Analyst Conference Summary

conference date: December 21, 2010 @ 2:00 PM Pacific Time
for quarter ending: December 3, 2010 (fourth quarter fiscal 2010)

But I use Adobe products
Forward-looking statements

Overview: Good overall quarter with record revenue.

Basic data (GAAP) :

Revenue was $1.01 billion, up 2% sequentially from $990.3 million and up 33% from $757 million in the year-earlier quarter.

Net income was $268.9 million, up 17% sequentially from $230.1 million and up from negative $32.0 million in the year-earlier quarter.

Earnings per share (EPS) were $0.53, up 20% sequentially from $0.44 and up from negative $0.06 year-earlier.

Guidance:

Target revenue for Q1 is $1.0 to $1.05 billion. Earnings per share: GAAP $0.43 to $0.49; non-GAAP $0.54 to $0.59. Usually Q1 is seasonally down; this year should be an exception.

During the year margins will fluctuate, lower in Q2 and Q3 due to increased planned spending. But overall margins should be slightly up in 2011.

10% revenue growth in 2011 as a whole.

Conference Highlights:

Made the high end of target revenue for the quarter. It was the first billion dollar quarter for Adobe Systems.

Non-GAAP EPS was $0.56, up sequentially from $0.54 and up from $0.39 year-earlier. Operating income was $384.0 million, net income $285.7 million.

Product revenue was $830.9 million; subscription revenue $100.4 million; services and support $76.7 million.

"Given Apple has chosen to not support Flash in the browser of its iDevices, creative professionals are increasingly deploying multiple versions of their content ... [they] continue to use our tools for their authoring and creative creation ... [and] are using Flash and AIR as the cornerstone of their developer strategy."

Day was acquired in Q4 to be added to Customer Experience Management offering.

Creative Solutions segment revenue was $542.1 million, down sequentially from $549.7 million but up from $429.3 million year-earlier.

Digital Enterprise Solutions Q4 revenue was $274.1 million, up sequentially from $256.8 million and up from $211.8 million year-earlier. Of that Knowledge Worker revenue was $169.9 million, Enterprise revenue $104.2 million, including $5.4 million from the late-in-quarter acquisition of Day Software.

Omniture revenue was $98.4 million, up sequentially from $91.0 million and from $26.3 million in the year-earlier, partial quarter.

Platform segment revenue was $46.1 million, up sequentially from $40.7 million, but down from $47 million year-earlier.

Print segment revenue was $47.3 million, down sequentially from $52.1 million but up slightly from $42.9 million year-earlier.

Business segment reporting will change again in fiscal 2011.

49% Americas, 32% EMEA, 19% Asia revenue by geographic segment. Foreign exchange gain of $11.7 million sequentially.

9117 employees at end of quarter, up due to hiring and acquisitions.

$311 cash flow from operations. $2.5 billion cash and investments balance. Deferred revenue increased $9 million to $430 million. Repurchased $333 million in shares. $1 billion in repurchase authority remains.

Cost of revenue was $107.2 million, leaving gross profit of $900.7 million. Operating expenses of $613.8 million included $170.4 million for research and development, $322.7 million for sales and marketing, $100.3 million for general and administrative, $2.2 million for restructuring, and $18.2 million for amortization of purchased intangibles.

Future growth areas are content authoring tools including video; online marketing optimization; and customer experience management solutions.

Q&A

Assumptions used to get 10% growth in 2011? Creative segment is benefiting from customer demand because of need to address multiple OS targets.

Enterprise segment closed Q4 very strong. Customer experience management is resonating with customers.

Sequential up guidance for Q1? We saw good performance at the end of Q4. All three of the growth areas mentioned above are driving growth right now.

Flash 10.1 player in mobile market? We are shipping on most Android devices, RIM and HP will start shipping soon. Almost all the new smartphones will use Flash, allowing viewing the "uncompromised Web."

Education market? We had a good last two quarters in education, it ticked down less in Q4 than usual. But it was a little below our expectations.

Japan? We should see a seasonal uptick there as they go into their fourth quarter.

What drives enterprise segment upgrades and deployments? The fast growing trend is to spend more money in rebuilding for the multi-platform experience.

Write downs for Omniture were $3 million in Q4, are now complete.

Strength in Europe? Saw an uptick from Q3, which is seasonally weak in Europe. It was good execution on the pipeline.

Day's contribution helps sell the entire platform with LifeCycle and Connect.

There was a gain of $12 million in the quarter in Other income due to the effect of a hedge on the acquisition of Day.

CS5 color? People appreciate what we have done, we expect adoption to continue into enterprises and broad scale deployment. A typical sales cycle.

Were revenues sequentially down in the Americas? The U.S. maybe was a little lighter than you would have expected, but Europe grew faster than expected. U.S. decline was not from the Education segment.

Omniture competitive environment? We were very pleased with bookings in Q4. Customer adoption continues to be ahead of expectations. Larger customers like to keep their data proprietary, so like Omniture [over, for instance, Google].

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