Good morning, ladies and gentlemen, and welcome to the PTC's first quarter fiscal year 2010 results conference call. After brief comments by management, we will go directly into the question-and-answer session. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce Kristian Talvitie, PTC's Vice President of Corporate Communications. Please go ahead.

Thanks and good morning. Good afternoon, everyone. Before we get started, I just like to remind everybody that this conference call and Q&A session may include forward-looking statements regarding PTC's products or anticipated future operations or financial performance. Any such statements will be based on the current assumptions of PTC's management and are subject to risks and uncertainties that could cause actual events and results to differ materially. Information concerning these risks and uncertainties contained in PTC's most recent form 10-K and form 10-Q on file with the SEC. All financial measures in this conference call are non-GAAP financial measures. A reconciliation between the non-GAAP measures and the comparable GAAP measure is located in the financial and operating metrics document on our Investor Relations page of our Website at www.ptc.com, and is also provided at the end of the document, the prepared remarks, and the press release document that we e-mailed everybody earlier. With us today is Dick Harrison, Chairman and CEO; Neil Moses, CFO; Barry Cohen, EVP of the services business; and, on the phone is Jim Heppleman, President and Chief Operating Officer. With that, I'll turn it over to Dick.

Thanks, Kristian. Maybe just a couple of quick comments, and then we'll open it up for questions. But it was – been an interesting and a good quarter for us. And we just feel confident as evidenced in some of the press releases that we've released in the last couple of weeks. I think most recently today we have one from Volvo and Raytheon as well this week that some of the things we've been talking about, about this market and our leadership position are starting to materialize a little bit. So let's throw it open to questions and get into it, and have a good discussion about what's happening.

Thank you. We will now begin the question and answer session. (Operator Instructions) One moment for our first question. Our first question comes from Yun Kim. You may ask your question. Please state your company name. Yun Kim – Broadpoint: Sure, Broadpoint. First, congratulations on a great quarter. So obviously, you guys have done a good job of executing Q1, maybe too good of a job perhaps? And I'm just wondering if the pipeline used to be – we built again, especially around those large domino deals, it looks like you guys already have met your – or close to meeting your goals for the year already. Can you just talk about the overall pipeline and any change in the visibility and pipeline coverage as we're going into Q2 versus Q1? Thanks.

Well the pipeline for Q2 we feel is really strong. And the pipeline for the balance of the year, and even as we look out in the next year a little bit, is strong. It continues to increase. We've spoken about the dominoes themselves. But again, behind the dominoes, we have today, I think there are in the range of 150 active displacement campaigns. In our competitor's basis, there are over 100 active deals that we think are worth more than $1 million, let's say, that could happen in the next, let's say, year. One of the things that happened in the first quarter was that some of the sizes of the deals increased. Often times, we'll be talking to the customer about a particular transaction. And what we saw in the first quarter was that we've been able to demonstrate conclusively the values that our solution brings to the customer. So as we've done the pilots and so forth, that value creation enables us to have a discussion about a broader footprint, more applications inside the whole Windchill footprint. And some of those deals grew in size. We had them in the forecast. We had them in the pipeline. But they might have gone from a $1 million deal to a $3 million deal, or a $3million to a $5 million. And that's what contributed a lot to the upside. So we don't always know exactly how big those deals are going to be. We do know we have a nice list and a growing list in the – in the pipeline. And that gives us a pretty good deal of confidence for the second quarter, and really for the balance of the year.

Yes, Yun. It's Jim here. Just to add to that, if you look at our prepared remarks, we commented about 50% license growth forecast for Q2. And again, I think we couldn't be projecting 50% license growth again if we didn't feel pretty confident about the pipeline. Yun Kim – Broadpoint: Okay. Great. And then a quick question for Barry. So obviously with the – a lot of these domino deals are happening already and a lot of these seems like ramping up pretty quickly here. Would this put some pressure on your consulting business especially on the margin side if you try to ramp up more quickly than planned?

I think we planned fundamentally from an increase in the second half. So I think we're pretty much within our capacity planned to this point. So these are not surprises for us. The pipeline is strong. Yun Kim – Broadpoint: How are the bookings?

The bookings are good, back up from a drop last year. Bookings are now back up to about 115% – 115% of our revenue projection. So I think we're pretty confident and we have a pretty good plan. Thank you for the question. Yun Kim – Broadpoint: Okay. Thank you. And then lastly, so overall, how much are large systems (inaudible) are engaged in these domino deals and how big of a role are they playing in the cell cycle?

I would not say they're playing a huge role yet, but it's increasing. So we've had some of the large systems integrators involved. And I want to say, of the 11 dominoes, maybe three or four of them, in that range, but it's growing. And in a couple of cases they have brought us in, there's one that we haven't talked about yet, where we have a – and it's a big company where Accenture brought us in and we've completed the pilot for the most part and think we're going to get an order here shortly, the first nice big order. But increasingly, I think the systems integrators are saying that the market – I think that's one of the questions that we want to try talk about a little bit today. And as we engage or deal over the rest of the year is really how big is this market? And how big is our window vis-à-vis the competitors that we have because it's an interesting point about the systems integrators. If the market is as big as we think it's going to be, they'll play an increasingly bigger and bigger role here in the future. Yun Kim – Broadpoint: Okay. Great. Thank you. And again congratulations on a great quarter.

