Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  
TRANSCRIPT SPONSOR
Cornerstone OnDemand Logo

Adobe Systems Incorporated (NASDAQ:ADBE)

F3Q06 Earnings Conference Call

September 14, 2006 5:00 pm ET

Executives

Mike Saviage - Vice President, Investor Relations

Bruce Chizen - Chief Executive Officer

Randy Furr - Executive Vice President, Chief Financial Officer

Shantanu Narayen - President, Chief Operating Officer

Analysts

Steve Ashley - Robert W. Baird

Joseph [Bory] - Deutsche Bank

Jay Vleeschhouwer - Merrill Lynch

Adam Holt - JP Morgan

Rick Sherlund - Goldman Sachs

Sasa Zorovic - Oppenheimer

Ross MacMillan - Jefferies & Company

Heather Bellini - UBS

John McPeake - Prudential

Gene Munster - Piper Jaffray

Michael Mankowski - Tier 1 Research

Trip Chowdhry - Global Equity Research

Brent Thill - Citigroup

Steve Lidberg - Pacific Crest Securities

Walter Pritchard - Cowen & Company

David Kim - Pacific Growth Equities

Presentation

Operator

Good afternoon. My name is Derek and I will be your conference operator. At this time, I would like to welcome everyone to the Adobe Systems Q3 fiscal year 2006 earnings conference call.

(Operator Instructions)

I will now turn the conference over to Mr. Mike Saviage, Vice President of Investor Relations at Adobe Systems. Please go ahead, sir.

Mike Saviage

Good afternoon, and thank you for joining us today. Joining me on the call are Bruce Chizen, our CEO; Shantanu Narayen, President and COO, and Randy Furr, Executive Vice President and CFO.

In the call today, we will discuss Adobe’s third quarter fiscal 2006 financial results. By now, you should have a copy of our earnings press release, which crossed the wire approximately 45 minutes ago. If you need a copy of this press release, you can go to abode.com under the company and press links to find an electronic copy.

Before we get started, I want to emphasize that some of the information discussed in this call, particularly our revenue and operating level targets, and our forward-looking product plans, is based on information as of today, September 14, 2006, and contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review Adobe’s SEC filings, including our annual report on Form 10-K for fiscal 2005, and our quarterly report on Form 10-Q in fiscal 2006.

During this call, we will discuss non-GAAP financial measures. The GAAP financial measures that correspond to non-GAAP financial measures, as well as the reconciliation between the two, are set forth in our press release issued today and are available on our website.

Call participants are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. An archive of the call will be made available in Breeze in Adobe’s investor relations website for approximately 45 days, and is the property of Adobe Systems. The audio and archive may not be re-recorded or otherwise reproduced or distributed without prior written permission from Adobe Systems.

I would now like to turn the call over to Bruce.

TRANSCRIPT SPONSOR

Cornerstone OnDemand Logo

Want to understand the future of human resources software?

Cornerstone OnDemand is the leading provider of SaaS solutions for integrated talent management, covering the human capital life cycle from hire to retire.

We offer over 30,000 online training titles and performance tools for compliance and analytics to help companies maximize workforce productivity and achieve organizational excellence.

Learn about talent management and our industry leading products for learning management, corporate social networking, onboarding, compensation, compliance, employee performance management and succession planning at CornerstoneOndemand.com.

To sponsor a Seeking Alpha transcript click here.

Bruce Chizen

Thanks, Mike, and good afternoon. I’m pleased to announce that Q3 was a solid quarter for Adobe. Revenue was $602.2 million, near the higher end of the target range we communicated at the outset of the quarter. In addition, non-GAAP diluted earnings per share were $0.29, exceeding our original target range of $0.25 to $0.27.

Highlights in Q3 include a record revenue for our lifecycle enterprise service solutions, as well as continued momentum for InDesign and our digital video solutions. In addition, we achieved another quarter of strong revenue for our Acrobat family of products. This is especially pleasing when you factor in both normal Q3 seasonality, as well as the anticipated release of the next major version in Q4.

I will now turn the call over to Randy to provide a review of our Q3 financials. Randy.

Randy Furr

Thanks, Bruce. Before I review our Q3 financial results, I would like to point out that we are not providing combined year-ago Adobe and Macromedia results for comparison purposes. As we previously stated, Adobe and Macromedia reported the results on different fiscal quarters, which limits our ability to provide accurate comparisons. Therefore, today we will compare our Q3 fiscal 2006 financial results to our Q2 fiscal 2006 results, as well as with pre-acquisition Adobe only results for Q3 in fiscal 2005.

We also have the challenge of meaningfully comparing our fiscal 2006 results versus our fiscal 2005 results due to acquisition accounting and the implementation of stock-based compensation under FAS-123R.

For the quarter of fiscal 2006, Adobe achieved revenue of $602.2 million. This compares to $487 million reported for the third quarter of fiscal 2005, and $635.5 million reported last quarter.

GAAP net income for the third quarter of fiscal 2006 was $94.4 million, compared to $144.9 million reported in the third quarter of fiscal 2005, and $123.1 million last quarter.

Non-GAAP net income was $171.5 million, compared to $146.4 million reported in the third quarter of fiscal 2005, and $189.4 million last quarter. Non-GAAP excludes, as applicable, Macromedia acquisition cost, restructuring charges related to the Macromedia acquisition, a charge for the purchase of incomplete technology, stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition cost and related charges and stock-based compensation, and investment gains and losses.

GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16, based on 600.9 million weighted average shares. This compares with GAAP diluted earnings per share of $0.29 reported in the third quarter of fiscal 2005 based on 507.8 million weighted average shares, and GAAP diluted earnings per share of $0.20 reported last quarter, based on 613.8 million weighted average shares.

Non-GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.29.

GAAP gross margin for the quarter was 88.5% compared to 94.4% in the third quarter of fiscal 2005, and 89.7% last quarter.

Non-GAAP gross margin, which excludes the amortization of Macromedia acquisition related cost and stock-based compensation, was 94.3%.

GAAP operating expenses for the third quarter of fiscal 2006 were $422.7 million.

Non-GAAP operating expenses, which exclude Macromedia acquisition costs, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, and stock-based compensation, were $360.8 million.

