By Ann Levine June 24, 2004 -- Adobe Corporation (NASDAQ: ADBE) announced it's second quarter results of revenues of $410.1 million up from revenues of $320 million over the same period last year. The results represent 28% year over year growth. Targeted revenue for the quarter was $390 to $410 million and Adobe reached the upper part of its target range. GAAP and non-GAAP diluted earnings per share were $0.44 in line with expectations. GAAP net income was $109 million up from $64.2 million for the same period last year. Non-GAAP net-income was $108.8 million up from $66.7 million over the second quarter in 2003. Topics of this summary: Segment Performance Guidance Q & A Segment Performance In the Creative Professional segment the number of customers purchasing the suite of products over stand-alone products has exceeded the company's expectations. In the second quarter revenues were $153.4 million over $93.7 million for the same period last year. The Digital Imaging segment showed an increase in revenues to $100.3 million over $95 million for the same period last year. Adobe expected customers to purchase the Creative Suite over stand-alone products. Historic Photoshop revenue is reflected in the Creative Suite revenue. In the Intelligent Document segment, revenues were $136.1 million in the second quarter as compared to $108.1 million over the same period last year. Acrobat desktop revenue alone was $112.8 million with desktop licensing at 43.1% market penetration. Adobe reported significant public and private sector wins during the quarter. Intelligent server revenue showed a 41% year over year growth. Geographic results include the Americas at 44% of revenue, Europe 33% and Asia 23%. Adobe reported global channel inventories as below company policy and a higher than usual backlog of orders During the quarter, Adobe reported an investment gain from Adobe Ventures of $873K. The company has made $3.6 million in additional investments in the program for a total investment of $227.3 million. To date the total return on investment is $350.1 million. Guidance Adobe provided third quarter guidance of revenues in the $360-$380 million range with gross margins at 93-94% and operating margins at 28-31%. GAAP and non-GAAP earnings per share are expected at $0.31-$0.36. Q & A Adobe's guidance factors in a seasonally weak third quarter that include volume-licensing revenue for Acrobat products. Adobe has seen growth in both standalone products and in the Creative Suite of products. Continued opportunities exist for PhotoShop in certain segments such as digital photography. When asked about hiring trends in other companies, Adobe officials today responded they are beginning to see companies add to their marketing efforts as the economy is stabilizing and/or improving. As more marketing occurs, increased hiring follows. Adobe has also seen interest by large publishers in enhancing or upgrading their infrastructure which includes the purchase of new computers and software. Gross margins were down in the quarter due to a one-time litigation settlement. Adobe is pleased with the results of the Creative Suite and customers are choosing it at a higher rate than previously thought. Larger firms have a longer evaluation cycle on choosing the Creative Suite however, officials noted that more than simply an upgrade to the new Suite is more involved and many firms have to consider upgrading their entire infrastructure. During today's call, Adobe did not give guidance for the fourth quarter but expects seasonal improvement from Q3 to Q4 from Europe. Adobe expects to see a rapid rate of growth in digital video revenues with demand driven by DVD and video. Profitability by business unit was not disclosed, however, Adobe did comment that revenues in the server side of its business was up with “great” opportunities to come. Margins are at 31-32% and if they exceed this rate Adobe will invest accordingly. Adobe's perspective on acquisitions has not changed in that it enjoys acquiring small companies with great technology. Acquisitions mush be strategic, a value to shareholders and Adobe must be able to strategically execute on the acquisition for it to make sense. Officials today stated the company did not need a merger and acquisition to grow the company. There are many value propositions that are enticing for consumers to adopt the Creative Suite of products including seamless workflow, asset management, and peace of mind in that everything is provided on one platform. A number of variables have increased the success and volume of sales of Acrobat including consumer's want increasing fidelity and integrity of documents, archival usage and the Sarbanes-Oxley Act. Although operating margins appear to be taken up by increased spending in R & D, Adobe continues to invest in opportunities to sustain growth. Additionally margins were impacted by the hire of the additional R & D personnel in the second quarter which will not have full impact until the third quarter. Additionally, salary increases will also impact margins in the third quarter.