Sue Pirri - VP of IR Carl Bass - CEO Al Castino - CFO

Jay Vleeschhouwer - Merrill Lynch Steve Ashley - Robert W. Baird Phil Winslow - Credit Suisse Philip Alling - Bear Stearns Brendan Barnicle - Pacific Crest Securities Sasa Zorovic - Goldman Sachs Brian Essex - Morgan Stanley Ross MacMillan - Jefferies Brad Manuilow - American Technology Brent Thill - Citi Richard Davis - Needham Gene Munster - Jefferies

Good day, ladies and gentlemen, and welcome to thethird quarter 2008 Autodesk Incorporated Earnings Call. My name is Melanie, andI'll be yourcoordinator today. Atthis time, allparticipants are inlisten-only mode. We will conduct aquestion-and-answer session atthe end of thisconference (Operator Instructions). As areminder, this call is being recorded for replay purposes. I would now like toturn the call over toMs. Sue Pirri, Vice President of Investor Relations. Please proceed, ma'am.

Good afternoon, everyone. Thank you for joining us today aswe report results for our third quarter of fiscal 2008. With metoday are Carl Bass,our Chief Executive Officer, and Al Castino, our Chief Financial Officer. Today's conference call is being broadcast live through anaudio webcast. Inaddition, a replay of thecall will be availableby webcast on our website, www.autodesk.com/investor. During thecourse of this conference call we will make forward-looking statementsregarding future events and thefuture performance of thecompany, our guidance for thefourth quarter and full year of fiscal year 2008, thefirst quarter and full year of fiscal year 2009, thefactors we use to estimate our guidance for those periods, our competitiveposition, our future business prospects and revenue growth, our marketopportunity and transfer of product to various geographies. We caution you that such statements reflect our bestjudgment based on factors currently known to us and that actual events orresults could differ materially. Please refer to thedocuments we file from time-to-time with theSEC and specifically our 10-K for fiscal year 2007, our 10-Qs for thequarters ended April 30, 2007,and July 31, 2007 and ourperiodic 8-K filings, including the8-K filed with today's press release. These documents contain and identify important risks andother factors that may cause theactual results to differ from those contained inour forward-looking statements. Theforward-looking statements made during this call arebeing made as of thetime and the date ofthis live presentation. If this call is replayed or otherwise reviewed after thetime and date of this live presentation, even if it's subsequently made availableby Autodesk on its website or otherwise, theinformation presented during this call may not contain current or accurateinformation. Autodesk disclaims any obligation to update or revise anyforward-looking statement based on new information, future events or otherwise.In adherence to RegulationFair Disclosure, Autodesk will provide information and forward-looking guidancein its quarterlyfinancial results press release and this publicly announced financial resultsconference call. We will not provide any further guidance or updates on ourperformance during this quarter unless we doso ina public forum. During thecall we will discuss non-GAAP financial measures. These non-GAAP measures arenot prepared inaccordance with Generally Accepted Accounting Principles. Areconciliation of thenon-GAAP financial measures to themost directly comparable GAAP measures will beprovided either on this conference call or can befound in today's pressrelease, made available on our website atwww.autodesk.com/investor. Now I'd like to turn thecall over to Carl Bass.

Good afternoon, everyone. Thank you for joining us. Today,Autodesk reported another quarter of very strong financial results. Quarterlyrevenue was a record$538 million, an 18%increase over last year. Diluted earnings pershare were $0.35 on aGAAP basis and $0.49 non-GAAP. We're going to quote anumber of percentage increases as we discuss thefinancials. Unless otherwise noted, each represents thegrowth rate of thethird quarter of fiscal 2008, as compared to thethird quarter of fiscal 2007. Our outstanding financial performance was aresult of focused execution on thekey elements of ourbusiness strategy. Once again, we showed robust increases inmost of our keyrevenue and profitability metrics. I'd like to highlight afew of these. Revenue from both our 3D Solutions and our 2D Vertical Solutions wereat record levels,resulting in revenuesfrom our Design Solution segment increasing 20%. Thechanges weimplemented in ourpartner incentive programs inthe first quarter,continued to increase reseller attention on our most significant opportunitiesfor growth. Revenue from our 2D Vertical and 3D products increased 22%and 32% respectively. 3D revenue now represents 24% of total quarterly revenue,its highest level ever. 3D still presents asignificant growth opportunity, as 3D penetration of our customer base remainedunder 15%. Clearly 3D continues to bean important growthdriver for the company,and our 2D Vertical solutions provide theeasiest migration path for our customers to our 3D products and then on todigital prototyping. Revenue growth inemerging economies continues to significantly outpace growth indeveloped economies. Quarterly revenue inemerging economies increased 31% and now represents 17% of total quarterlyrevenues, its highest percentage ever. Revenue from new seats increased 20%.Non-GAAP income from operations increased 42% to $151 million, resulting in28% operating margin. And finally, cash from operating activities increased 21%to $161 million. I amvery pleased with our results this quarter and thecontinued momentum inour business. Now I'd like to turn thecall over to Al for adetailed discussion of thefinancial results.

