Adobe Inc (ADBE) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Adobe Systems First Quarter Fiscal Year 2003 Earnings conference call.

During the presentation, all participants will be in a listen-only mode; afterwards, we will conduct a question-and-answer session.

At that time if you have a question, please press the one, followed by the four on your telephone.

As a reminder, this conference is being recorded Thursday, March 13th, 2003.

I would now like to turn the conference over to Mike Saviage, Senior Director of Investor Relations.

Please go ahead, sir.

Good afternoon, and thank you for joining us today.

Joining in on the call is Bruce Chizen, President and CEO, Murray Demo, Senior Vice-President and CFO, and Shantanu Narayen, Executive Vice-President of Worldwide Products.

In the call today, we'll discuss the financial results of our first quarter of Fiscal 2003.

By now, you should have a copy of our Q1 Earnings press release, which crossed the wire about 30 minutes ago.

If you still need a copy of the press release, you can go to Adobe.com under the Company Info and Press Links to find an electronic copy.

Before we get started, I want to emphasize that some of the information discussed on this call, particularly our revenue and operating all (ph) targets for the coming quarter and our forward-looking product plans contain forward-looking statements that involve risks and uncertainty.

Actual results may differ materially from those set forth in such statements.

For a discussion of the risks and uncertainties, you should review Adobe's SEC filings, including our annual report on form 10-K for fiscal year 2002.

All participants are advised that the audio of this conference call being broadcast live over the Internet - is also being recorded for playback purposes.

The audio of the call will be archived on Adobe's Investor Relations Web site for approximately 30 days and is the property of Adobe Systems.

It may not be re-recorded or otherwise reproduced or distributed without prior written permission from Adobe Systems.

I'd now like to turn the call over to Bruce.

Thanks, Mike.

Good afternoon.

At our fall analysts meeting, we stated that we were targeting growth for Fiscal 2003.

I am pleased to announce today that we're off to a great start.

In Q1, Adobe's revenue and earnings per share exceeded the target range we communicated at the beginning of the quarter.

Revenue was $296.9 million and pro forma earnings per share of 25 cents.

We grew the company's quarterly revenue by 11-percent on a year-over-year basis, the second quarter in a row of double-digit growth.

We also grew revenues sequentially in Q1, something we expected would be difficult at the outset of the quarter.

This is particularly impressive in a quarter where we did not have any material revenue attributed to a major product launch.

Our highlight in Q1 was our ePaper business.

It had its best quarter every, driven by the highest quarter ever for our Acrobat desktop products.

This is noteworthy, since we've already communicated our intention to ship the next major version of Acrobat this quarter.

In a few minutes, Shantanu will provide product related highlights for the quarter, but first I'll turn it over to Murray for a view of our financial results.

Murray?

Thanks, Bruce.

For the first quarter of Fiscal 2003, Adobe achieved revenue of 296.9 million.

This compares to 267.9 million reported for the first quarter of Fiscal 2002, and 294.7 million reported last quarter.

GAAP net income for the first quarter of Fiscal 2003, which includes non-operating gains and losses, was 54.2 million, compared to 49.8 million reported in the first quarter of Fiscal 2002 and 40.1 million last quarter.

Pro forma net income, which excludes the amortization of goodwill acquired in process research and development for structural (ph) and other charges and investment gains and losses from the company's Venture program, was 58.9 million, compared to 52.8 million reported in the first quarter of Fiscal 2002 and 59.1 million last quarter.

Pro forma diluted earnings per share for the first quarter of Fiscal 2003, which excludes an investment loss in the company's Venture program, were 25 cents.

GAAP diluted earnings per share for the first quarter of Fiscal 2003 were 23 cents based on 235.3 million weighted average shares.

This compares with diluted earnings per share of 20 cents reported in the first quarter of Fiscal 2002, based on 245.2 million weighted average shares, and diluted earnings per share of 17 cents reported last quarter, based on 238.4 million weighted average shares.