Thank you.

Thank you. Our next question comes from Blair Abernethy. You may ask your question and please state your company name. Blair Abernethy – Thomas Weisel: Thanks. It's Blair Abernethy with Thomas Weisel. Just a couple of things, in terms of the domino implementations of the 11 obviously or just in the – in the last quarter, but of the – of the overall group, can you give us a sense of where you are at in terms of starting points with some of these implementations versus well into our – anybody at the halfway mark at this point?

Jim, you mind doing that one?

I don't know if we have Jim.

I'm sorry. I'm having a bit of a phone problem here. But yes, I certainly can talk to that question, Blair. I think it varies. A couple of the dominoes were at very early stages. You might remember Volvo originally put out a press release saying they made a directional commitment to PTC? Just this morning, we put out a press release saying that basically we've passed the test phase, and they're now confirming that that directional decision is a firm decision and that they're moving forward with the program. So that would be an example where most of PTC's revenue opportunity is, quite frankly, still in front of us in that particular opportunity. On the other hand, a couple of the large orders represent dominoes who had proved out the software, in some cases implemented it in a given business unit or what not, and then gave us a very significant order to proliferate the software across the entire company, all the business units in all the different user constituencies and so forth. So I think it's the mix. But I think, clearly, most of these dominoes we see as annuities, if you remember back to our earnings or analyst day we had back in October, these things become really year after year opportunities where we broaden the footprint, we – our functionality. We broaden the – the number of users and divisions and so forth. We might come back with a new program around Arbortext, or something around our green solutions, or something around our reliability solutions, or what not. And I don't think we're ever done, quite frankly, with these dominoes. And I think we showed some examples, if you think back to that day in October, where we have some companies that we've been doing WindChill business with for five, six, seven, eight years. And they just keep expanding the deployments over time. I think we'd rather think of these dominoes as annuities than big transactions, even though from time to time they do produce big transactions. Blair Abernethy – Thomas Weisel: Okay. Great. Thank you. Second question just to – maybe if you could provide a little more color around ProductPoint now that you've had it in the market effectively for 12 months. What's working there on the ProductPoint side of things, and maybe give us some sense of the average deal sizes, still pretty small or are they changing there at all?

Yes, I think – This is Jim again. I'll take this. I think that what's working is the number of customers purchasing it. What could use a little bit of work is the deal size. And I think what's happening right now is there's a lot of interest and a lot of people placing an initial order for small quantities to play around that they've tested. The idea of using SharePoint as a platform for product development is a bit of a radical idea to some people. So I think they're intrigued. They want to go explore it. We expect a lot of those people to circle back and give us follow on orders that are more significant as we move through this year and then the next. So I think that – we're on the same page you are here. It's very exciting. We'd like to see it be more impactful to revenue going forward. But in the meantime, the core WindChill business is doing so well that there's no pressure for us to try to squeeze something artificial out of this ProductPoint business. Blair Abernethy – Thomas Weisel: Okay. Great. Thank you. Last question for Neil, can you just talk a little bit about maintenance renewals and particularly on the Pro/ENGINEER side of the business, which is the bulk of your maintenance base?

Yes, our maintenance renewal rate, I think we've talked about the fact that last year ,they were down 1% or 2%, which we thought was pretty good in the macroeconomic environment that everyone was experiencing. I think that our maintenance business has held up pretty well. Certainly, we're still feeling a bit of a hangover from last year's soft license revenue, which I think will stay – will continue, we think, for the first half of this year. But we're – we're pretty optimistic that the renewal rates will hold and perhaps increase over the course of the year. And it will be back to grow with both constant currency, otherwise, and our maintenance business from the second half of this fiscal year. Blair Abernethy – Thomas Weisel: Okay. Great. Thanks, guys.

Thank you. Our next question comes from Sasa Zorovic. You may ask your question. Please state your company name. Sasa Zorovic – Janney Montgomery: Yes. Sasa Zorovic here with Janney Montgomery. My question would be, when you have – obviously being at 11 target domino deals and talking about a target – sorry, 11 actual deals and target of 12 by the end of the fiscal year. It seems to be to get to the target with just one for the remainder of the year. So I wanted to make sure, are you just keeping the target of 12 to be very conservative? Or should we anticipate – should we interpret this as probably a slowdown at the rate of – of the domino deals being added? Because looking at this and also you delivered a score in this past quarter that that target of 12 should be up for the whole year.

Yes, it's Jim. I'll take that one, Sasa. Clearly, we're going to blow through the target of 12, at current course and speed. We could lift that target. You make a good argument, we should lift the target. I think PTC's deal is – maybe we should change our focus a little bit to how are we driving revenue off those dominoes as opposed to how may dominoes are we landing. But clearly we're going to do better than 12. And you shouldn't take – you shouldn't read into us not changing that target. I think we're just simply changing our focus a little bit to the license revenue forecast, the 50% growth and so forth. It's probably the thing we ought to be talking here about at this point. But I think we should take it under advisement to reconsider the domino target.

