By Trevor Shackelford March 23, 2005 -- Adobe Systems Inc. (Nasdaq: ADBE) reported its first quarter results today. The company beat their revenue target of $470 million for the quarter, posting $472.9 million compared to $423.3 million in the first quarter of 2003. GAAP net income was $151.9 million, or $0.60 per share, in the first quarter compared to $123.0 million a year ago and $113.5 million last quarter. Chief Executive Officer, Bruce Chizen, was pleased with the results and cited the fast pace of digital content growth as the primary driver for the increased demand of Adobe solutions. Topics of this Summary Quarter Highlights Segment Performance Guidance Raine Radar Q & A Quarter Highlights Adobe announced a 2 for 1 stock split in the form of a stock dividend. The company will start the second quarter with 4016 employees, up from 3848 at the end of the Q4. The increased headcount is going primarily to R & D and Sales/Marketing. Global Revenues as a percentage of total Q1 revenue: Americas 46%, Europe 32%, Asia 22%. Operating platform split: 76% Windows, 24% Macintosh. The mix continues to trend towards Windows. The U.S. Navy Exchange Command adopted Adobe Intelligent Documents server solutions and plans to completely phase out paper reporting. Adobe and Deutsche Post are collaborating on an online postage system that will allow users to buy and print stamps from an internet site. Segment Performance Creative Professional Segment Revenue for the first quarter was $160.7 million, up from $158.1 in the same period last year and $151.2 last quarter. Adobe noted that momentum has continued for their Creative Suite line of products. Digital Imaging and Video Segment Revenue for the first quarter was $106.6 million, down from $113.5 million last year and $118 million last quarter. Adobe cited an expected post-holiday decline in demand for consumer digital imaging and consumer video products. Photoshop momentum continued in line with past quarters. OEM post goods and other segment revenue stayed relatively flat at $20.7 million compared to $21.4 million in the same period last year and $20.4 million last quarter. Intelligent Documents Segment Intelligent Documents posted record revenue of $184.9 million in the first quarter, up from $130.3 million in the same period last year and $139.9 million last quarter. Revenue from the Intelligent Documents Desktop group grew 47% in the quarter to $160.7 million. The Server group posted first quarter revenues of $24.2 million, up 14% in a year over year basis. The company was very proud of the Server group’s wins in the government sector. Guidance Adobe has revised its guidance based on a new product which it plans to release in the second quarter, although it gave no details on what that product would be. The company announced that it expects a second quarter revenue range of $475 to $495 million, gross margin of 94%, and operating margin in the 35 to 37% range. For the 2005 fiscal year, Adobe is increasing its revenue target from a range of $1.85 - $1.9 billion to $1.925 billion, with an operating margin of approximately 36%, up from the previous target of 34 to 35%. Raine Radar Adobe is continuing to see massive adoption of its PDF document format. It is being incorporated into 3G mobile networks in Japan which will allow delivery to smart phones and PDA’s. Companies and government agencies all over the world are using new PDF-driven document workflows to streamline reporting and communications as well as reduce or eliminate the need for printing. To date, Adobe has done an excellent job of leveraging its technologies and lining up heavy hitter channel partners to continue to shape the face of content and digital asset management. Seeing this trend, the market has included a hefty amount of growth into the stock price. Q & A The savings from the discontinued dividend will be used to repurchase stock. The company is targeting a share count range of between 256 to 257 million. Adobe believes they are under-penetrating the CS market. The growth in Asia this quarter is likely seasonal growth from Japan, and does not represent any larger trend. The forms and document servers are leading performance within the Server group. Adobe was very tight-lipped about its Q2 product release(s). They did not want to cannibalize demand for their current lineup(s) with hype on a new product. Speculation from the analysts centered on CS 2.0. Adobe has pursued a partner strategy and increased marketing spend to help drive demand for Acrobat 7. The company has no plans to start charging for Acrobat viewer in any format (portable or otherwise). This is in line with the strategy of making PDF the standard for viewing and distributing content. The company received a foreign exchange benefit of approximately $11 million in the first quarter. In the geographies they serve, the company is seeing the selling environment for software stabilize from last year. Q2 desktop Acrobat revenues should decrease following the Q1 launch, but there was no speculation on where revenue levels would settle. Key partnerships on the server side include SAP, IBM, and Documentum. More generally, Adobe optimizes its products for Intel on the computing side and HP on the printing side. Adobe would like to distinguish itself from competitors like Macromedia by focusing on providing cross-media content management rather than a pure web, print, or mobile platform.