Analyst Conference Summary

conference date: March 17, 2009 @ 2:00 PM Pacific Time
for quarter ending: February 27, 2009 (1st quarter fiscal 2009)

But I use Adobe products
Forward-looking statements

Overview: Revenues down as end-customers make do with older versions of Adobe products. Profit margins are down more than revenues, but are still high.

Basic data (GAAP) :

Revenue was $786.4 million, down 14% sequentially from $915.3 and down 12% from $890.4 million year-earlier.

Net income was $156.4 million, down 36% sequentially from $245.9 million and down 29% from $219.4 million year-earlier.

Earnings per share (EPS) were $0.30, down 35% sequentially from $0.46 and down 21% from $0.38 year-earlier.

Guidance:

Targets for the 2nd fiscal quarter 2009 are revenue between $675 and $725 million. GAAP operating margin of 21% to 26%; non-GAAP 32% to 36%. Tax rate about 24%.

Resulting in EPS $0.20 to $0.27 GAAP, $0.31 to $0.38 non-GAAP.

Expect typical downward seasonality in Europe and Japan in Q3.

Conference Highlights:

Expense management helped maintain profit margins. Adobe continues to invest in new growth businesses. Results were within guidance range.

Non-GAAP operating income was $295.0 million; net income was $236.8 million; EPS $0.45. All were down sequentially and from the year-earlier quarter.

Product revenue was $742.2 million; service revenue $44.2 million.

Cost of revenue was $77.4 million, leaving gross profit of $709.0 million. Operating expenses of $501.1 million were down $32 million from year-earlier and included: R&D $150.0 million; Sales $249.5 million; general $74 million; restructuring $12.3 million, and amortization $15.4 million. Leaving operating income of $207.9 million. Interest and other income was $12.4 million. There was a $17.2 million loss on investments. $46.7 million for income taxes (23% tax rate GAAP & non-GAAP).

Operating margins were 26.4% GAAP, 37.5% non-GAAP.

Cash and short-term investment balance was $2.38 billion. Cash flow from operations was $365.7 million. Receivables $300.0 million. Payables were $41.4 million. there was $350 million in long term debt. 5 million shares were repurchased for $115 million.

Business segments (they have changed compared to 2008, so past data is adjusted to the new categories):

Creative solutions revenues were $460 million, down from $543 million year-earlier. Includes Creative Suite, Dreamweaver, Fireworks, Flash, Illustrator, Photoshop, etc. CS4 demand was weaker than expected; below similar CS3 revenue at same time in cycle.

Business Productivity Solutions revenues were $227 million, down from $250 million year-earlier. Includes Acrobat, LiveCycle, etc. But LiveCycle enterprise grew 18% y/y growth.

Platform revenues were $52.3 million, up from $43.3 million year-earlier. Includes AIR, ColdFusion, Flash, Flex. Good adoption fo Flash Player, Flash Lite and AIR.

Print and Publishing revenues were $46.4 million, down from$53.9 million year-earlier. Includes PageMaker, Director, Framemaker, PostScript, etc.

By geography, EMEA was 35% of revenue, Asia 24%, Americas 41%.

7173 employees, down from 7544 at end of Q4.

Q&A:

Investing for recovery versus maintaining profits? We managed expenses for Q1, but do not want to damage long term strategy. We focussed on marketing spend and discretionary expenses like travel. We also realigned personnel against the strategy.

Seasonality in Q3? Enterprise side has been doing well. Economy has hit us on channel side. Since beginning of February we have seen stability in channel business. So we have a basis for Q2 revenue range. So Q2 seasonality is a decline in all geographies. Q3 another dip, then the usual Q4 uptick.

Upgrade to CS4 cycle? Overall CS4 consideration is high. They are moving to the higher value suites within CS4. Pricing incentives remain. Enterprises test first before adopting for entire company. Channel business has been more of a problem than in enterprises.

Non-Professional user demand? Economy has had a clear impact. We are seeing more downloads directly from us.

Foreign exchange impact? We are well-hedged and expect less impact going forward.

Acrobat verticals? We continue to do well in finanical and government segments. Non-enterprise use is weaker.

Since the quarter ended, direction? Visibility is still difficult for 2009. Our business got worse in December through end of January, but stabilised from February through the present.

Operating expenses going forward? You will see a little bit more of a drop in Q2 as headcount reductions and discretionary spending complete. Q4 there is usually a bump in expenses due to the year end.

If recovery, spending plans? We can ramp up spending quickly, but would be judicious about that. So spending ramp would follow a revenue ramp.

Equisystem's health? Channel partners add value with group settings, especially if they provide training or other software purchases. We diligently look at all of our channel partners' financial health. We are not concerned, but will continue to monitor.

More data: Adobe Fiscal Q1 2009 press release

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