Analyst Conference Summary

conference date: March 22, 2011 @ 2:00 PM Pacific Time
for quarter ending: March 4, 2011 (first quarter fiscal 2011)

But I use Adobe products
Forward-looking statements

Overview: Another strong quarter with record revenue.

Basic data (GAAP) :

Revenue was $1.03 billion, up 2% sequentially from $1.01 billion and up 20% from $859 million in the year-earlier quarter.

Net income was $234.6 million, down 13% sequentially from $268.9 million, and up 84% from $127.2 million year-earlier.

Earnings per share (EPS) were $0.46, down 13% sequentially from $0.53, but up 92% from $0.24 year-earlier.

Guidance:

Because of the tragedy in Japan, "we are being prudent and have reduced our revenue expectation for our second quarter by $50 million." Target is now $970 million to $1.02 billion. Operating margin 24.5% to 27.5% GAAP, 34% to 36% non-GAAP. EPS $0.33 to $0.40 GAAP, $0.47 to $0.54 non-GAAP.

Conference Highlights:

Revenue came in at midrange of guidance. "Solutions are enabling us to target large addressable markets that are fueling our growth," said CEO Shantanu Narayen, resulting in record revenues. The Adobe strategy for the multi-screen world is working.

During the quarter Digital Publishing Suite was made available and demand has been strong. Preparing a mid-cycle release for CS5.

Non-GAAP results were: EPS $0.58, up sequentially from $0.56 and up from $0.40 year-earlier. Operating income was $400.1 million. Net income was $298.1 million, up both sequentially and y/y. Operating margin was 38.9%.

GAAP operating margin was 29.4%.

Product revenue was $842.7 million, subscriptions $106.2 million, services and support $78.8 million.

Exited quarter with no shippable backlog.

CS5 and Creative & Interactive segment had $424.8 million in revenue, up from $332.6 million year-earlier.

Digital Media segment revenues $151.7 million, up from 130.6 million. Includes photoshop and video products.

Digital enterprise revenue was $286.9 million, with Knowledge worker at $181.8 million.and enterprise at $104.8 million. Includes Acrobat, content management products.

Omniture (ad content) segment revenue was $110.9 million, up from $96.0 million year-earlier.

Print and publishing segment revenue was $53.7 million.

By geography: Americas 49%, Asia 20%, and EMEA 31% of revenues. Exchange rates reduced revenue by 5 million y/y.

Cash and investments balance was $2.6 billion. Cash flow from operations $332 million. Deferred revenue increased to $443 million. Repurchased 2.5 million shares for $83.4 million.

Cost of revenue was $107.6 million, leaving gross profit of $920.1 million. Operating expenses of $617.7 million consist of: $178.4 million R&D; $328.1 million sales and marketing; $101.0 million general and administrative; $41 million restructuring; $10.2 million amortization of purchased intangibles. Leaving operating income of $302.3 million. Non-operating expense was $16.2 million. Income taxes $51.5 million.

Ended with 9,503 employees.

Q&A

What about 10% growth for 2011 outlook? Prior to Japan we were on track to deliver on December guidance. If Japan is impacted, then there would likely be some makeup in Q3, so not so much down seasonality as expected in Q3. Will be keeping an eye on expenses until we see true impact of Japan.

Backlog? Fluctuates quite a bit. We are pleased with Q1, including factoring in of backlog. Some large enterprise deals did slide into Q2. Pipeline for enterprise in Q2 is very strong.

Why $50 million Japan hit projection? Our office is in Tokyo, and had no significant damage, nor harm to roughly 300 employees. Some tranport problems and electricity blackouts continue. March is the top month most years, and got off to a good start. $50 million is based on sales impact seen so far since the quake.

Deferred revenue growth is largely from Omniture.

We believe Digital Publishing Suite will first be used by magazines and newspapers, then should be adopted by book publishers and then wider, anything for tablets will be needed to get content out to the varied devices.

Mid-cycle CS5? Our customers want more multiple format capability. It will focus on integration with Digital Publishing Suite, functionality of Flash. Hopefully will release sooner rather than later.

With CS6 we would like to have a subscription model available world wide. Monthly payments attract new customers, and it is easy for customers that have not stayed currect with CS versions. Would be available some time in 2012.

Omniture update allows for mobile and social media improvements. The upgrade process will be transparent for most customers. As far as capital expense, that is all included in the general guidance.

Education? Education market had a strong rebound in the quarter.

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