By Susan Kelly September 27, 2004 -- Adobe Corporation (NASDAQ: ADBE) today announced its third quarter results of revenues of $403.7 million up from revenues of $319.1 million over the same period last year. The results represent 27% year over year growth. Targeted revenue for the quarter was $380 to $400 million and Adobe exceeded its revised target range. GAAP and non-GAAP diluted earnings per share were $0.42 in line with expectations. GAAP net income was $104.5 million up from $64.5 million for the same period last year. Non-GAAP net-income was $105.6 million up from $66.3 million over the third 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 Creative suite of products, Illustrator and InDesign over other stand-alone products has remained strong and exceeded the company’s expectations. In the third quarter revenues were $150.4 million over $82 million for the same period last year. The Digital Imaging segment showed an increase in revenues to $98.4 million over $88.3 million for the same period last year. Photoshop revenues remain strong. OEM and PostScript revenue was $19.4 million in third quarter as compared to $21.8 million last year. In the Intelligent Document segment, revenues were $135.5 million in the third quarter as compared to $127 million over the same period last year. Acrobat desktop revenue alone was $105.8 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 27.9 million. Geographic results include the Americas at 48% of revenue, Europe 31% and Asia 21%. Interesting split in the business that reported shipping product that is 73% Windows platform and 27% Mac platform showing an increase slightly in the in Mac platform in the third quarter; up 4% from last year. Cash and short term investments were $1.14 billion at the end of third quarter which is down from $1.28 billion last quarter. The reasons stem from a stock repurchase as well as the refinancing for two of their headquarter buildings. During the quarter, Adobe reported an investment loss from Adobe Ventures of $1.5 million. The company has made $3.5 million in additional investments in the program for a total investment of $230.8 million. To date the total return on investment is $351.8 million. Guidance Adobe provided fourth quarter guidance of revenues in the $400-$415 million range with gross margins at 94% and operating margins at 31-33%. GAAP and non-GAAP earnings per share are expected at $0.38-$0.41. Also as a percentage of revenue, Adobe is targeting fourth quarter expenses as follows: R&D at 20%, Sales and Marketing at 32-34%, and General and Administrative at 9%. The CEO stated that this will be one of Adobe’s best year’s ever. Q & A Adobe’s Creative Suite accounts for over 25% of their revenue. Forecasting this product has been difficult and now that it is a year old, they are now in a position to be more predictable, Acrobat plans to go after vertical market and version 6 still has a lot of life in it to penetrate these verticals markets. Analysts wanted to know when Version 7 was coming out and what will change to meet vertical needs. No specificity was given on this issue. Adoption of pro versus premium version is a 3:2 ratio. As they segment the product they continue to segment the features to get the most value add out of the customer. Share repurchase was 4.5 million shares and approximately $200 million was spent to drive better value to shareholders. Adobe executives would not comment on global IT situation. Adobe focuses on the creative professional and it has been a long time since this group has upgraded their equipment. This is the wave that Adobe is following. Business or Enterprise customers look for a quick ROI which is what the intelligent server products address. Change in the licensing programs impacted all products which increased revenues by $10 million. An integrated platform is what is resonating with customers. Asset management and rudimentary work flows makes customers think about collaboration which draws heavier adoption to version 2 of the Creative suite. Adobe has made large investments in their direct sales force and professional services organization. They would not specify any investment amounts or ROI for these initiatives. Volume licensing has increased the number of seats in some areas but no specifics were given on the call. August sales were a little softer than usual due to Japan’s sales only and nowhere else in the company. There is not enough data to understand why at this point. No 2005 guidance was given but Adobe’s expectation is that they will continue to grow over and above 2004 results. Their partnership with Documentum, and their recent merger with the EMC organization, gives Adobe a better opportunity for content management, asset management, and storage in the market. Adobe is going after the entry level consumer and advance hobbyist markets with Photoshop products that have a greater ease of use. For example, Adobe knows that the majority of sales of Photoshop is not from creative professionals but from the consumer market. They believe there is a huge opportunity to drive more sales with more products to this segment. Publishing markets, like Meredith, continues to be a focus for Adobe and they plan to continue to compete with Quark.