Adobe Systems’ (ADBE) earnings for the company’s Q4 of fiscal 2009 (ended Nov. 2009) beat consensus estimates by 2 cents. Revenue was basically in-line, exceeding by 0.6%.

Revenue

Total revenue was $757.3 million, up 8.6% sequentially and down 17.3% year over year. Revenue exceeded management’s guidance range of $690-740 million (down 1.1% to up 6.1% sequentially).

Products generated 93.4% of revenue, increasing 8.8% sequentially and decreasing 18.2% year over year. Services & Support brought in the remaining 6.6%, growing 5.0% sequentially and declining 1.6% year over year.

The sequential increase is encouraging, as it seems to indicate a stronger IT spending environment, although the decline from the year-ago period is indicative of recession-related weakness. Products and Services & Support usually generate gross margins in the 90% and 60% ranges, respectively. Both areas saw gross margin declines in the last quarter, although they were within the range.

Revenue by Segment

Revenue by operating segment was as follows—Creative Solutions 57% (up 7.2% sequentially), Knowledge Worker 20% (down 3.4%), Enterprise 8% (up 12.6%), Platform 6% (up 4.7%) and Print and Publishing 6% (up 1.7%). The newly acquired Omniture segment generated 3% of revenue.

Revenue by Geography

Around 51% of fourth quarter revenue originated in the Americas (up 8.3% sequentially), 32% in EMEA (up 22.3%) and 18% in Asia (down 9.3%). The strength in Europe was driven by Germany and France, the North America business also continued to improve, while Asia was down on seasonality. Results were in-line with management expectations.

Margins

The pro forma gross margin for the quarter was 91.6%, compared to 92.8% in the August 2009 quarter and 93.0% in the November quarter of 2008. The slight variation is mostly on account of the mix of services and support revenues versus the product revenue in the quarter.

The Creative Solutions segment generated a gross margin of 91.7%, (up 40 basis points sequentially), Knowledge Worker 93.2% (down 36 bps), Enterprise 81.1% (up 94 bps), Platform 89.8% (up 70 bps) and Print and Publishing 90.4% (up 63 bps).  Omniture generated a gross margin of 39.9%, much lower than the rest of the company.

The operating expenses of $428.7 million were lower than the previous quarter’s $409.9 million. The operating margin was 35.0%, up 104 bps sequentially from 34.0%. The higher COGS and sales and marketing expenses (as a percentage of sales) were offset by lower R&D and SG&A ( as a percentage of sales).

Net income

On a pro forma basis, ADBE generated a net income of $206.8 million, or a 27.3% net income margin compared to a $186.1 million, or 26.7% in the previous quarter and net income of $320.9 million or 35.1% net income margin in the same quarter last year. The fully diluted pro forma earnings per share (EPS) was $0.39, compared to $0.35 in the August  quarter and $0.60 in the year-ago quarter.

Our pro forma estimate excludes restructuring charges, deferred stock compensation, amortization of intangibles, investment gains and tax adjustments in the last quarter. These calculations may differ from management’s presentation due to the inclusion/exclusion of some items that were not considered by management.

On a fully diluted GAAP basis, the company recorded a net loss of $32.0 million ($0.06 per share) compared to net income of $136.0 million ($0.26 per share) in the previous quarter and $245.9 million ($0.46 per share) in the prior-year quarter.

Balance Sheet

The company ended with a cash and investments balance of $1.9 billion, a decrease of $652.0 million from the end of the previous quarter. Cash generated from operations was $254 million. Principal uses of cash during the quarter included $1.6 billion on the Omniture acquisition and $35 million on capital expenditure. At quarter-end, Adobe had $1.0 billion in long-term debt, amounting to a net cash balance of $904.5 million. Including long-term liabilities, the debt-cap ratio was a mere 24.1%.

Guidance

Management provided guidance for the first quarter on both GAAP and non-GAAP basis.

Revenue is expected to be in the $800-850 million range (up 5.6% to 12.2% sequentially). The revenue guidance includes a $14.7 million contribution from Omniture and an extra week of operation. The Creative, Knowledge Worker and Enterprise segments are expected to grow, with Platform declining and Print and Publishing staying flat sequentially. North America and Asia are expected to grow sequentially, while the EMEA region stays flat.

The GAAP operating margin is expected to be 19-21%, non-operating loss $2-4 million, tax rate 24%, and share count 530-532 million, yielding a GAAP EPS of $0.21-0.25.

On a non-GAAP basis, operating margin is expected to be 30-32%, non operating income $2-4 million, tax rate 24%, share count 530-532 million, yielding a non-GAAP EPS of $0.34-0.39.
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