Regular employees at the end of the third quarter total 5,879, versus 5,678 at the end of the second quarter of fiscal 2006. The majority of the headcount increase from last quarter was in research and development.

GAAP and non-GAAP expenses as a percentage of revenue break down as follows:

  • Research and Development -- GAAP, 21.7%, non-GAAP, 19.2%;
  • Sales and Marketing -- GAAP, 36.1%, non-GAAP, 32.2%; and
  • General and Administrative -- GAAP, 9.5%, non-GAAP, 8.5%.

GAAP operating income in the third quarter of fiscal 2006 was $110 million, or 18.3% of revenue. This compares to GAAP operating income of $183.6 million, or 37.7% of revenue in the third quarter of fiscal 2005, and $147.9 million, or 23.3% of revenue last quarter.

Non-GAAP operating income in the third quarter of fiscal 2006 was $207.2 million, or 34.4% of revenue. This compares to non-GAAP operating income of $183.6 million, or 37.7% of revenue, in the third quarter of fiscal 2005, and $243.1 million, or 38.3% of revenue, last quarter.

Other income for the third quarter of fiscal 2006 was $18.1 million.

Adobe’s GAAP effective tax rate for the third quarter of fiscal 2006 was 23.3%, and Adobe’s non-GAAP effective tax rate was 23.9%. Our GAAP and non-GAAP tax rates were lower than targeted this quarter, due to a benefit from R&D and foreign tax credits included in our fiscal 2005 tax returns that were filed in August.

I will now discuss Adobe’s revenue by business segment.

Creative Solutions segment revenue was $328.1 million, compared to $357.3 million last quarter. This decline is consistent with expectations, as we discussed at the outset of the quarter, related to normal seasonality and customer deferrals in anticipation of the Creative Suite 3 launch next year.

Knowledge Worker segment revenue was $154.1 million, compared to $163 million last quarter. Acrobat revenue grew on a year-over-year basis.

Enterprise and Developer segment revenue was $49.4 million, compared to $42.8 million last quarter. Our Lifecycle Server business achieved record revenue in Q3.

Mobile and Device segment revenue was $9.1 million, compared to $7.9 million last quarter. Revenue in this segment continues to be impacted due to purchase accounting from the Macromedia acquisition.

Other segment revenue was $61.5 million, compared to $64.5 million last quarter.

Turning to our geographic segments, the results in Q3 fiscal 2006, on a percent of revenue basis, were as follows:

  • The Americas, 52%;
  • Europe, 27%; and
  • Asia, 21%.

We experienced normal seasonal demand across all major geographies.

Our trade DSO in the third quarter of fiscal 2006 was 43 days. This compares to 29 days in Q3 of fiscal 2005, and 40 days last quarter. In regard to our global channel inventory position, we ended the quarter within company policy.

At the end of the third quarter of fiscal 2006, cash and short-term investments were $2 billion, compared to $1.8 billion at the end of the second quarter of fiscal 2006.

In regard to share buyback, during the quarter, we repurchased 12.1 million shares at a cost of $358.3 million, as part of our share repurchase programs. As part of the share repurchases in Q3, we concluded our $1 billion share repurchase program.

This concludes my discussion on third quarter results. I will now discuss our Q4 targets.

We are targeting a Q4 revenue range of approximately $655 million to $685 million.

In addition, we are targeting our Q4 GAAP operating margin of 21% to 24%. On a non-GAAP basis, which excludes acquisition related cost and stock-based compensation, we are targeting an operating margin of 37% to 38%.

We are targeting our fourth quarter share count to be approximately 600 million to 602 million shares.

For other income, we are targeting $16 million to $18 million.

For our GAAP and non-GAAP effective tax rates, we are targeting 26%.

These targets lead to a GAAP earnings per share target range in Q4 fiscal 2006 of $0.19 to $0.22 per share, and a non-GAAP earnings per share target range of $0.32 to $0.34.

The following is factored into our Q4 financial targets:

  • We expect to see normal seasonal strength in the fourth quarter;
  • We expect the Q4 launches of Acrobat and our hobbyist products to help deliver strong sequential growth; and
  • We expect the weakness we experienced in Q2 and Q3 in our Creative Professionals business to continue until the release of Creative Suite 3 next year; however, we do expect our Creative business to grow sequentially from Q3 to Q4.

Looking to next year, while we are not providing fiscal 2007 financial targets today, we are anticipating Q1 revenue to decline sequentially from Q4, and we expect Q1 to be the lowest revenue quarter of the year due to anticipation of the Creative Suite 3 launch in Q2.

I would now like to turn the call over to Shantanu.

Shantanu Narayen

Thanks, Randy. I will take the next few minutes reviewing highlights in each of our major businesses, starting first with Creative Solutions.

Overall, our Creative business had a sequential decline from Q2 to Q3 that was in line with our expectations. We attribute the decline to normal seasonality, as well as customer deferrals in anticipation of the next version of Creative Suite next year.

InDesign again achieved its best revenue quarter since we launched the product more than six years ago, and continued to gain key customers. For example, Toppan Printing of Japan is using InDesign as the standard platform for its computer typesetting system -- their mission critical system used in creating magazines and books. This is a milestone for InDesign adoption in Japan, which still relies on proprietary systems in much of the publishing industry.

We continue to be on track to deliver the next version of Creative Suite in Q2 next year.

In our Digital Imaging business, Photoshop revenue remains steady a year after the latest version shipped. In fact, full units of Photoshop grew quarter over quarter when factoring in sales of Photoshop, Creative Suite, the new bundles, and Production Studio.

Earlier this week, we announced new versions of our hobbyist products, Photoshop Elements 5.0, and Premiere Elements 3.0. These market-leading products will be available separately, or together, in a single retail package in October.

Photoshop Elements is already receiving accolades from the press. Shortly after our announcement, it was given an Editor’s Choice Award by PC Magazine, which called it “An essential upgrade”, and stated “Adobe has taken a good thing and made it even better.”

We continue to be excited about the digital video opportunity. The adoption of Production Studio and Flash video on the web helped drive 39% year-over-year growth in the quarter.

In addition to the success of Production Studio, our Flash video server technology continues to gain ground, with high profile media and Internet companies. In July, abc.com received an Emmy for its streaming player, which delivers TV episodes in Flash video.

