By Ann Levine March 22, 2004 - Adobe (Nasdaq: ADBE) recently announced first quarter revenues of $423.3 million, representing 43 % year over year growth over revenues of $296.9 million reported for the first quarter of 2003. Actual revenues exceeded the company's target of $380-$405 million. GAAP diluted earnings per share for the first quarter was $0.50 with GAAP net income at $123 million. GAAP net income for the same period last year was at $52.4 million. Year over year GAAP income grew 127%. Non-GAAP net income was $123.8 million. Topics of this summary: Segment Highlights 2004 Guidance Q & A Segment Highlights Revenues in the Creative/Professional segment exceeded expectations as compared to stand-alone products. Revenues were $158.1 million during the first quarter and $85.8 million for first quarter in 2003. Adobe has predicted customers are taking additional time to review the new Creative Suite of products and expects the launch “tail” will continue into the year. The Digital Imaging and Video segment reported revenues of $113.5 million in the first quarter as compared to $96.2 million for the same period last year. Revenue in this segment represented a shift as customers move to the Creative Suite rather than stand-alone products. OEM Postscript had revenues of $21.4 million in Q1 down from $24 million for the first quarter of 2003. Intelligent Document segment showed revenues of $130.3 million for Q1 as compared to $90.9 million last year. Acrobat desktop revenue was $109 million in the first quarter. In the server segment, revenue was $21.3 million a 38% year over year growth. Adobe reported 29 server transactions over $50K with the average size transaction at $205K. The company announced two new products, the Adobe Policy Server and a 2D bar code product. The Policy Server limits the number of persons having access to documents and addresses a company's and consumer privacy issues. Adobe will begin piloting this product over the summer of 2004 with commercial availability scheduled for the end of 2004. The 2D bar code allows for increased levels of automated processing of documents and the product is expected to be available by the end of the year. From a geographic standpoint, the revenue mix for the first quarter was the Americas 43%, Europe 34% and Asia 23%. Adobe reported solid demand across all geographic markets. Application platform mix was 71% Windows and 29% Mac during the first quarter. 2004 Guidance For the second quarter, Adobe expects revenue to be in the range of $365-$385 million with GAAP and non-GAAP earnings per share ranges of $0.33-$0.39. Adobe has revised its 2004 guidance based on current results and has increased revenue expectations to $1.475 billion - $1.5 billion with GAAP and non-GAAP earnings per share in the range of $1.40-$1.46. Q & A Adobe's current cash balance has not had an impact on the company's acquisition strategy. Additionally, the current cash balance allows for flexibility and the opportunity to return excess cash to shareholders. Free cash flow balance during the quarter was $156 million. The launch of the Creative Suite resulted in overall revenues well above 15% and was higher than PhotoShop revenues. Even so, officials pointed out that PhotoShop revenues also exceeded targets for the first quarter. From a geographic standpoint, Europe showed good performance during the first quarter, which reflects typical trends. Japan also had a strong launch with the Creative Suite and revenue performance was impacted by the year end buying season in government and education. The U.S. saw strong results in the first quarter with expectations of a slow-down in April. Although early in the Creative Suite lifecycle, Adobe officials believe the product will help the company gain market share. In comparison to Quark, for instance, officials stated that Adobe products have outdistanced Quark for a few product generations. Adobe has seen a definitive customer shift to volume licensing over shrink-wrap products over the past several years. Adobe expects a 14%-16% revenue growth in fiscal 2004 and is taking a conservative approach on expectations as there is no historical background to provide guidance on the performance of the Creative Suite. Spending will increase modestly in the year as the company pursues various unnamed, but significant, opportunities. Penetration into markets in Asia and China hold challenges and opportunities for Adobe. In Asia, Adobe anticipates partnerships with other businesses working on a global level to further the Intelligent Document segment of its business. The challenge in China was defined as overcoming the societal tendency to pirate software. Adobe is working with officials in China to help them understand intellectual property. The Chinese government is currently an Adobe customer, however, the overall revenue from China is immaterial to Adobe's overall reported revenue. The first quarter revenue performance with the Creative Suite of products is being driven by both new customers and those upgrading from current products. The company's tax rate for the first quarter was 26% and is targeted at 26% for the second quarter and for the full year. Enterprise revenues were a direct result of Adobe's direct sales force. Plans are to add direct sales staff in 2004. Headcount remained relatively stable from Q4 2003 to Q1 2004 and the company does not anticipate reductions in force. It does, however, anticipate the addition of a significant number of new employees next quarter. Officials would not elaborate on where the additions will be made and would only comment on aligning resources with the greatest opportunities.