CIMdata PLM Industry Summary Online Archive
28 February 2007
Financial News
MSC.Software Reports Financial Results for the Fourth Quarter and Year Ended December 31, 2006
MSC.Software Corporation announced financial results for the fourth quarter and year ended December 31, 2006.
REVENUE
Total revenue for the fourth quarter ended December 31, 2006 was $66.0 million compared to $84.9 million for the 2005 fourth quarter. Software revenue for the 2006 fourth quarter totaled $27.9 million compared to $46.3 million for the 2005 fourth quarter. The 2005 fourth quarter included $1.7 million of non-recurring PLM software revenue. The PLM business was sold in March 2006. In addition, the 2005 quarter benefited by $6.0 million in net restatement adjustments. Restatement adjustments arise from software license transactions which occurred prior to January 1, 2005. Net restatement adjustments reflect the difference between the restatement adjustments in 2005 and the restatement adjustments in 2006. For the fourth quarter ended December 31, 2006, maintenance revenue totaled $29.4 million and services revenue totaled $8.7 million, compared to $27.5 million of maintenance revenue and $11.0 million of services revenue for the 2005 fourth quarter. The 2005 quarter included $1.2 million of PLM services revenue.
Total revenue for the year ended December 31, 2006 was $259.7 million compared to $295.6 million for the year ended December 31, 2005. Software revenue for 2006 totaled $111.2 million compared to $144.0 million for 2005, which included $4.5 million of non-recurring PLM software revenue. In addition, 2005 benefited by approximately $11.0 million of net restatement adjustments. For 2006 maintenance revenue totaled $115.1 million and services revenue totaled $33.4 million compared to $107.5 million of maintenance revenue and $44.1 million of services revenue in 2005, which included $3.2 million of PLM services revenue.
"Fiscal 2006 was a year of both significant accomplishments and important challenges for MSC," said Bill Weyand, CEO and Chairman of MSC.Software. "We completed the accounting restatement begun in 2004, we became current with all financial filings with the SEC, we successfully divested two non-core business activities and we began trading on NASDAQ, while at the same time completely revamping our product portfolio with a series of significant new product launches that positioned MSC to deliver enterprise simulation solutions."
"We saw good traction with our enterprise simulation products in the fourth quarter, which will result in renewed software license growth opportunities in 2007," added Mr. Weyand. "In addition, by leveraging our relationships with key global partners like IBM and Microsoft, we have positioned MSC to deliver sustained revenue growth both from our established engineering products as well as with our new family of enterprise simulation solutions. Along side our key channel partners including INCAT in Europe and the Americas, and ISID in Japan, we have a significant new revenue opportunity with our SimOffice channel product."
REVENUE BY GEOGRAPHY
Total revenue in the Americas for the year ended December 31, 2006 was $75.7 million, a decrease of 13.5% compared to $87.6 million in fiscal 2005. After adjusting 2005 for software and services revenue totaling $7.7 million for the PLM business, total revenue in the Americas decreased by 5.3%. Total revenue in EMEA for 2006 was $103.4 million, a decrease of 9.8% compared to $114.7 million for 2005. In the Asia Pacific region, total revenue for 2006 was $80.5 million, a decrease of 13.7% compared to $93.3 million for 2005.
RESULTS OF OPERATIONS AND EPS
Total operating expenses for the 2006 fourth quarter were $54.4 million, compared to $52.3 million for the 2005 fourth quarter. The 2006 quarter included $1.0 million of additional stock based compensation recognized pursuant to FAS 123(R) and $1.7 million of consulting expenses related to the Oracle implementation. The 2005 quarter included expenses totaling $2.2 million related to facilities consolidations and $2.0 million related to special investigation and restatement audit fees. Excluding such expenses, total operating expenses for the 2006 fourth quarter were $51.7 million compared to $48.1 million for the 2005 fourth quarter.
The fourth quarter 2006 had an operating loss of ($0.9) million, compared to operating income of $13.3 million in the 2005 fourth quarter. For the 2006 fourth quarter, income from continuing operations totaled $11.2 million or $0.25 per diluted share, compared to income from continuing operations of $5.9 million or $0.14 per diluted share in the 2005 fourth quarter. The 2006 fourth quarter included a tax benefit totaling $11.0 million that was generated primarily by the release of valuation allowance on deferred tax assets.
For the year ended December 31, 2006, total operating expenses were $196.9 million compared to $195.8 million for 2005. Included in 2006 was a $4.6 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 incurred in connection with the 2005 audit, $6.0 million of consulting expenses related to the Oracle implementation, $5.3 million of additional stock based compensation related to the implementation of FAS 123(R), $0.7 million to settle previously disclosed claims and $0.6 million to terminate certain equipment leases. The 2005 period included $8.6 million of expenses related to the special investigation and restatement audit, $4.8 million provision for facilities closures, severance expenses totaling $3.9 million and $2.0 million of expense related to termination of a product distribution agreement. The 2005 period also included $5.7 million of PLM operating expenses. Excluding these items, operating expenses for 2006 totaled $182.9 million compared to $170.8 million for 2005.
Operating income for fiscal year 2006 was $4.7 million compared to $29.2 million for 2005. Income from continuing operations totaled $13.3 million or $0.31 per diluted share, compared to $11.9 million or $0.30 per diluted share for 2005.
GUIDANCE
The Company expects total revenue in the range of $270 -- $275 million for the year ended December 31, 2007. In addition, the Company expects its effective tax rate to be in the range of 40% to 42% for 2007.
CONFERENCE CALL
The Company will host a conference call to discuss the fourth quarter and year end financial results today at 1:30 pm pacific (4:30 pm eastern). An archived version of the conference call will be available until March 2, 2007 and can be accessed at: (800) 642-1687 using the conference ID code: 9323034. An archive of the conference call will also be available at http://www.mscsoftware.com/ir/ .
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