Summary
Adobe Systems reported first-quarter fiscal 2010 revenue of $858.7 million, up 9.2% from the prior-year quarter. Gross profit rose 8.5% to $769.3 million. Operating income fell 14.9% to $176.8 million, and net income declined 18.7% to $127.2 million. Diluted EPS was $0.24, down $0.06, or 20.0%, from the prior-year quarter. The revenue increase included an extra week in the quarter because fiscal 2010 is a 53-week year while fiscal 2009 was a 52-week year. The top line also benefited from the Omniture acquisition, Knowledge Worker strength, and creative hobbyist products, partly offset by lower Creative Solutions revenue. Revenue growth was broad across most segments except Creative Solutions and Platform. The company said its worldwide business continued to experience stability that it initially started to see during the last half of fiscal 2009.
The Omniture acquisition, completed on October 23, 2009 for approximately $1.8 billion, added a new reportable segment and drove much of the growth. Subscription revenue benefited from Omniture's hosted online business optimization services. Omniture revenue was driven by variable subscription revenues, consulting services, and certain fees recognized only upon cash collection. In the Creative Solutions segment, revenue declined because the prior-year quarter included the Japanese and other foreign language launches of CS4, and no comparable launch occurred in the first quarter of fiscal 2010. Management noted that overall CS4 product family revenue continued to lag the equivalent CS3 products by approximately 20%. Knowledge Worker revenue improved on stable economic conditions and higher Acrobat unit volumes. Enterprise revenue grew slightly as Connect web-conferencing strength offset lower LiveCycle revenue, which management attributed to longer sales cycles and lower OEM partner revenue. Platform revenue fell on lower Mobile Client revenue, while Print and Publishing was roughly flat. The company also moved management responsibility for the Connect Solutions product line from Knowledge Worker to Enterprise effective in the first quarter of fiscal 2010.
Gross margin was 89.6%, down 0.6 percentage points from the prior-year quarter. Operating margin fell to 20.6%, a decline of 5.8 percentage points. The operating margin compression came from higher operating expenses, including costs related to the Omniture acquisition and restructuring charges. Research and development, sales and marketing, and general and administrative expenses all increased, driven by additional headcount from Omniture and higher incentive compensation. Amortization of purchased intangibles increased due to the Omniture acquisition, offset by lower amortization from Macromedia assets that were fully amortized at the end of fiscal 2009. Restructuring charges declined from the prior-year quarter as Adobe continued to implement its fiscal 2009 restructuring plan.
Operating cash flow was $259.8 million, down 29.0% from the prior-year quarter. Capital expenditures were $25.5 million, up 60.5%. Deferred revenue, current portion, stood at $320.5 million at March 5, 2010. The primary working capital sources of cash were net income, decreases in trade receivables, and increases in income taxes payable and deferred revenue. The primary uses were decreases in accrued expenses, accrued restructuring, and trade payables. The company issued senior notes in February 2010 and used a portion of the proceeds to repay its outstanding credit facility. It also continued its stock repurchase program. Cash, cash equivalents and short-term investments increased during the quarter.
Management expects to ship new CS5 versions of its creative professional products in the second quarter of fiscal 2010. The Omniture acquisition is expected to increase future revenues, cost of revenues and operating expenses, while also producing revenue and cost saving synergies. Risks include the economic conditions that affected the business throughout fiscal 2009, longer sales cycles for LiveCycle, lower LiveCycle OEM partner revenue, and foreign currency fluctuations. The company also faces uncertainty around revenue recognition estimates, product returns, price protection, and income taxes. Its effective tax rate increased because the U.S. research and development credit expired on December 31, 2009. Restructuring activities from the fiscal 2009 plan are expected to continue through fiscal 2010. The company early adopted new revenue recognition guidance at the beginning of fiscal 2010 on a prospective basis.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2010 | Q4 FY2009 | QoQ | Q1 FY2009 | YoY |
|---|---|---|---|---|---|
| Revenue | $786.4M | $757.3M | +3.8% | — | — |
| Gross profit | $709.0M | $675.0M | +5.0% | — | — |
| Gross margin | 90.2% | 89.1% | +1.0 pp | — | — |
| Sales & marketing | $249.5M | $257.9M | -3.3% | — | — |
| General & administrative | $74.1M | $74.3M | -0.3% | — | — |
| Total operating expenses | $501.1M | $521.3M | -3.9% | — | — |
| Operating income (loss) | $207.9M | $153.6M | +35.3% | — | — |
| Operating margin | 26.4% | 20.3% | +6.2 pp | — | — |
| Net income (loss) | $156.4M | -$32.0M | +588.2% | — | — |
| Net margin | 19.9% | -4.2% | +24.1 pp | — | — |
| Diluted EPS | $0.30 | -$0.06 | +$0.36 | — | — |
Risks
Uncertainty about future economic and political conditions could cause customers to delay or reduce technology purchases, advertising spending or marketing spending, leading to longer sales cycles and increased price competition.
Intense competition from Microsoft products such as XPS, Office PDF save, Expression Studio and Silverlight, Oracle JavaFX, HTML5, and free Google Analytics for the Omniture Online Marketing Suite could harm pricing and market share.
CS4 product family revenue continued to lag the equivalent CS3 products by approximately 20% in Q1 fiscal 2010, and CS5 versions are expected to ship in Q2 fiscal 2010, creating execution and demand risk.
The Omniture acquisition closed on October 23, 2009 for approximately $1.8 billion; integration risks include retaining key personnel and customers, disrupting operations, and failing to achieve financial and strategic goals.
In Q1 fiscal 2010 the company issued $1.5 billion in senior unsecured notes and has a $1.0 billion revolving credit facility; interest expense increased 863% in Q1 fiscal 2010 versus the prior-year quarter, and covenants may restrict flexibility.
Two distributors, Ingram Micro and Tech Data, represented 15% and 6% of net revenue for Q1 fiscal 2010, respectively; termination or financial weakness of a distributor could disrupt distribution.
LiveCycle revenue was weaker than expected due to longer sales cycles and lower OEM partner revenue; new business revenue is difficult to predict with longer sales and implementation cycles.
Omniture SaaS service agreements are generally one to three years; customers have no obligation to renew and may cancel under some circumstances, so renewal rates may decline or fluctuate.
Transition to on-demand services and Omniture data collection increases exposure to privacy, behavioral tracking, and data protection laws in the U.S. and internationally, raising compliance costs and liability.
Platform segment revenue decreased 11% in Q1 fiscal 2010 versus the prior-year quarter, and the Open Screen Project removes license fees on the next major Flash Player and AIR for devices, creating risk of goodwill or intangible asset impairment.
Early adoption of new multiple-deliverable revenue recognition guidance in Q1 fiscal 2010 could change the timing of revenue recognition as go-to-market strategies evolve, and future revenue recognition could differ materially.
Summary, forecast, risks and KPIs are extracted from ADOBE INC.'s SEC filings for Q1 FY2010 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 8, 2026.