Alright, thanks, Carl. Once again, Autodesk delivered greatquarterly performance. As Carl said, net revenues grew 18% compared to thethird quarter of last year to $538 million. GAAP diluted earnings pershare were $0.35. Non-GAAP diluted EPS was $0.49. Customer demand for Autodeskproducts was very strong again this quarter. Revenues from our 3D and 2DVertical products showed strong growth. During thequarter, we shipped nearly 43,000 commercial seats for Inventor, Revit andCivil 3D. Revenue from these products increased 29% to $127 million. Last quarter, we completed theacquisition of NavisWorks. TheNavisWorks family of products fully enables thebenefits of 3D models for design coordination and construction simulation, andaccordingly will beincluded in our 3Drevenue starting in thethird quarter. NavisWorks revenue was $3 million inthe quarter, resultingin total 3D revenue of$130 million, a 32%increase. Combined upgrade revenue and maintenance revenue from subscriptionincreased 15%. Maintenance revenue from subscriptions was $143 million, anincrease of 29%. As expected, revenue from upgrades and cross-grades decreased16%. Each of our geographies grew substantially. Revenue inthe Americaswas $218 million, anincrease of 12%. EMEA revenues were $203 million, anincrease of 27% as reported, and 18% constant currency. Asia-Pacific revenueincreased 14% to $118 million. Japanhad another good quarter of execution. As we said last quarter, our business inJapan hasstabilized and is now growing. We remain optimistic about continued improvementgoing forward. Revenue growth inemerging economies continues to significantly outpace growth indeveloped economies. Quarterly revenue inemerging economies increased 31% to $92 million and represents 17% of total quarterlyrevenue, its highest percentage ever. Revenues from theDesign Solution segment increased 20% to $457 million. Now, let's look atthe divisionalperformance within Design Solutions. Revenue from platform solutions andemerging businesses increased 14% to $242 million. AutoCAD LT had anoutstanding quarter, growing 35%. As we mentioned earlier, thechanges inour incentive programs hasshifted reseller focus away from AutoCAD to our 2D Vertical and 3D products. Asa result, AutoCADrevenue was flat, while AutoCAD 2D Vertical revenue increased 22%. We continueto believe that themost relevant measure of 2D performance, given our strategy, is thegrowth of allAutoCAD-based products intotal, which grew 16%. Total revenue for Manufacturing and Solutions divisionincreased 19% to $102 million. This far exceeds thegrowth of our closest competitor. Revenue from new seats of Inventor increased22%. We shipped more than 13,400 commercial seats of Inventor inthe quarter. AutoCADmechanical had another great quarter, increasing revenue 30%. Intotal, we shipped more than 54,000 seats of our Manufacturing products. AECSolution's revenue includes NavisWorks and increased 34% to $124 million. Thebuilding industry continues its rapid adoption of building informationmodeling, both in theUS and abroad,driving strong record results. Revenue from Revit family of products increased53%, and we shipped more than 21,400 commercial seats. Civil 3D also had agreat quarter, growing revenue 31%, and we shipped nearly 8,200 commercialseats. Revenue from our Media and Entertainment segment was $67 million, anincrease of 4%. However, thetrends in our twoM&E businesses were very different. Animation revenue increased 17%, led by anoutstanding quarter for 3ds Max. Revenue from Advanced Systems declined 8% as themove off SGI hardwarecontinues to have anegative impact on revenues. This changehas substantiallyimproved the Systems' grossmargin, however. Moving to therest of the incomestatement, gross margins increased 2 percentage points on aGAAP basis to 90%, and 3 percentage points non-GAAP, to 91%. Theimprovement was primarily due to increased gross margins I just mentioned onour Advanced Systems Solutions. Inaddition, strong software license sales and productivity improvements inoperation contributed to theincrease in our grossmargin. Operating expenses were $381 million GAAP and $341 million non-GAAP.Operating income was $106 million GAAP and $151 million non-GAAP. Our operatingmargin was 20% GAAP and 28% non-GAAP. Our tax ratein thequarter was 23% GAAP and 26% non-GAAP. TheGAAP tax rate waslower primarily due to tax benefits related to stock-option exercises recordedunder FAS 123R. Net income was $85 million GAAP and $117 million non-GAAP. Atthe end of thequarter, there were 230 million total shares outstanding. Compared to rates we used when we set our guidance for thethird quarter, foreign currency rates impacted our results by aninsignificant amount. Compared to thethird quarter of last year, foreign currency impact was $16 million favorable onrevenue and $5 million unfavorable on expenses. Compared to last quarter,foreign currency impact was $7 million favorable on revenue and $1 millionunfavorable on expenses. Turning to thebalance sheet, cash and investments were $873 million. During this period ofuncertainty in theworldwide credit markets, we feel itis prudent to maintain somewhat higher cash balances than we have previouslyplanned. During thequarter, we received $77 million from issuing 4 million shares from employeestock plans. We used $138 million to buyback 3 million shares. Year-to-date, wehave repurchased 10 million shares, which exceeds employee stock plan issuancesby 1 million shares. We will continue to repurchase shares under our previouslyauthorized share repurchase program to offset dilution from employee stockprogram. Cash from operating activities was $161 million. We used netcash of $45 million for acquisitions. Total deferred revenues increased $12 millionsequentially to $424 million. Deferred maintenance revenues from subscriptionincreased $10 million sequentially and $101 million over thethird quarter of last year. Unshipped product orders or shippable backlogs were$17 million, adecrease of $4 million sequentially. Total backlog, including deferred revenuesand unshipped product orders, increased $8 million sequentially to $441million. Channel inventory remains below three weeks. DSO was 51 days thisquarter. We're very pleased with our third quarter results. As welook forward to thefourth quarter of fiscal 2008 and fiscal 2009, we aremindful of theconcerns about thehealth of the USand worldwide economies. However, our business hasremained strong. Inthis environment, we believe itis prudent to becautious. At thesame time, we remain confident inour business and optimistic about our opportunities for growth. Now let's talk about guidance. We continue to expect fourthquarter revenue to be inthe range of $575million to $585 million. GAAP earnings perdiluted share areexpected to be inthe range of $0.42 and$0.44. Non-GAAP EPS is expected to bein therange of $0.52 and $0.54. For fiscal year 2008, net revenues areexpected to be between$2.148 billion and $2.158 billion, agrowth rate ofapproximately 17% over fiscal 2007. Full-year GAAP earnings perdiluted share areexpected to be inthe range of $1.50 and$1.52. Non-GAAP EPS is expected to bein therange of $1.89 and $1.91, agrowth rate ofapproximately 24% over fiscal 2007. We continue to expect our GAAP and non-GAAPtax rates for all offiscal 2008 to be between25% and 26%. Now let's look atnext year. For fiscal 2009, net revenues areexpected to be between$2.425 billion and $2.475 billion, agrowth rate ofapproximately 13% to 15% over our fiscal 2008. Full year GAAP earnings perdiluted share areexpected to be inthe range of $1.84 and$1.90. Non-GAAP EPS is expected to bein therange of $2.20 and $2.26, agrowth rate ofapproximately 17%. We expect our annual tax ratefor fiscal 2009 to be26% on both a GAAP andnon-GAAP basis. For thefirst quarter of fiscal 2009, we expect revenue to bein therange of $575 million to $585 million. GAAP earnings perdiluted share areexpected to be inthe range of $0.42 and$0.44. Non-GAAP EPS is expected to bein therange of $0.50 and $0.52. We expect seasonality to besimilar to last year. Now, I will turn itback over to Carl.

