MSC Software Corp Q4 2007 Earnings Call Transcript

Feb.21.08 | About: MSC Software (MSCS)

MSC Software Corp. (MSCS) Q4 2007 Earnings Call February 21, 2008 4:30 PM ET


Joanne Keates - VP - IR

Bill Weyand - CEO and Chairman

Sam Auriemma - CFO

John Mongelluzzo - Executive VP


Michael Coady - B. Riley

Barbara Coffey - Kaufman

Woo Jin Ho - Merrill Lynch


Good afternoon. My name is Keira and I will be your conference operator today. At this time, I would like to welcome everyone to the MSC's Q4 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions)

Thank you, Joanne Keates, you may begin your conference.

Joanne Keates

Thank you for joining us this afternoon to discuss MSC's Q4 and the yearend financial results. On the call today from MSC, we have Bill Weyand, our CEO and Chairman, Sam Auriemma, MSC's CFO, and Executive VP, John Mongelluzzo.

Before we begin, let me make our Safe Harbor statement. This presentation contains forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this webcast and conference call are based on information available to us at this time. These statements involve uncertainties, which may cause our actual results to differ from those implied by the forward-looking statements. Important factors that may cause the actual results to differ from expectations are discussed in risk factors in our quarterly 10-Qs and our 2006 Form 10-K filed with the SEC. We undertake no obligation to revise or update publicly any forward-looking statements for any reason at any time.

At this point, I would like to turn the call over to Bill. Please go ahead, Bill.

Bill Weyand

Thank you, Joanne. Good afternoon and thanks for dialing into MSC's Q4 conference call. We are very pleased to report MSC's final Q4 revenue of $71.1 million. This is due to very solid business activities from around the world that drove the growth of 7.7% Q4 '07 versus Q4 '06.

We are now performing well in all geographies around the world and we are seeing good strength in all of our product categories. The highest growth rate for Q4 was in maintenance revenue, which grew 13%, and is indicative of not only how sticky our technology is, but also that our continued investment in all of our technology is bringing many customers to reactivate or come back to MSC.

We are focused on 10 vertical industries worldwide, obviously the primary being aerospace and automotive, as well as moving into new industries and I'll talk about some new wins there.

Our enterprise simulation solutions product category for Q4 had revenue of $7.7 million or approximately 27% of total software revenue for Q4. We believe the Q4 results are a positive sign that MSC is in the final stage of completing its company transition.

On a regional standpoint, the Americas delivered $22 million of revenue in Q4 of '07 versus $17.7 million in Q4 of '06. This is a 24% increase quarter-over-quarter and year-over-year for the quarter. The key transactions reported in the quarter are Boston Scientific and Ford and we are now again looking at running on all cylinders worldwide now that the Americas is in high gear.

Our EMEA operations reported revenue of $30 million compared to $28.5 million in Q4 of last year. EMEA continues to lead MSC’s performance and is one of the reasons why we promoted Amir Mobayen, who has been running EMEA for a number of years, to run our worldwide sales and services operations.

Major wins in the quarter were Peugeot and Volvo Aero. In Asia Pacific, Q4 revenues were 19.1 compared to 19.8 last year. Key transactions were Mitsubishi and Japan Aerospace and again, I want to restate that we believe, from a performance standpoint, we are now running on all cylinders, on a geographical basis.

Key customer wins in Q4 include Boston Scientific, Boeing, Peugeot, Volvo, etc. I'll talk a little bit about each of these, but a new name that you don't think about in regards to MSC Software and the new industry focus is Boston Scientific, which is the leading medical products company. And they are implementing our SimEnterprise solutions, for non-linear materials and processes and we see a lot of opportunities for us going forward in the medical field as well as consumer products and electronics.

Our key win in Europe, in terms of auto expansion, was Citroen and Citroen is deploying our technology for multidiscipline simulation and I have invested in MD Nastran through our MasterKey program. Japan Aerospace, in terms of space exploratory nature, is -- they are implementing again our MasterKey solution for simulation technologies including stress, stiffness, heat transfer in motion and composites.

I'm very pleased today to announce, and I'm quoting the press release we've issued a few minutes ago that MSC has entered into a new multi-year enterprise agreement with the Boeing Company. And again, I quote, the press release at this new multiyear enterprise agreement provides innovation, heightened functionality and business value.

