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conference date: March 20, 2007, 2:00 PM PT
for quarter ending: March 2, 2006 (1st quarter 2007)
Overview: Revenues down sequentially and year-over-year, but within low range of guidance and slightly above published consensus of sell-side analysts.
Basic data:
Revenues were $649.4 million, down 5% sequentially from $682.2 million and down 1% from $655.5 million in 1st quarter fiscal 2006.
GAAP net income was $143.9 million, down 22% sequentially from $183.4 million, but up 37% from $105.0 million in Q1 2006. GAAP EPS was $0.24.
Non-GAAP results were given as earnings of $0.30 per share; net income of $182.3 million.
Cash, equivalents and short-term investments ended at $2.3 billion, sequentially unchanged.
Guidance:
For Q2 fiscal 2007 target range for revenues is $700 to $740 million. GAAP Operating margins 23 to 25%. Share count to be 605 to 607 million. GAAP EPS $0.23 to $0.26. Non-GAAP EPS $0.34 to $0.36.
Reaffirmed fiscal 2007 full year revenue growth target of 15%. 25 to 27% GAAP operating margin.
Conference Highlights:
$620.3 million revenue from products, $29.1 million from support and services. Operating expenses $430.8 million. That includes R&D of $137.1 million, sales and marketing of $214.7 million, general and administrative of $62.6 million, intangibles amortization of $17.7 million, and a restructuing gain of $1.3 million. Operating income $146.3 million.
GAAP 17.5% effective tax rate.
Revenue by business segment:
Creative Solutions $346.4 million.
Knowledge Worker $174.8 million.
Enterprise and Developer Worker $50.9 million
Mobile & Device $13.7 million
Other $63.6 million
Solid demand across all major geographies.
6151 employees at end of quarter.
Global channel inventory was within company policy.
4.8 million shares repurchased for $108.7 million.
New products to ship late in Q2, so Q3 revenues will be substantially higher than Q2. CS3 release on track for next week. Apollo now available to developers (announced yesterday).
Q&A:
Plans for cash? Want to deliver cash back to shareholders through stock buy backs.
Apollo revenue? Nothing appreciable in 2007.
New product challenges? Marketing is well planned. 13 new applications, 19 new configurations. Will say specific release dates for specific products next week.
Acrobat 8 acceptance? Best ever. Expect Q2 to be sequentially up. Q1 had licensing manager issues.
Pricing elasticity of CS3? Customers not typically price-sensitive; they want quality and productivity. Higher ASPs come from customers buying sets including more products.
Autodesk competition? Don't see Photoshop extensions as competitor to Autodesk, but does allow people in those industries to do more interesting things.
Apple and CS3? They are one of the most important partners and are very excited. Don't anticipate seeing CS3 bundled with hardware.
Increase in deferred revenue? From Lightroom revenue because of update model.
Flash v. Quicktime, Windows Media, Realplayer: mostly Flash for video. 74% of cable TV goes out via Flash video.
CS3 on Mac? Will run on older architectures (PowerPC) and new Intel architecture. Nothing used in CS3 requires non-released Mac operating systems.
Knowledge Worker long-term growth rate? Acrobat 8 will follow previous versions, sequential increases for rest of year.
Mobile revenue post Macromedia? Seeing steady growth, early customers are burning through their Macromedia prepay. Will be very disappointed if they don't launch a service with a major carrier by end of this year.
Mobile? Docomo already has 8 million customers using FlashLight. All seeing voice revenues going down, want to be able to deliver more services. Verizon announced intent to support the Flash ecosystem. China Mobile announced too.
Other segment? Expect to be relatively flat for the rest of the year.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but its possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers
