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Executives

Joanne Keates - Vice President, Investor Relations

William J. Weyand - Chairman, Chief Executive Officer and Principal Executive Officer

Sam M. Auriemma - Chief Financial Officer and Executive Vice President

John A. Mongelluzzo - Executive Vice President, Business Administration, Legal Affairs and Secretary

Analysts

Woo Jin Ho – Merrill Lynch

David Hines – Needham & Company

Michael Coady – B. Riley & Company, Inc.

Mark W. Schappel – Benchmark

Stan Manning – Manning Investments

Greg Eisen –ICM Asset Management

David Heller – Delaware Street Capital

MSC.Software Corporation (MSCS) Q2 2008 Earnings Call August 5, 2008 4:30 PM ET

Operator

Welcome to the MSC.Software second quarter earnings conference call. (Operator Instructions) I would now like to turn the call over to Joanne Keates, Vice President of Investor Relations at MSC.Software.

Joanne Keates

Thank you for joining us this afternoon to discuss MSC's second quarter financial results. On the call today from MSC we have Bill Weyand, our CEO and Chairman; Sam Auriemma, our CFO; and John Mongelluzzo, Executive VP. I’d like to point out that the presentation slides for this call are available for download from our website at www.MSCSoftware.com/IR.

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 materially from those implied by the forward-looking statements. Important factors that may cause actual results to differ from expectations are discussed in risk factors in our quarterly 10-Qs and our 2007 Form 10-K filed with the SEC. We undertake no obligation to revise or update publicly any forward-looking statement for any reason or at any time.

At this point, I would like to turn the call over to Mr. Weyand.

William J. Weyand

MSC’s second quarter total revenue grew at 6%. Maintenance growth in Q2 was 13% to $36 million. The continued strength in our maintenance review is now indicative of the quality of our products and represents a tremendous asset to our business. Service revenue also grew in the quarter up 26% o $7 million. Our services business now is a growth opportunity for us going forward. Enterprise simulation represented approximately $7 million or 33% of our total software in Q2. R3 product launches in Q2 now have robust functionality and are feature rich. This should begin the move in of our early adopters, customers doing pilots and proof of concepts to move to phase global deployment. Deferred revenue was up 18% from the year end to $95 million, cash and investments up 16% from the year to $156 million, net cash generated in the first half of the year is $27 million.

In regard to Q2 product launches we reached an important milestone for our company and our customers with releases in Q2. Engineering analysis our traditional product suite launched new products in Q2 that provide seamless and pass forward integration to our enterprise and MD solutions as well. SimEnterprise R3 launch also in Q2. SimXpert, SimDesigner and SimManager today have a market ready portfolio. We have significantly improved the way analysis and collaboration can be done across the engineering enterprise. This will help drive more global deployments as move from early adopters doing pilots and proof of concepts to having a feature rich solution that they can deploy and generate real value on a global basis. Some of the early phases indicators are the Boeing previous announcement, Audi, Bell Helicopter and today Alenia Aerospace.

In terms of some key order wins in Q2 I’ll talk a little bit about Sanvic and Tata Motors. In regard to Sanvic it’s a mining and construction company and they are looking at critical engineering and business issues to increase product innovation and quality as well as maintain best in class and deeper product insight. We are implementing with them increased non-linear applications to improve their simulation throughput. Tata Motors is the largest India major auto OEM and recently purchased Jaguar and Land Rover. We are a crucial aspect of their R&D initiative to develop alternate energy fuels and shorten development cycle and drive process improvement and automation to optimize knowledge reuse and improved time to market. This is an upgrade which we have been part of our architecture to move from traditional engineering tools to our SOA architecture for the enterprise and this will help them and our company move to data capture management and process improvement.

We’re also very pleased today to announce another major global aerospace company moving to SimEnterprise on a global basis. Today we issued a press release in conjunction with Alenia Aerospace and I quote from the press release a couple important issues. After a two year intensive evaluation involving more than 10 suppliers, Alenia Aeronautica selected MSC to implement their virtual and physical prototype simulation portion of this project and complete it by the end of 2009. They will be deploying SimManager, SimXpert and MD and I quote their CTO, Alenia Aeronautica moves to fully digital product development process by validating process and functional simulation throughout the enterprise. We are delivering a multi-discipline integrated solution platform that will improve their business infrastructure through their supply chain and their corporations worldwide. This is clearly a phased project and in the press release the first phase order was placed in Q2 08 and this project will be completed as they say in the press release by the end of 2009.