Reinforcing the importance of video in the online advertising world, a recent Jupiter report stated: “Advertisers will increase adoption of formats, such as rich media and video, at a high rate, and spending on these formats will increase by a factor of 21% and 27% respectively.” We believe we are well positioned to take advantage of these trends.

In our Knowledge Broker Solutions business unit, Acrobat revenue was strong in advance of the launch of the new version, achieving year-over-year growth. eWeek named Acrobat and PDF to their list of the 25 most influential products in the first 25 years of enterprise personal computing.

In terms of mix, the ratio of Acrobat Professional to Acrobat Standard remained at approximately one-to-one. The next version of Acrobat is on track to ship late this quarter in all major languages.

In our enterprise and developer solutions business, we achieved both sequential and year-over-year growth. Driving this performance was our Lifecycle Server Solutions, which achieved record revenue in the quarter.

Some highlights in the government market include:

  • The County of Los Angeles, which will use an Adobe forms solution to route and provide offline access for its personnel action form;
  • The Belgian Federal Finance Service, which will use reader extension server to automate forms processing, while making it easier for taxpayers to fill out forms online; and
  • India’s Ministry of Company Affairs, which is rendering all its forms through Lifecycle technology, and enabling 700,000 companies to file returns and obtain services.

Lifecycle wins in the commercial market include:

  • European financial services firm UBS AG, which is using document security server with its e-banking documents; and
  • Founder’s Insurance Company, which is using an Adobe form solution to generate pre-filled insurance forms to their agents to reduce agent workload and data entry errors.

In addition to key customer reference accounts such as these, we are also benefiting from positive industry analyst commentary. For example, Forrester recently published its 2006 e-forms wave report, and stated: “Adobe Lifecycle is a leader in the e-forms software market.”

Last month, IKON Office Solutions announced that it will add the Lifecycle family of enterprise software to its premier partner program, further enhancing IKON’s integrated portfolio of document management solutions.

In the mortgage vertical, the Property Recording Industry Association, which represents local and county recorders for real estate transactions, has approved intelligent PDF documents as an acceptable standard for electronic recording.

In late June, we announced the availability of the Adobe Flex 2 product line. With Flex, we are equipping developers to build a new class of rich Internet applications with improved usability and effectiveness.

Press response to the Flex 2 introduction has been positive. InfoWorld stated “Flex’s muscle will help businesses break free of the constraints confining today’s web-based application and delivery.” Computer World called Flex 2: “A large and impressive product that could have a significant effect on web development in the next few years.”

In total, the number of enterprise transactions in the quarter with licensing revenue greater than $50,000 for server products, including Lifecycle, Flex, Breeze, and Flash media server, was 82.

As part of our strategy to grow the ecosystem around our enterprise and knowledge worker solutions, in Q3 we also announced a joint marketing agreement with Science Applications International Corporation, SAIC, which is a major government systems integrator. SAIC plans to provide systems integration and consulting services for Lifecycle, Breeze, Flex, and Acrobat.

In our Mobile and Device Solutions business, we continue to make progress with Flash Lite and FlashCast. For example, Samsung announced the release of its uGO active home screen based on Adobe Flash Lite 2 technology, and it will be integrated across Samsung’s next generation ultra edition mobile phones.

Adobe’s ability to deliver creative and user-friendly user interfaces is a critical differentiator for leading device makers, and Samsung’s uGO showcases this new approach.

With FlashCast, we are excited about the continued success that NTT DoCoMo is having, which is generating continued interest with other carriers around the world.

Finally, we had solid performance for our products in the Other business segment, including year-over-year growth once again in our Postscript business.

We also had several key partner and technology platform announcements during the quarter, including:

  • A multi-year distribution agreement with Google to distribute the Google toolbar with various Adobe products;
  • A strategic alliance with Viacom to develop and deliver Viacom’s exclusive branded content using the Adobe Engagement platform. Adobe will become Viacom’s preferred technology provider for rich media authoring tools and interactive online video solutions, enabling Viacom to deliver content from its television, motion picture, and digital properties to online and mobile audiences; and
  • The availability of Flash Player 9, which provides a more secure, lightweight, robust, run-time environment for rich media and enterprise ready rich Internet applications.

This concludes my comments. I will now turn the call back over to Bruce.

Bruce Chizen

Thanks, Shantanu. It’s clear we are entering a very exciting time for Adobe. With the majority of the Macromedia integration behind us, we are now embarking on one of the richest periods of new product introductions in the company’s history, with solutions that support a broad range of customers and leverage key market trends.

It began this week with the launch of Photoshop Elements and Premiere Elements for our hobbyist customers, which will take our digital imaging leadership to an entirely new level.

Later in the quarter, we will release a major upgrade to Acrobat, delivering new features that will enable us to drive even deeper adoption of the product among millions and millions of knowledge workers around the word.

Finally, with the next versions of our Creative products launching in the spring, we will release our best offerings ever, which will enable our customers to deliver rich content for print, web, or video across a variety of platforms and devices.

This schedule of product releases, combined with the momentum we are having in our video enterprise and mobile businesses, translates into an exciting future for Adobe.

Thank you for joining us today. I look forward to seeing many of you at our MAX Conference next month. Mike.

Mike Saviage

Thanks, Bruce. Before we start Q&A, I would like to go over a few logistical items.

We will provide our regular Q4 inter-quarter update press release on Tuesday, October 31st, before the market opens. Again, that is Tuesday, October 31st, before the market opens.

Earlier this week, an invitation was sent out to attend Adobe MAX User Conference in Las Vegas in October. The invitation is a special offer for Adobe investors and analysts to attend the conference for one day. Please call or e-mail Adobe investor relations for more information.

Looking to next year, we have tentatively set our next financial analyst meeting date. We will host the meeting in San Jose on Wednesday, January 31st.

We have posted several documents on our investor relations webpage related to our earnings report today. They include today’s earnings release, our updated investor data sheet, and a table providing reconciliation for GAAP to non-GAAP financial data.

To access these documents and other investor related information, you can go to our website at www.adobe.com/adbe.

For those who wish to listen to a playback of today’s conference call, a web-based Breeze archive of the call will be available from the IR page on adobe.com later today. Alternatively, you can listen to a phone replay by calling 800-642-1687, use conference ID number 5620434. Again, the phone number is 800-642-1687, with conference ID number 5620434. International callers should dial 706-645-9291. The phone playback service will be available beginning at 4:00 p.m. Pacific time today, and ending at 4:00 p.m. Pacific time on Monday, September 18, 2006.