MSC's SimEnterprise solutions, including a new multidiscipline solver technology, Sim for advanced simulating templates and SimManager for process management are all part of this new agreement.

And I quote Carol Pittman in terms of the press release; The Boeing Company consistently strives to translate technical innovation into product innovation; that positively influences both our customers and our business value.

We believe MSC's Software Enterprise Simulation solutions will help enable this innovation as we deploy the new technology. This is a new multi-year agreement and we believe it further validates our enterprise simulation strategy going forward.

Looking at industries here is a break down of revenue for '07 by industry and clearly aerospace led our performance with 38% of revenue, automotive was 25% and then you can see the rest of the industries in terms of positioning ourselves for momentum in 2008.

We clearly have reasserted our dominance in aerospace with some of the announced wins this year with Airbus, Bell Helicopter, and Alenia and now Boeing, and we are also doing well in automotive. We are moving into new industries to broaden our customer base. We are growing in these industries both on a direct basis and a channels basis, and we began 2008 or ended 2007 with increasing our channels partners from 75 to 142 and the 142 channels partners are now in 40 countries worldwide.

Looking at Enterprise Simulation and market opportunity, this graph shows our product introductions that took place throughout '06 and '07. We are extremely well positioned with robust functionality with our R3 release taking place near the end of Q1. MD is clearly an integrated next generation solver, SimXpert is the industry's first complete template environment solution for CAE analysis, SimDesigner is clearly best practices and template for the CAD design and SimOffice is access to the channels business and throughout the whole Microsoft world to take simulation to the masses.

If we now go the next chart, in terms of SimEnterprise solution and market opportunity, this clearly shows the traction that we have accomplished since the introduction of these products. We now have over 100 MD and SimEnterprise orders with all the major OEMs, which have deployed either starting on a project basis or a division basis to now a global basis and as we enter '08, we should see additional traction as well now running into the supply chain.

The chart on the left is [delicate] chart and it just shows the emergence of enterprise simulation and clearly, we are leading the way there. In terms of further explanation, in terms of customers and major wins is that our goal for '07 was to win 6 of the 12 major automotive companies with MD Solutions, and we have exceeded that and our goal also was to win 6 of the 12 major aerospace companies with MD, and we clearly have done that. You can see from the previous announcements throughout the year, as well as announcements today that we're getting great traction on SimManager and the whole enterprise solution.

Now that we've completed what I would call the organic transition, in terms of product development and product expansion, as well as our sales execution and channels development, we're going to shift our growth strategy two-fold. One, continue organic focus, but also focus on growth by acquisition. We have announced two acquisitions; the first was Pioneer Systems for open fluid dynamics, open CFD and we just recently announced NAI technology for the aerospace industry for thermal technology.

So that's number one, as we're going to continue to use our cash and be acquisitive. These will be primary technical tuck-in's where we are doing a buy versus make decision. They may also lead us into new industries and penetrate new industries, which could be obviously, a good opportunity. We're also enhancing our strategic partnerships. The ones we have announced is nCode for fatigue, AlphaSTAR for composites, Vistagy for laminate modeling, and there are more to come.

Before I turn it over to Sam, let me just summarize Q4 in terms of fiscal year transaction metrics. Orders over 100,000 were 108. The impressive part of Q4 is the average order size of 100,000 increased to almost 100,000 from 255,000 to 350,000. And the number of orders over 100,000 also increased nicely to 70. We actually had 9 orders in the quarter Q4 over 500,000.

With that, let me turn it over to Sam. Sam?

Sam Auriemma

Thank you, Bill, and good afternoon to all of you on the fourth quarter and yearend 2007 call. As many of you are aware, 2007 was a year of transition for MSC. As we continue to work with our customers to offer enterprise solutions, in addition to our engineering tools applications, and to improve our cost structure and transition our company, we encountered many challenges.

While we are pleased with the fourth quarter results, we believe that our business will continue to be difficult to predict. Having said that, our pipeline for new business continues to give us more clarity into our revenue stream and our closure rates on Enterprise Solution transactions continues to improve. Additionally, positive software comparisons of each products, year-over-year and quarter-over-quarter were recorded.

