Welcome to the PMTC second quarter fiscal year 2008 conference call results. (Operator Instructions) I would now like to introduce Kristian Talvitie, PTC’s Vice President of Investor Relations.

Before we get started, I want to just quickly cover a couple of housekeeping items. First we had emailed RSVPs for our upcoming Investor, Analyst and Media Day, which is going to be held in conjunction with the PTC User Conference in Long Beach, California, this year. The primary management and customer presentations will be on Monday, June 2, with time available on Tuesday, June 3, for one-on-ones. For those who are interested there will also be an opportunity to attend portions of the User Conference as well. The RSVP email that we sent out has details about hotel reservations and registering but please feel free to give me a call if you have any other questions regarding the event. Also, next quarter we’re going to be making a change to the press release earnings call process. We’ll be issuing the press release and related information after the market closes the day before the call. We hope this will allow everyone, especially the folks on the West Coast, a little more time to analyze the results prior to the call. So today on the call we have Dick Harrison, President and Chief Executive Officer; Neil Moses, Executive Vice President and Chief Financial Officer; in addition, Jim Heppelmann, Executive Vice President and Chief Product Officer; and Barry Cohen, Executive Vice President of Strategic Services and Partners are here to participate in the Q&A. There is supplemental financial and operating metric information, including a reconciliation between GAAP and non-GAAP measures available on our Investor website. And finally, before we get started I would like to remind everyone that during the course of the conference call we will make projections and other forward-looking statements regarding future financial performance, business trends and other future events. We caution you that such statements are only predictions and that actual results might differ materially from those projected in these statements. We refer you to the risks detailed in this morning’s press release, the company’s 2007 Annual Report on Form 10-K, and in the company’s other reports filed with the SEC from time to time. After our prepared remarks we will hold a Q&A session. In order to keep this moving, please limit yourselves to one question and one follow-up. With that I’ll turn the call over to Dick.

As you all read in the press release we had a solid quarter, $259 million in non-GAAP revenue and $0.30 non-GAAP EPS for the quarter. Our Windchill business continues to outpace the market growth. We added 25,500 new seats of Windchill during the quarter, up from 22,950 in Q2 of last year. We now have more than 550,000 maintenance-paying Windchill seats in the market. This is up 28% year-over-year. We are winning in the field. Our technology is performing very well in competitive benchmarks with large global accounts. We launched Windchill 9.0 last quarter and that is going well. We have a number of customers who are already deploying this version of the product. The next version of Windchill, 9.1, will be released this fall and will include incremental improvements to some of the new functionality in 9.0, such as MPMLink for integration with SAP and Oracle, and configuration management capabilities. 9.1 will also offer new capabilities enabling outsourced design to help our customers coordinate better with suppliers and partners. Our CAD business is also performing well in a difficult market environment. We added 5,000 new Pro/E seats in Q2, up from 4,850 in Q2 of last year. We now have over 130,000 maintenance paying Pro/E seats in the market. This is up 4% year-over-year. We just launched Pro/E Wildfire 4.0 during the second quarter. This is the most compelling release of Wildfire and is the culmination of 22 months of development work. 4.0 really builds on the foundation from versions 1 through 3, which were all about improving usability, quality and connectivity with Windchill. 4.0 now comes with some new functionality as well as four new chargeable modules, including a DRM or Digital Rights Management tool, and an ECAD-MCAD collaboration tool. We have big customers who have begun deploying…