We would now be happy to take your questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes from the line of Steve Ashley with Robert Baird.

Steve Ashley - Robert W. Baird

Do you guys plan to take any steps, whether it would be marketing or promotional, to bolster the demand of CS2 as we get closer and closer to the release of CS3?

Shantanu Narayen

So, what is traditional is every time we are late in a cycle for our existing products, what we do is we continue to make sure that people who haven’t yet moved to the existing version, we do do marketing to try and make sure that we provide for them the benefits of the product, so yes, we will do what we have traditionally done, which is continue to make sure we target those who haven’t yet standardized on the platform.

As you’re also aware, with the Creative Suite, as InDesign continues to be adopted by more customers, we find them standardizing on the platform.

Finally, we also see people using video, and therefore using our higher-end bundles.

The other thing to remember is that in Q4, one of the things we will do is update the bundles with the new version of Acrobat, and that should also help the Creative customers, because the new version of Acrobat will be Mactel compliant.

Bruce Chizen

The other thing to keep in mind, Steve, is that many of our larger customers end up buying licenses, and many of them buy maintenance, so if they buy the current CS2 under the maintenance program, they actually get a free upgrade to CS3.

Steve Ashley - Robert W. Baird

Great, and just in the enterprise developer space, the strong Lifecycle performance, do you think that was tied to just government and government budget flush, or was the strength beyond that?

Shantanu Narayen

We have actually been fairly pleased with our performance in the enterprise space. What we are finding, Steve, is the message that we have been communicating about helping enterprises automate their businesses is starting to resonate. We have more and more customer references and successful customer references. The SAP relationship continues to deliver. We had a strong quarter.

As we get the combined field organization from the integration of Adobe and Macromedia, now talking about a combined message of the benefits of both Lifecycle and Flex, we think that’s also beginning to take effect, so all in all, you know, a strong quarter.

Certainly in North America, as you can imagine, some of the business happens with government, but government end is also the end of September, so some of that is in our Q3, some of that will be in our fiscal Q4.

Steve Ashley - Robert W. Baird

Great. Congratulations on a strong execution.

Operator

Your next question comes from Thomas Ernst with Deutsche Bank.

Joseph [Bory] - Deutsche Bank

Good evening. Can you hear me? Okay, sorry. This is Joseph [Bory], actually, covering for Tom tonight. The first question we have here is just trying to understand all the -- how the Microsoft Vista launch is going to affect yourself. What is going to be more important, the fact that some PC OEMs will be packaging Adobe applications together with Vista, or maybe there’s going to be more traction in the quarter following the Vista launch? Can you help us there a little bit?

Bruce Chizen

Unlike the migration from the Macintosh G5 and G4 chips to Mactel, the migration from Windows XP to Microsoft Vista for our customers will be a much more seamless migration. Fortunately, based on everything we know today, based on the betas that we received from Microsoft, the current version of the Adobe products will work just fine in a Vista environment, so that is less of an issue for us.

What we suspect is the early adopters of Vista will be consumers, people who are buying new CPUs. The bulk of our revenue is dependent much more on business people than on consumers, per se.

Joseph [Bory] - Deutsche Bank

Okay, that makes sense. If I’m allowed, I’ll ask a follow-up question on Microsoft. We saw recently in the press that Microsoft is going to make available an add-on to enable Office 2007 to save as PDF. Can you update us on what is the status of your discussions with Microsoft on that topic?

Bruce Chizen

Yes, first of all, the news that you recently read is not new news. That is something that Microsoft talked about a few months ago. Fortunately for Adobe, we have for many years been anticipating the creation of PDF to becoming much more of a commodity. Over the last number of years, we have been adding capabilities into Acrobat, like digital signature, like highlighting, like annotations, like forms and other collaboration features that makes the value creation of Acrobat, or the value of Acrobat, much more than just PDF creation.

In fact, when you look at our product line today, we have three products in the family -- actually, four. We have Acrobat 3D, which is the high-end product. We have Acrobat Professional. We have Acrobat Standard, which is a base level product, and then we have something called Acrobat Elements, which is PDF creation only. When you look at the revenue of those four products, Acrobat Elements is a very, very tiny portion of the overall revenue percentage -- certainly significantly less than 5% of our overall business, probably closer to 1% or 2%.

So we think that the impact of Microsoft doing PDF creation in their applications or in their operating system is not a major risk to Adobe. There is one caveat to that, which is Microsoft is a monopoly and obviously, if they unfairly take advantage of their monopoly, that could be a risk for Adobe.

Operator

Your next question comes from the line of Jay Vleeschhouwer with Merrill Lynch.

Jay Vleeschhouwer - Merrill Lynch

Good evening. Bruce, as you point out, you are on the verge of multiple important updates to the key product lines. I would like to ask you though, about the two ways at least that I think the company is different from before, in terms of product strategy and market strategy. One has to do with product segmentation. You’ve done some of that already with Acrobat and on the Creative side, it seems likely that you’ll do even more of that starting in the spring.

Secondly, you’re addressing, as Macromedia had begun to do before the acquisition, the developer market, and you’re doing that now, of course, with Apollo.

The question is, could you talk about how well you think your sales and development and market resources and capabilities are aligned to all those new strategies that seem to overlay the traditional Adobe, let’s say, in terms of updating the product lines.

Bruce Chizen

We’re very fortunate, Jay, in that the bulk of our revenue today is dependent much more on the quality of the product and our ability to market that product to constituents or customers that are already familiar with us and are very loyal to us.

Where we are dependent upon a direct sales organization is in those areas that today represent a relatively small piece of our business, and that tends to be the revenue associated with our enterprise business and our mobile business.

As I said, fortunately, that’s not a large piece of the business today. So what we’ve been doing and Shantanu has been working on and spending a lot of time on, is integrating the Macromedia sales organization with the legacy Adobe sales organization in such a way that we will develop and continue to develop that capability for the future.

It’s a great sign to see that the Lifecycle business had a record quarter, despite the fact that we have not yet fully completed the integration on the sales side that we truly would like to have in terms of completion. I think that’s a comfortable position to be in.