Now I'm pleased to talk about our financial results. For the fourth quarter, total revenue was $71.1 million, an increase of 7.7% when compared to $66 million for the fourth quarter in 2006. The effect of changes in foreign currency increased total revenues by $4 million, leading to higher amounts in all revenue categories.

For the 2007, total revenue was $246.7 million and that's a decrease of 5% when compared to $259.7 last year. The effective changes in foreign currency increased total revenues for the year by $7.2 million. The balance of the decrease is primarily the result of a lower software and services revenue, partially offset by an increase in maintenance revenue.

So let's talk about the individual components of our revenue. Software revenue for the fourth quarter increased 3% to $28.8 million and that compares to $27.9 million in the fourth quarter of last year. The effect of changes in the foreign currency increased software revenues by $1.7 million.

Enterprise solution product revenue represented 27% of the total software revenue in the fourth quarter. We'll talk more about that on the next slide.

For 2007, software revenue was $94.7 million and that's a decrease of 15% when compared to $111 million last year. The effect of changes in foreign currency increased software revenue for 2007 by about $2.6 million. The balance of the decline was due to decreased revenues of engineering tools, and that was partially offset by an increase in enterprise solutions.

Additionally, the 2006 period included $1.3 million of non-recurring PLM revenue. At December 31, 2007, total deferred software revenue increased $1.3 million to $26.4 million. And we'll talk more about deferred revenue later on in the presentation.

We've revised the way we present the split between the two software categories of engineering tools and enterprise solutions for the periods as presented on this slide. Enterprise solutions represented 13% of software in the 2006 fourth quarter and that has increased to 27% in the 2007 fourth quarter. As Bill mentioned, we are encouraged that we gained ground with our new enterprise solutions product offerings in the fourth quarter and for the year.

For 2007, we also improved our revenue mix of engineering tools versus enterprise solutions as software revenues from enterprise products was 21% for the full year versus 6% in the prior year.

Now let's look at maintenance revenue for the three months ended December 31, 2007. Maintenance revenue increased 13% to $33.3 million and that compares to $29.4 million for the fourth quarter last year. For the fourth quarter, the effect of changes in foreign currency increased maintenance revenues by $1.8 million. For 2007, maintenance revenues increased 9% to $125.5 million when compared to $115.1 million last year. And the effect of changes in FX increased maintenance revenues by about $3.6 million.

The balance of the increase in both periods is the result of growth in our installed license base, as Bill has mentioned, and as a result of 2007 activity coupled with a continued high renewal rates from prior years. At December 31, 2007, deferred maintenance revenue increased $1.6 million to $52.9 million.

For the fourth quarter, service revenue increased 3% to $9 million and decreased 21% to $26.4 million for the year. The amounts for the comparable periods of 2006 were $8.7 million and $33.3 million. This decrease of service revenues for the year is primarily due to the change in strategy in regard to services engagement, while the Q4 results are largely comparable.

Additionally, 2006 included $1.1 million of services from PLM and that's an operation we sold in March 2006. We believe that the quality and focuses of our services revenue has greatly improved, and at December 31, total deferred services revenue decreased $500,000 to $1.2 million.

Geographically, for 2007, the Americas contributed to 31% of our revenues, EMEA contributed 38% and Asia-Pac contributed 31%. The portion of revenue from the regions does not change materially, and as we've seen in the past, we have a good balance of revenue across all three regions.

On deferred revenues overall, deferred revenues grew 3% or $2.4 million in 2007 to $80.6 million, and this represents a $5.3 million increase as well over the September 30, 2007 period.

A look at our gross margin, gross margin for the fourth quarter is comparable at approximately 81%. Software gross margins improved slightly to 91% compared to 89% in Q4 last year, and maintenance and services margins in Q4 are comparable. Gross margin improved slightly for the year to 81% when compared to 78% last year due to improvements in the services margin and we expect this gross margin number will stay relatively stable in the near term.

Operating expenses, R&D for fourth quarter increased to $13.6 million and that compares to $11.4 million for the fourth quarter last year. And that's mainly due to higher compensation costs associated with new product releases and enhancements. These costs increased sequentially by $1 million, primarily due to the variable compensation associated with incentives that were earned at the yearend.