Yes, Jim. It's Neil, let me just add to that. I think what we're saying is, remember we talked about the dominoes as a signpost that PTC was winning in a pretty unhealthy macroeconomic environment. As the environment begins to improve and we're – we are starting to win more of these domino accounts, the true measure of success here is overall revenue growth and license revenue growth. And I think you're seeing the first stages of that in two months. Sasa Zorovic – Janney Montgomery: Thank you. Now my second question would be regarding your indirect business. So clearly the business had started picking up on the direct side and with the large buyers. But on the SMB side, I'm wondering what – what could be done there? Is it really just an – is it really an economy story? And is it just we're to wait for that or is it something that could be done PTC-specific in order to accelerate the recovery of that business?

Jim, you want that one?

Yes. I'm happy to take that. I think it's largely a macroeconomic issue. I think it's well understood that the smaller companies suffered more on the downturn and are more cautious about coming back and spending money as things improve. So I think PTC will continue to work our own programs to make sure we're getting our fair share or more so of whatever spend level exists there. But I think that fundamentally, we're still seeing depressed spend levels in the small and medium businesses, and we don't see the kind of acceleration now that we're seeing in the larger enterprises. Sasa Zorovic – Janney Montgomery: And then my final question would be, you mentioned your share – share-shifting in the markets who are favoring, obviously looking at that 2x2 Matrix in your growth rate for the enterprise still in business. One easily can follow that. But I take it that your comment really implies for all the four – four quadrants specifically. Am I right in interpreting it like that? So it's not just for one, it really is for each and everyone, right?

I'm not sure I understand the question. Sasa Zorovic – Janney Montgomery: So that you are gaining share in each one of these four market segments as identified by your 2x2 Matrix.

Yes. I'm not sure we could say we're gaining share in all four, just to be honest. I think in the upper left box, the large enterprise CAD, I think there are no meaningful share shifts happening in any direction, nor would we forecast them. So I think that – I think that we're holding our own and participating well in the lower left, that is to say the SMB CAD market. We are definitely taking significant share in the lower right, that is the SMB PLM market. And we are taking dramatic chunks of share in the upper right, the large enterprise PLM market. Sasa Zorovic – Janney Montgomery: Great. Thank you very much for your clarification.

Thank you. Our next question comes from Sterling Auty. You may ask your question. Please state your company name. Sterling Auty – J.P. Morgan: Yes. Thank you, J.P. Morgan. So following up on a couple of things, first on the domino deals. How would you characterize the timing on when those deals close given that you closed four? Were all those expected to close next quarter or did some of them actually land a little bit earlier than what you might have thought originally?

Yes, Jim. Let me just think for a second.

Yes, Dick. I think there was one notable and – and meaningful transaction here that probably came in earlier than we thought. We might have forecasted it as Q2 business, but the deal was ready and so we took it on good terms. So I think by and large though, that was the sort of business that we expected in the quarter with one notable exception.

Right. Sterling Auty – J.P. Morgan: Okay. So the comments about not updating the target number of domino deals, what I'm saying is that some of us have looked at it as a turnaround or your improvement is coming from doing these large deals. So if the focus is going to be on license revenue, is there perhaps maybe a metric that you want to share going forward like the amount of license revenue that comes from deals over a certain threshold that we can get a sense as to how you're – how you're commoditizing those opportunities?

Neil, you can feel free to add here. But I think the most important metric is WindChill revenue in general, and then WindChill license revenue as leading edge to the sphere here. That's what I would focus on. Whether those WindChill revenue comes from a large collection of small and medium sized deals or a few big ones, I think it's less important in the given quarter. You might actually argue that large collection of medium-sized deals is a better and more reliable platform. So I think that, you have to remember that the dominoes don't all produce huge transactions for us, nor do we necessarily want them to do. We want them to be huge annuities, not huge orders; not huge, one-time transactions. So a lot of times in a given quarter, revenue from a domino would fall below some artificial threshold. Nonetheless, it happens four quarters in a row in a given year and it ends up being pretty important in the context of our revenue in that given year even though in any one quarter it might not have been a million dollar license transaction, for example.

And I don't want to start giving a whole bunch of different ways to measure things and – we'll go back and rethink the dominoes, as Jim said, we're going to blow through the number, the 12 number. What we thought – again just to reiterate it, what's most important was the concept of dominoes when we couldn't – you gave us a lot of questions in the last year about, "Well if you think you guys are winning, why don't we see it." So we tried to use the dominoes to illustrate that. There's no better illustration than 50% license revenue growth. And in a reiteration of 50%, again, what company, public or private, anywhere in the world today, for greater than $50 million in revenues is doing 50% license growth? I think there was a lot of skepticism yesterday about whether or not we do 20% license growth. So the dominoes are important sign post, as Neil called them, and we're going to continue to report on. More importantly, there is 150 other displacements behind them, a very large pipeline, and the license revenue is growing at 50%. So that to me is what is compelling about the report today.