Thanks, Al. As we have told you, Autodesk had aterrific quarter. Before we begin taking your questions, I would like to remindyou of some of thereasons for thestrength of our business. First, our business is diversified on many levels. Ona geographic basis, themajority of our revenues areinternational. Infact, less than 35% of our revenues arein theU.S. Emerging economies area rapidly growing partof the business. China,India, Russia,and Eastern Europe have been some of our best performingregions in thepast few years, and we were encouraged by trends we seedeveloping in theMiddle East. This quarter, revenue from emerging economies grew atapproximately twice therate of our business indeveloped economies, and we continue to believe itwill be asignificant growth driver. We arewell diversified across themajor industrial segments inthe economy, includingbuilding, manufacturing, infrastructure and media, with little exposure tofinancial services. Inaddition, purchases of our software typically fall into R&D spendinginstead of ITspending, so they areless subject to changesin theeconomic environment. Finally, we serve customers of allsizes, from Fortune 100 to small post production facilities, not just largeenterprises. As I have said many times, our diversification helps tomoderate the impact onour business of large swings and external factors. Second, as you know, ourcustomers are underconstant pressure intoday's business environment. Globalization, therising cost of energy,worldwide building expansion, development and rejuvenation of infrastructure,and the increasingdrive to keep data digital, areimportant global trends that drive our customers to search for tools to improvetheir competitive position. These trends arealso creating significant growth opportunities for Autodesk. Third, theincrease in innovationand productivity that our model based 3D products provide, is compelling ourcustomers to migrate to new design tools faster than ever before. For example,let's talk about thebuilding industry. In theU.S., buildingsconsume one third of allenergy used and two thirds of electricity. As aresult, increases inenergy prices and adesire for energy independence areforcing the commercialbuilding industry into action. This is happening allover the world.Owner/operators aresearching for more energy efficient alternatives to traditional buildingprocesses. Thesimulation and analysis capabilities enabled by Revit allow our customers toaddress highly complex problems ina way that was neverpossible in thepast. This platform transition is occurring inall of our industries,not just building, as we bring sophisticated 3D design tools to themainstream markets. Finally, Autodesk is increasing its competitive separation.Both Autodesk and our resellers areincreasing investment insales and marketing, both by increasing marketing program spend and by addingsales staff. We areincreasing our investment inR&D to bring new products to market and create exciting new versions ofexisting products. We have also used M&A activity to enhance our strategicposition. We completed anumber of small acquisitions during thequarter, including Opticore, Skymatter, and PlassoTech, allof which bring additional functionality to our 3D platforms, further enhancingour leadership in our coremarkets. And we recently announced our intent to acquire two others, HannaStrategies, a globalengineering services firm, and Robobat, aprovider of software for structural engineering design, engineering andanalysis. These initiatives area significantinvestment in ourfuture success that our competitors have been unable to match. As Al mentioned, we aremindful of the mixedeconomic indicators inthe market today.While this mixed data requires us to bemore cautious, we believe we have theright strategy, theright products and theright team to continue to succeed. Operator, we're ready for your questions.

(Operator Instructions). And our first question comes from theline of Jay Vleeschhouwer with Merrill Lynch. Go ahead. Jay Vleeschhouwer -Merrill Lynch: Thanks. Good afternoon. Carl, I'll start with theobligatory channel question. Itappears that going into your fiscal '09, you're not going to make thesorts of channel changesthat you made at thebeginning of this year. Whatever changesyou make, the thinkingseems to be limited,if any. And can you comment if that is infact your intention that you will not make thechanges you madethis year? And if so, what other levers or investments you think you can make in'09 to guide the resellerstowards the mix andgrowth that you would like to seeout of them?