R&D expense for 2007 was $51.1 million and that compares to $43.2 million last year, and again this increase is a result of higher employee expenses contracted services of approximately $6 million and increased facilities and equipment costs, all associated with enhancing our products with increased features and functionalities.

So we are now separating selling and marketing and general and administrative expenses into two categories in order to provide more insight into our operations. We provided the five quarter trend for both of these categories as well.

Selling and marketing expenses for the fourth quarter were essentially unchanged at $25.1 million compared to $24.7 million for the Q4 2006. For 2007, selling and marketing expenses were comparable at $84.8 million versus $83.6 million last year. And this small increase for the year is primarily as a result of higher compensation of approximately $2.4 million, and that's partially offset by lower product marketing expenses of approximately $1.3 million.

The cost increased sequentially by approximately $5 million due to higher commissions associated with increased volume and variable compensation associated with incentives earned in the fourth quarter, as well as increased cost associated with our VPD conferences that we held in the fourth quarter this year, versus Q3 in 2006.

General and administrative expenses for the fourth quarter were $15.5 million and that's a decrease of $2.5 million when compared to $18 million for Q4 2006. The decrease in the period ended Q4 2006, was due to reduction in contracted services offset by some variable comp increases.

For 2007, G&A expenses totaled $60.8 million and that's compared to $69.2 million last year. The decrease in G&A expense is primarily the result of the restructuring effort initiated early 2007, combined with the reductions in professional fees and generally offset by higher variable employment costs.

Additionally, last year's G&A was reduced by $4.6 million due to the gain on the sale of PLM. Sequentially, G&A expenses increased by $2.9 million due to higher variable comp cost earned in the fourth quarter.

So let's turn to some additional items that impacted our results for the quarter and the year. The company's results for the year and the fourth quarter were impacted by restructuring charges and non-cash impairment charges. We have restructuring charges in the fourth quarter of about $442,000, and total for the year our restructuring charges were $8.5 million. These charges were associated with improving our cost structure and included termination of cost of employees, as well as facility reductions.

During the fourth quarter, we recognized a non-cash impairment charge of $4.3 million and total impairment charges for the year of $4.8 million. The non-cash impairment charge of $4.3 million taken in Q4, and this was associated with a partial write-down of an indefinite life intangible assets. We closely review the value of this asset under SFAS 142, and felt the charge as appropriate.

Stock-based comp for the quarter and the year was $2.8 million and $7.8 million respectively, and this compares to $2.0 million and $7.3 million for the same periods of 2006.

Operating loss for the fourth quarter totaled $1.2 million and that compares to an operating loss in the fourth quarter last year of $898,000. Operating loss for '07 was $10.3 million, compared to operating income of $4.7 million last year. Again, the restructuring and impairment charges totaling approximately $13.3 million contributed significantly to that loss.

In the fourth quarter, we sold two-thirds of our shares of GSSL Stockholdings, and that resulted in a gain of $6.8 million which we reported in our other income net.

Altogether, the company reported net income from continuing operations of $2.3 million or about $0.05 a share in the fourth quarter of 2007, and that's versus $11.2 million or $0.25 in the fourth quarter last year. As a reminder, net income in the 2006 fourth quarter included a tax benefit of approximately $11 million.

Net loss from continuing operations from '07 was $2.6 million or $0.06 per diluted share and that compares to net income from continuing operations of $13.3 million or $0.31 per diluted share for 2006. Last year, again, that number included a tax benefit of $7 million in total.

Our income tax rate is still volatile and difficult to compare and discuss, due to small income numbers, geographic mix and benefits from prior periods. These dollar amounts for the fourth quarter ended December 31, 2007 were a provision of $4.2 million versus a benefit of $11 million in the comparable period of 2007. New dollar amounts for the full year ended December 31, 2007 were a provision of $1.5 million versus the benefit of $7 million in the comparable period of 2006.

Turning to some other financial metrics, net cash provided by operating activities was $16.5 million during 2007, and that compared to cash used in operations of $4.5 million during 2006. CapEx for 2007 totaled $8.1 million and that's versus $8.2 million in 2006 and depreciation and amortization for the full year of 2007 was $13.5 million, and that compares to $12.9 million in 2006.

