Analyst Conference Summary

conference date: September 15, 2009 @ 2:00 PM Pacific Time
for quarter ending: August 28, 2009 (3rd quarter fiscal 2009)

But I use Adobe products
Forward-looking statements

Overview: A mediocre quarter within prior guidance.

Basic data (GAAP) :

Revenue was $697.5 million, down 1% sequentially from $704.7 million and down 21% from $887.3 million in the year-earlier quarter.

Net income was $136.0 million, up 8% sequentially from $126.1 million, but down 29% from $191.6 million year-earlier.

Earnings per share (EPS) were 0.26, up 8% sequentially from $0.24, but down 26% from 0.35 year-earlier.

Guidance:

Targets for the fiscal fourth quarter 2009 are revenue $690 to $740 million, operating margin (GAAP) 23 to 27% (33 to 36% non-GAAP), EPS GAAP $0.23 to $0.29, non-GAAP $0.33 to $0.39. Normal seasonality.

This guidance excludes impact of Omniture acquisition.

Conference Highlights:

Results within targets we set at outset of quarter. 34% non-GAAP gross margin, 24% GAAP.

Non-GAAP earnings per share were $0.35, down from $0.50 year-earlier and flat sequentially. Non-GAAP operating income was $237.1 million; net income was $186.1 million.

Omniture acquisition is expected to close in the fourth quarter. Omniture is the industrial leader in web analytics and online business optimization. This will give us an end-to-end platform for media and advertising. Paying $21.5 per share in cash, or about $1.8 billion. Will use cash on hand and existing line of credit. This is a long-term strategy for diversification. Omniture margins are not as good as Adobe's. In 2010 expected to be non-GAAP earnings accretive.

Product revenue was $649.9 million, service revenue $47.6 million.

Revenue by segment: Creative Solutions was $400.4 million; Business Productivity $210.0 million (subcategories: Knowledge Worker $154.5 million; Enterprise $55.5 million). Print and Publishing $42.2 million; Platform $44.9 million, the only category up y/y.

By geography, Asia 21%, EMEA 28%, Americas 51% of revenue.

Cost of revenue was $65.0 million, leaving gross profit of $632.5 million. Operating expenses of $464.9 million included: R&D $138.9 million, sales and marketing $231.3 million, General and Administrative $79.6 million, amortization $15.0 million. Leaving operating income of $167.6 million. Non-operating income was $6.8 million. Income tax provision was $38.4 million.

Cash, equivalents, and short term investment balance ended at $2.556 billion. Receivables slumped to $281 million. Deferred revenue was $188.3 million. Long term debt is $350 million. Cash flow from operations was $237 million. Repurchased about 4 million shares for $116.1 million.

Financial Analyst meeting will be October 7th.

Q&A

Product synergies with Omniture? Technology is headed to more video, richness of applications, mobility. Our customers want us to help them monetize their content by seeing click-through ad rates in real time. They want Adobe to play a bigger role.

Creative Suite 4 cycle? Should play out similar to cycles for 2 and 3.

Cost reductions, permanent v. temporary? There is a healthy percentage related to variable compensation. That does have to come back, likely in 2010. But we also reduced employees by about 600.

Upgrade cycle? They do tend to buy new software when they upgrade hardware. Adobe has held off on hardware purchases like most companies. With Snow Leopard and Windows 7, there is likely to be an increase in purchases of Adobe upgrades.

Omniture has already been integrated with Flash on the Omniture side.

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