SoJay, time for theobligatory channel answer. I think your assumption is correct. I think we madesignificant changes atthe beginning of thisyear. We don't anticipate doing anything nearly as dramatic going forward. We'vealways assumed that ittakes a while for ourchannel partners to digest some of these changes,internalize them and make changesin their own program inallocation of resources to maximize their businesses. And I think we're veryearly in those changes.We're pleased with thesuccess we've seen sofar, but it's going to take beyond theend of this year for them to fully incorporate it. And itwould be toodisruptive for us to beintroducing anything drastically new next year. Jay Vleeschhouwer -Merrill Lynch: Okay. For Al, can you talk about thekinds of investments that you're going to beramping up significantly innext fiscal year? Carl alluded to some investments inthe channel andR&D and the like;could you perhaps put some scale on that interms of percentages of revenue or growth and how areyou ranking thepriorities for incremental investments?

Theareas we're investing inhave been fairly consistent, actually, for afew years now. So we'recontinuing to push further into 3D. We certainly areworking on interoperability, something we've been talking about, which willprovide customers more value out of our 3D offering. You'll continue to seeus make a number ofthese small acquisitions, and you have seen good examples this year. Andprimarily, looking for technology allows us to go deeper into our productofferings. In terms ofpercent, I think that themost important thing to keep inmind is allof it is built intoour guidance, built into our model. We make investments allthe time. SoI never really quantified atwhat percent we consider investments in, and that's actually not asimple thing for to us separate anyway, but it's built into our model. We'realways investing for growth, and we think our growth trend is large and thepriority for investment, those arethe areas we think thathave the most promisinggrowth. And those have been clear, just based on what we've been doing thelast couple of years. Jay Vleeschhouwer -Merrill Lynch: Okay. Just two last things, geographic question. For you andmost of the peergroup, Europe hasbeen an especiallygood driver for growth. And what is your assumption about your ability tocontinue to see that inEurope over thenext year? And by thesame token, you're talking now about some improvements inJapan, where some of your closest peers have yet to seethat solid [work] counting on that, atleast in themechanical market, until well into thefirst half of '08. Sowhy are you seeing thisimprovement in Japansooner than the rest?And lastly, any comment on what you're seeing interms of attach rates or renewals inmaintenance? Any indications that thegrowth in maintenancemight be beginning to flowor that the attachrates are atsome risk of any kind?

SoJay, let me answer acouple, and Al can jump in. On thegeographic distribution, two things I would sayabout EMEA again, about us and allof the other companies.Certainly, thebenefits that we've seen from currency areprimarily in EMEA. Sothat's artificially inflating some of theresults for everybody from EMEA. Theother thing to recognize about EMEA, itis by far, the mostdiversified geography inwhich there aredeveloped economies; Western Europe that looks incredibly like theUS, but it alsoincludes parts of Russia, Eastern Europe, parts of theMiddle East as well as Africa. So, that one is much more anaverage of two very different things going on. However, we continue to seebusiness being strong inEurope, including thedeveloped parts of Europe, but it's certainly getting aspecial bump in amuch more consistent way than some of theother developed economies. We've talked about good growth inLatin America, but it's also more volatile and morevariable, whereas what we've seen inEastern Europe and Middle East,it's much more consistent. As for Japan,all I can sayis, I can talk about us. I can't explain why SolidWorks is not doing as well asyou expect them to do. What I would sayis, we noted over thelast year that there were two things. There were some errors of our own doing,and there were some things inthe market inour approach with our channel partners, and we thought both of those neededfixing. We made significant changesin our salesmanagement team there, as well as theapproach to the marketin some of ourproducts. That new team hasforged new relationships and is working much better with our channel partners inexpanding the reachthere. So, we've always been alittle bit cautious about it, but it's starting to become atrend that we feel much more confident about.

Yeah, I'll add to it. We certainly dofeel much better about Japan,and probably, one reason we're doing better hasto be related withtheir products. That should have some impact on this. Interms of thesubscription, theattach rates, renewal rates areconsistent with what we've seen inthe past couple ofyears. You've seen thegrowth rate hasslowed down in thelast couple of years. Just alittle large numbers, as itbecomes a bigger base. But what you're seeing recently, thehigh 20s, that's very consistent with thegrowth goals we have over thecoming several years. Sowe feel good about thesubscription revenue base, and that base continues to grow, and we're doingvery well attaching new customers.

Yeah, I mean theother thing that I'd sayabout [true] is we seeopportunity for upside there too. While we're happy with theresults we've seen, we allknow the number ofthings we could do tocertainly increase both the attach and renewal rates,and we're obviously working on those. Jay Vleeschhouwer -Merrill Lynch: Thank you.

(Operator Instructions). Our next question comes from theline of Steve Ashley with Robert W. Baird. Go ahead. Steve Ashley - RobertW. Baird: Hi, thank you. I have aquestion regarding guidance. If we look atthe guidance for theApril quarter, itlooks like themidpoint of that is flat with theJanuary quarter on asequential basis. I was just wondering, if we look atthe Design Solutionsbusiness, are thereany of the businesssegments within there inwhich you're taking amore cautious view, more conservative view than perhaps some of theothers?