As Dick mentioned, we had a very strong quarter, $259 million in revenue with $0.30 in earnings per share. It’s worth pointing out that relative to our guidance, these results include approximately $1.3 million or $0.01 in EPS from a legal settlement in our favor, and another $0.01 of benefit from a lower than expected tax rate for the quarter. Our non-GAAP tax rate for the quarter was 34% rather than the 37.5% we had anticipated. Even taking these items into account, our EPS would still have been at the high end of our guidance range for the quarter. We have approximately 117 million shares outstanding, as we repurchased $22 million worth of our stock during the quarter or approximately 1.4 million shares. From an operating performance perspective, we achieved 21% operating margins, which is a 630 basis point improvement over last year. The drivers of the operating performance improvement were a combination of the margin accretion from the CoCreate acquisition and our ongoing efforts to evolve our distribution model, globalize our workforce, and improve our services business model. More specifically, as a percentage of total revenue, sales and marketing expense was 290 basis points lower compared to the second quarter of 2007, as we continued to build out our reseller channel and our SAM program. Our services net margin was up 370 basis points over the second quarter of fiscal 2007 as we continue to drive up consulting utilization rates and improve the overall efficiency of this business. And our G&A expense was down 100 basis points, reflecting the benefits of our globalization efforts. And importantly, R&D spending remained in line with last year, at 17.7% of total revenues, reflecting our commitment to continue to invest in our integral product development system. Overall, our Q2 non-GAAP operating expenses were…

(Operator Instructions) We do have our first question from Jay Vleeschhouwer - Merrill Lynch.

Dick, first a clarification about your outlook for the year, notwithstanding the softness in the North American region you’re otherwise making no changes in your sales capacity plans or other operational plans for the year?

That’s correct. So in the sales capacity plan, the plan was to go from 380 direct reps at the beginning of the year and finish at 420, which we’re on track, we’re at little over 400 today, and in addition to that we’ve added 30 through CoCreate. So, we’re really going to end the year at 450 direct sales reps. And there’s no current plan to change that. If anything, Jay, if the back half of the year and the forecast remains steady as we go into the beginning of next year, we might even look to add a few more.

First, are you seeing any indications at all that the Windchill business is becoming an inducement to Pro/E or other business by contrast to the historical pattern where CAD business drives PDM business? Additionally, can you comment at all on the rationale for and timing of the forthcoming light version of Windchill?

We’re not really going to talk about any light version of Windchill today, because there’s something in the product plan, but Jay, it’s premature to talk about that. I think what I would say about customer buying patterns today is that in the old days and until the last couple of years buying decisions might have been more CAD-centric. Today customers are looking first at the overall importance and complexity around managing their engineering or product information, and that’s what’s driving most of the decisions. Increasingly, companies like Toyota or Volkswagen, BMW, Airbus, Boeing and others have heterogeneous CAD environments that include electrical, mechanical, the software components we’ve described, and a desire in those larger companies and even mid-sized companies to consolidate around a single data model for product information and to manage that information. So we’re seeing more emphasis on the data management part of PLM. PLM’s a catchall for everything, which is a little bit of a misnomer, but when we look at managing CAD data in the engineering department and in the enterprise, Windchill is by far the market leader. We’re winning the business there versus our competitors. And we do have examples, big examples, of customers that have made those decisions for Windchill and then gone back, companies like Dell, Ingersoll-Rand and others, and consolidated CAD decisions around that PLM decision.

It’s been a year now since you introduced the multiple configurations of Pro/E with other product such as Arbortext. Have you seen any mix and therefore ASP improvements in that part of the business?

Jay, the ASPs for the Pro/E business have remained relatively flat over the past year. And I would say that in terms of the packages, still the most popular packages are the high-end package at roughly $20,000 ASP price point and the low-end package at the $5,000 price point. But we have seen some traction in the other three packages that we announced a year ago.

The other thing is, Jim, just to add, the real reason behind that repackaging and naming project we did last year was to help customers really understand, particularly in the reseller space, the advantage of Pro/E being a scalable product. And I think the best metric is how are we doing with seat sales, because if people understand the advantage of a scalable product they’re more likely to buy that product than some of its competitors. And I think using that metric it feels like that program is working fairly well.

Your next question comes from Sasa Zorovic - Goldman Sachs.

Dick, so specifically regarding currency benefit when you mentioned year-over-year could you tell us what the benefit has been sequentially and specifically since you provided your guidance for the quarter?

Sasa, I don’t know $12 million sequentially? Last quarter we benefited $12 million year-over-year. This quarter we benefited $13 million year-over-year from a currency perspective overall. But I don’t have the number. Sasa, we can take it offline, because I think we have a call today on the currency benefit since we provided our guidance.