The other thing I will point out is we are a much more diverse business than we were in the past. Certainly product segmentation has helped us a lot. You’ll continue to see product segmentation. There will be a number of SKUs or different products associated with the Creative Suite. We like the success that we’ve had with the Creative Suite Standard and Creative Suite Premium. We like the success we’ve had with Acrobat Standard and Acrobat Pro. We’re certainly looking at opportunities in the Photoshop arena to do something similar. No announcements at this time.

What’s nice about our diversification, the fact that we now span everything from the hobbyist all the way up through a serious enterprise developer, is that our revenue is no longer dependent on any one segment the way it was in the past. Certainly we still have the strong creative community and that will always have an impact on our business, at least over the next couple of years.

Jay Vleeschhouwer - Merrill Lynch

Taking the shorter term view, you mentioned the long term view, to what extent have the new bundles, the ones introduced immediately after the merger, been able to offset some of the weakness in CS, or might continue to be able to offset the weakness in CS, particularly as we go into the February quarter?

Shantanu Narayen

Jay, as we talked about the Creative business, as Randy also said in his prepared remarks, what we do expect is sequentially moving in Q4, we expect a slight up-tick as it relates to the fact that we will have the new Acrobat bundles. However, we continue to expect that people will delay purchases, whether it’s because of the Mactel issue, or in anticipation of CS3.

Having said that, the web bundle, which is the super bundle, so to speak, that we have today, a combination of both Creative Suite as well as Studio, continues to perform well, which really means to us that we are finding creative people want to standardize on the entire platform.

Let me also state up front that if you look at the Creative revenue, cycle over cycle, we have seen significant growth, which means our core strategy of getting people to standardize on the Creative platform is working.

Bruce Chizen

I want to make sure that we’re clear on what Randy has said at the beginning. I want to provide a little bit more color around that. What Shantanu said is we will see a small sequential increase in the Creative Suite business. That will be due predominantly because of the seasonality as well as the addition of the Acrobat Pro in those suites.

Clearly Q1 will be a more challenging quarter for us. We expect to see a decline in the Creative business because it is the quarter before CS3, and because of the Mactel issue that we’re dealing with. Offsetting that to some degree will be Acrobat which, as we said, we’re shipping late this quarter, which means we’ll continue to see some benefit in Q1 and beyond Q1, and we continue to see strength in our video business, as well as some of the print products, like InDesign.

With that said, we do expect Q1 to be the weakest quarter of the fiscal year next year, and it will be down from Q4, at least that is what we are currently anticipating.

Jay Vleeschhouwer - Merrill Lynch

Lastly, a quick question for Randy. Can you comment on how you are doing in Japan?

Randy Furr

Well, Q3, as I think I said in my prepared remarks, was we experienced normal seasonality in all three geographies, which included weakness in terms of just the seasonality in North America, Japan, and Europe. Japan was in line with that expectation in terms of seasonality.

We certainly expect Japan, as well as the rest of the geographies, to recover in terms of strength, from this seasonality going into Q4 here.

Operator

Your next question comes from the line of Adam Holt with JP Morgan.

Adam Holt - JP Morgan

Good afternoon. Two questions on Acrobat. Was the strength in the current quarter, in terms of the year-over-year growth, in your opinion largely driven on the enterprise side by people trying to buy in front of other release to lock in upgrade rights?

Secondly, and along that line, you had a pretty nice increase in deferred revenue. Were there any changes to the maintenance program in front of the 8 release? Thank you.

Shantanu Narayen

The increase in Acrobat, Acrobat has actually shown momentum ever since we introduced the current version of the Acrobat product. We continue to have Acrobat growth being driven by full units, which is new people who are adopting the Acrobat platform to share information reliably. We continue to see enterprises adopt Acrobat, but I would say Acrobat strength was really across the board.

Randy Furr

In terms of deferred revenue, I think this was the third or fourth quarter here in a row that we have seen an increase in deferred revenue. It ended up in total of $125 million at the end of Q3. We expect that to continue, that kind of trend going forward as our model shifts more and more to enterprise and license-based revenue.

Bruce Chizen

In terms of the maintenance program, I don’t believe we made any significant changes. We ended up slightly tweaking our licensing prices to our customers beginning in August, but I don’t believe we made any major changes to the maintenance program.

Adam Holt - JP Morgan

Just a follow-up, if I could. When you say shipped late in the quarter, we should assume that is the second half of the fourth quarter?

Bruce Chizen

We haven’t been specific about the date, so other than that, we don’t want to pre-announce the product. We typically will pre-announce the product 30 days prior to the actual ship, or when we usually announce the product, we get more specific. It is not fair to our customers. We don’t want to -- Acrobat has been a strong performer for us, so we do not want to set inappropriate expectations.

Operator

Your next question comes from the line of Rick Sherlund with Goldman Sachs.

Rick Sherlund - Goldman Sachs

Thank you, a couple of quick questions. If you could touch on cost of services, we’ve seen to have shown some good improvement there, and if you could touch on DSOs, why we have seen that year-over-year increase. I think you mentioned it last quarter it is still up -- I’m not quite sure I recall.

Google -- when do we see a contribution there, and how extensive might that be?

Randy Furr

I will take the first part here, and I’ll let Shantanu take the Google question.

In terms of cost of sales gross margin, it came out pretty much in line with expectations. Last quarter, we indicated that it moved favorably for us, and that’s basically as a result of the trend that we have moving from less shrink wrap towards more license going forward.

We had a couple of favorable things in there that we pointed out, that going forward, from an expectation point of view, we expect Q3 to be better than Q1 but probably not quite as good as Q2, and that’s pretty much how it came out. Going forward, I would expect -- I would model this, although we do not give specific guidance, pretty much in line with what you see as we had there in Q3.

Shantanu Narayen

Rick, was your question around Google? I didn’t quite catch that.

Rick Sherlund - Goldman Sachs

Yes, are we going to see material Google revenues, and if so, when?

Shantanu Narayen

Starting with Q3, actually, revenues from Google are factoring in what would be reported as the Other segment. The terms are clearly confidential, but they are factored into the targets that you see for Q4, and will be in the targets that we give beyond that in 2007.