No. I think flat sequentially is consistent with theseasonality that we've seen over thelast few years. Remember, as you look back over thelot of years, you've got to look for different timings about release ofsoftware and promotions. But generally speaking, that seasonality hasbeen consistent with thelast few years. We no longer have thebig retirementprograms that we had, sothose promotions areno longer there, but nothing especially true there. When you look on thevarious disciplines within Design Solutions, I don't think there's anything we'redoing uniquely for anyone. I think it's consistent, and it's really anextrapolation of theperformance we've seen ineach of those units over thelast couple of years. There's nothing out there that we seeon the horizon that'saffecting positively or negatively to anextreme any of thedivisions more than theother. It really isjust a naturalextension of what we've seen before. Steve Ashley - RobertW. Baird: Great. If I could ask one quick housekeeping question?

You may getreprimanded, just like Jay. Steve Ashley - RobertW. Baird: Yeah. I'll try to make this short. Inventor revenueyear-over-year, Al, I don't know --?

What was that again? Steve Ashley - RobertW. Baird: If I could getthe percentage growth inInventor revenue, year-over-year? Thanks.

Itwas about --

I think it's 19%.

19%.

19%.

19%.

16%.

16%.

16%. Steve Ashley - RobertW. Baird: Thank you.

Our next question comes from theline of Phil Winslow with Credit Suisse. Go ahead. Phil Winslow - CreditSuisse: Hi, guys. Good quarter. Just wondering if you could justbreak down a littlebit for us what you're seeing by vertical across thegeographies, if anything is standing out from astrength or weakness perspective, beit commercialconstruction here in theUS or let's say, manufacturing over inEurope. Anything that stands out either which way?

So acouple things are consistentwith what we talked about. Building industry and infrastructure worldwidecontinues to be goingstrong, so you canlook at infrastructureacross the world andsometimes people don't recognize how much of our software is used inthe infrastructuremarket. Any infrastructure is such abroad term, but it's everything, its roads and tunnels and bridges. It's water,waste water, electrical distribution. Allof that's in thecategory of infrastructure. Regardless of whether that's therefurbishment of infrastructure inplaces like the USor Western Europe or thebuild out of infrastructure inthe emergingeconomies, that continues to go well and seems insome ways less sensitive to some of thevariability caused by theeconomic ebbs and flows. Phil Winslow - CreditSuisse: And Al, you mentioned that potentially maintaining highercash balances. Then when you dolook at fiscal 2009,how do you think aboutfully diluted shares outstanding as peryour EPS guidance and also just from abuyback perspective?

Two things will stay inplace. I think you can assume shares will stay flat. And I think our buybackprogram will continue to beused to offset dilution from employee stock programs.

Yes, theshares outstanding will remain flat. Now obviously, thestock price impact is fully diluted too, but our goal remains to hold theshares outstanding flat.

Our next question comes from theline of Philip Alling with Bear Stearns. Go ahead. Philip Alling - BearStearns: Thanks very much. With respect to thecommercial 3D growth that you reported this quarter, stronger for Revit andCivil 3D than what we seefor Inventor. So isthere something competitively within themanufacturing vertical or I guess increased penetration there that might givesome additional color as to therelative strength of Revit and Civil versus what we're seeing inInventor growth?

SoI would say acouple of things is, number one, generally, the stronger growth we're seeing in 3D overall and 2D Vertical as a result of the programs we put in place to direct our channelpartners' attention to 3D and 2D it's a 3D and 2D Vertical. Ithink what you're seeing also is, some of thethings we've talked about for along time is just theproductivity, theefficiencies people aregetting from 3D arejust becoming clearer, and part of our acquisition strategy is to drive some ofthe uses of those 3Dmodels and people arebeginning to truly understand it. When itgets to manufacturing, we have always said we continue to outpace thegrowth of all of ourcompetitors, some of which aregrowing at trulyanemic rates. The mostimportant thing to look atin themanufacturing market is thefirst thing is we're competing inthe most interesting,fastest-growing part of themarket, which is what you might call themainstream market. There's this other part of themarket, which people like to refer to as high-end. I refer to itas dead end. It's the biglegacy systems that seem to begrowing at 2%, 3% aquarter, after allkinds of favorable accounting instrument treatment to getthem to 2% or 3%. Those arereally parts of themarket we wouldn't want to participate in. Sothe part of themarket we're in is themost interesting part, and we're growing faster than anyone else inthere, so but when youlook, compared to theother verticals, manufacturing is thesegment that is themost competitive for us. Philip Alling - BearStearns: Okay. And just aquick follow-up for me, then, with respect to some of thecautious comments you made about growth outlook going forward and the13% to 15% that you were talking about with respect to fiscal '09 top-linegrowth, that would appear to bemoderating down some from prior comments about 15% long-term growth. Just wantto make sure that we're not misinterpreting there is sort of guidance as asort of moderation down inyour long-term growth outlook. Thanks.

No, we'd reiterate the15% long-term growth rate. This year if you look atthe numbers for thisyear, it'll be at17%. I think thecomment you heard is we're being cautious. If anything, we're reflecting backmore of what we're hearing from you than what we're seeing inour business, which is that there is some uncertainty inthe credit markets andthere may be somespillover affect. So I'dsay we'd still with anumber of months to go inthis quarter and 15 months to theend of next year, we're being cautious, but we still remain confident inthe long-term goal of15% growth.

I also want to remind you ayear ago we told you13% to 15% too. We have five quarters to go, there's uncertainties with theeconomy; there's always going to beuncertainty for greater than five quarters away than there arein themiddle of the year. Soits perfectly in linewith our long-term growth rategoal. Philip Alling - BearStearns: Thanks very much.

