Adobe Systems (ADBE)
Q1 2011 Earnings Call
March 22, 2011 5:00 pm ET
Mike Saviage -
Mark Garrett - Chief Financial Officer and Executive Vice President
Shantanu Narayen - Chief Executive Officer, President and Director
David Hilal - FBR Capital Markets & Co.
Adam Holt - Morgan Stanley
Chad Bartley - Pacific Crest Securities, Inc.
Brent Thill - UBS Investment Bank
Philip Winslow - Crédit Suisse AG
Ross MacMillan - Jefferies & Company, Inc.
Steven Ashley - Robert W. Baird & Co. Incorporated
Walter Pritchard - Citigroup Inc
Brad Zelnick - Macquarie Research
Blair Abernethy - Stifel, Nicolaus & Co., Inc.
Michael Olson - Piper Jaffray Companies
Kash Rangan - BofA Merrill Lynch
Previous Statements by ADBE
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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 first quarter fiscal year 2011 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 our 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, March 22, 2011, and contains forward-looking statements that involve risks 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 will now turn the call over to Shantanu.
Thanks, Mike, and good afternoon. I'm pleased to report we delivered record revenue of $1,028,000,000 in Q1, with non-GAAP earnings per share of $0.58. This represents our sixth consecutive quarter of sequential revenue growth. Adobe's vision for transforming how the world is creating, measuring, and delivering digital experiences is resonating with our customers, and our solutions are enabling us to target large addressable markets that are fueling our growth.
I'd first like to turn the call over to Mark, who will discuss our performance in the quarter and provide our financial targets for Q2. Following that, I'll discuss some business highlights, and then we'll take your questions. Mark?
Thanks, Shantanu. For the first quarter of fiscal 2011, Adobe achieved record revenue of $1,028,000,000. This compares to $858.7 million reported in Q1 fiscal 2010 and $1,008,000,000 reported last quarter. Year-over-year, this represents 20% revenue growth. As a reminder, in Q1 fiscal 2010, we had an extra week of revenue due to our 52-53 week financial calendar. This extra week benefited our revenue in the year-ago quarter by approximately $35 million, and normalizing for the extra week results in high year-over-year growth rates across our business.
We entered the first quarter with 5% of reported Q4 revenue in shippable backlog, and we exited the first quarter with no shippable backlog. Q1 GAAP operating expenses were $617.7 million compared to $592.5 million reported in Q1 fiscal 2010 and $613.8 million last quarter.
Non-GAAP operating expenses in Q1 were $539.5 million compared to $498.7 million reported for Q1 fiscal 2010 and $535 million last quarter. GAAP operating income in Q1 fiscal 2011 was $302.3 million, or 29.4% of revenue. This compares to GAAP operating income of $176.8 million, or 20.6% of revenue in Q1 fiscal 2010, and $286.9 million, or 28.5% of revenue last quarter.
Non-GAAP operating income in Q1 fiscal 2011 was $400.1 million, or 38.9% of revenue. This compares to non-GAAP operating income of $289.3 million, or 33.7% of revenue in Q1 fiscal 2010, and $384 million, or 38.1% of revenue last quarter. Adobe's effective GAAP tax rate in Q1 was 18% and the non-GAAP tax rate was 22%. Our GAAP tax rate was higher than targeted due to a one-time charge related to our acquisition of Demdex in Q1. Q1 GAAP net income was $234.6 million compared to $127.2 million reported in Q1 fiscal 2010 and $268.9 million last quarter. Non-GAAP net income in Q1 was $298.1 million compared to $211.7 million reported in Q1 fiscal 2010 and $285.7 million last quarter.
GAAP diluted earnings per share for Q1 fiscal 2011 were $0.46 based on 511.3 million weighted average shares. This compares with GAAP diluted earnings per share of $0.24 reported in Q1 fiscal 2010 based on 532.6 million weighted average shares and GAAP diluted earnings per share of $0.53 reported last quarter based on 511.9 million weighted average shares.