Yes, maybe last one last comment which is that – yes, it was 50% license growth in the first quarter. It looks like it'll be that in the second quarter. And I think we've committed to 30% license growth for the year. I don't think at this point there are a lot of software companies that are talking about 30% license growth for the year. And you may be able to attribute one quarter's worth of license growth to a number of large transactions. But 30% over the year, you have to look at that to be pretty broad-based. And then maybe one more comment, I think we actually provide, from the metric's perspective, more information you get from most people, particularly with the Fourbox [ph] information we started to report this quarter, license service and maintenance by Fourbox, so. I challenge you, Sterling, to find anybody else really actually that's providing the level of detail around their progress that's equal to or greater than we're providing today.

I think one important point is we use the dominoes and displacements that signal our leadership position in the industry in our market. But remember, we have a very small penetration even in our unsold base with enterprise Windchill. So our opportunities for growth doesn't rest just on displacement or dominoes.

Okay?

Thank you. Our next question comes from Ross MacMillan. You may ask your question and please state your company name. Ross MacMillan – Jefferies: Yes. Jefferies. Congratulations on the – a great quarter. Just on the big deals, the average deal size that we picked up a lot here. So is there any color you could provide on out of the $10 million – over $1 million, how many were (inaudible) deals?

Ross, we'll not get into starting to report on the size of deals and – customers don't want us to, and so forth. We've been consistently reporting the deals over $1 million and you can see it in quarter. There were 10 deals over $1 million. A year ago there were nine. The average deal size in the year ago quarter I think was $2.5 million. And this quarter, it was about $5 million. I tried to describe that earlier when I said that we're getting – the customers are doing pilots. They're realizing value. Just to try to give you an illustration, companies are trying to – let's say, they're working together to build an engine at a particular car, and auto engine. Multiple designers are across the globe because they're globalizing their engineering. And they're updating their designs real time, and communicating, and collaborating, and they're building pilots to demonstrate this. It's like instant messaging for product development and our competitors are using the UPS. So they're building pilots and validating the impacts of our software. We have one – one customer, which is a domino – this quarter told us the productivity impact versus the solution from the competitor was 10x, not 2x, 10x. So it is sometimes difficult for us to predict the size of these deals in a – in a quarter. We have a negotiation, and what we found in the first quarter, we might see it in the second quarter and the balance of the year is that the deal sizes are picking up because the footprint is bigger. The value that we create is better. And it's easier for them to build in ROI. So to some degree, we actually don't know what's going to happen with those deal sizes.

Yes, Ross. I think it's an interesting exercise here. If you rank those top 10 big deals by size and then cross off the top two, we would have still had a pretty decent quarter. Ross MacMillan – Jefferies: That's helpful color. Thank you. Just maybe, one full – two follow ups, one is just on that competitive environment. I think you talked historically about really this thing at two horse race between yourselves and (inaudible) GGS [ph]. Do you feel like you're further distancing yourself from them now? Were there some dynamics that's leading to a better win rate versus them? I'm just curious about that. Thanks.

Jim, you want that one?

Yes, I'll take that. First of all, roughly a third of the dominoes we've been talking about has been Siemens' displacements. I think our win rate against Siemens is a notch – let's say our displacement rate against Siemens is a notch below that against Dassault. But a win rate in the green field environment is really high right now. There were a couple of dominoes, one which was the GE account, the GE healthcare account, which was a major displacement of the Siemens incumbent position, which obviously we're pretty happy about. There were a couple of others, Otis, for example, I think called it out the press release. These are actually customers turning off the Siemens software and switching to the PTC software. But what we talk less about is the fact that in the EADS benchmark, Siemens was there and competed like crazy, and we walked out with the win there, too. I think we're doing very well against both. I think that Dassault is very vulnerable at this point and we're capitalizing on that. Ross MacMillan – Jefferies: That's helpful. And then last one, Neil, just – just on the OpEx. Obviously there are some drivers here when you have such a strong quarter from a license perspective. But the sequential increase, given the headcount was flat, any color you can add to that just in terms of either rolling back, salary increases, or other suppressed costs, so that we can understand, we can have that shape looks for the remainder of the year? Thanks.

I think if – if you look at what happened in Q1, the principal issue was the commissions related to a higher license revenue, which we're obviously happy to pay. If you look going forward, Ross, there's – there's a number – a couple of things involved. I think we've talked about the fact that we want to continue to invest in the business. We'll be investing in distribution capacity, both with direct sales or some channel, maybe making a little bit more investment around R&D as well. And then, I think we also talked in our prepared remarks around the fact that there was some, if you will, temporarily cutbacks that we made last year that impacted PTC employees and we'll make – look to make some investments back in our employee base as well as the year progresses. That's really where the target is – investments are planned. I think we've given guidance around the fact that our – fundamentally, our OpEx will be probably a shade over $850 million for this year. So if you look at the fact that we spent with around 213, 214 for Q1 looks like the standing pool and the balance of the year will be relatively consistent with that. Ross MacMillan – Jefferies: That's helpful. Thanks a lot. Congrats again.