Our next question comes from theline of Brendan Barnicle with Pacific Crest Securities. Go ahead. Brendan Barnicle -Pacific Crest Securities: Thank you, guys, I was looking atthe docount, which was anice update this quarter, and I looked atit relative to therevenue there and itlooks like we have anASP decline that goes on, and as I looked back atlast year, it lookslike the same thinghappened last year, albeit sowe'll have growth year over year, but as you progress through theyear it looks likethere's some seasonality maybe to that ASP. Can you give mean explanation as towhat goes on there that might beaccounting for some of that activity?

Solet me give you acouple of things that go on. Soone of the importantthings is the mix ofwhere it comes from. Soa seat of Inventor inIndia or theMiddle East costs less than itdoes in theUnited States, so one of the things that the investor is in just the blend based on the different economies. Secondis things like promotions. We've had some promotions inwhich there've been cross-grades and other things, sosome of the things you'reseeing there arepromotions that come, and those tend to bemore seasonal. Often, we run thesame plays the sametime of the year, soI think you're probably seeing something there. I'd sayif you looked, if you looked generally speaking, when you narrowed itdown to anapples-for-apples comparison, ASPs aregenerally remaining constant, and we're forecasting and consistent with that. If you look down, therevenue growth was 29%. There was 29% revenue growth, and there was a13% seat growth. And oneof the other things that I did mentionthis, but you'll have to look atthe mix of those 3Dproducts. A goodexample is the differencebetween Inventor Series and Inventor Professional. Clearly, as we've gonethrough the last year,year and a half, theamount of Professional, theProfessional has been ahigher ratio. Sonumber of factors that go inthere in theaverage can sometimes bemisleading, but year over year theASPs are up. Brendan Barnicle -Pacific Crest Securities: Great. That's very helpful. And then just on theacquisition announced today, any guidance on what contribution that adds to therevenue for next quarter or for next year?

Very minimal contribution next quarter and even somewhatminimal for next year. It's not material for next year, given thecombination of thesize of the companyand the deferredrevenue write-down as aresult of theaccounting. It's not avery material number for next year, but it's taken into account inthe guidance that wegave you. Brendan Barnicle -Pacific Crest Securities: Great. Thanks very much.

Our next question comes from theline of Sasa Zorovic, with Goldman Sachs. Go ahead. Sasa Zorovic -Goldman Sachs: Thank you. SoI want to stick with this 13% to 15% growth next year versus thelonger-term or 15%. Sobasically what that makes us think, if 15% stays longer-term, then there oughtto be then inacceleration thereafter. Is that not thecase, or should we bemaybe starting to think that thelonger-term growth there ought to start coming down?

Sasa, as I mentioned ayear ago, we also said 13% to 15% and got exactly thesame question, and when we look atyear back, when we look atit one year inadvance, so we're fivequarters in advance ofthe close I amsure, and theuncertainties aregreater than they would besix months from now. Sowe do believe 15%compounded growth rateover the subsequent fiveyears makes a lot ofsense. For any individual here, we're going to have some range of variance, andwe certainly take into account theuncertain economies. Theother uncertain events can happen five quarters out. But this is consistentwith how we've done guidance inthe past, and we thinkit's very consistent with acompounded growth rateof 15%.

Yes, if you look atwhat Al said, last year we gave 13% to 15% guidance, and its 17%, and I thinkif you look back two years, we talked about 10% to 12% guidance and eventuallyposted 19% growth. I think it's really just due to theuncertainty of forecasting that far out. And certainly, as we sit here today,there's a variablelike what's going on with currency and credit and anumber of other things, and what we feel confident about is our business. Someof the more externalfactors, we're not comfortable doing alot of prognostication around. Sasa Zorovic -Goldman Sachs: Sospecifically when you talk about credit, where doyou think sort of that areyou seeing any related weakness to it, or you're just being cautious, but you'renot seeing theweakness for the timebeing.

I'm seeing iton the squawk box. Youcertainly look in thefinancial markets, and you can see. Allyou have to do is openthe newspaper orlisten on TV, and you can hear people talking about it. We haven't seen itimpacting our business yet and soour caution is really what we're hearing more from thefinancial markets. And we've certainly seen itin some of thelarge enterprise ITvendors. You hear them talking about apotential slowdown. Ithink the thing to remember about ourbusiness, and we try to outline some of these factors. There is areally technology shift going on inour business in this moveto 3D that people aregoing to power through any slight variations inthe economy inorder to get thatlevel of productivity and beable to be competitive,and we've said that for years. Soas long as theeconomy remains relatively healthy, we think people will continue to dothat. Some of those other trends we talk about, things about energy,sustainability, thebuild out of infrastructure, what's going on inthe emergingeconomies, we think those aretrends that areovercoming. Right now, if you ask meto look, the place Ihad the mostnervousness about it isnot because of our business; it's around theUS andfinancial markets. And it's really related to what went on inthe sub-prime lendingmarket and the falloutfrom that. Absent that, we're seeing really no difference inthe business. Sasa Zorovic -Goldman Sachs: Thank you.

Our next question comes from theline of Brian Essex with Morgan Stanley. Go ahead. Brian Essex - MorganStanley: Hi, good afternoon. Just afew housekeeping items. I'm trying to geta sense for conversionto subscription; how penetrated is that, and I don't know if you can offer anestimate in terms ofyour addressable installed base, but how much doyou believe is converted to thesubscription, and maybe how much is left, and maybe perhaps therate that you thinkthat you can run at?