Could you also then tell us a little bit about what happened in the rest of Asia outside of Japan? So obviously Japan was fairly strong. But given how strongly the economies are growing there, so in Asia outside of Japan, I believe there was about a 9% growth rate there. Why not more than that?

Yes, if we dissect Asia a little bit, the growth in the China market, which is our largest Pac Rim market, continues to be very strong. And when I say very strong I mean in the 20% to 30% range, and that’s been the case for some time now. We had a more difficult quarter in the Taiwanese market. And the Korean market, which is our third major market in the Pac Rim, had mid to high single-digit revenue growth overall.

And why is that? Why is that specifically? Is it like competitive why is that?

Well, actually the Korean economy is not growing at the same rate that the Chinese economy is, so we were growing in Korea in line with the market. And we’ve got about 70% market share in Taiwan, and so we’ve got a situation where our business is somewhat saturated there.

Your next question comes from Mike Olson - Piper Jaffray.

It makes sense that you’re taking a conservative stance on North America. Does it make sense that if North America’s weak that that could catch up to other developed geographies like Western Europe and is there a potential for weakness there and is that in your outlook?

We’re not seeing that yet. I think that you’re absolutely right. If we’re in for a prolonged problem in North America, I think it would be a little bit naïve to think that Europe wouldn’t be affected by that as well. But at this point in the year, halfway through the year, we’re not seeing it. And our forecast for Europe, going forward at this point the pipeline still looks pretty strong. But again I think it’s how long are we in it in North America, and if we’re in it much past at the end of this year then probably Europe is going to be difficult as well. But again the pipeline doesn’t reflect that today.

Do you have any metrics on what revenue per customer or revenue per user looks like over the last couple of years? I would imagine it’s moving higher as Pro/E customers become Windchill customers become Arbortext customers, etc., but any specific metrics that you can give there?

It’s not a necessarily a metric we track, but we’ll do a little bit of homework on that, Mike. And we will catch up with you on that at Analyst Day if not before.

Your next question comes from Andrew Matorin - Bear Stearns.

Just with respect to North America and the continued weakness there. Can you comment a little bit about what you’re seeing in the pipeline and your customers’ temperament? Has it changed at all in the last couple of months, improved or worsened?

I think we talked about it during the last meeting a little bit, the last conference call. I would say that North America is a little bit cautious, although quarter over quarter, was North America up a little bit in terms of, it was down 1%. So I think that what we saw was some big deals get a little bit smaller, so they are still continuing to invest, but maybe instead of going out with a 2000 or 3,000-seat deployment right away, they might cut that in half. So they’re still investing in this globalization and the infrastructure behind it. They’re just being more cautious about some of the rollouts. But also the preliminary forecast we have for Q3 shows that North America is going to go up a little bit, and there’s enough activity across the board, with channel and direct and the maintenance and so forth, that we feel pretty good about that. Now we have to execute on those big deals, but there is pretty good work in process in the forecast. What I think about it at a higher level right now, we’re in early cycle in terms of refreshing our products. Windchill 9.0 came out on October 1 roughly; Wildfire 4.0 came out in January and February. So these are two brand new releases, both with chargeable modules, and we’ve added 50 sales reps in the last six months. So we feel pretty good about the fact that and probably with CoCreate an additional and our own recruiting 100 channel partners in the last six months. So we’re starting to make a dent in the capacity issue. At the same time we have brand new products coming to the marketplace or versions of those products, and we feel pretty good about the back half of the year, and the maintenance business is particularly strong, which is going to give us a little bit of lift in the back half as well. So that’s a little bit what I’d say is behind the guidance.

You had said that the 3Q forecast shows North America going up. Is that year-over-year or quarter over quarter or both?

Both.

Obviously, you acquired some more resellers via the CoCreate acquisition. In looking at the growth in the indirect revenue I think it was up about 25% year-over-year, can you talk about the organic growth in the channel and if you’re seeing any change in the demand at that mid-market level in terms of the overall growth rate?

No, 26% overall, I had estimated probably around 15% of that coming organically from the channel and the balance is coming from CoCreate, but we can try to give you an exact number.

And you haven’t seen any significant changes in the demand then, in the mid-market environment?

