MSC Software Corporation

Press Release

MSC.Software Reports Second Quarter Results

Discontinuation of Systems Business Refocuses Company on Core Software and Service Product Offerings

SANTA ANA, Calif. -- July 23, 2003 -- MSC.Software Corp. (NYSE: MNS), the leading global provider of virtual product development (VPD) products including simulation software and services, today announced financial results for the second quarter ended June 30, 2003.

Second Quarter Highlights:

Reported revenue including discontinued operations was $80.3 million and reported net loss was $27.8 million or ($0.93) per diluted share
Pro forma revenue from continuing operations was $60.4 million
Pro forma net income from continuing operations, before restructuring and other charges, was $156,000 or $0.01 per diluted share
Exited the systems business as a hardware reseller and intensified focus on core software and service products
Entered into licensing agreement with EDS and completed settlement with the Federal Trade Commission

For the second quarter ended June 30, 2003, reported revenue including discontinued operations was $80.3 million, compared to $95.1 million for the second quarter of 2002. The reported net loss was $27.8 million or ($0.93) per diluted share, compared to a reported net loss of $6.1 million or ($0.21) per diluted share in the second quarter of 2002. During the second quarter of 2003, the Company recorded restructuring and other impairment charges of $25.4 million, and refinancing charges included in Other Expense of $6.1 million. During the second quarter of 2002, the Company recorded restructuring and other impairment charges of $7.8 million, and a write-off associated with the acquired in-process R&D of $2.4 million.

For the second quarter ended June 30, 2003, pro forma revenue from continuing operations was $60.4 million, compared to $68.1 million from continuing operations for the second quarter of 2002. Before restructuring and other charges, pro forma net income from continuing operations was $156,000 or $0.01 per diluted share, compared to pro forma net income from continuing operations of $183,000 or $0.01 per diluted share in the second quarter 2002.

For the six months ended June 30, 2003, reported revenue including discontinued operations was $165.4 million, compared to $161.6 million for the first six months of 2002. The reported net loss was $26.7 million or ($0.89) per diluted share, compared to a reported net loss of $47.8 million or ($1.63) per diluted share in the first six months of 2002. During the first six months of 2003, the Company recorded restructuring and other impairment charges of $25.4 million, and refinancing charges included in Other Expense of $6.1 million. During the first six months of 2002, the Company recorded restructuring and other impairment charges of $7.8 million, a write-off associated with the acquired in-process R&D of $2.4 million and a change in accounting principle of $39.3 million.

For the six months ended June 30, 2003, pro forma revenue from continuing operations was $121.8 million, compared to $114.1 million from continuing operations for the first six months of 2002. For the first six months of 2003, pro forma net income from continuing operations, before restructuring and other charges, was $1.9 million or $0.06 per diluted share, compared to a pro forma net loss from continuing operations, before restructuring and other charges, of $3.0 million or ($0.10) per diluted for the first six months of 2002.

The pro forma results discussed herein are a supplement to financial statements based on generally accepted accounting principles ("GAAP"). These pro forma results include adjustments for the hardware reselling business, referred to as our systems segment, that we exited in June 2003, restructuring and other impairment charges, acquired in-process R&D, debt prepayment costs and a cumulative change in accounting. While MSC.Software decided to exit the systems business on June 30, 2003, the systems business is not yet considered discontinued under GAAP. However, the term "discontinued" used herein refers to our systems segment and the term "continuing" refers to our software and services segments. MSC.Software uses pro forma information to evaluate its on-going operating performance and believes this presentation provides investors with additional insight into its underlying operating results and business trends. A reconciliation between the pro forma and GAAP results is included in the accompanying financial data.

"Although our services business increased by 6% in the second quarter this year versus the second quarter last year, a challenging economy resulted in a decrease in software revenue which caused a decrease in overall revenue from continuing operations. However, recurring revenue derived from annual software leases and maintenance contracts continues to be strong and represented more than 50% of revenue in the quarter. We expect that revenue from continuing operations will stabilize as we focus all of our resources on our software and services product offerings," said Frank Perna, CEO and Chairman of MSC.Software.