We also announced technical acquisition in Q2 with the acquisition of the McNeil Group. This is next generation simulation and is for parts and assembly analysis and as most of you know Dick McNeil was the founder and former Chairman of McNeil-Schwindler in 1963. He was also the original architect of finite element modeling and creating of Nastran and he has moved to a new superior solution that will extend the technique to advance part and assembly modeling. This technology will be incorporated in our multi-discipline solution.

Also a few weeks ago in the Aerospace Manufacturing Magazine a feature article in regards to the [inaudible] Air Show we were the feature article on innovative yet proven and this article highlighted SimEnterprise Enterprise Simulation and comments on over the last several months key aero manufacturers have committed to work with MSC SimEnterprise solutions including Boeing and Bell Helicopter and again we’d be happy to provide copies of this.

Moving on you all know that IBM is one of our strategic partners in the deployment of SimManager. They recently conducted their annual CEO study and the feature of the study is the Enterprise of the Future. IBM is again a key systems integrator partner with MSC. COs are moving aggressively towards global business designs and the enterprise of the future looks to be more open and integrated evolving from tools to more global collaboration platforms. Companies now increasingly need a standard space simulation technology infrastructure platform to share and collaborate not only throughout their global operations but their supply chain as well and this further validates MSC’s strategy which they’re executing on.

Moving onto quarter carrying salespeople we’ve been in a transition building from a retooling of the sales force. Our numbers are about the same as the previous quarter. We’ve implemented SalesForce.com and are managing our operations worldwide in that manner and we’re driving pipeline growth. Looking at Q2 transaction metrics and Sam will give a lot more color on this our transactions over $100,000 increased from Q2 07 of $105,000 to Q2 08 of $147,000 and average transaction size from $210,000 to $248,000.

Before I turn it over to Sam to go through some of the details of Q2 and some color on our infrastructure improvements, a few comments on our company transition. As the company enters its final phase of its product and corporate transition focus now turns to traditional business model and cost infrastructure improvements. As you all recall the first phase was the corporate transition from completing the restatement process. The second was transforming the long term growth plan including increasing development and resources and evolving the sales force into a new business model, rationalizing the product suite and getting to robust functionality. We now are in the stage to move more toward the traditional operating model, aligned our cost structure with continuous improvements as we go forward. These measures will result in savings in our operational cost structure for Q3 and Q4 as well as 2009.

With that, Sam, could you add some color?

Sam M. Auriemma

Now let’s talk about our financial results for the quarter. Total revenue for the second quarter was $64.4 million and that’s up 6% or $3.7 million from the $60.7 million of the prior year. That increase was favorably impacted by changes in foreign currency of $5.9 million. For the six months total revenue also grew 6% or $7.3 million to $125.7 million and had favorable FX impacts of about $11 million. For completeness we have included a table detailing the impact of FX in each revenue component.

Now let’s talk about our individual components of the revenue. Software revenue for the second quarter decreased 8% to $21.1 million and this decline was due to decreased revenues of engineering tools of about $4.8 million offset by an increase in enterprise simulation licenses of $2.9 million. For the six months software revenue totaled $43 million and decreased 6% when compared to the prior year. As many of you that follow MSC know we are in a product transition period that continues to impact software license growth and we saw this again in Q2.

The next slide details for the last several quarters to proportion of license revenue represented by our enterprise product lines, enterprise solutions product revenue continues to increase as a percentage of overall license revenue and for 2Q represented 33% of total software revenue or about $6.9 million. Turning to maintenance for the second quarter maintenance revenue for Q2 increased about 13% to $36 million and for the six months ended June 30th, 2008 increased 14% to $69 million. The increase in maintenance for both periods is the result of timing of renewals, incremental increases in our installed base, FX and continued high renewal rates.