Well, our investor factsheet shows you thenumber of subscribers we have today, still under 1.4 million subscribers. Itstill has along way to run. I don'tknow exactly for sure how many we can getlong term, but I dothink a great majorityof our customers will go to subscription. SoI don't think we're atthe halfway mark, sowe can still growsubstantially. Brian Essex - MorganStanley: Okay. And then you had quite healthy subscription bookings.I'm getting a littlebit over 24%, 25% year-over-year growth insubscription bookings. How much would you assume that that is from newsubscribers versus renewals?

Soyou're talking about thegrowth in thenumber of seats subscribed? Brian Essex - MorganStanley: Not seat growth, but actual bookings.

Actual bookings. Brian Essex - MorganStanley: Bookings through deferred revenue. I'm just trying to geta sense of how much ofthat is generated from attached versus new subscribers converted?

We don't separate that normally, but we said inthe past that it's agreat majority of customers who buy anew seat or upgrade to (inaudible) attach subscription. Soyou can probably build your own model based on that. Brian Essex - MorganStanley: Sure. Okay. And then any changesin contract durationor anything on that side that should skew maybe acalculation of deferred and contribution maintenance going forward innext year?

There's always some customers that domore than 12 months, and we sell those separately as long-term deferredrevenue, but most customers aredoing 12 months. Brian Essex - MorganStanley: Okay, great. Thank you very much.

Our next question comes from theline of Ross MacMillan with Jefferies. Go ahead. Ross MacMillan -Jefferies: Yeah, thank you. Al, one for you. Since thelast quarter's guidance you've had quite asignificant sequential shift incurrency. So I'm justtrying to understand; as you set guidance, what's your base line for goingforward from acurrency perspective, is itthe average of thelast quarter; is that as of theclose of the quarter?Is that as of the date?Can you help meunderstand that? Thanks.

We haven't changedwhat had we do with currency, otherthan that there's been alot of volatility, and we've just come across about it. But we always leave asmall buffer between current rates and what we use for our guidance, mainlybecause we don't want to wake up thenext morning in avolatile market and already seethat our guidance is off. Sowe always have some buffer. Ithas been very volatilerecently, though. And soif I look at itin terms of standarddeviations, I might well make thebuffer the same numberof standard deviations, but that can changethe actual pennies.But our method hasbeen pretty consistent with thepast. Ross MacMillan -Jefferies: Soyou do leave abuffer. That's helpful. And then one other quick one. On thearchitecture on building side, Carl, I wouldn't saybeen without competition, but thecompetition there hasbeen relatively weak and probably hasgot progressively weaker as you've furthered your whole [VIM] strategy. As youlook forward, are youconcerned or are youthinking about thepotential for maybe another player to enter that market more aggressively? How doyou gauge that risk? Thanks.

Soone of the differencesin thecompetition in justbuilding and infrastructure market is due to thenature of the workitself; it's much more local. Soour competition is actually quite strong; it's just quite local. Soyou don't see thesame large-scale global companies competing against us, but we have quitestrong competition allover the world inboth infrastructure and building. I think there's always going to benew entrants into this market. I think there continue to be. I think theone thing I could sayabout the buildingmarket in general whenyou just think about, is ithas benefited lessfrom information technology than some of theother markets. So whenyou look at itas a whole, you say,manufacturing and building on aworldwide basis areabout the same interms of total GDP. But if you were to just grossly estimate it, manufacturing,about 5% of the spendinggoes to IT. Inbuilding and construction, it's about 0.5%. Sowhat I would sayhappening is there may bemore entrants into themarket. But the realtrick is growing thepie for both us and everybody else inthis market, because I think many of theefficiencies that industries like manufacturing have seen haven't yet visited theconstruction industry. SoI think there'll beother opportunities for more people to join and certainly our success and whatothers have done indriving the adoptionof 3D will lead to more opportunities for more people to join in. But I think themost important thing for everybody is to drive themarket, understand thebenefits of information technology and growthe pie for everybody. Ross MacMillan -Jefferies: That makes sense. Thank you.

Our next question comes from theline of Brad Manuilow with American Technology. Go ahead. Brad Manuilow -American Technology: Thanks for taking my question. Just aquick question on upgrade revenue. Wondering how we should look atthe long-term growthrate, and what impact, if any, cross-grades will have on that. Thanks.

Well, our strategy hasbeen for several years now to movecustomers to subscription. Sowe don't see upgraderevenue as an areathat is going to grow. We really want our customers to moveto subscription contracts.

I think what --

Allcontracts areincluded.

Yeah, I think what we've pointed out inthe past is maybe thebest way to look at it,and certainly the waywe view it is that ifyou take subscriptions and add itto upgrades and cross-grades, it's thebest indication of what's happening inthe existing user baseand viewed as a whole asa good way to look atwhat goes on there, as opposed to individual elements. But if you just projectforward, we think standalone upgrades should continue to go down. Brad Manuilow -American Technology: Is there anyway to getany granularity on how much cross-grades contribute to upgrade revenues?

Brad, we haven't broken that out separately. As thetrue upgrade part becomes less and less meaningful, that'll besomething we will look atgoing forward. Brad Manuilow -American Technology: But just soI make sure I understand this correctly, soif someone upgrades from a2D product to a 3Dproduct, does that revenue show up inupgrade revenue or in 3Drevenue?

It's inthe line that'sincluded on thefactsheet as upgrade revenue. Upgrade is adifferent slice, itwould also be in3D revenue. Brad Manuilow -American Technology: Okay. Alright. Thank you.