Randy Furr

I think you asked also about DSO here. The DSO did creep up there. It was as a result of, as we pointed out, August was a pretty important month and it tended to be back-end loaded. As a result, that is going to skew the DSO up.

With that said, I really think long-term, we’re in the range of what I would model that out. As we continue to move, again, more and more towards enterprise, you are going to see this in this range.

I can say that I reviewed in detail our accounts receivable, and very high quality receivables, practically all current, and what little is not current is certainly not more than 30 days past due. So overall, I feel very good about the receivable position, and this all has to do with the skew in the quarter.

Rick Sherlund - Goldman Sachs

If inventories increase in the channel, as I recall, it’s not counted revenue, from increased inventory levels?

Randy Furr

That is correct. You made the statement that inventories increase in the channel, is that what you…?

Rick Sherlund - Goldman Sachs

Yes, if there were an increase in inventories in the channel late in the quarter, it does not count as revenue, as I recall.

Randy Furr

That is correct. Again…

Bruce Chizen

Let me just clarify, Rick. We’re within that channel inventory policy, so any inventory that was shipped to the channel that was above our inventory policy would not be recognized. If it is within our inventory policy, we certainly recognize it, but it is a policy we have had in place for a number of years now, and it is a policy that is reviewed by both the audit committee and the external auditors.

Rick Sherlund - Goldman Sachs

When Acrobat 8 ships, do you simply switch the inventory of the old product for the new product?

Bruce Chizen

Yes, what we will end up doing is, at a certain point in time, once we announce the product, we will start drying the channel out, and at the time that we ship Acrobat 8, we will take back the -- or whatever we decide to call the product, we will take back the current Acrobat 7 product.

Operator

Your next question comes from the line of Sasa Zorovic with Oppenheimer.

Sasa Zorovic - Oppenheimer

Thank you. Could you please tell us how the linearity remained within the quarter? Namely, did the quarter remain fairly linear through the duration of the quarter?

Shantanu Narayen

For the most part, when we look at the quarter, Q3 tends to be, August tends to be strong, especially the last couple of weeks of the quarter, and that’s because Europe comes back from vacation. It was in line with what we expect otherwise, which is fairly linear. The enterprise business, which is a small fraction of the business, you do tend to see that later in the quarter, like traditional enterprise software.

Sasa Zorovic - Oppenheimer

Has that also been continued into the September quarter, that kind of end of August linearity?

Also, in terms of the Americas being up mostly, while in the past, except for just a couple of times when it was up, it is mostly down in the quarter. What do you attribute really to the Americas then being up sequentially?

Bruce Chizen

In terms of color on September, we will provide more color at our inter-quarter update on October 31st.

In terms of North America, if you look at year over year, it is pretty much in line. It runs about 51%, 52% of our business this time of year because Europe goes down this quarter because they are closed for a good chunk of the quarter on vacation, as well as we have a pick up in North America in our education business. But that is typical of every other Q3 that we have experienced around here.

Sasa Zorovic - Oppenheimer

But usually Q3 would tend to be down from Q2, even in the Americas. This time it wasn’t.

Bruce Chizen

Keep in mind -- so you’re saying that the North America business was not down Q3 over Q2?

Sasa Zorovic - Oppenheimer

That’s right.

Bruce Chizen

Yes, I think as Shantanu said, we saw a couple of areas of strength. In particular, Lifecycle, due to the maturity of our go-to-market. It was much more successful in the U.S. for us than it is in other parts of the world, and we did have a very strong education season.

Operator

Your next question comes from the line of Ross MacMillan with Jefferies.

Ross MacMillan - Jefferies & Company

Thank you. Could you just talk a little bit about how you are gauging the level of pent-up demand ahead of CS3? How do you guys think about that in terms of demand build-up? What things do you look for? What are you trying to understand better from the channel?

Shantanu Narayen

Well, it is really early in terms of getting any channel feedback really, on CS3, because we have not announced the product. We have not really talked to the channel about the features.

At this point in the cycle, what we really do is as we are talking to a number of our early customers, you know, customers who have been loyal to the company and have been using the products, what we do is share with them everything that we are doing in terms of both the features that we do to enhance productivity of people using them, as well as the integration features.

There is a tremendous amount of excitement associated with a couple of things. First, it will be the first release of the products which combine the Macromedia, former Macromedia products and Adobe products, so the ability for us to have file formats compatibility between these applications is very interesting to our particular customers.

Second, there is a lot of interest associated with the fact that we can now make the workflow more seamless and repurpose data, whether that is from the print side to the web side or from the web to wireless devices, as well as integrate the entire video workflow, and we have talked about how video is really driving a lot of our business.

There is also a lot of excitement around the fact that it will be the first versions of the products that will be Mactel compatible, and given the higher performance that we expect from the Mac CPUs, it will enable people who are using our products to be significantly more efficient and productive.

When Vista is around also, in the past, what we have seen is when there has been new hardware purchases, people tend to then buy software. So given a lot of feedback that we have from our customers, it feels like we are on the right track with CS3.

Ross MacMillan - Jefferies & Company

That’s great, and then maybe just a very quick follow-up for Randy. You hit the high-end of the range on GAAP EPS, but you beat by $0.02 above the high-end of the range on non-GAAP. I understand the tax rate that was on both, so what were the additional delta on non-GAAP, to beat by $0.02? Thank you.

Randy Furr

First off, I think we did a very good job at the company at controlling expenses. The revenue was at the top third of the range there, and expenses, it was -- as I pointed out, August was a quarter that -- a lot of our revenue depended upon August, therefore we did a good job at controlling expenses throughout the quarter. I think from that aspect, that got us to the top-end of the range, or the $0.27 number that we had there.

In addition to that, we had three things that were favorable in terms of non-GAAP on the income statement. One of those was our tax rate, and it turned out to be lower than expected, and that was as a result of us achieving some additional credits, R&D and foreign tax credits, that were more favorable than the position, because we filed our return during the quarter.

The second thing was other income came in higher than we had guided to, and that was as a result of some favorable foreign exchange transactions we entered into through the quarter.

The third thing was our share count came in lower than expected, and that was primarily as a result of having a lower stock price than we baked into the calculation, therefore we had lower shares exercise in our stock plan, and we did go into the marketplace and buy some shares, as I pointed out as well, which brought that down.

So those three things combined to enable to take that from roughly $0.27 to $0.29.