Our customers continue to see the value in our technical support and the strength of the maintenance revenues is a substantial asset of this business. For the second quarter services revenues increased 26% to $7.4 million and that’s a really nice comparison. This is primarily attributable to NZ solutions and SimEnterprise implementation services engagements. For the six month period services revenue totaled $13.7 million and that’s up about 16% from the prior year.

Geographically for the second quarter the Americas contributed 31% of our revenues, AMEA contributed 38%, Asia Pac contributed 31% and we continue to have a good balance of revenue across all three of our operating regions.

Taking a look at expenses gross margin for the second quarter was approximately 81%, software gross margin was 87% and maintenance and services margins improved to 78%. We expect both total gross margins and software margins to be relatively stable in the near term. During the second quarter we initiated several cost reduction initiatives impacting employee headcount and outside consulting services. The workforce reductions will impact approximately 6% of the workforce. Reductions in contracted services is expected to reduce consulting headcount by more than 70 people. Severance related charges associated with these reductions will total approximately $1.8 million, $300,000 of which we recognized in the second quarter.

Assuming no currency fluctuations these cost improvement measures will drive savings in cost of dollars of approximately $2 million per quarter from Q2 levels when fully implemented and are evenly distributed amongst our cost categories. Operating expenses for the quarter total $52.5 million in the second quarter and about $106.2 million in the six month period of 2008 and are up 14% and 1% respectively from the prior year’s results. Sales and marketing expense increases contributed heavily to the overall growth in expenses as the company continues to make investments in its efforts to improve sales of new products. To a lesser extent increases in R&D on a year-over-year basis lifted operating costs in Q2 as the company continued its effort to develop and enhance all its products.

Now with the release of R3 we reduced consulting costs as we mentioned earlier in an effort to improve this cost structure. It should be noted we are forecasting R&D at about $53 million for the year and that’s down from our Q1 estimate. To give you some insight on the FX impact of our expense numbers we have again included a table. We also had a number of charges associated with the restructure and other items that impacted operating expenses that are summarized on the table on the next slide.

Taking into account the aforementioned factors the company reported an operating loss of $250,000 and that’s against an operating profit of $3.8 million for the second quarter a few thousand and eight seven and a six month operating loss of $4.8 million versus $9.6 million in the same period of 2007. During the quarter the company sold its remaining interest in marketable securities and reported a gain of $2.7 million and that helped the company to report net income from continuing operations of $1 million or $0.02 a share in the second quarter of 2008 versus $1.5 million or $0.03 for the second quarter last year. For the six months the company reported a net loss of $1.2 million or $0.03 per diluted share and that compares to a net loss of $5 million or $0.11 per diluted share in the six months last year.

Our effective tax rate for the three months ended June 30th was 51%. This rate differs from the US Federal tax rate of 35% and that’s primarily due to the impact of state taxes, earnings from foreign tax jurisdictions, nontaxable stock-based comp and other permanent items not included in taxable income as well as various uncertain tax positions.

Quickly on the financial metrics overall deferred revenue as Bill mentioned grew $14.7 million from year end to $94.3 million at June 30th, 2008. Growth and deferred revenue reflects good business activities especially in booking ratable maintenance revenue renewal contracts. Net cash provided by operating activities was $26.7 million in the six months ended June 30th and that compares to $5.9 million in the six months last year. Cash generated by operations is primarily attributable to cash earnings, increases in deferred revenues and higher collection of accounts receivable. Our DSOs at June 30th stood at 82 days. Cash and investments at June 30th, 2008 was $156 million and that’s a nice increase from $135 million at December 31st, 2007. Cap ex in the first half of 2008 totaled $1.2 million.

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

William J. Weyand

Just final comments before Q&A, again we believe that we’re in the final phase of our corporate and product transition, our business model is stabilizing, we continue to focus on sales execution as well as continuous improvement in our cost infrastructure. The chart that am looking at and referring to now is revenue growth quarter-over-quarter, year-over-year and you can see here clearly that 07 was clearly a year of transition through products and organizations and starting in Q4 we are looking forward to a more traditional business model and beginning to be a growth company again.

With that let’s open it up to Q&A.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from Woo Jin Ho – Merrill Lynch.