Thank you. Our next question come from Mike Olson. You may ask your question and please state your company name. Mike Olson – Piper Jaffray: All right. It's Piper Jaffray. And congratulations on the good quarter. This is actually a follow-up on that last question. You mentioned the prepared remarks about some of the temporarily reduced costs coming back, which definitely makes sense. Would you be, Neil, willing to quantify the level of expenses removed in '09 that will return in 2010?

I think you could look at the OpEx right now. It's just over $850 million versus – if you look our initial guidance, you would have seen a number more like $810 and $815 million. Probably ultimately about half of that increment will go into new investment and probably half of it will go back into the some of these programs that were foregone. The other comment to make, Mike, is that we had increased our tax rate estimate for the year, as you probably saw, from 23% to 25%. The highest tax rate jurisdiction for PTC worldwide is the US. And obviously, the US is performing extraordinarily well. And so, that's a largely good news story, but at least on the tax rate line, it's a little bit of a bad news story. Mike Olson – Piper Jaffray: Okay. That makes sense. One more Neil. As far as the pro-forma gross margin, it's been in low 70s for a couple of quarters now. Is that sustainable? How should we think about gross margin for the remainder of the year, maybe what are the factors that could move that back into the high 60s or keep it here in the low 70s?

I think that number is sustainable. Mike Olson – Piper Jaffray: Okay. Thanks very much.

You're welcome.

Thanks. Your next question come from Greg Dunham. You may ask your question and please state your common name. Greg Dunham – Deutsche Bank: Yes, Deutsche Bank. A quick follow up on the large deal activity. How much of the $50 million in large deals were due to the four new dominoes? What I really want to get to is – is the follow through from past signs.

I don't know. I mean I still think about it. Greg Dunham – Deutsche Bank: Would you say that the ASC on a new business is less than the average that you had?

I don't know. Neil, do you even have that data?

I don't want to guess at it. Yes. Again on that, all that large deal activity is domino activity, right? Greg Dunham – Deutsche Bank: Yes. I guess the point that I'm trying to make is I think investors would be concerned if you signed four new big deals. That's really what draw the upside. Then you're not raising your domino account going forward. If that's the case, I think people maybe a little cautious on the license growth looking ahead. However, if more of the revenue upside is driven from past deals, then I think investors will have a little bit more comfort as you move forward.

Yes. I think if we go back to – e have to go think about it and do a little more analysis on it. I don't want to guess that right here. I think we'd stick to what we tried to describe as that domino initially starts with the pilot. They might do $2 million or $3 million the first year. I think we said that as they get into their second and third year, they're moving more towards $5 million with license maintenance and service. That can get bigger as they – as they do some of these deployments. I think that's a good proxy for what happened. It's possible that a – that a new account, a new domino, for whatever reason, sees the value and just says, “Okay. I'm going to go faster.” Greg Dunham – Deutsche Bank: Okay.

We're going to get some of those. I think the vast majority are going into today's market, they're going to do what we described for you, which is to start slowly, validate the value that they get from it, and then deploy a bigger footprint over time. Greg Dunham – Deutsche Bank: Okay.

If it makes you feel any better, we would not have given guidance about the second quarter license revenue where it is if we thought that it came from a few big surprise deals that weren't going to happen again.

Yes, nor would we lift our annual guidance to 30% either, so.

Exactly. That's exactly right. I can tell you that the Q2 number actually, there are five or so deals out there that we know are going to happen, not necessarily this quarter, that are in the range of $4 million to $5 million. There's a really nice mix for Q2 of good-sized deals, nice ones, not explosive deals. Are we going to get all $5 million or $6 million? There's $5 million or $6 million that are in that $4 million to $5 million range. Are we going to get them all? No. Could the customer decide, “Oh, at the last minute I'm going to do half those seats instead of all of what we might project?” Yes. So those are the dimensions that occur in a negotiation at the end of a quarter or during the middle of the quarter, however it might be. It makes it difficult to give you some – some of these exact answers that you're looking for. But there's a really nice short term mix of deals. Some are new. Most are more established customers that have done their pilots that are – that are right there for this quarter. And if we don't get one, or two, or three of them this quarter for whatever reason, we'll get them the following quarter because they're – they're basically in per term kind of deals.

Dick, just reflecting on this domino discussion is kind of interesting because as Neil said, we wanted to show you last year when there was very little spend in the system that we have an equitable competitive advantage. And dominoes really meant big accounts where we're going into a hostile situation in terms of a competitor being incumbent, or us having no incumbency position in the green field environment and we're able to either defeat or displace the competitors in this difficult, away game-type environment. So I think clearly from the discussion here, you all appreciate the power of being able to do that. And I think it was sort of PTCs miscue that we thought the dominoes would give us evidence until we could supplant that evidence with revenue evidence. And then the body of discussion would shift over to revenue. But clearly, I think you're all pretty interested here in our ability to continue displacing competitors, and it's not flowing down at all. We just assume that your level of interest will shift to revenue. But if I was in the room with Dick and these guys, I'd probably write a number on the board, and they would forecast or up the target.

