By Trevor Shackelford April 6, 2006 -- Adobe Systems Incorporated (NASDAQ: ADBE) announced their first quarter 2006 results recently. Results reflect the recent acquisition of Macromedia. Total revenue for Adobe's first quarter was $655.5 million, up 39% to $472.9 million reported for the first quarter of fiscal 2005 and $510.4 million reported for the fourth quarter of fiscal 2005. GAAP net income for the first quarter of fiscal 2006 was $105.1 million, compared to $151.9 million reported in the first quarter of fiscal 2005 and $156.3 million reported in the fourth quarter of fiscal 2005. GAAP diluted earnings per share for the first quarter of fiscal 2006 were $0.17, compared to $0.30 per share reported in the first quarter of fiscal 2005 and $0.31 per share reported in the fourth quarter of fiscal 2005. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • Gross margin for the quarter was 88.1%, compared to 94.3% reported in the first quarter of fiscal 2005, and 94% reported in the fourth quarter of fiscal 2005. Operating expenses for the quarter were $447.8 million. • At the end of first quarter, regular employees were 5,480, compared to 4,285 reported at the end of the fourth quarter of fiscal 2005. • R&D expenses were 21% of total revenue. • Sales and marketing expenses accounted for 32.6% of revenue. • G&A expenses accounted for 9.2% of revenue. • GAAP operating income for the quarter was $130 million, or 19.8% of revenue, compared to $170.7 million or 36.1% of revenue reported in the first quarter of fiscal 2004 and $191.9 million or 37.6% of revenue reported in the fourth quarter of fiscal 2005. • DSO for the first quarter of fiscal 2006 was 39 days, compared to 27 days reported in the first quarter of fiscal 2005 and 31 days reported in the fourth quarter of fiscal 2005. • During the quarter, the company repurchased approximately 9.6 million shares at a cost of $355 million as a part of its share repurchase program. • At the end of first quarter of fiscal 2006, cash and short-term investments were $2.1 billion, compared to $1.7 billion reported at the end of fourth quarter of fiscal 2005. Segment Performance Geographically, first quarter revenue from the Americas was $313.7 million, compared to $218 million reported for the same period in fiscal 2005, and represents 48% of the total. EMEA was $207 million, compared to $150.5 million reported for the same period last year, and represents 32% of the total revenue. Revenue from Asia was $134.8 million, compared to $104.4 million reported for the same period last year, and represents 20% of the total. Creative Solutions Segment Adobe reported Q1 revenues for the segment of $379.6 million, which represents 58% of total revenue reported in the first quarter of fiscal 2006. The company said it experienced solid demand for its Creative Suite (CS) and new bundles. Knowledge Worker Solutions Segment Q1 revenues for the segment were $168.8 million, which represents 26% of the total revenue reported in the first quarter of 2006. This quarter marks the second best results posted by this segment in the company’s history. Enterprise and Developer Solutions Segment Adobe reported revenues for the segment of $45 million, up 45% from the same period last year. It represents 7% of total revenue reported in the first quarter of fiscal 2006. Mobile and Device Solutions Segment Adobe reported first quarter revenues for the segment of $8.6 million, which represents 1% of the total revenue reported in the first quarter of 2006. The company experienced strong demand for its technology, however, overall revenue was down from before the acquisition of Macromedia. Other Revenue Adobe reported addition revenue, classified as other, of $53.5 million, which represents 8% of total revenue reported in the first quarter of fiscal 2006. Guidance For the full fiscal 2006 year, the company reaffirmed its revenue target of $2.7 billion, and also repeated its warning that the third quarter will be the weakest due to seasonality issues in Europe and Japan. Fourth quarter revenues are expected to be the highest. For the second quarter, the company has a revenue goal of $640 to $670 million. Estimated GAAP earnings per share are estimated to be between $0.18 and $0.21. Raine Radar Adobe has yet to prove that buying Macromedia offered an opportunity to create revenue and profit that would not have existed with the companies being separate entities. It is very likely that the company will be able to integrate further to reduce costs, but it would be far better if the company could demonstrate that there are entirely new revenue streams up for grabs that it is uniquely positioned to take. The company must also continue to prove that it is capable of holding its own against Microsoft. Q & A 1. Going forward, Adobe said it will give year-over-year growth rates for its business segments. The company did note healthy growth even without Macromedia, however. 2. The company said that if exchange rates had remained constant from last year, revenue this quarter would have been higher by $25 million. 3. Adobe said that the performance of its CS2 software package has outpaced the performance of CS1. 4. The company said that the Macromedia integration process is going well, with non-GAAP operating margins a little higher than the company originally anticipated. 5. As a percentage of revenue, the Mac platform saw some growth during the quarter. 6. The company saw an additional $10 million write down of acquired revenues on account of purchase accounting. However, Adobe is still sticking to its revenue guidance of $2.7 billion for 2006. 7. Adobe is expecting March to be the strongest month of the year, particularly in Japan, and indicated that February saw strength across the board. 8. The company believes volume licensing will not have a material impact on results going forward. 9. In terms of inventory levels, the Q1 2006 inventory levels were back in line with where they were last year, excluding the fourth quarter of 2005. 10. Adobe intendeds to buy back $800 million worth of stock over the next nine months. 11. The company was reluctant to reaffirm the non-GAAP earnings per diluted share for the full fiscal year 2006 of $1.26 to $1.30 announced three months ago.