Woo Jin Ho – Merrill Lynch

Bill, you talk about stability in the business model and trying to return to a growth into 09, could you just talk about some of the strategies and how you’re going to stabilize the tools business? I think that’s one of the foundations to at least returning to that path of growth.

William J. Weyand

When you look at our traditional engineering solutions business it ends up being in two categories, traditional standalone tools with proprietary architecture and the part of our SimEnterprises, the MD solution which is more an SOA architecture. We’ve been investing clearly in our traditional tools and specifically around the releases in June as well as we’ve done a number of technical acquisitions the McNeil Group being the third one in the last three quarters which will clearly differentiate our simulation technology and finite element technology from anything else in the marketplace. That’s number one.

Number two is that it is absolutely clear today than in our introduction and doing pilots with many, many customers, the major OEMs around the world, for a new solutions pilots, proof of content that we did cause a pause in the buying of our traditional business. And that is that if they’re evaluating MD Nastran or Patran or Adams versus the stand alone technology that they tend to put on hold until those proof concepts and pilots went through the cycle. We now have over 300 major global companies that have been testing and doing pilots of our MD solutions and I think you’ll see them very complementary going forward in terms of having much broader functionality. The reality is you have to be able to do the old job in new technology so having feature rich functionality in our traditional business moving to a multi-discipline environment as well as with again the Q2 releases all of our traditional pool is now clearly integrated with our SOA architecture as well.

Then last but not least is the, which we have commented on, is we’re focused on not only a direct sales model but continue to invest and expand our partners channel business with is more the traditional tool business.

Woo Jin Ho – Merrill Lynch

You mentioned fairly early on the call that you’ve used services as a growth opportunity. Services as been in [inaudible] for the past several quarters. What gives you the confidence that you’ve turned this business around?

William J. Weyand

I think there are several drivers here, we went through not knowing several quarters, but a year and a half of transition where we sold off services businesses and we shut down services business and we built a new services model that is far more profitable adds value to our customers and adds value to us. That’s number one. Number two is that our customers in a stage with the richness of functionality in our June releases that they can move from doing a pilot which requires just some services to a phased deployment which you know the PLM space really well, is that if you look at a traditional PLM space or a product data management space the services part of it ends up being an integral and sizable portion of it. We think given our customers moving from pilots to phased deployment that we will see sustained and continued growth in our services revenue and in turn with our new model service contribution.

Woo Jin Ho – Merrill Lynch

A couple more for me, we’ve seen several high profile enterprise PLM announcements recently, recently Toyota. Now that does lay a foundation for investment into enterprise simulation or given the customers expanded PLM commitment does that limit your near term opportunity? Secondly just an updated commentary on the competition has been talking about getting the SLM strategy into pilots, I was just wondering you’ve seen [inaudible]?

William J. Weyand

First of all we’re very happy that other companies have announced entering the enterprise simulation space, it validates our strategy, validates that the global manufacturers have to today manage the simulation architecture platform on a global basis. That’s number one. As evidenced by again our R3 releases and where we are today in terms of wins and deployment is that everyone customer that we have testing and deploying SimManager and SimXpert already have a product data management system in place so the good news is they’re very, very complementary. Three it shows the IT initiative and the importance of companies dealing with simulation, not just engineer to engineer, but through their global corporation and the supply chain and doing it in a standard space architecture.

This is clearly further documentation that our vision and strategy is at the stage of not only processing the chasm but is a key high value ROI solution for manufacturers globally.

Operator

Your next question comes from David Hines – Needham & Company.

David Hines – Needham & Company

Sam, just one housekeeping question first, the stock-based comp in the quarter?

Sam M. Auriemma

Stock-based comp in the quarter was $5.1 million for the six months.

David Hines – Needham & Company

Do you have the three month number?

Sam M. Auriemma

$1.3 million in Q2 07 against $2.4 million Q2 08.

David Hines – Needham & Company

Where are we in terms of having the visibility to provide guidance? On the last call I think you said for this quarter it was a possibility. I take it that’s not the case. Any color there?