Our next question comes from theline of Brent Thill with Citi. Go ahead. Brent Thill - Citi: Hey Carl. I'm just curious; Microsoft on their last earningscall mentioned that they had apretty strong tailwind as itrelated to piracy, and itwas about a 5%increase for Vista. I'm just curious if you're startingto see any betterimpact as it relatesto some of theemerging markets related to piracy, if you're seeing asimilar tailwind as well?

I don't think we've seen. Remember, Microsoft introducedsome new technology with Vista that enabled them todeter piracy more than they were able to before. Sothey're at aslightly different point. Where we areright now, we're not seeing anything noticeably different interms of piracy. I would saythough, speaking overall, there's ageneral improvement inthe enforcement ofintellectual property inmany of the emergingeconomies. Brent Thill - Citi: And just aquick follow-up on theM&A strategy. You've been doing alot of small tuck-ins and certainly like Maya was thelast big one that youdid. Should we expect asimilar trajectory insome of these smaller deals, or how areyou thinking about that going forward? Thanks.

I think, Brent, what you'll seeis really acontinuation of thesame. Lots of small technology tuck-in acquisitions really docompliment some of thetrends that we think areimportant out there. It's really almost entirely to enhance our 3D strategyaround design creation, around analysis and simulation and visualization. Almostall fall into thatcategory of acquiring good, smart people who arepassionate and knowledgeable and some technology. I think, what we've said allalong is some of theother acquisitions, like theAlias one, just because of thebusiness we're in, will bemore opportunistic and certainly rarer. Brent Thill - Citi: Thanks.

Our next question is afollow up from theline of Richard Davis with Needham.Go ahead. Richard Davis - Needham: Hey, thanks very much. Quick question. With regard tosimulation, I know everyone thinks that that'll bea bigthing, and I would agree with that. Can you tell us, doyou have a sense ofroughly what percentage of your 3D customers areactually using simulation, either partners or some of thesmaller little companies that you've acquired that have that featurefunctionality?

I think bigvariation, Richard, across thespectrum. I think inmanufacturing, where it's amuch more developed science, many of our 3D customers, I can't quantify itprecisely, but more than half of ourcustomers who do 3Dmanufacturing have been using things like finite element analysis, things like allkinds of simulation around thefactory floor, much more common there. I think when you getinto things like infrastructure, as well as building, much less. And if I justhad to put a roughguess at it, probablyless than 10% of thedesigns have significant use of analysis and simulation. There might bea little bit more whenyou get to specificdisciplines, like structural engineering, which of course alluse modern analysis techniques. Richard Davis - Needham: Got it. Now, that's helpful. Thanks alot.

(Operator Instructions) And our next question comes from theline of Gene Munster with Jefferies. Go ahead. Gene Munster -Jefferies: Hey, good afternoon. Taking astep back and looking atthe international, Iknow we've had several questions around it. But clearly it's one of thedialing parts of your business. How aggressively areyou guys trying to getbigger into theinternational markets interms of hiring specifically? Thanks.

SoGene, I think we've recognized this trend inthe emerging economiesfor a while. One of thereasons why we have such adiversified business today is we've invested insome of these places for along time. We'vetalked about being in Chinadoing business for more than 10 years. And soI think two things, one is we're very aggressive inmaking sure we continue to increase our staff, that we continue to make surethat we have the rightchannel partners and that our channel partners growthere. And I think depending on thecountry, things like what goes on inthe education market,interaction with thegovernment, are allimportant parts of anoverall holistic strategy. But when you look atthe industries we'rein, it would becrazy for us not to invest inemerging economies. Allyou have to do is getoff the plane inChina, and youlook, and you see thecranes, the buildingof infrastructure, therecognition that most manufactured products areincreasingly [have] entirely or components coming from China.Add to that theemergence of affluent middle class with disposable income who partake inthings like consumer products as well as media and entertainment. That's thesame dynamic we're seeing allover the world as you getbig portions of thepopulation moving to urban areas and becoming more affluent. So, it's avery important thing, and I think theresults bear it out. Gene Munster -Jefferies: We went on 51Job, which is theMonster of China, and so, 540 jobson the site for ADTarchitects. And I don't know, I just would think itwould be agreat return on your investment if you guys just invested inmore people on thegrounds who are tryingto stamp out some of that piracy. I know you've done some grassroots efforts inthe past; itjust seems like that could bea much biggeropportunity than it's presently been.

Yes, I think you're absolutely right. I think already thereis greater opportunity. And I think what we're always trying to dois continue to make people who illegally use our software payfor the software, andthere's certainly, as we talked about, probably 5 to 10 times as many peoplewho use our software as payfor it. So we wouldvery much like to seethem pay for it. Atthe same times, wewant to beappropriately considerate of our paying customers and not make using ourproducts more difficult for thelegitimate licensee. So, there's alittle bit of abalancing act, but I dothink it's a veryimportant thing, and we're continuing to look atways to do that. Someof them involve work with government organization, some with tradeorganizations, some comes from enlightened self interest inthese countries, as well as there aresome things that can bedone technologically. Gene Munster -Jefferies: Okay. Great. Thanks.

Ladies and gentlemen, that does conclude thetime we have for questions today. I'd like to turn thecall back over to management for any closing remarks. Please proceed.

Thank you, operator. We thank you allfor joining us today, and if you have any questions, feel free to give investorrelations a call, andwe'll help walk you through any questions you have. Thanks.

Ladies and gentlemen, thank you for your participation intoday's conference. That does conclude thepresentation. You may now disconnect. Have awonderful day.