If you want, we can do that. Greg Dunham – Deutsche Bank: I think we should. I mean I can't make eye contact with you here to see what's the right new target. Clearly, we're not saying we're stopping at 12. We just didn't bother to update the forecast thinking that the discussion would now shift to revenue viewing dominoes as a bridge to revenue. But I think it is important that we continue to displace competitors in difficult environments. That's (inaudible) slow down at all.

You want to just rate it to 15? Greg Dunham – Deutsche Bank: Sure, 15.

Okay. That's it. We'll do 15, and as we go through it, we'll give you an update on it. But I think underlying the questions in there. They are good questions and we appreciate them actually because they do cause to – to reflect. But if the concern is that we had an aberration and got lucky and a couple of deals drove things, I'm telling you, unequivocally, that the pipeline and the forecast continues to grow. Paul Cunningham had a forecast review worldwide yesterday. The forecast inside the company here, his forecast, the pipeline grew. At this point, that's a good sign. So there were more deals in there. They're best case deals, but the deals are growing. And that's why we're going to add more direct sales reps and we're going to invest in the business. This is not an aberration. We have separated ourselves from the competition. We have unambiguous leadership in the – technically, in the Windchill space. We talked about GE Healthcare just a little bit. We didn't really describe that. I don't want to get into too much of it. But they had an incumbent, Siemens, for 25 years in the engineering department. Dassault Matrix is in the enterprise. They had two incumbents we had almost no footprint. They bought a little company that's some PRO/ECs. And we begged them to include us in an evaluation because they wanted to make a consolidation decision. I personally met with the CTO who told me, "I'll let you in." I flew out there. "I'll let you in, but you have no chance." A year later, we displaced Siemens, that the initial order is to displace Siemens, and it's Pro/ENGINEER and Windchill. They're going to expand that footprint for the entire enterprise. So how do we win that deal? It wasn't close. The technical evaluation at the end of the day really wasn't close. And that's really what we want you to take away from the results and our confidence that it's not an aberration. The upside was not an aberration. Some of the deals that we've been working on got bigger than we thought they were going to get. Greg Dunham – Deutsche Bank: Thank you. That's helpful.

Thank you. Our next question comes from Richard Davis. You may ask your question. Please state your company name. Richard Davis – Needham & Company: Historically, the Windchill, back several years ago certainly, was a lower margin business than the CAD business because you were investing in it and things like that. And so, you've actually done a good job. And it looks to continue this year, increasing margins. But the Windchill business, if I'm correct, is – is maybe on a fully cost-allocated basis, lower margin. So how do you, from an outsider standpoint – unless you want to give us the cost accounting breakdown. But from an outsider standpoint, how do you – how should we think about the way you guys manage, grow first as margins? Is this even a correct assumption from an outsider's standpoint.

Yes, Richard. This is Jim. Clearly, that's a correct assumption. But I want to go back to the commitment as a management team we made was the 20% earnings growth on a sustainable basis. We want to do 20% earnings growth five years in a row. Now if you back down a level, the recipe for how we want to do that is three parts revenue growth, one part margin expansion. So clearly, we need a balance of some margin expansion, which we definitely think can come through leverage on the revenue growth and so forth, grow revenue faster than expenses. Clearly, we have a strong focus to drive that earnings growth on the back of revenue growth. So that's a little bit the balancing act here. We have a portfolio of products. Some are extremely profitable and not growing fast. Others, on the other hand, are growing extremely fast and less profitable. You put that portfolio together and it works pretty well against this 20% earnings growth strategy, which I think people felt like a pretty aggressive strategy. Richard Davis – Needham & Company: That's a correct statement because I talked to guys inside your firm and they were all like, "Man, this is a big – laughter [ph]." You did set the – you did set the high jump bar high so in that respect, you're correct. Okay. Thanks very much. That's my question.

And I think, Richard, there's no question the desktop business is – it's – the Pro/E business, the desktop business, there's a smaller – there's a very low service component, and so it's more profitable. What I see here going forward with the license revenue acceleration on the Windchill part of the business is we get a better mix if we can of license versus services. That'll help drive better operating margins as well.

Yes. I mean I think on a year-over-year basis, we're going to add $100 million of Windchill, roughly let's say, in 2010 versus 2009. We'll certainly not add $800 million of underlying expense to that. So clearly, the Windchill business is getting more profit – profitable as we scale it. Richard Davis – Needham & Company: Yes. And I don't think it's just the licensing service mix. It's a maintenance (inaudible) too, right?

Absolutely. Richard Davis – Needham & Company: Got it.

One of the things that was in the note just – because it just hit my mind a little bit as we talked about it, but the Windchill business – what was it, a $122 million? $122 million. It's going to be close to a – it has a run rate of a $500 million enterprise business. This thing really has some momentum.

