Q2 2004 MatrixOne Inc. Earnings Conference Call - Part 1.

(From Fair Disclosure Wire)

OPERATOR: Good evening, ladies and gentlemen and welcome to the MatrixOne second quarter earnings release conference call. Operator Instructions). I would now like to introduce Brian Norris, Director of Investor Relations for MatrixOne. Please go ahead, sir. BRIAN NORRIS, DIR. OF INVESTOR RELATIONS, MATRIXONE, INC: Thank you, Cathy. Good evening everyone and thank you for joining us. With me on the call this evening is Mark O'Connell, the company's President and Chief Executive Officer and Mau Castonguay, the company's Senior Vice President and Chief Financial Officer. Earlier today, MatrixOne issued a press release, which outlined the second quarter results. In a moment, I will turn the call over to Mau, who will review these results and then Mark, who will share a few thoughts on the business.

I will now present the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Forward-looking statements made during this call are not promises or guarantees and are subject to risks and uncertainties that could cause our actual results to differ materially from those anticipated. We caution you not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.

Such statements may relate to among other things, our ability to respond to economic changes and improve up ratio efficiency, our ability to take advantage of market opportunities and our position in the market, our growth prospects, our planned objectives and expected financial and operating results, for long term growth prospects in the PLM market or the benefits of our products we realize by our customers.

Forward-looking statements will also include without limitation any statement relating to future events, conditions or circumstances, or using words such as will, believe, anticipate, expect, could, may, estimate, project, plan, project or intend. For a more detailed discussion on the risks and uncertainties of our business, please refer to our periodical reports filed with the Securities and Exchange Commission including our annual report on Form 10-K for the fiscal year ended June 28, 2003 and our quarterly report on Form 10-Q for the quarter ended September 27, 2003. The Web cast replay of this evening's conference call along with the related press release and accompanying financial and operating statistics is accessible from the IR Web site at www.matrixone.com/investor.

Before I turn the call over to Mau, I would like to remind everyone, we will be holding an analyst event next week in Orlando, Florida in conjunction with our global customer conference. If you would like more information, please contact me at 978-589-4040. At this time, I would like to turn the call over to Mau. MAURICE CASTONGUAY, SVP AND CFO, MATRIXONE, INC: Thank you Brian and good evening everyone. I'm pleased to report that those software license revenues and total revenues exceeded management's guidance and analyst's estimates. We also delivered pro forma earnings, which were 1 cent per share better than first call estimates. The financial results for the second quarter was as follows.

Total revenues were 26.9 million and include software license revenues of 9.4 million and service revenues of 17.5 million. We recorded 65 software revenue transactions during the second quarter, none of which was in excess of $1 million. The average software revenue transaction was $144,000, eliminating orders under 75,000, the average software revenue transaction was $291,000. No one customer represented 10% or more of total revenues.

Application revenues represented 47% of software license revenues with significant revenue coming from program central, product central and engineering central. The geographic split of total revenues was 56% from the Americas, 36% from Europe, and 8% from Asia-Pacific. The best performing vertical markets, as measured by trailing 12-month software license revenues, where automotive at 33%, high tech at 27% and aerospace and defense at 17%.

Product gross margins improved to 83%, up from…