Analyst Conference Summary

conference date: June 14, 2007
for quarter ending: June 1, 2007 (2nd quarter fiscal 2007)

Forward-looking statements

Overview: Record revenue on new Acrobat and Creative Suite products.

Basic data:

Revenue was $745.6 million, up 15% sequentially from $649.4 million and up 17% from $635.5 year-earlier.

Net income was $152.5 million, up 6% sequentially from $143.9 million and up 24% from $123.1 million year-earlier. Non-GAAP net income was $223.2 million.

Earnings per share were $0.25, up sequentially from $0.24 and up from $.20 year-earlier. Non-GAAP earnings were $0.37.

Cash and equivalents ended at $2.32 billion, compared to $2.28 billion year-earlier.

Guidance: For fiscal Q3 2007 revenue is expected between $760 and $800 million. GAAP earnings are expected at $0.28 to $0.31 per share; non-GAAP earnings between $0.39 and $0.41 per share.

This factors in typical Q3 seasonal weakness.

Conference Highlights:

Revenue exceeded target range, as did earnings. Record revenue for Acrobat and Creative Suite.

GAAP Operating expense was $474 million, up sequentially from $421.9 million.

180.4 million GAAP operating income.

Effective tax rate was 25.6% GAA; non-GAAP 26.2%.

Creative solutions revenue was $436.6 million. CS3 began shipping in April; non-English versions started shipping in Q3. Great response. Strong Macintosh demand. Extended version sales are higher than standard sales.

Knowledge worker segment revenue was $184.8. Acrobat had record revenue, led by enterprise licensing. But expects to be lower sequentially due to typical seasonal weakness.

Enterprise & developer revenue was $53.2 million. Introducted Lifecycle software. 101 large customers in quarter.

Mobile and device revenue was $12.3 million.

Other revenue $59.6 million; declined due to lower legacy software sales. Adobe Integrated Runtime announced this week.

Exceptionally strong demand in North America.

6427 employees at end of quarter.

5.9 million shares or $232.4 million in share repurchases.

Net cash provided by operating activities was $345.4 million.

Expect to exceed their original fiscal year revenue and earnings targets.

Q&A:

CS3 international launch? Seasonality is particularly weak in Europe in Q3 due to vacations.

Other revenue decline? Platform business is down due to legacy products like PageMaker and FreeHand that are being replaced by CS3.

Other flavors of CS3? Believed Design versions would do best. Still to ship Master collection and Web bundles. Premium versions are also doing well; they have Photoshop Extended in them.

Has good international backlog of orders going into Q3.

Acrobat 7, 8, 9 competition? It is mainly a new unit business, rather than upgrades from 7 to 8. Believes Q4 will see at uptick in revenue.

Deferred revenue up? Deferred is made up of LightRoom and CS2 to CS3 upgrades. As foreign language CS3 ships deferred will go down.

Creative product mix? Expect suites to increase % compared to individual products. Expects sequential increase Q3 over Q2 for the segment due to foreign release. Believes revenue will improve, not decline, as the cycle goes forward. Really on about 6 weeks of CS3 shipments in Q2.

Apollo? Great progress and feedback so far. Google Gears is still browser-bound, where as Apollo frees developers from the browser.

Share count direction? Repurchases should offset dilution. Balancing several variables to decide on repurchases.

Revenue growth was largely based on people buying the more expensive suites.

Pricing in Europe? Prices are higher than in U.S., similar to differentials used in past. Based on expense of doing business and dollar exchange rate.

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