Yes. And I mean to put that into perspective, $500 million, Richard, is about the size of Anthes [ph]. $500 million is twice the size of Dassault PLM products all put together. It's really a situation now where we have the number one product out there in front by a considerable distance and moving at twice the velocity of everybody else. So I mean it's a – it's a good spot to be in – in a good market. Richard Davis – Needham & Company: Got it.

But I think it'll be interesting to contrast – we don't get the Siemens results. They're not public. But we think overall, they're going to have negative license revenue like most software companies. And it'll be interesting to see what Dassault has when they announce in a couple of weeks. But the contrast will be – will be interesting to take a look at. What else?

Thank you. Our next question comes from Jay Leishauer [ph]. You can ask your question and please state your company name. Jay Leishauer – Dakana Rook Securities: Dakana Rook Securities [ph]. Thanks. Good morning. For Neil first, with respect to your comments earlier on reinvesting and distribution as your – as your initial priority for reinvesting back in the business. Could you be a little bit more explicit about that? When we look at your direct sales headcount, it's down again sequentially about 270 heads. That's not only down from recent numbers, but probably the lowest in – early the 90s. Given everything you've been talking about on – on growing the enterprise business, what's your objective for growing that number and where might that be by the end of the fiscal year? And on the indirect side, for Jim, to what extent is distribution capacity an issue for ProductPoint? For instance, do you need to sign up some material part of either the Autodesk or SolidWorks channels for them to carry ProductPoint as a kind of complementary product to the – to their CAD businesses.

Yes. Hey, Neil, the risk is stepping on your toes here. I want to comment on the first piece as well, and then I'll turn it over to you. I mean, Jay, you're on to something interesting, which is when you have the kind of competitive advantage that we have in the marketplace right now, the last thing you want to do is let your distribution channel shrink, right? So clearly, we need to invest in the distribution channel. Last year, when we took cost out of the system, we took some of it out of distribution thinking that still with a little spend in the market that some of those distribution would prove productive anyway. I think now we see spend coming back in. We see us – ourselves getting at this proportion and amount of it. It makes sense for us to significantly lift the number of direct sales that counts, and so forth, and go after that opportunity. So I'll let Neil comment more on the magnitude of it. But I think you're on exactly the right point, which is it doesn't make sense to let the size of various sales force shrink given this opportunity. And then just while I have the microphone here, I'll hit the second part. I think that that's also an interesting question on ProductPoint in the SMB space. We have a pretty good SMB channel that covers our Pro/ENGINEER base. And I'd say that that channel will do a very effective job in – in covering the distribution opportunity within the PTC base. But you're right, there's a huge – huge base of Autodesk customers who basically have no PLM solution, but certainly would be interested in a SharePoint solution for – for PLM. And there's a huge base of SolidWorks customers who are in the same boat. So we at PTC are coming up with some strategies. We'll maybe unveil them a bit down the road, but coming up with some new ways to potentially take our products directly into their base and capitalize on this open window of opportunity to become the main PLM supplier in the – those types of customer bases. Jay Leishauer – Dakana Rook Securities: Okay. With respect to the displacement business. You implied earlier, Jim, that your win rate against Dassault is perhaps better than, again, Siemens. And these are two questions there. Are you essentially giving them no credit or little credit the – to V6 that would allow them to at least protect their base if not necessarily grow their PLM business.

I'm glad you asked that question because it's worth clarifying a little bit. I think our win rate against both is high. I think that Dassault has a customer base, which is frustrated and very vulnerable. A lot of them are in the mood to switch products. They feel like they bought something from Dassault trying to get an advantage in the business, and now look at it, they say, "This is not an advantage. It's a disadvantage. And we need to switch to something that is an advantage again because it doesn't make any sense to keep paying maintenance on something that's you are not yielding any competitive upside anyway." So I think that we happen to have had a number of significant displacements in the Dassault base and a pretty good amount in the Siemens base as well, and then a competitive win rate in green field opportunities against both that's pretty high, so. I think we're – we're doing pretty well. I had not seen any material evidence that suggests V6 is a magic wand. In fact, it'll be interesting to see what Dassault's PLM numbers look like when they come on to you on February 11th, everybody, and we can do a compare and contrast. If their PLM numbers have the same spring in the steps that PTC does, well maybe – maybe the customer base is listening to the V6 story. On the other hand, if they don't show that kind of a trend, then I think we can read into that as well. Jay Leishauer – Dakana Rook Securities: Lastly, in your prepared remarks, you have an interesting table for your active maintenance paying base. What you seem to have done is update your historical numbers for the Windchill base. So when we look at that versus previous quarters, we can infer how much Windchill seems to have gone out in connection with Pro/E package. And it looks like it's a fairly large number. And so the question is, what's your long term expectation of that mix of how Windchill has sold in terms of attached to Pro/E and some kind of configuration as we see for your new numbers versus just going out perhaps as a discrete PLM product attached to someone else's CAD product?

