Santa Ana’s MSC.Software Corp.’s big restructuring finally could be paying off.
The maker of simulation software used by manufacturers and aerospace contractors recently nabbed a multiyear, multimillion-dollar contract with Boeing Co., one of MSC’s longtime aerospace customers.
Terms of the agreement weren’t disclosed. Chief Executive Bill Weyand has said the Boeing deal is “the largest single contractual commitment” in the company’s history.
“This is a corporate decision and corporate commitment from Boeing,” Weyand said. “It validates our strategy and the need for enterprise software solutions.”
MSC started a big overhaul in 2004.
“The company has gone through some pretty turbulent times over the past few years,” said Mark Schappel, an analyst at Benchmark Co. in New York. “While the operating picture may be unsettled for another quarter or so, we believe the company’s broad and lengthy turnaround is in its final stages.”
MSC’s software enables manufacturers to simulate different stress, vibration and heat conditions to predict how designs of products will behave in the real world. The software avoids having to build and test expensive prototypes.
Its customers are a laundry list of big companies, including Ford Motor Co., General Motors Corp., Lockheed Martin Corp., PSA Peugeot Citro & #235;n SA, United Technologies Corp. and Caterpillar Inc.
The company has seen some testy times during the past couple of years.
In 2005, Weyand replaced Frank Perna as chief executive and Sam Aureimma replaced John Laskey as chief financial officer.
Laskey was hired in 2004 to replace Louis Greco, who stepped down amid a Securities and Exchange Commission investigation into delayed and restated financial results dating back to 2001.
MSC was kicked off of the New York Stock Exchange and traded on the Pink Sheets for a while.
The company’s been busy working to get its house in order. It’s up to date on SEC filings and now trades on Nasdaq.
Weyand has overseen some major changes during the past year. He’s cut some 85 jobs here, and consolidated and sold off some of MSC’s businesses.
Revamped Products
In 2006, Weyand revamped MSC’s products to focus on selling bundled software packages to the entire company, instead of piecemeal software programs to individual engineering teams.
“In the past, simulation software wasn’t an enterprise decision, it was down in the bowels of engineering,” he said.
The idea is to have a more open format so that information can be shared among different parts of the business and suppliers.
“It allows them to integrate and automate tasks, exchange information, establish best practices and therefore avoid technology or integration failures,” Weyand said.
He said the strategy will pay off later this year, when MSC will see the fruits of the Boeing contract.
Some on Wall Street are waiting to see what the deal means.
“It’s definitely positive, but the question is, ‘how positive?'” analyst Schappel said. “They’ve gotten many deals from Boeing before and from other large manufacturing firms, which is why I’m a little hesitant to pop any corks just yet.”
MSC’s shares are off about 7% for the past year. It had a recent market value of roughly $570 million.
Analysts have other issues with MSC.
The biggest concern for Schappel is the company’s fairly green salespeople.
“The piece of the puzzle that still is missing is in the sales force, especially in North America,” he said. “About 70% of them have been with the company for less than a year. There’s a lot of turnover.”
And MSC seems to be stuck selling to the big guys while ignoring a huge market of midsize players, Schappel said.
“They’ve had a hard time going down market,” he said. “You need more than Boeing and GM and Ford. They are trying to live off of these Fortune 500 manufacturers.”
Earnings
For the fourth quarter, MSC had sales of $71 million, up 8% from a year earlier. Profits came in at about $2.2 million, below analysts’ expectations.
For the first quarter, Wall Street’s looking for profits of about $2 million on sales of $62 million.
In January, MSC bought Chandler, Ariz.-based software maker Network Analysis Inc. for undisclosed terms.
The company is sitting on roughly $135 million in cash and is scouting additional buys, Weyand said.
Analysts are looking for better signs of growth, according to Schappel.
“From a stock perspective, investors don’t care about the acquisitions,” he said. “They want to see the internal workings in order and they want to see them doing it profitably. I’m going to give them a little more time to pull it together.”
Weyand, 63, said he’s in it for the long haul.
“Reinventing a company is a lot of fun and competing is fun,” he said. “I was retired for four years, and it was the most boring part of my life.”