Sam M. Auriemma

We’re still looking at that. We’re giving more color and forward-looking information on our expense structure but continue to talk about gross margins in a forward-looking manner and we’re starting to look at some expense containment. Business still is very difficult to predict and should be difficult to predict in the short term. We’ll look at it. We obviously evaluate it. When we do give guidance we want make sure that we’ve got a good handle on that number and we’ll continue to evaluate it as we go forward.

David Hines – Needham & Company

I guess one technical question for Bill, Richard and I have heard that this is an issue from competitive vendors. If a engineer makes a change to a completed CAD design does your software have the functionality to automatically go back in and know which pieces of the design need to be re-simulated as a sanity check?

William J. Weyand

Good question, I don’t have the answer for it. I’ll get you the answer though. We had moved and if you remember the press release in June in regards to PTC and [ProE], we’ve moved to a more open standard in exchange with our new technology that can move simulation into CAD and simulation out of CAD and provides truly seamless pass forward for them and it’s very inoperable. I think the answer to question is yes.

Operator

Your next question comes from Michael Coady – B. Riley & Company, Inc.

Michael Coady – B. Riley & Company, Inc.

Sam, I missed what you said about a $2.7 million gain in the quarter.

Sam M. Auriemma

We had some marketable securities we’ve held for a very long period of time. We disposed of a portion of those last year and then this quarter we sold the remaining piece we had and we recorded that in the other income category.

Michael Coady – B. Riley & Company, Inc.

Not to harp on it but in terms of the R3 release what are the tangible signs you’re seeing that customers are moving from pilot to deployment?

William J. Weyand

I think from a public standpoint the most recent one was our announcement today of Alenia. There are a lot of other decisions that have been made and we’ll be making those announcements as those press releases are approved. Again if you go back to earlier this year with Boeing and Bell Helicopter and Whirlpool and now Alenia is that our pipeline is very rich in terms of having over again 300 companies that are working with MD and we have over 50 global manufacturers that are in come phases of SimEnterprise which is SimManager and SimXpert. We have the press release in terms of what Airbus is doing with SimXpert as an example.

Again the architecture is proven, the functionality is wide so they can do real work in it and we’re now at the stage which is important to our company that our product development from an expense standpoint has peaked and our people can now do their serious work on a global basis with our enterprise solutions. All this is SOA architecture based which means standard space which is ending up driving some of the important aspects of EADS and their project Phoenix is to correct the lack of integration that they suffered on the 380 project and have a new infrastructure in place that solves that. I think many companies will be doing the same.

Operator

Your next question comes from Mark W. Schappel – Benchmark.

Mark W. Schappel – Benchmark

Sam, just start with you, could you repeat the severance and restructuring charges that you will be taking over the next quarter or two?

Sam M. Auriemma

We estimate around $1.8 million, Mark. We took again $300,000 during this quarter. We expect for the bulk of those to be done by September.

Mark W. Schappel – Benchmark

The headcount reductions, did they occur at the end of the quarter or were they at the beginning of this quarter? Could you just clarify that?

Sam M. Auriemma

It didn’t have much impact in Q2, they were late in the quarter and they’ll continue to move on as we report Q3.

Mark W. Schappel – Benchmark

Over the past six or nine months there’s been three relatively small acquisitions. Could you give us a sense of how much revenue you’ve been able to garner from those? Granted I’m sure it’s not that much.

William J. Weyand

You’re correct. It hasn’t been that much. The first two acquisitions that we did are on plan for the revenue when we acquired them. They were small tuck ins in terms of open CFD and composite. The McNeil acquisition that we announced in June basically is a first stage technology so it doesn’t have revenue yet. However these technologies will all become part and are being put into our multi-discipline solution which will help drive that MSC is moving in the direction of being the basically system integrator for all CA within our customers’ operations. Having said that we’ve done technical acquisitions that support our traditional tools business. The good news is we’ve got almost $160 million of cash, so going forward we know we’re in a consolidating market. We’re going to probably raise the bar and look at doing acquisitions of scale for the company as well as delivering revenue.

Operator

Your next question comes from Stan Manning – Manning Investments

Stan Manning – Manning Investments

If 150 of them converted all the way could you give us the amount of revenue per stage, the potential? Can you do it per one, per 100, per 300? I want to get a fix on what we’re looking at with what’s going on.

