads to delays in the licensing of our products.”

On July 25, 2007 PTC reported financial results for its third fiscal quarter, the period ended June 30, 2007. Total revenue for the quarter was $225 million, an increase of almost 4% from the $217 million in the same quarter a year earlier, but down 1.3% from the $228 million the just pervious quarter. This result of $225 million compares to original 3-month ago guidance of $235 million to $240 million, but it's consistent with an update given on July 5th. License revenue, accounting for 28% of total revenue, was $62 million, down 5.5% year-over-year and down almost 13% sequentially. Maintenance and Service revenue combined accounted for 72% of total revenue, and at $163 million, was up 8% year-over-year and up 4% sequentially. Maintenance revenue at $103 million was up 9%, while service revenue at $60 million was up over 6%.

Desktop Solutions total revenue declined over 3% to $138 million, driven by a license revenue decline of 12% and service revenue decline of 22%, while maintenance revenue grew over 7%. Enterprise Solutions total revenue growth of 18% to $86 million, was driven by training and consulting service revenue growth of 26%, maintenance revenue growth of 17%, and license revenue growth of nearly 8%. Total revenue from the reseller channel was $47.6 million, an increase of 3%, but business in AP was weaker than the recent trend.

Revenue in North America was 39% of total revenue, Europe 38% and AP 23%. Asia-Pacific revenue reflects 9% growth in the Pacific Rim offset by an 18% decline in Japan.

In the quarter 4,150 seats of Pro/E were sold, bringing the cumulative total to 362,850 seats. Also in the quarter, 16,400 seats of Windchill were sold, bringing the cumulative total to 491,500 seats.

Net income for the quarter was the highlight. It was $87.2 million, a 417% increase from the $16.9 million in the year ago quarter, and an increase of 400% from $17.4 in the prior quarter. GAAP net income for the quarter includes a non-cash $65.5 million adjustment due to the reversal of PTC's valuation allowance against US deferred tax assets, as well as a one-time tax benefit of $5.3 million due to the favorable resolution of a tax refund claim.

In response to the quarter's fiscal performance, PTC said it will reduce discretionary spending, slow down hiring and reduce headcount by 200 employees (restructuring charge ~$10 million in the next quarter). Also in the future, PTC will more aggressively offshore its workforce to reduce cost and to develop a more strategic presence in emerging geographies.

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