ADBE

Adobe Systems Incorporated (ADBE)

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Adobe Systems Incorporated (ADBE)

F4Q2010 Earnings Call Transcript

December 20, 2010 5:00 pm ET

Executives

Mike Saviage – VP, IR

Shantanu Narayen – President and CEO

Mark Garrett – EVP and CFO

Analysts

Walter Pritchard – Citi

Steve Ashley – Robert Baird

Philip Rueppel – Wells Fargo

Brent Thill – UBS

Ross MacMillan – Jeffries & Company

Sarah Friar – Goldman Sachs

Mike Olson – Piper Jaffray

Adam Holt – Morgan Stanley

Phil Winslow – Credit Suisse

Dan Cummins – ThinkEquity

Rob Breza – RBC Capital Markets

Kash Rangan – Bank of America/Merrill Lynch

Heather Bellini – ISI Group

Chad Bartley – Pacific Crest

Brad Reback – Oppenheimer

Presentation

Operator

Good day, everyone. Welcome to the Adobe Systems Q4 and fiscal year 2010 earnings conference call. As a reminder, today’s call is being recorded. At this time, I would like to turn the conference 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 2010 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 News Room 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 20, 2010, 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 Adobe Connect, 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’m pleased to report we delivered record revenue of $1.008 billion in Q4. This performance helped us achieve record revenue of $3.8 billion in fiscal year 2010, which is 29% annual growth versus fiscal 2009.

In today’s call, I’ll start out with a recap of some of the major accomplishments we achieved during the year. Then I’ll turn it over to Mark for more detail on our financial performance in the quarter and the year. Later, after Mark discusses our Q1 targets, I’ll close with a summary of our priorities in 2011 and then we’ll take your questions.

2010 was an outstanding year for Adobe. We are the leader in providing solutions that enable customers to create, manage, deliver and optimize digital experiences. We continue to deliver innovative solutions to a broader set of customers, which is helping to successfully transform Adobe into a more diversified software company with large opportunities for new growth.

In our Creative business, we delivered Creative Suite 5, the latest version of our desktop suite to enable content authoring in a multi-screen world. Content creators are looking to Adobe to help them deal with the complexity of multiple rich formats such as Flash and HTML.

We launched the Digital Publishing Suite, a complete solution that leverages CS5 to enable publishers to deliver and measure the impact of their content across PCs, tablets, TVs and smartphones. We continue to be the leaders in delivering innovative imaging solutions and drove annual record revenue with Photoshop Lightroom 3. We gained market share with our professional video solutions and now offer a complete workflow from plan to playback.

CS5 momentum continues and usage for multi-screen and multi-format authoring is increasing. Revenue for CS5 is now 21% higher than what we achieved with CS4 for the comparable period. Publishers such as Conde Nast, Martha Stewart Living Omnimedia and Bonnier have adopted the Digital Publishing Suite to create digital versions of their magazines. We continue to focus on driving adoption of CS5 and the Digital Publishing Suite, and believe that there is significant untapped opportunity.

Another achievement in 2010 was the delivery of Flash Player 10.1. For the first time, we simultaneously delivered Flash Player for both PC and non-PC devices. We continue to innovate in the areas of video and content protection, hardware acceleration, and support for new input methods. Flash remains the best cross-platform solution for rich Internet applications, video and casual gaming.

Adoption of Flash Player 10.1 on PCs was the fastest ever during the first three months after it was commercially available. Companies such as Google, HP, HTC, Motorola, RIM and Samsung announced or introduced Flash Player 10.1 as part of their new smartphone and tablet offerings. This broad adoption and marketing of Flash by our Open Screen partners is leading to increasing revenue opportunities for Adobe. We’ve seen a doubling in the number of designers and developers who use Flash in the past year.

Given Apple has chosen to not support Flash in the browser of its iDevices, creative professionals are increasingly deploying multiple versions of their content and rich Internet applications. It’s important to note that designers and developers continue to use our tools for their authoring and content creation.

Read the rest of this transcript for free on seekingalpha.com