William J. Weyand

At our June technology update conference we presented two basically business models, one for the MD and the second for SimEnterprise and we said that a pilot was in the order of X dollars and we’ll be happy to send you those pages and first deployment was larger and extended deployment was larger than that. If you look at enterprise they start off in about $200,000 to $500,000 is the pilot. First deployment is about $1.5 million and then extended deployment is $3.5 million to bigger numbers depending upon the size of their global operation. These are rough estimates but if you look at again our Alenia press release and again there aren’t dollars in here but they’re looking at an 18 month deployment. Having said that they started the evaluation two years ago to get to this conclusion.

Stan Manning – Manning Investments

What stage is Alenia?

William J. Weyand

Alenia in the press release says they placed the phase one order in Q2 of 08 and they expect to complete the entire global deployment in the next 18 months.

Stan Manning – Manning Investments

So that’s $200,000 to $500,000 is what they committed to in first phase?

William J. Weyand

We’re not disclosing the amount. Actually the pilots that they did last year were the $200,000 to $500,000 and they did three pilots. MD Nastran, SimManager and SimXpert and we announced those orders throughout the year so this is moving from those pilots to phased global deployment and that’s about as much color as we can give you right now on that. Our customers do not allow us to talk about deal sizes or license revenue or services revenue as specific numbers.

Stan Manning – Manning Investments

DSOs went up significantly. Can you tell us what’s going on? Sales are basically on a FX corrected basis flat so why are they going up so much? What’s going on?

Sam M. Auriemma

I’d like to correct you on that, Stan. DSOs are 82 days and that’s down from the prior year.

Stan Manning – Manning Investments

I must be looking at the statement backwards.

Stan Manning – Manning Investments

We talked about that. In Q1 08 we had 96 days sales outstanding. This quarter we reported 82. Q4 07 we reported 91 and a year ago we reported 98 so we’ve had [inaudible].

Stan Manning – Manning Investments

I’m dyslexic, I look backwards. Last, Bill, we keep accumulating all this cash and I guess I’ve got to ask the same question, with the stock so cheap why are we not doing first of all the buy back we’re committed to and number two, doing even more than that since the best return you could get on the investment if things are coming down the road so wonderfully the best investment you could made is buying the stock at these current levels, buying it in, which would also allow to use script for acquisitions also.

Sam M. Auriemma

We continue to look at that, the Board continues to evaluate it. For now we’re keeping our powder dry and we want to do some acquisitions as we go forward as Bill indicated and we don’t think at this moment in time we want to go ahead with that. It’s a Board decision.

Stan Manning – Manning Investments

But nobody’s answered the question that it is one gigantic return on our investment if things that are coming down the road are so wonderful.

Sam M. Auriemma

I think we’ve answered the question.

Operator

Your next question comes from Greg Eisen –ICM Asset Management.

Greg Eisen –ICM Asset Management

Looking at Slide No. 12 of the deployment of your sales people, you carry and have traditionally carried a great deal many more sales people in it looks like the Asian market. Am I correct? I’m looking at it black and white since I printed it. In the 70s in the Asian market versus the Americas or AMEA markets for really not any more sales. Is there any structural reason why that should be that way, that it’s just less dollars productivity per person?

William J. Weyand

Two reasons and you’re bringing up a valid point. Number one is that Asia Pacific parts of it area growth market like India and China and we’re investing very heavily there and parts of it are still a traditional tools market so that license revenue for our traditional tools market per sales person tends to be like in Japan a lower number than other markets. Then there’s a language issue as you go from country to country to country so the infrastructure to support our key customers in India or Korea or China, Australia, etc., Japan ends up being the real driver there.

Greg Eisen –ICM Asset Management

All the different languages and all the different markets you need to have more people to cover the area we call Asia Pacific as opposed to say the Americas where US and Canada are the biggest single dominant piece?

William J. Weyand

You’re 100% right on and again I’ll say it is that we’re investing like all of our peers heavily in China which is clearly going to be the biggest growth market globally.

Greg Eisen –ICM Asset Management

On that same slide you have a bullet point that says driving pipeline growth, can you give us any numerical metrics to define what the pipeline looks like now versus what it looked like at March 31 or December 31 or a year ago?

