Adobe Systems' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Adobe Systems (ADBE)

Q1 2012 Earnings Call

March 19, 2012 5:00 pm ET


Mike Saviage - Former Vice President of Investor Relations

Shantanu Narayen - Chief Executive Officer, President and Director

Mark Garrett - Chief Financial Officer and Executive Vice President


Brent Thill - UBS Investment Bank, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Brad A. Zelnick - Macquarie Research

Michael J. Olson - Piper Jaffray Companies, Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Ross MacMillan - Jefferies & Company, Inc., Research Division

Adam H. Holt - Morgan Stanley, Research Division

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

Mark L. Moerdler - Sanford C. Bernstein & Co., LLC., Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Chad Bartley - Pacific Crest Securities, Inc., Research Division



Good day, everyone, and welcome to the Adobe Systems Q1 FY 2012 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I'd look to 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'll discuss Adobe's first quarter fiscal year 2012 financial results. By now, you should have a copy of our earnings press release, which crossed the wire approximately 1 hour ago. If you need a copy of the press release, you can go to under the Company and Newsroom 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 19, 2012, 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 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 2 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 rerecorded or otherwise reproduced or distributed without prior written permission from Adobe Systems.

I will now turn the call over to Shantanu.

Shantanu Narayen

Thanks, Mike, and good afternoon. Q1 revenue was within our targeted range for the quarter. We also achieved solid Q1 non-GAAP earnings per share as well as strong cash flow and growth in deferred revenue. At the outset of this year, we outlined our strategy to double down in 2 fast-growing markets, Digital Media and Digital Marketing.

In our Digital Media business, our strategy is to help customers create, publish and monetize their content on any device. Demand is building for our upcoming Creative Suite and Creative Cloud launches. And as a result, Creative Suite revenue was lower than expected in Q1.

In our Digital Marketing business, our strategy is to help marketers measure, manage and optimize their marketing investments for maximum return. Momentum continued with our Digital Marketing Suite during Q1 with year-over-year revenue growth exceeding 30%.

In our Digital Media business, recent research shows our customers are excited about our upcoming launch of Creative Suite and the Creative Cloud. Among Creative professional customers and students, we found that over 40% of those surveyed are waiting for the new release to upgrade. Our upcoming Creative Suite release will include major updates to all of the core CS products, including Photoshop, Premiere Pro, After Effects, InDesign, Illustrator and Dreamweaver. We have created significant anticipation for the release through a series of sneak peeks of great new features. One sneak featured a breakthrough Photoshop innovation called Content-Aware Move, which has driven more than 1 million online viewers on the YouTube Photoshop channel.

The upcoming CS release will also advance our HTML5 and mobile content creation and app development offerings where we see strong interest to help our customers deal with the complexity they face. All of this is on track for delivery late in Q2.

We continue to extend the creative process for tablets. We recently announced availability of Adobe Photoshop Touch for the iPad. Photoshop Touch, which is also available on Android tablets, offers core Photoshop features as well as new capabilities for creating and sharing images in an app custom built for tablets. Photoshop Touch is a central component of the Adobe Touch Apps, joining other popular iOS apps such as Adobe Revel and Adobe Ideas. New and updated versions of our 6 touch apps will be coming throughout this year.

In conjunction with our upcoming Creative Suite release, we will launch Adobe Creative Cloud, which will transform the creative process. Creative Cloud includes all of our key CS desktop products, web services such as online storage, Typekit for online fonts, Business Catalyst for website hosting e-commerce, connectivity with our new touch apps and powerful collaboration and social community features. With the subscription model, Creative Cloud users will also get frequent product updates and access to new, innovative solutions, such as Edge and Muse, for HTML5 content creation.

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