Analyst Conference Summary

conference date: March 19, 2013 @ 2:00 PM Pacific Time
for quarter ending: March 1, 2013 (Q1, first quarter fiscal 2013)

But I use Adobe products.
Forward-looking statements

Overview: Revenues flat and GAAP earnings down as subscription model delays revenue.

Basic data (GAAP) :

Revenue was $1.008 billion, down 13% sequentially from $1.153 billion, and down 5% from $1.045 billion in the year-earlier quarter.

Net income was $65.1 million, down 71% sequentially from $222.3 million and down 65% from $185.2 million year-earlier.

Earnings per share (EPS) were $0.13, down 70% sequentially from $0.44 and down 65% from $0.37 year-earlier.

Guidance:

Revenue $975 to $1.025 billion. GAAP EPS $0.08 to $0.14; non-GAAP EPS $0.29 to $0.35. Expect expanding number of subscriptions in quarter.

Fiscal 2013 GAAP EPS $0.62, non-GAAP EPS $1.45, an increase in full fiscal 2013 guidance.

Conference Highlights:

Characterized results as "strong," and exceeded $1 billion revenue target while it "continued to accelerate adoption of Adobe Creative Cloud" subscription model.

Non-GAAP numbers: net income $177.9 million, down from $284.5 million year-earlier. EPS $0.35, down from $0.57 year-earlier. This excludes $57 million depreciation & amortization, $85 million in stock-based compensation, offset by a $28.8 million income tax adjustment.

Digital Media: 479,000 paid Creative Cloud subscriptions at end of quarter, and already over 500,000. Over 2 million free and trial members. New products to be announced in May. $688 million revenue. 153 thousand net new paid subscriptions. Migrating larger customers to ETLAs, Enterprise Term License Agreements. Document services, including Acrobat, subsegments grew to $188 million.

Digital Marketing segment had 20% y/y revenue growth in the quarter, to $268 million. Adobe Marketing Cloud capabilities announced at Adobe Summit, including social and mobile. Aiming at $1 billion annual revenue. Adobe Marketing Cloud $215 million, LiveCycle+Web Conference $52 million.

Marketing Cloud and Creative Cloud will be integrated.

Cash flow from operations was $322.0 million. Cash, equivalents and short term investments balance ended at $3.66 million. 2.7 million shares were repurchased for $100 million.

Deferred revenue grew to $700 million.

At end of quarter 31% of revenue was recurring.

Tax rate was lower than expected because of the reinstatement of the R&D tax credit.

11,196 employees at end of quarter.

Q&A

Subscription average prices? ASPs were relatively flat.

Digital marketing organic growth? Booking grew over 25%. There is a growing pipeline during the quarter.

Contract length for bookings? Bookings is just annual contract value.

Team addition impact? We expect to see acceleration with channel partners.

EMEA? Europe did well for us. The mix is different as we move to subscriptions. Europe has stabilized and looks good going forward.

ETLA component of Creative? The transition is going well. ETLA is first phase of enterprise offering. It is important to enterprise that desktop and server products work together. ETLA users are not counted in subscriber counts.

Comfort on full year 1.25 million subscriber goal? The subscription ramp accelerates as we go through the year. Customer feedback also gives us confidence.

Some free & trial subscribers are only collaborating in work flows, rather than potential paid subscribers, but on the whole this is good pool for conversion to paid subscription.

Kevin Lynch will be leaving Adobe.

We do have customers paying month-to-month, but the vast majority sign up for annual.

We are moving away from shrink-wrapped box product, which does reduce expenses slightly and is figured in the guidance.

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