"As we discussed in our news release on July 7, the discontinuation of the hardware reselling business allows us to intensify our focus and resources on MSC.Software's core competence: Simulation software and services. We are committed to growing these core businesses and improving margins and positive returns for MSC.Software shareholders. I am confident that our renewed focus throughout the organization will enhance our ability to provide new levels of customer satisfaction, improved margins, and growth," continued Perna.

"With the FTC issue behind us, we focus our attention on providing current and new customers the broadest line of Virtual Product Development products in the industry. In addition, during the quarter we completed a convertible note offering which allowed us to replace short-term, high interest debt with longer-term, low interest debt that dramatically strengthens our balance sheet. These two actions are very positive and have increased management confidence on the execution of our VPD growth strategy.

"A continued strong product release schedule during the second quarter was evidenced by the announcements of MSC.Nastran V2004 and MSC.ADAMS V2003. We are also seeing continued strength in the adoption of our VPD Campus License System and signed contracts with companies like LTV Copperweld, Clorox and Volvo confirm that we are on a very exciting penetration path. A good plan and a solid team provide an optimistic long-term environment for MSC.Software. We will continue to weather the current difficult economic times around the world and are confident that when the economy turns more positive we are well positioned for double-digit growth," Perna concluded.

Americas
Pro forma software and service revenue in the Americas was $20.8 million, compared to $25.9 million the second quarter last year. The total number of new accounts increased by 108 customers, and 25 software and services transactions greater than $100,000 were inked in the second quarter. Major software and service contracts were signed with Raytheon, GE and B.F. Goodrich Aerospace.

Europe
MSC.Software's European pro forma software and service revenue was $20.5 million, compared to $20.6 million in the second quarter last year. The total number of new accounts increased by 23 names. During the second quarter, 18 software and services transactions over $100,000 were signed in Europe. In the quarter, key software and service contracts were signed with PSA Peugeot-Citroen, Israel Aircraft, Volvo and Audi.

Asia-Pacific
In the second quarter, Asia-Pacific pro forma software and service revenue was $19.0 million compared to $21.6 million in the second quarter last year. The region added 25 new account names in the quarter, and 41 software and services transactions over $100,000 were signed. Major contracts were completed with Hyundai, Mitsubishi, Shanghai Aircraft, GKN and Canon.

Outlook
Based on current visibility, the Company expects third quarter revenue from continuing operations to be in the range of $60 million to $64 million and earnings to be in the range of $0.03 to $0.05 per diluted share. In addition, based on current visibility, the Company expects revenue from continuing operations for the fourth quarter to be in the range of $65 million to $70 million and earnings to be in the range of $0.06 to $0.10 per diluted share. Based on current visibility, the Company expects revenue from continuing operations for FY 2004 to be in the range of $260 million to $280 million and earnings to be in the range of $0.35 to $0.45 per diluted share.

Conference Call
MSC.Software's conference call to discuss the second quarter results will be Webcast live today at 8:30 a.m. Pacific (11:30 am Eastern) and can be accessed from the Company's website at http://www.mscsoftware.com/ir. It can also be accessed through the following dial-in numbers: US (800) 374-0151 or Intl. (706) 634-4981. An archived version of the conference call will be available at the Company's website. The conference call replay will also be available one hour after the completion of the conference call at: US (800) 642-1687 or Intl. (706) 645-9291 using the conference ID code: 1572029.

About MSC.Software Corporation
MSC.Software (NYSE: MNS) is the leading global provider of virtual product development (VPD) products including simulation software and services that help 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 1400 people in 23 countries. For additional information about MSC.Software's products and services, please visit www.mscsoftware.com.

Except for the historical information contained herein, certain matters discussed in this news release constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Other factors which could cause such results to differ materially from those described in the forward-looking statements include delays in developing, completing, or shipping new or enhanced products, the ability to assimilate acquisitions into MSC's operations, foreign currency translations, and other risks and uncertainties that are detailed in the Company's annual report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission.

(Financial Tables Follow)