William J. Weyand

We haven’t given that kind of color yet, we’re probably getting closer to it. When we deliver on the license acceleration execution side we’ll probably give you more color on that. But we implemented SalesForce.com globally about six quarters ago. The pipeline for our traditional products and our SimEnterprise solutions is continuing to gain robustness. The timing is still a little uncertain as to when they close and when they get booked, but having said that, we’re running the company by it. The whole process works, the system works and we’re getting more comfortable as the year plays out.

Greg Eisen –ICM Asset Management

Hopefully you’ll be able to at some future call give us more detail there and I guess my last question is I realize you have a long lead time, the sales cycle for the enterprise sales, it’s not an overnight sensation. Nevertheless, tell us why you believe and why we should believe the global economic slowdown which appears to be happening in most of the markets, clearly North America we keep hearing Europe and probably Asia, especially China after the Olympics, why that won’t greatly retard your achievement of the goal of seeing the acceleration in license revenue? Why should you be an exception to the macro?

William J. Weyand

That’s a very good question. I think your comments in regard to the traditional engineering tools, see the software business, that could happen. However with the significant ROI in infrastructure companies are gaining from managing this on a global basis is very, very significant. Therefore if a company is looking at cost reduction as well as innovation improvement through themselves and the supply chain our SimEnterprise solutions are really a driver of that acceleration of product information and reduction in costs and go through it. If you go back to our Audi press release about 60 days with SimManager which is our largest deployment in the world they are managing all of their operations within their company as well as 200 suppliers with SimManager and have significantly improved productivity of their people plus don’t lose data, don’t lose simulation and they store it all so they’re able to store best practice templates they reuse so they’re not reinventing the wheel each time. That is a big driver for quality, cost improvement and product information and lowering costs.

Actually we’re seeing that the companies that are more challenged today in the economy are accelerating the investment versus business as usual.

Greg Eisen –ICM Asset Management

So they can’t afford not to invest in re-engineering their processes?

William J. Weyand

Exactly, and again I refer it because it’s a very public program that EADS, the parent of Airbus, has a very dynamic huge project called Phoenix and that’s to correct and improve their global infrastructure for managing all PLMs through their operations as well as their entire supply chain. They recently selected one of the companies in our space for the PLM side. They are clearly using a number of our products like SimXpert and MD and so on and you’ll see that a company like EADS or anyone else manufacturing globally will need to take the next step to go from point solutions to a standard space enterprise solution.

Operator

Your next question comes from David Heller – Delaware Street Capital.

David Heller – Delaware Street Capital

As you guys know we’ve been shareholders here for a long time and I’m just curious what either management or the Board is doing to address suggestions of Elliot filed in the 13d and basically what I’m saying is can we at least find out if we’re better off selling the company now or better off trying to get [inaudible] to accelerate?

Sam M. Auriemma

I understand your question. For obvious reasons we can’t comment on that 13d filing or any action that the Board may or may not contemplate associated with that. It’s just not a question we’re going to answer.

David Heller – Delaware Street Capital

You’ve been sitting on this cash since I’ve been in here for three years and I urge you and the Board to address some of these shareholder concerns which are what are we doing to maximize shareholder value versus just sitting here quarter after quarter with flat growth. It’s very frustrating at this point. I just wanted that noted on the call.

Sam M. Auriemma

I understand.

Operator

There are no further questions at this time.

William J. Weyand

Final comments, we believe that costs have peaked for MSC.Software in Q2 and we will improve to a more traditional software business model going forward. We also believe that the key enterprise wins at Boeing, Audi, Bell Helicopter and now Alenia will help drive adoption with other major aerospace, automotive and heavy manufacturers with respect to the supply chain as well. The R3 robustness of our product releases is at a stage where customers can now move from doing pilots and proof of concepts to global deployments and we think the momentum over time will continue to build.

We are mindful of the global economic market environment but since we provide our customers with hard dollar savings and meaningful ROI our business pipeline remains strong. Thank you.

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Source: MSC.Software Corporation Q2 2008 Earnings Call Transcript

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