Our day sales outstanding stood at 91 days at December 31, 2007, and that's a nice comparison with the 98 days last year. Company has cash and cash equivalents at December 31 of $135 million compared to $126 million last year. And at this time, the company will not issue any guidance. We will continue to evaluate our decision to provide guidance in the future.

With that, I'll turn the call back over to Bill.

Bill Weyand

Thanks, Sam. A couple of summary comments before we open up to Q&A; as we stated earlier, we are now running on all cylinders geographically, as well as positioned well in 10 industries worldwide. Our game changing technology is clearly gaining traction. Our channels' focus is building momentum, now having 142 partners in 40 countries. And our new products are now feature-rich with R3 releases early this year. And we have a seasoned management team in place and we are all focused on providing and delivering better business execution.

With that, Joanne, Q&A?

Question-and-Answer Session


(Operator Instructions). Your first question comes from the line of Michael Coady with B. Riley.

Michael Coady - B. Riley

Thanks, good afternoon.

Bill Weyand

Hi, Michael.

Michael Coady - B. Riley

Hi, Bill. Could you talk about… you mentioned acquisitions to drive to be a growth driver in the future. Could you talk about the size of potential acquisitions, any metrics and for example, maybe what you paid for network analysis?

Bill Weyand

Well, first of all, I'll comment in the first part, and Sam can add some color, but now that we have completed the business execution and have basically robustness in all of our software products. And we're running in also on a geographically, and we now want to grow organically as well as be acquisitive. We're not talking about being a hugely be acquisitive in terms of size of operations, but we clearly are in a consolidated market.

We've got about $135 million in cash, and so I'm looking at, and we're looking at what was called technical tuck-ins and in the simulation space there are a lots and lots and lots of private companies and there are a few public companies. So, without talking about size or scope, these are transactions all the way from little revenue -- second stage companies to established companies that have industry specific solutions that add more robust system functionality to our enterprise solutions. We've done to and we intend to do a number of more going forward. Sam, on the size?

Sam Auriemma

Yes, I think that's right. The size is generally been in the something $5 billion market. Mark, as Bill has indicated, we look at these as buy versus make acquisitions, time to market acquisitions, some check the box acquisitions for us, and they have been small in size. We can go up the scale a little bit, but generally speaking high domain expertise, our ability to executive have to be strong in that market, and they have to have a lot of value to our product offering.

Michael Coady - B. Riley

Okay. And just a quick question, Sam, on cash flow from operations for the year -- was that 6.8 million gain on the security sale included in that?

Sam Auriemma

Absolutely, yes. Yeah, we have started off with the net income number on that 6.8 million did include that.

Michael Coady - B. Riley

Okay. Any stock repurchasing activity?

Sam Auriemma

Not during the quarter, we did not purchase any stock.

Michael Coady - B. Riley

Okay. And just lastly the congratulations on the Boeing announcement?

Sam Auriemma

Thank you.

Michael Coady - B. Riley

That's a big one what detail can you provide any of the terms and how big the deal it is. Over how many years, what's your expectations are etcetera?

Bill Weyand

Well, again, press release speaks for itself, and I think the importance of that is it's a new multiyear enterprise agreement. It's for our SimEnterprise solution, which is again spelled out in the press release. It is a strategic partnership between MSC and Boeing, which states in the press release, and it's for multidiscipline solver as well as SimXpert simulation templating and SimManager for process management.

Decisions like Boeing's to globally and then implement our full suite of simulation products is a clear validation of the value our customer see in MSC's Enterprise simulations, and again that is reflected in the comments by Boeing in the press release. We are not commenting on the size of the transaction because that is confidential. Sam, you want to comment on the revenue side?

Sam Auriemma

Yeah, just to go some of the accounting on that. We were unable to take the any of the revenue associated with contract in Q4 2007, but we will be -- we expect to record that ratably in the 2008.

Michael Coady - B. Riley

Okay. That helps. Thank you.


Your next question comes from line of Barbara Coffey with Kaufman.

Barbara Coffey - Kaufman

Yeah, when you take a look at around the world, you are working in country that around the world and your revenues put. Are there different selling cycles in these countries, or is it more based on industry-selling cycles?