No.

Demand continues to be stronger, as a matter of fact.

And in terms of being pretty close to the exact numbers, we started the year with about 400 channel partners. CoCreate brought 65 or so, and then we’ve added another 35 ourselves in terms of recruiting, 35 or 40, and we’ve deleted a few. So we’re right around 500 total channel partners today.

Your next question comes from Greg Dunham - Deutsche Bank.

Quickly on the margin front, looking out to the back half of the year, plugging in the numbers and the 22% operating margin, I’m having a difficult time getting even below that 1.27 number for earnings. The question is twofold. What are you assuming for taxes and other income? And where did you think you’re going to get the leverage on the margin line going forward?

The first piece is we’re assuming a non-GAAP tax rate for the full year of 35%. And so what we said today on our call was that although our guidance previously has been $1.17 to $1.27, that we expect it to be in a high end of that range because of the change to our non-GAAP tax rate, lowering it from 37.5% to 35%.

So on the back half that tax rate should jump to around 37.5 then?

No, no. We’re about 34% at the halfway mark, up slightly.

Then looking back, you’ve grown services margin by nearly 400 basis points over the past 12 months. What expansion would you expect going forward over the next 12 to 18 months on that front?

I think what you’ve seen in the last six or so months in the services business is what you’ll continue to see for the balance of this year. Our plan is to expand our services margin by 400 basis points for the full year. And the principal reason that’s taking place is because the utilization rates for our consulting business are up significantly; they’re up about 10 points from where they were in the year ago period, and that’s driving some significant margin expansion. Going forward beyond this year, we obviously have not put together a plan for next year yet, but do we think there’s more leverage there? Yes, probably not the same type of leverage we’re experiencing this year. But is there another three to five points of utilization leverage in our services business and could that drive a couple more points of services margin? Yes, I think it probably could.

Given the change in the market and given the integration of CoCreate, do you consider yourself more likely to get more aggressive on the acquisition front given the valuations of some of these other properties out there?

I think what we’ve said at least for the first half of this year and probably in the short term, we’re still continuing to focus on making the CoCreate acquisition a success, integrating that company successfully into PTC, and I think as I said before it’s going well. As far as future acquisition activity, I would say that there’s still a disconnect between most companies that are out there, if they’re public companies, between what their valuations were six months or a year ago and what they are today. And so even though there are depressed valuations, it seem like they might create opportunities. You can’t pay a 20% or 30% premium over today’s valuation and expect anybody to pay attention to you. So I don’t really think we’ve gotten to the point where companies that could potentially be acquired by PTC, or for that matter other companies in the software space, have come to terms with their current valuation. And I think that’s actually acting a little bit as an inhibitor to acquisition activity over the next six months or so.

The short answer, I think it’s a good answer, Neil, but we’re not going to be more aggressive than we’ve been. We don’t have any plans to be more aggressive. And I think as I was describing we feel like our products are strong, we’re improving our capacity; we’ve done some acquisitions to round out our footprint. Right now I think we have a really good opportunity to execute against the solutions we have in our install base, and we’re winning some new accounts with the footprint we have.

Our next question is from Steve Koenig - KeyBanc Capital Markets.

First one is just looking for a little more color on the strength in the licenses that you have this quarter. Can you help us understand was it modules and upgrades, new license deals, big customers, small customers, CoCreate? Just a little bit of color in terms of what was maybe most important in helping you there?

On the Pro/ENGINEER side it’s definitely sales of new seats, both low end and high end. Sales of modules have actually been down for several quarters now, and that’s because we just released a new version of Pro/E Wildfire. Steve, towards the end of a previous release, those module sales decline, and then when you release a new product they begin to increase again. But what’s driven the Pro/ENGINEER license revenue is principally sales of new seats. On the Windchill side of the house I would say that the primary driver of Windchill license revenue has been PDMLink, and that’s actually been the case for some time. That’s definitely the biggest driver of what we’re seeing in terms of Windchill license growth.

That would be new seats of the most core module.

How did CoCreate do from a license perspective? And you gave the breakout for CoCreate on the indirect channel. Can you help us with the breakout overall or at least for the direct channel regarding CoCreate?

