Adobe Systems Reports Strong Q3 Revenue and Earnings; Continued Momentum for Creative Suite and Acrobat Products Drives 27 Percent Revenue Growth

Business Wire, Sept 20, 2004

SAN JOSE, Calif. -- Adobe Systems Incorporated (Nasdaq:ADBE) today reported financial results for its third quarter ended September 3, 2004.

In the third quarter of fiscal 2004, Adobe achieved revenue of $403.7 million, compared to $319.1 million reported for the third quarter of fiscal 2003 and $410.1 million reported in the second quarter of fiscal 2004. On a year-over-year basis, this represents 27 percent revenue growth. Adobe's third quarter revenue target range, revised upward on August 2, 2004, was $380 to $400 million.

"We continue to perform exceptionally well against our strategy to deliver comprehensive platform solutions to our customers," said Bruce R. Chizen, president and chief executive officer. "Our business momentum continues in advance of major new product releases beginning in Q1."

GAAP diluted earnings per share for the third quarter of fiscal 2004 were $0.42. Non-GAAP diluted earnings per share, which does not include an investment loss from the company's venture program, were $0.43. Adobe's revised GAAP and non-GAAP third quarter earnings target range was $0.36 to $0.41 per share.

GAAP net income was $104.5 million for the third quarter of fiscal 2004, compared to $64.5 million reported in the third quarter of fiscal 2003, and $109.4 million in the second quarter of fiscal 2004. On a year-over-year basis, GAAP net income grew 62 percent.

Non-GAAP net income, which excludes, as applicable, a partial reversal of prior restructuring charges, and investment gains and losses, was $105.6 million for the third quarter of fiscal 2004, compared to $66.3 million in the third quarter of fiscal 2003, and $108.8 million in the second quarter of fiscal 2004. On a year-over-year basis, non-GAAP net income grew 59 percent.

GAAP diluted earnings per share for the third quarter of fiscal 2004 were $0.42 based on 247.1 million weighted average shares. This compares with GAAP diluted earnings per share of $0.27 reported in the third quarter of fiscal 2003, based on 240.5 million weighted average shares, and GAAP diluted earnings per share of $0.44 reported in the second quarter of fiscal 2004, based on 247.0 million weighted average shares.

Adobe's GAAP operating income was $140.3 million in the third quarter of fiscal 2004, compared to $92.2 million in the third quarter of fiscal 2003 and $141.8 million in the second quarter of fiscal 2004. As a percent of revenue, GAAP operating income in the third quarter of fiscal 2004 was 34.8 percent, compared to 28.9 percent in the third quarter of fiscal 2003 and 34.6 percent in the second quarter of fiscal 2004.

Adobe's non-GAAP operating income, which excludes, as applicable, a partial reversal of prior restructuring charges, was $140.3 million in the third quarter of fiscal 2004, compared to $91.8 million in the third quarter of fiscal 2003 and $141.8 million in the second quarter of fiscal 2004. As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2004 was 34.8 percent, compared to 28.8 percent in the third quarter of fiscal 2003 and 34.6 percent in the second quarter of fiscal 2004.

Company Provides Fourth Quarter Financial Targets

For the fourth quarter of fiscal 2004, the Company announced that it is targeting revenue of $400 to $415 million, a gross margin range of approximately 94 percent, and GAAP and non-GAAP operating margin ranges of 31 to 33 percent.

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

Research & Development -- approximately 20 percent
    Sales & Marketing -- approximately 32 to 34 percent
    General & Administrative -- approximately 9 percent

In addition, Adobe is targeting its share count range to be between 249 and 250 million shares in the fourth quarter of fiscal 2004. The Company also is targeting other income in its fourth quarter to be approximately $3 million, and a tax rate of 26 percent. These targets lead to fourth quarter GAAP and non-GAAP earnings per share target ranges of $0.38 to $0.41.

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

The Adobe Board of Directors declared this quarter's cash dividend of $0.0125 per share, payable on October 12, 2004 to stockholders of record as of September 28, 2004.

Forward Looking Statements Disclosure

This press release contains forward looking statements, including those related to revenue, product releases, gross margin, operating margin, operating expenses, share count, tax rate, and earnings per share, 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 we do business, delays in development or shipment of our new products or major new versions of existing products, introduction of new products by existing and new competitors, difficulties in transitions to new business models or markets, changes in demand for application software, computers and printers, intellectual property disputes and litigation, changes to our distribution channel, the impact of malicious code, such as worms and viruses, on our computer network and applications, interruptions or terminations in our relationships with our turnkey assemblers, fluctuations in foreign currency exchange rates, changes in accounting rules, unanticipated changes in tax rates, market risks associated with our equity investments, and our 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 2003 annual report on Form 10-K and quarterly reports on Form 10-Q filed in 2004. The Company does not undertake an obligation to update forward looking statements.