Bruce Chizen

What is pleasing to me is even without those one-time expenditures or savings, we were able to still come in at the high-end of our EPS target range.

Operator

Your next question comes from the line of Heather Bellini with UBS.

Heather Bellini - UBS

Thank you. I was wondering if, Bruce, you could give us an idea on two fronts. With the Acrobat upgrade, what would be a reasonable expectation for comparing this upgrade cycle to Acrobat 7? Then, I have a similar question on the Creative side of the business, given all the things that Shantanu just mentioned in terms of the excitement around the Creative products that you’re going to be releasing in the spring. Can you give us a little bit of a sense on why or why not this cycle for the Creative products shouldn’t see a greater acceleration than what you’ve seen, say with CS2?

Bruce Chizen

Let me comment on the Creative piece first. My belief, based on everything Shantanu explained, based on the feedback that I have heard, given the fact that the time between the last release and this release is greater than typical because of our desire to do the integration and the Mactel work at the same time, I believe this will be a better release, a more significant release than the previous two versions of the Creative Suite.

There will be I believe a pent-up demand because of all the factors that Shantanu talked about. So I think back in 2004 and I looked at how well the first Creative Suite did, factoring in obviously the fact that this will ship in Q2, not at the beginning of the year, I am looking for a stellar performance from that release.

In terms of the Acrobat upgrade, I would say that, when you look at features, functionality, benefits to the user, it is equal to or greater than what Acrobat 7 was to the then version of Acrobat 6. So the next release of Acrobat will be even more feature-rich than the previous one over the one at that current time.

Heather Bellini - UBS

Okay, so I just want to clarify. For CS3, you’re saying you think it will be a better release than both CS1 and CS2 in terms of the impact on your business?

Bruce Chizen

Absolutely, just because of everything that Shantanu talked about. This is a killer release. The point products have some features that are must-have. The integration -- people are waiting. They use both the former Macromedia products and the Adobe products in the same workflow, and they are waiting for integration. They are on the sidelines waiting for a Mactel compliant release. That is a lot of pent-up demand, and I believe that a lot of the revenue that we’re not getting this quarter, that we’re not going to get in Q4, that we’re not going to get in Q1 against the Creative Suite, the current version of Creative Suite, will show up in Creative Suite 3 over its life.

In terms of Acrobat, the only thing I would caution you on is when we released the last version of Acrobat 7, the current version of Acrobat, which is Acrobat 7, we had a whole quarter. In this case, it is going to be late in the quarter, so the benefit will be over time, not all in one quarter.

Heather Bellini - UBS

Can you just give us the top three functionality enhancements to Acrobat 8 that will get people to upgrade? Because there are many that say you are getting to the point in your lifecycle of Acrobat that you’re becoming like Office, and do you have to be on the latest release? Can you just give us what the top three improvements to the product are that you think will drive people to upgrade?

Bruce Chizen

As soon as we publicly announce the product, which we suspect should not be too far off, we will be more than happy to talk about the dynamite features that are in there.

Operator

Your next question comes from the line of John McPeake with Prudential.

John McPeake - Prudential

Thank you. Bruce, as I go out on the web, I am noticing more and more that Flash is replacing Real Media, Windows Media, and QuickTime as the preferred method for video delivery. I was hoping you could talk a little bit about how you guys are able to monetize that opportunity, because I know a lot of these sites, maybe YouTube or even Video.Google, aren’t paying you much in the way of licenses for the server side products. I am interested to know what kind of benefits they could derive from some of those products, and also how that might pertain to some of the caching services, like Akami out there.

Bruce Chizen

There is three ways we make money in the video business. The first is we have a collection of authoring, editing, enhancement tools that are part of the production suite that we sell as standalone products like Adobe Premiere, After Effects, Adobe Audition, and so on, as well as Flash authoring, that people use to create this content, edit this content, enhance the content, and package it up for delivery. So that’s one way.

As we said earlier, the year-over-year growth this quarter was 39%. A lot of that has to do with the dynamics that you just talked about.

The second way we make money is we have server technology that allows you to take the Flash file format and put it in such a way where you can stream it in a much more efficient way, taking advantage of all those Flash players out there. We sell that server either as a standalone server directly to those people who want to stream their video to the media houses, or many of them actually go through service providers like an Akami or a Limelight, and they use our server technology, and we get a cut of that business based on the amount of video that is streamed.

The third way that we make money in the video area is through the hobbyist with products like Premiere Elements. We are making it easier and easier to edit and package up video so you can use in conjunction with sites like YouTube and others.

John McPeake - Prudential

How significant is that second source, the Akami’s and the…

Bruce Chizen

Today it is a relatively small piece of the business, but it is one that we expect to grow significantly over time.

Operator

Your next question comes from Gene Munster with Piper Jaffray.

Gene Munster - Piper Jaffray

If you look at the timing of Acrobat, you’ve been very clear, it’s late in the quarter. When you say later, are you referencing all versions, or is it late for -- English is going to be late, and then subsequent versions?

Shantanu Narayen

The English version will ship first, late in the quarter. We do expect the other major languages to also ship in Q4.

Gene Munster - Piper Jaffray

You mentioned the availability of a verified Mactel version, the next version of Acrobat will be Mactel-enabled and it will be bundled with CS. It looks like CS obviously is going to remain not optimized for Mactel, is that correct?

Shantanu Narayen

That is correct, Gene.

Operator

Your next question comes from Michael Mankowski with Tier 1 Research.

Michael Mankowski - Tier 1 Research

Thank you for taking my call. Have you seen any change in the competitive environment, whether it is Microsoft or maybe even Corel? Any commentary there, please?

Shantanu Narayen

We continue to make sure that we look at all competitors that we have in our space. Certainly as it relates to our creative products, as we continue to provide creative features and better integration, that is what we continue to believe will be our differentiation. I think it is our breadth of our products in that particular space which turn people to Adobe for solutions.

Microsoft is always going to be a competitor in many areas, but I think we have also demonstrated that we know how to compete effectively with them as we continue to innovate in our products, and I think Bruce talked earlier about the fact that depending on what Microsoft does, they are a competitor that we have to continue to pay attention to.

Operator

Your next question comes from the line of Trip Chowdhry with Global Equity Research.