Bill Weyand

That's a good question. This is Bill. That the selling cycles for our SimEnterprise solutions have been clearly long as we originally anticipated, and that's when you are introducing new game changing technology, and it’s in the early releases that customer tend to do pilots or proof of concepts kinds of projects. America is traditionally is a early adoptive new technology, as Europe is, and Asia-Pacific history-wise tends to lag the adoption of new technology.

So having said that, where we are today is that our sales cycles for our new solutions were clearly in '07 much longer than we thought. However, with the robustness of our new releases and the industry support a need for these innovative products. I think our sales cycles in '08 will be shorter and our pipeline is indicative that the opportunity for SimEnterprise solutions is very large. So, again in quick summary, the Americas and Europe tend of adopt quicker and Asia-Pacific much slower.

Barbara Coffey - Kaufman

And when you sort of look at your pipelines for the Sim products versus the MD products, can you taking a look at that is there a country that sort of looks like it's far more going to the more enterprise solutions rather than the less enterprise solutions or is there way to profiles that?

Bill Weyand

I think the way to profile it is, and again just a little history is that we implemented starting back in Q2, and we have been running the company globally through And our visibility is excellent, and the process that you go through in the gated system really gives us a very accurate picture of where we think we are going to be and that we are able to get there on a quarterly basis.

Secondly, is that our customer base, where we have strong relationships, which is obviously auto and aero and manufacturing, are also slower to move to basically game- changing technology until they can use it, because that this is a sort of focused on it. Secondly, as in the new industries are moving in, if we make approach them at the right levels, meaning a higher level ROI solution, they tend to move much faster. And we talked about Whirlpool a year ago, but that was a relatively short sales cycle with less than six months.

Some of the aerospace companies take a year or even longer from exposure to game changing technology to making decisions until they deploy it for aircraft or per automobile or per division of the whole company -- and again, quoting the press release there is that for Boeing to make the decision and to commit to deploy our SimEnterprise solutions globally, is a big decision for them, and we are very pleased that they've selected us, and it's also indicative of the value of our new solutions. So its customer, I also should mention that we started about a about a year and half ago forming alliance partnerships with our major customers to move from supplier, vendor to a more-alliance partnership.

With the Boeing announced, we've actually moved from our alliance partnership to a strategic partnership. We have an access of 18 alliance partnerships worldwide, and with that SimEnterprise solutions we'll move from a preferred partner to a strategic partner. I think that's a key part of it. Is that when you move from a preferred partner as a good supplier, good technology company to a strategic partner, that's when you clearly become the standard for what they deploy within their company.

Barbara Coffey - Kaufman

Thank you.

Sam Auriemma

You're welcome.


Your next question comes from the line of Woo Jin Ho with Merrill Lynch.

Woo Jin Ho - Merrill Lynch

Thanks. Bill, Sam, where there any customers have represented 10% of total software revenue in the quarter?

Sam Auriemma

Not this quarter Woo Jin, not in Q4.

Woo Jin Ho - Merrill Lynch

Okay. Just some qualitative comments on the pipeline, I know you touched upon the prepared remarks, but can you just discuss the breadth-depth of the pipeline, the number of deals in the pipeline moving from the pilot to Phase I, Phase II deployments, the number 7 figure deals in pipeline, regional vertical distribution of pipeline of that nature?

William Weyand

Woo Jin, we haven't developed that through the quarters, we will probably give more granularity starting in Q1, but we're very pleased with the breadth of the pipeline, the process works. The extent of the pipeline in our traditional products, as well as SimEnterprise is very, very encouraging.

Woo Jin Ho - Merrill Lynch

So, in terms of -- okay, so in terms of the pipeline itself, compare to this time last year. How do you compare the pipeline, do you believe it's healthier than this time last year?

William Weyand

I'll let Sam answer that.

Sam Auriemma

Yeah, that started in Q2. So I can't comment on that, but clearly the pipeline inbuilt, we're in the middle of the implementation of that system. It's going well. Bill mentioned that we're getting better clarity on it. It's growing in terms of robustness. And as we get closer to closure rates on that, and we get closer to more insight on that, we look forward to give more color on that like we have in our financial results. Right now, we just generally characterize it with words.