(inaudible) do you, Jay? It's an interesting question. If you think about it logically, one of the places we would have sold Windchill first would be to those customers that we have the strongest, deepest relationship with, that is to say the company's and the actual users, in fact, who use Pro/ENGINEER. So I think you could imagine our Windchill business, if you looked at it 20 years from now, thinking back historically, you could imagine revenue being front-end loaded by Pro/E users. But I think, if we think now about these domino accounts, it's a significant number these domino accounts who don't even have Pro/ENGINEER, well almost by definition they wouldn't have Pro/ENGINEER in live basis. So I think over time, yes, the amount of Windchill seats – the percentage of Windchill seats that are attached to a Pro/E seat, I would logically expect to decline over time. But it certainly was a leverage point for us in the early days.

Okay. I've been patient. I want to come back to this capacity issue for a second. It's interesting. We're actually on track, Jay, for having the most – the highest productivity we've ever had in our direct sales force, higher than we had in 2008. So we absolutely duty to add capacity. And we've got a manager meeting actually in February. We'll make some – make some decisions around that. What other issue, which I think is relevant in terms of capacity which we haven't talked about yet is other signs in our business apart from North America, apart from Windchill. And that is that even though the European business is still soft, it was down year-over-year. It's actually up sequentially against a pretty strong Q4. Our Chinese business was up year-over-year even though Asia remained – overall, Asia remained relatively soft. We saw a growth in our channels sequentially. So the point is that we're seeing some leverage here in terms of growth apart from North – just North America and just Windchill in North America. And so, we're going to – we're going to take a look at what we think is happening in other areas of the business when we consider the capacity constraints that we currently have, and as I said, make some decisions there in terms of investment in February.

But Jay, I can't imagine if the number's 270 right now. It's going to be around 300 or whatever. We're going to decide something, but we're going to add it in that range of 30 sales reps. There'll be some technical people. We'll give you the number when we talk next, but it's going to be in that range. It ought to be back up around 300. Jay Leishauer – Dakana Rook Securities: Thank you.

Great. I think we got time for one more – one more question.

Thank you. Our question comes from Steve Koenig. You can ask your question. Please state your company name. Steve Koenig – Longbow Research: Thank you, Longbow Research. Thanks for getting me on. Maybe I'll shift to the last question to the other part of your business, and one final follow up on PLM. But for CAD, do you all have visibility into – are you starting to get visibility and (inaudible) see CAD to turn positive year-on-year when – when that stability could be seen? So that's my tag question. Then I want to turn back to PLM (inaudible).

Yes. Steve, our CAD business was down 6% for the quarter, as you said. I think that we have the ability in either Q3 or Q4 to turn that business positive. It will depend upon how quickly the channel recovers because, to Jim's point earlier, that upper left hand box is relatively low to those – to those business anyway for everybody who participates in it. Steve Koenig – Longbow Research: You're going to have an easy compass for it.

That's true. Steve Koenig – Longbow Research: (inaudible).

But we need to see the channel kick in a little bit more than it has. And if that happens, as expected in the second half of the year, we could see growth in Q3 or Q4 in that – in that area. Steve Koenig – Longbow Research: Okay. Thanks, thanks. And then if I could just ask about PLM, it look like your traction has been obviously very – especially good in North America. Not that your (inaudible) and VLs and EMEA, but – but what's necessary, tactically, to drive that kind of success in North America more into EMEA and other geographies?

If you look at the – the dominoes–

Yes. I got a quick count here. Five of the eleven are European.

Right. So we probably haven't gotten as much revenue from the ones in Europe. And I think that European spend and rebound of the economy is a little bit lagging behind the US. But as Jim said, almost half of the dominoes are from – from Europe and really big names, good accounts that we've talked about, so. I just think – I think that's just to get a manifestation of it, what stage some of those might be. Are they coming out of the pilot stage and moving into the second year? Are they going to get bigger, faster? We don't always know and can't always predict that. But our pipeline, when we look at it, it's not skewed towards North America. There's a really nice balance throughout the pipeline for the rest of the year across all the geographies. There are even some interesting deals, I wouldn't call them large yet, in Japan where there are a couple of consolidation deals that are going on right now, and we think we're winning, so. China looks solid. Jim and I are both going to Asia this weekend. I'm not really looking forward to that trip, but there's – there's activity – there's enough activity where both of us are jumping on planes. And we're going to different places, and then we're convening on one place at the same time. So it's not all North American-centric. Steve Koenig – Longbow Research: Okay. That's great. Thanks again. Congrats on the quarter and safe travel.

Okay. And is that it for questions?

Thanks again for the time. And we'll see what happens with this quarter. I think some of the questions really were around, "Is the upside that we had in the license revenue in particular repeatable?" We really do have a lot of confidence given the pipeline, and the size of the deal opportunities, and the value that we're creating from our customers, and the way that customers talk with us about the return on investment and so forth that – that we're going to have a strong second quarter and a strong year. So we look forward to giving those reports as they happen. Thanks again for the time.

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your line.