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conference date: December 14, 2006
for quarter ending: December 1, 2006 (4th quarter 2006)
Overview: Great revenue quarter, but guidance is moderate.
Basic data:
Record revenues of $682.2 million, up 13% sequentially from $602.2 million and up almost 34% from year-earlier quarter revenue of $510.4 million.
GAAP net income was $181.9 million, up 93% sequentially and 16% year-over-year. GAAP earnings were $0.30 per share, near the middle of the target range. Non-GAAP earnings were $0.33 per share.
88.3% GAAP gross margin.
$2.3 billion cash and equivalents end of quarter.
26% GAAP effective tax rate.
Guidance:
Fiscal Q1 2007 revenue target is $640 to $670 million. GAAP operating margin of 19 to 21%., but 33% to 34% non-GAAP. GAAP earnings target of $0.17 to 0.20 per share, non-GAAP of $0.28 to 0.30. Tax rate 26 to 28%.
Full fiscal year 2007 revenue growth rate target is 15%.
Conference Highlights:
Acrobat 8 release achieved record revenue.
$2.575 billion revenue for fiscal 2006 is up 31% over fiscal 2005; non-GAAP EPS also grew 31% from fiscal 2005 to fiscal 2006.
6068 employees at end of quarter.
Revenues by geography: Americas 49%, Europe 32%, Asia 19%.
Photoshop public beta will be available starting December 15. Photoshop revenue steady.
Hobbyist (Elements) segment shows record revenue.
Digital video segment grew 39% year-over-year.
Knowledge worker segment (Acrobat) showed record revenues. Profession % of mix in Acrobat 8 has grown. Acrobat Connect released.
Enterprise & Developer (lifecycle management, flex, server products) segment saw sequential and year-over-year growth.
Mobile segment has many deployments of Flash lite. Partnered with Verizon.
Starting with Q1 2007 will no longer do mid-quarter updates.
New day for annual analyst meeting: Wed March 28th.
Q&A:
Product launch plans? Creative Suite 3 customers are eager for launch; increasing numbers want entire suite. Will start in Q2, with bulk of products shipping in Q3. Moving away from bundles to integrated suites. New Photoshop will run much quicker on MacTel than it did on older Macs.
Outlook for Acrobat revenues Q1? Expects sequential increase, then plateau.
Hobbyist business? Over $100 million revenues. Video editing has high demand. Gaining market share and growing year-over-year.
Other revenue? Postscript and Google, mainly.
Q1 outlook? Creative Suite will decline until launch of CS3.
Regional revenues? English version of Acrobat shipped before Japanese version, otherwise pretty steady.
Challenge to Q2 launch for CS3. Management is confident will launch in Q2. Margins will increase through year as revenues increase.
Hiring 200 people per quarter? No comment. Most head count additions continue to be in research and development.
Recognition of Acrobat 8 revenue? Holds back some for bug fixes, recognizes later.
Mobile revenues? Still are having purchase accounting issues. Macromedia had a number of large deals structured for customer to pre-pay for X number of devices, which they still have a long time to work through. Therefore, do not expect large increases in fiscal 2007. DoCoMo Flash server is generating about $4 per client per month.
Project Apollo release? Will see a couple of things this year, but not revenue. Public beta of Apollo runtime. Partnership with Mozilla on engine. With CS3 interaction with designers will be enhanced, for instance with Flex Builder.
Believes there will be a significant uptick from Q2 to Q3 2007.
Record numbers were because hobbyist revenue was more than expected, decline in CS2 was less than expected, and Acrobat 8 started shipping.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but its possible. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2006 William P. Meyers