Woo Jin Ho - Merrill Lynch

Got it. In terms of budgets for '08, Bill, in your discussion with customers on simulation budgets, what's your sense of the directional trend, especially in light of some of the macro concerns at the US?

Bill Weyand

Sure. Obviously, there is a fair amount of uncertainty in the economic climate today. Having said that, and again, I'm quoting the Boeing press release, if there is a high value ROI from a technology solution and it drives innovation, I think that we'll continue to move to the forefront of the investment priorities versus backseat. That's number one.

Number two is that of our 10 industries, we are focused on as well as running globally very well, if you look at Q4 the Americas had a very, very strong Q4. We have a very seasoned sales team. We're in the final stages now that we're in '08 of new fiscal year. So we're very encouraged that although there are economic uncertainties between our geographical focus doing well globally in all areas as 10-industry focus, is that we will continue to deliver good results.

Woo Jin Ho - Merrill Lynch

Okay. And just a couple of more. So the fourth quarter was clearly a seasonally strong quarter not only for you but also for your simulation peers. What is your degree of comfort that the fourth quarter was not on an anomaly and a function of seasonality and that you can deliver more consistent results going forward?

Bill Weyand

I think again without going into the details, it's business activity, deferred revenue, pipeline, major wins, people moving from pilots and proof of concepts to major deployments, customers that bought MD Nastran are now moving to the whole multidiscipline solution with Adams and Patran, et cetera. And so, we are clearly gaining momentum in what was introduced in '06 and '07, and we are clearly gaining wider and bigger deployment.

When we announce some of the other Q4 orders, when we get approval, you will see customers continuously placing orders of size for multidiscipline solutions and clearly moving rapidly to SimManager and SimXpert. When you look at the aerospace industry, just an example, we announced Airbus in the beginning in Q4, end of Q3 moving to SimXpert. Now in the Boeing press release, and again I quote, is they are moving to SimXpert as well. Other aerospace companies are, too. It doesn't take many OEM to make those kinds of commitments that you create basically a standard within the industry. And of course, the good news about the aerospace and auto industry is once you're in the OEM the supply chain has to follow.

So we're very encouraged that we are well positioned today with our customers in the marketplace with our latest releases. We are also pleased that they hear other PLM companies recently announcing simulation enterprise products and solutions, and that will help drive the market. The good new is we're the only ones that have a solution that's ready for prime-time deployment. And that's why we're getting selected by these companies and more to be announced.

Woo Jin Ho - Merrill Lynch

Okay. Well, that's a good segue to my last question. As you know, your PLM peers are clocking a bit more on the simulation data management side, so it's actually being a bit more vocal with their SLM strategy. Can you just talk about the growing encroachment of those traditional PLM vendors into the enterprise simulation space? And has your dialogue with customers changed over the recent months as a result?

Bill Weyand

Well, again, I think its good news because there is more than one company driving the marketplace. That's number one. Number two is that their announcements with PowerPoint presentations of moving into this clearly validate the product and market opportunity for not only us, but that they are going to help drive it. And three, every important customer, like the Boeing, I'm sure evaluated the entire market before they made the decision and a selection and selected us as their global enterprise simulation partner with this new multi-year agreement.

Woo Jin Ho - Merrill Lynch

Thank you.


There are no further questions. I would like to turn the call back to Bill Weyand for closing remarks.

Bill Weyand

Thank you. Well, in summary, 2007 was a transition year for MSC, and we believe we are completing the transition back to being a growth company. Q4 was a solid quarter for us worldwide. Our products are now running on all cylinders worldwide and we believe we are gaining traction in many industries. MSC is now focused on organic as well as acquisitive growth and improvement in our cost structure for '08.

MSC's SimEnterprise solutions are delivering high ROI and real product developed innovation for our customers. With the release of R3, our simulation solutions are feature-rich and deployment ready. We believe the new multiyear agreements with companies like Whirlpool, Fincantieri and now today's announcement of Boeing, to name a few, is a watershed event for MSC, as well as the simulation of marketplace.

Considering the present economic concern, we believe MSC is well positioned with high innovation in ROI solutions, as well as geography and industry diversity, as well as our strategic division to deliver operational improvements going forward.

Thank you.


This concludes tonight's conference call. You may now disconnect.

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