I can tell you, we don’t break out CoCreate revenues separately, but just anecdotally, from a license and total revenue perspective, CoCreate is performing as if not slightly better than we expected for them this year.

When we looked at the 8-K for CoCreate, prior twelve months last year, relative to your guidance, it looks like you’ve been fairly conservative on CoCreate. Is it currency, is it you’re pruning revenues in selected geographies or is that you’ve got some upside possibility? Could you help us understand that?

I’m not sure I understand the comment that we’ve been relatively conservative. Before we purchased CoCreate their revenue was relatively flat for two or three years at roughly $75 to $80 million annually. We constructed a plan this year on the basis of that knowledge and the fact that this year was an integration year for CoCreate. And the real leverage associated with the sales force was probably an ‘09 issue as opposed to an ‘08 opportunity. But let’s put it this way: CoCreate’s revenue is up year-over-year.

They were running at roughly $20 million a quarter. We’re not talking about a big number.

Your next question comes from Ross MacMillan - Jefferies.

Neil, just on the FX, so you said I think 8% growth ex-currency and you had in print 14%, which implies about 6 percentage points of growth from currency. Would it be fair to think about that being the right number to also apply to the license number? So you had a 5 or 6-point benefit on license as well?

It’s a little bit disproportionate to the maintenance business. When you think about how our maintenance business performed, you should apply a greater percentage to maintenance than you should to either the license or services business.

Because of the CoCreate European base.

By the way, we have a disproportionate volume of maintenance for PTC in Europe as well.

And then you obviously paid down I think certainly more than I expected on the debt this quarter, and it sounds like you need another $50 million next quarter. At current levels you actually disclosed what you will be paying down, but it seems ahead of plan, so should I think of that $50 million per quarter pay down rate as being ongoing?

No, it might vary a little bit by quarter. I think on the last call we talked about the fact that we expected the debt balance to be in the $100 million at year-end. So the fourth quarter pay down will be less than $50 million, maybe half that amount.

So there’s no change to the pay down plan.

No.

Obviously this year you’re still going through the process of integrating CoCreate. But just from a capacity standpoint, would you be willing to take more debt again in the event of another acquisition that came your way if it was the right thing to do?

I think the answer is if it was the right thing to do the answer is yes, but my comments earlier I think are a little bit important because I think it’s tougher to get a deal done in this environment right now, both because of the mindset of companies that could potentially be acquired and because the debt markets are obviously not in a very good shape.

It sounds like you’re going to go and re-up on the buyback authorization. And you also mentioned I think just keeping the share count adjusted for the dilution. Is that how we should think about it, it’s more going to be flat lining on a diluted basis? You’re just going to try to keep that number relatively flat compared to stock option issuance with the buyback?

That’s right.

Yes, just a clarification. We’re going to ask for the authority to do that; we haven’t done that yet, but that’s something we’re going to ask to do.

Your next question comes from Sterling Auty – JP Morgan. Sterling Auty – JP Morgan: If we take the 6% organic growth comment and back out the currency benefit and look at that growth rate, it would seem to suggest that the seat growth is actually a little bit better than the organic revenue growth without the currency benefit. And what I’m wondering is what is that suggesting about what’s happening to the pricing out there in the marketplace?

I think you first of all your high-level observation is correct. On the Pro/ENGINEER side ASPs have been relatively flat and we expect will continue to be. On the Windchill side ASPs are down slightly, and the reason for that is increasingly the seats that we’re selling with respect to Windchill are not necessarily the high-end seats that were sold into the engineering department, but they’re lower end seats that we’re selling into the enterprise, which is the strategy around Windchill, right, populate the engineering department first and then populate the enterprise. So pursuing that strategy means that over time Windchill ASPs probably will come down slightly, but there will be a proliferation of seats and hopefully that will continue to help drive a real healthy Windchill license revenue number north of 20% as it has been for the last three years. Sterling Auty – JP Morgan: So it’s still just a mix issue, not an actual pricing issue.

