ADBE

Adobe Systems Incorporated (ADBE)

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Adobe Systems Incorporated (ADBE)

F4Q09 Earnings Call

December 15, 2009 5:00 pm ET

Executives

Mike Saviage - Vice President, Investor Relations

Shantanu Narayen - President and Chief Executive Officer

Mark Garrett - Chief Financial Officer

Analysts

Michael Olson - Piper Jaffray

Steven Ashley - Robert W. Baird

Heather Bellini – ISI Group

Brent Thill - UBS

Ross MacMillan - Jeffries & Company

Sarah Friar - Goldman Sachs

Adam Holt - Morgan Stanley

Jay Vleeschauer - Ticonderoga Securities

Philip Rueppel - Wells Fargo Securities

Robert Breza - RBC Capital Markets

Brad Zelnick - Macquarrie

Sasa Zorovic - Janney Montgomery Scott

David M. Hilal - Friedman, Billings, Ramsey

Kash Rangan - Banc of America Merrill Lynch

Presentation

Operator

Good day, everyone and welcome to the Adobe fourth quarter and fiscal year 2009 earnings conference call. As a reminder, today's call is being recorded. At this time, I would like turn the call over to Mr. Mike Saviage, Vice President of Investor Relations. Please go ahead, sir.

Mike Saviage

Good afternoon and thank you for joining us today. Joining me on the call are Adobe's President and CEO, Shantanu Narayen; as well as Mark Garrett, Executive Vice President and CFO.

In the call today, we will discuss Adobe's fourth quarter and fiscal year 2009 financial results. By now, you should have a copy of our earnings press release which crossed the wire approximately one hour ago. If you need a copy of the press release, you can go to adobe.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 model targets, and our forward-looking product plans, is based on information as of today, December 15, 2009, and contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release we issued today, as well as Adobe's SEC filings.

During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is available in today's earnings release and on our investor relations website in the investor data sheet.

Call participants are advised that the audio of this conference call is being broadcast live over the Internet in Acrobat Connect Pro and is also being recorded for playback purposes. An archive of the call will be made available on 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 Shantanu.

Shantanu Narayen

Thanks, Mike and good afternoon. I am pleased to report that in Q4 we experienced an improvement in customer demand for our products across many of our major business areas and geographies and are reporting fourth quarter revenue of $757.3 million.

We have successfully navigated through a difficult environment in 2009. We are reporting annual revenue in fiscal 2009 of $2.95 billion and are proud of how we manage our business during the year.

Accomplishments during the year include we aligned the company around our key strategic imperatives and made investments that we believe will drive top line growth as the economy improves. We grew the relevance of the Adobe Flash platform as the standard for how the world engages with ideas and information across platforms, devices, and operating systems. We maintained our leadership in online video distribution and achieved significant momentum in the mobile space with our open screen project.

We continue to focus on improving the segmentation of our customer base and driving new adoption and penetration of our CS4 and Acrobat products. In the enterprise, we continue to make good progress with LiveCycle and achieved 23% year-over-year revenue growth with our Connect web conferencing business.

And finally, the addition of Omniture in Q4 uniquely positions Adobe to deliver a more complete customer workflow spanning content creation, delivery, and optimization. This strategic acquisition will help Adobe enable customers to realize greater return on their digital media investments and improve the end users' experiences across multiple screens.

Later I'll provide some highlights regarding our performance in Q4 and discuss our priorities for fiscal 2010. But first, I'll turn it over to Mark for a review of our financial results. Mark.

Mark Garrett

Thank you, Shantanu. Our earnings report today covers both Q4 and fiscal year 2009 results. Given the addition of Omniture mid quarter, I have quite a bit to cover today. First, I am going to provide some background on the Omniture business model which will help everyone understand how the addition of Omniture impacts Adobe's results going forward. Second, I am going to review our approach for how we will report our financials with Omniture folded in. As you know, we are reporting results today with roughly one month of Omniture's business concluded in both our fourth quarter and full year 2009 results. Finally, I will discuss results for both Q4 and fiscal 2009, followed by a discussion of our financial targets for Q1 and some color on fiscal year 2010, including the impact of Omniture.

Let's start with an overview of the Omniture business model and an explanation of some key metrics we will provide on a quarterly basis to help you understand Omniture business unit results and momentum.

The Omniture online marketing suite, which we either host and deliver to customers on demand, or provide as an on-premise solution, consists of Omniture's open business analytics platform and an integrated set of optimization applications for online analytics, channel analytics, visitor acquisition, and conversion. Our flagship Omniture product is site catalyst, which represents a majority of the reported Omniture revenue. Increasingly, however, the number and type of services Omniture provides has expanded into areas such as advertising and conversion optimization. Omniture also provides professional services, including training, consulting, and implementation services.

Once a customer contracts for Omniture services, there is generally an implementation period of 30 to 90 days before the products are configured for the customer's use, at which point revenue recognition commences. The value of the contract, including professional services contracted at the same time as the product purchased, is amortized as revenue over the term of the contract which generally ranges from one to three years.

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