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Sep 15, 2005

Adobe Systems Reports Strong Q3 Financial Results

Creative Suite and Acrobat Adoption Drive 21 Percent Year-Over-Year Revenue Growth

Press Release: SAN JOSE, Calif. — September 15, 2005 — Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter ended September 2, 2005.

In the third quarter of fiscal 2005, Adobe achieved revenue of $487.0 million, compared to $403.7 million reported for the third quarter of fiscal 2004, and $496.0 million reported in the second quarter of fiscal 2005. On a year-over-year basis, this represents 21 percent revenue growth. Adobe’s third quarter revenue target range was $470 to $490 million.

“Solid execution drove another outstanding quarter of double digit growth in Q3,” said Bruce Chizen, Adobe chief executive officer. “These results reflect the overall strength of our business which, when combined with our pending acquisition of Macromedia, will position us for even greater success in the future.”

GAAP diluted earnings per share for the third quarter of fiscal 2005 were $0.29. Non-GAAP diluted earnings per share, which excludes investment losses, also were $0.29.

GAAP net income was $144.9 million for the third quarter of fiscal 2005, compared to $104.5 million reported in the third quarter of fiscal 2004, and $149.8 million in the second quarter of fiscal 2005. Non-GAAP net income, which excludes, as applicable, the net tax impact of the planned repatriation of certain foreign earnings, and investment losses, was $146.4 million for the third quarter of fiscal 2005, compared to $105.6 million in the third quarter of fiscal 2004, and $142.9 million in the second quarter of fiscal 2005.

GAAP diluted earnings per share for the third quarter of fiscal 2005 were $0.29 based on 507.8 million weighted average shares. This compares with GAAP diluted earnings per share of $0.21 reported in the third quarter of fiscal 2004, based on 494.2 million weighted average shares, and GAAP diluted earnings per share of $0.29 reported in the second quarter of fiscal 2005, based on 508.2 million weighted average shares.

Adobe’s GAAP and non-GAAP operating income was $183.6 million in the third quarter of fiscal 2005, compared to $140.3 million in the third quarter of fiscal 2004 and $182.2 million in the second quarter of fiscal 2005. On a year-over-year basis, this represents 31 percent GAAP and non-GAAP operating income growth. As a percent of revenue, GAAP and non-GAAP operating income in the third quarter of fiscal 2005 were 37.7 percent, compared to 34.8 percent in the third quarter of fiscal 2004 and 36.7 percent in the second quarter of fiscal 2005.

Adobe Gives Update on Status of Macromedia Acquisition

On August 24, 2005, Adobe and Macromedia stockholders overwhelmingly voted in favor of Adobe’s proposed acquisition of Macromedia. Adobe commented today that the integration planning process between the two companies continues to go well, and anticipates the transaction will close in Fall 2005, subject to appropriate regulatory approvals and the satisfaction of other closing conditions.

Adobe is maintaining a Website as an ongoing source of information regarding the Macromedia acquisition. Learn more.

Adobe Provides Fourth Quarter Financial Targets

For the fourth quarter of fiscal 2005, Adobe announced it is targeting revenue of $490 million to $510 million, which represents approximately 14 to 19 percent year-over-year growth. The Company also is targeting gross margin of approximately 94 percent, and GAAP and non-GAAP operating margin ranges of approximately 35 to 36 percent.

As a percent of revenue, Adobe is targeting fourth quarter expenses as follows:

Research & Development – approximately 20 percent
Sales & Marketing – approximately 29 to 30 percent
General & Administrative – approximately 9 percent

In addition, Adobe is targeting its share count range to be between 509 million and 511 million shares in the fourth quarter of fiscal 2005. The Company also is targeting other income in its fourth quarter to be approximately $11 million to $12 million, and a tax rate of 25 percent. These targets lead to fourth quarter GAAP and non-GAAP earnings per share target ranges of $0.27 to $0.29.

Adobe currently believes targeted non-GAAP earnings per share and non-GAAP operating margin results will not differ materially from targeted GAAP results.

These targets do not factor in the pending acquisition of Macromedia.

Forward Looking Statements Disclosure

This press release contains forward looking statements, including those related to revenue, product releases, gross margin, operating expenses, operating margin, other income, tax rate, share count, earnings per share, and timing of the Macromedia acquisition and related integration, which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: adverse changes in general economic or political conditions in any of the major countries in which Adobe does business, delays in development or shipment of the Company’s new products or major new versions of existing products, introduction of new products by existing and new competitors, failure to successfully manage transitions to new business models or markets, failure to anticipate and develop new products in response to changes in demand for application software, computers and printers, intellectual property disputes and litigation, failure to realize the anticipated benefits of past or future acquisitions and difficulty in integrating such acquisitions, changes to the Company’s distribution channel, the impact of malicious code, such as worms and viruses, on the Company’s computer network and applications, interruptions or terminations in the Company’s relationships with turnkey assemblers, risks associated with international operations, fluctuations in foreign currency exchange rates, changes in accounting rules and regulations, unanticipated changes in tax rates, market risks associated with the Company’s equity investments, and the Company’s inability to attract and retain key personnel. For further discussion of these and other risks and uncertainties, individuals should refer to the Company’s SEC filings, including the 2004 annual report on Form 10-K and quarterly reports on Form 10-Q filed in 2005. The Company does not undertake an obligation to update forward looking statements.

About Adobe Systems Incorporated

Adobe is the world’s leading provider of software solutions to create, manage and deliver high-impact, reliable digital content. For more information, visit www.adobe.com.

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