That’s correct. Sterling Auty – JP Morgan: Can you give us a little bit more color, so the 21% growth in maintenance, how much of that is just from bringing CoCreate into the mix? Is there any other items, whether it be customers coming back to maintenance, or any other items that might be benefiting you on that front?

Well, it’s really three things. One is CoCreate, the second is the benefit of currency, and the third is we have had a big push in our maintenance business in terms of win back programs, to try to drive up higher initial tax rates and higher longer-term renewal rates, and those efforts have really been going on for a couple of years. It’s one of those initiatives like globalization, like services profitability, like evolving our distribution model, that’s really begun to pay off for us.

Your next question comes from Jay Vleeschhouwer - Merrill Lynch.

First, are you seeing any customer piloting activity at all of Dassault’s V6 architecture? Secondly, any take on yesterday’s UG announcement of their new so-called synchronous CAD for Solid Edge and for MX?

Yes. So, on the V6 thing, I think most customers I’ve talked to are highly skeptical about that. A lot of them think that it’s an out-there idea based on some questionable architectural approaches. For example storing CAD data in the database rather than a file system, which has been proven by several vendors not to work that well. So, I’d say I see a huge amount of skepticism from customers and I think customers by and large prefer that Dassault just finished V5 rather than switch horses again and started talking about a new architecture. So I don’t see any competitive pressure. In fact I think Dassault potentially is walking the plank here with this V6 story, having not really satisfied customers with V5 and now embarking on a riskier yet strategy. With respect to UG, the synchronous CAD story, all I would say is I think that’s a reaction to PTC buying CoCreate and starting to position some of the benefits of explicit modeling, because that is really a story about the new UG architecture which embraces more explicit modeling. And by the way, Dassault has had some similar comments where they’re talking about their V6 architecture also highlighting explicit modeling. So, I think that this CoCreate story is getting some traction and I think the competitors are trying to react to it and beef up their explicit modeling strategies as well so that we don’t pull ahead with a big advantage in that area.

Just a clarification on a phrase you used earlier in the presentation. I think it was Neil. You said you have an integral product development system. Is that the same as integrated, the term you’ve been using historically?

No, we’ve been using the term integral for a long time, Jay, if you go back and check our slides and so forth. What integral means is that the pieces are designed to work together? Integrated means they’re actually not designed to work together and then after the fact you do your best to patch them together. I was in a meeting last week with a large aerospace company and I said your aircrafts are integral. The wings are designed from the fuselage; you don’t make any wings with any fuselage; when you launch a new program you do a fuselage and wing integral design and that aircraft performs very well. That’s the concept of our product development system, is that the products are engineered or in some cases reengineered after an acquisition to work seamlessly together. We bring the source code all in-house; we do the engineering that’s necessary so that we can put a pretty impressive solution back in front of the customer.

Do you think that next month’s CoCreate release will move the revenue needle at all or is it just a relatively small thing do you think?

I think in the world of CoCreate it’s a pretty big release, actually. I think there’s some trepidation, no doubt, in the CoCreate base. What does it mean that PTC bought CoCreate, what will they do with CoCreate, is it really strategic or not? I think that this release will answer those questions. This is going to be a big, meaty, impressive release that came out under the PTC brand. And I think it will reassure people that we’re serious about this product and that they should feel comfortable moving forward with buying decisions or expansion decisions.

Your last question comes from Sterling Auty - JP Morgan. Sterling Auty – JP Morgan: On the comments that you made around the strength of Windchill and PDMLink, can you just give us little additional color? How much of that is traction in the Interlink upgrade process and how much of that might be just greenfield opportunities just because of the need for data management where it just hasn’t existed before?

Yes, we’re looking around here. It feels pretty balanced, maybe half and half. We’re doing well on both fronts. The Pro/Interlink upgrade, that’s a big opportunity and lot of that remains out ahead of us. And at the same time independent of that, without that factor, we continue to do well competitively and have a pretty robust pipeline of Windchill deals unrelated to Pro/Interlink.

Thanks for the participation today, and we feel pretty good, notwithstanding the economy, about where the products and the capacity are right now and the services engagements. And so we’ll look forward to giving you a good report in July. Thanks again.