Trip Chowdhry - Global Equity Research

Thank you, and very good execution. I was talking to a few developers and they seem to be using VectorWorks for 2D, 3D graphics. I was wondering if you can give an insight, like how does Acrobat, 2D, 3D, compete with them, or do you think they are not competing products, maybe add-on? Any color on that?

Shantanu Narayen

In the vector graphic space, as we look at people who are using vectors for creating, whether it is packaging or information that goes into newspapers, magazines, I think it is fairly clear that Illustrator is the product that most of our creative professionals use in the workflow, as well as the way out of PDF.

So Illustrator by far, I think is, in the creative space, the product that people look towards.

Acrobat enables us to store any vector that you might have created within any particular application, and recently, with Acrobat 3D, in addition to 2D, we also now have the ability to store three-dimensional. So certainly there are a number of other competitors in the space. However, for the creative community, Illustrator tends to be the product they rely on the most. If they want to share that information reliably, they tend to use Acrobat rather than other products, and PDF as a file format.

Operator

Your next question comes from the line of Brent Thill with Citigroup.

Brent Thill - Citigroup

Thank you. Regarding the operating margin versus top-line revenue growth, how are you thinking about balancing that? The margin guidance for Q4 is flat, and understandably into the product cycle, but how do you look at, into the next cycle, balancing, and which one would you favor into the next cycle?

Bruce Chizen

We are not going to provide specifics on guidance for ’07 or beyond at this point in time. Our intention is to do that at the December earnings call. Of course, for the long-term, we will share much more with you at the January analyst meeting.

What we will do is -- what we have typically done is to make sure that we are investing adequately to fuel our future growth. This is a company with many, many growth opportunities in front of itself, the explosion of digital content is happening, and we are well-positioned, and we want to make sure that we can invest enough to continue to grow double digits for many, many, years to come.

So not today, not going to comment specifically on the direction on the margins. Clearly Q4 we want to invest in enough to launch the new version of Acrobat as well as to begin to prepare for the launch of CS3, but as it relates to fiscal year ’07 and beyond, we’re not going to comment other than what I have already stated.

Brent Thill - Citigroup

Just a follow-up by revenue by channel, back at the analyst day, you mentioned that distributor shrink-wrap has been declining for I think the last six years, and volume licensing continues to grow, given potentially better visibility into your business. Could you just give us a sense of what percent is on volume licensing and how that has been shifting over the year?

Shantanu Narayen

Brent, again, without given specifics, I can say that we continue to see the trend move toward licensing, and we believe that is a trend that will continue. I think it reflects both enterprise is wanting to do business with Adobe in a more meaningful fashion. It helps us get to know our customers better, as well as from a cost of goods perspective, certainly it is better than the shrink side.

Having said that, one would expect that when we launch Acrobat 7, we will see -- when we launch the next version of Acrobat, the shrink will be a more material part of the business at the time of launch.

Operator

Your next question comes from the line of Steve Lidberg with Pacific Crest Securities.

Steve Lidberg - Pacific Crest Securities

Hi, this is David in for Steve. I’m just wondering if you could provide a little commentary on Apollo, what kind of response you are seeing from a developer, Bruce, or are you anticipating going when it is released in ’07, and what kind of momentum we could see when it is released? Thank you.

Shantanu Narayen

Apollo is a multi-year investment that we are making, and it really is associated with the fact that we believe that the web today has fundamental limitations, and people are looking for a new way to create a set of rich, interactive applications that work online and offline on the web.

Clearly Apollo will take advantage of the reach that we already have with both the Adobe reader as well as the Flash player, and also combine the best of what exists in HTML into this entire environment.

At this point, really, it is working with a number of key developers, getting their feedback. The feedback has been very positive, but at this point, I am not going to communicate further. Clearly at the MAX Developer Conference, we will talk in more detail about what our plans are for Apollo.

Mike Saviage

Operator, we will take two more questions, please.

Operator

Your next question comes from the line of Walter Pritchard with Cowen.

Walter Pritchard - Cowen & Company

My questions have been answered. I just wanted, Randy, one question for you. If you look at the sales and marketing line, it has been pretty flat for the last three quarters. I am just trying to get a sense of, as we move into these product release periods, of the current $194 million or so in non-GAAP sales and marketing expense, how much of that is strictly headcount related, and how much of that is variable marketing expense that we would expect to probably ramp up here in the next couple of quarters?

Bruce Chizen

That is something that we do not provide details on.

Operator

Your final question comes from the line of David Kim with Pacific Growth.

David Kim - Pacific Growth Equities

Thank you. I just want to get some clarification on your statements regarding the Acrobat 8 ship date happening later in the quarter. Since you are planning to announce the product release 30 days before the ship date or so, I think that is what you mentioned in the call, I am assuming that the customer can start ordering the product before the ship date, once it is announced? Would you expect to have some visibility into the Acrobat that is ordered but not shipped when you issue your inter-quarter update on the 31st?

Shantanu Narayen

Typically what we do is -- I think all of us will have to wait until we announce the product. Once we announce the products, prior to the public announcement of the products, we do notify the channel, so that the channel is aware of this information. The day we announce the product, we also start taking orders directly on the web, so certainly once the product is announced, we will start to get visibility, both from our channel partners and directly on the web, a sense of the demand for the product.

At this point, we are not committing to any other piece of information.

Bruce Chizen

However, we should, by the inter-quarter update, have some sense for what the demand is or should be.

Mike Saviage

This concludes our call today. We thank everybody for joining us.

Operator

This concludes the Adobe Systems Q3 fiscal year 2006 earnings conference call. You may now disconnect.

TRANSCRIPT SPONSOR

Cornerstone OnDemand Logo

Want to understand the future of human resources software?

Cornerstone OnDemand is the leading provider of SaaS solutions for integrated talent management, covering the human capital life cycle from hire to retire.

We offer over 30,000 online training titles and performance tools for compliance and analytics to help companies maximize workforce productivity and achieve organizational excellence.

Learn about talent management and our industry leading products for learning management, corporate social networking, onboarding, compensation, compliance, employee performance management and succession planning at CornerstoneOndemand.com.

To sponsor a Seeking Alpha transcript click here.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Adobe F3Q06 (Qtr End 9/01/06) Earnings Call Transcript (SeekingAlpha)
This Transcript
All Transcripts