Gross margin for the quarter was 92.5-percent, compared to 92.2-percent in the first quarter of Fiscal 2002 and 91-percent last quarter.

The higher gross margin than targeted this quarter was due to product mix; specifically, we generated both higher new versus upgrade revenue and higher licensing versus shrink wrap revenue than we expected.

GAAP and pro forma operating expenses for the first quarter of Fiscal 2003 were 194 million.

Regular employees at the end of the first quarter totaled 3,377 versus 3,319 at the end of the fourth quarter of Fiscal 2002.

Expenses as a percent of revenue break down as follows: research and development, 22.2-percent; sales and marketing, 33-percent;

G&A 10.1-percent.

Operating expenses this quarter were within the target ranges set at the outset of the quarter.

Excluding the amortization of goodwill, restructuring and other charges and acquired in process research and development, pro forma operating profit in the first quarter of Fiscal 2003 was 80.5 million, or 21.1-percent of revenue.

This compares to pro forma operating profit of 72.7 million, or 27.1-percent of revenue in the first quarter of Fiscal 2002, and 83.8 million or 28.4-percent of revenue last quarter.

Our operating margin in the first quarter of 2003 exceeded our target range of 25 to 26-percent, due to the higher gross margin.

Other income for the first quarter of Fiscal 2003 was 3.6 million.

Adobe's effective tax rate for the first quarter of Fiscal 2003 was 30-percent, compared to 32-percent in the first quarter of Fiscal 2002 and 32-percent last quarter.

I will now discuss Adobe's revenue by market segment.

Creative Professional segment revenue was 85.8 million in Q1 Fiscal 2003, compared to 87.6 million in Q1 Fiscal 2002 and 86.9 million last quarter.

Digital Imaging and Video segment revenue was 96.2 million in Q1 Fiscal 2003, compared to 83.8 million in Q1 Fiscal 2002 and 101.6 million last quarter.

OEM Post Script and Other segment revenue was 24 million in Q1 Fiscal 2003, compared to 22.5 million in Q1 Fiscal 2002 and 21.8 million last quarter. ePaper Solution segment revenue was 90.9 million in Q1 Fiscal 2003, compared to 74 million in Q1 Fiscal 2002 and 84.4 million last quarter.

With regard to our ePaper business, beginning today and in future quarters, we will provide both desktop and server revenue.

In Q1, total ePaper desktop revenue was 75.5 million, and ePaper server revenue was 15.4 million.

Turning to revenue by geographic segment, the results in Q1 Fiscal 2003 were as follows: the Americas, 49-percent;

Europe, 30-percent;

Asia, 21-percent.

Overall, our business reflected past seasonal patterns across all major geographies, including the typical slowdown during the holidays, followed by seasonal strength in February.

Application platform mix was 74-percent Windows and 26-percent Mac in first quarter of Fiscal 2003, which compares to 73-percent Windows and 27-percent Mac for the first quarter of Fiscal 2002 and 73-percent Windows and 27-percent Mac last quarter.

Our trade DSO in the first quarter of Fiscal 2003 was 41 days, within our targeted range of 40 to 45 days.

This compares to 48 days in Q1 Fiscal 2002 and 36 days last quarter.

Our global channel inventory position continues to be within company policy.

However, due to strong seasonal demand in February, we entered Q2 with a higher level of backlog than past quarters.

At the end of the first quarter of Fiscal 2003, cash and short term investments were 652.7 million, compared to 617.7 million at the end of the fourth quarter of Fiscal 2002.

Turning to Adobe Ventures, we incurred an investment loss of 6.7 million in Q1 Fiscal 2003.

In the quarter, we made additional investments of $2.2 million.

In total, Adobe has invested 216.1 million through its Venture partnerships and direct investments.

As of the end of the first quarter, the net returns from this program were 343.5 million, including the stock dividend into stockholders and the market value of investments still held by Adobe.

In regard to share buy back, Adobe repurchased approximately 1.6 million shares at a cost of 45.2 million during the quarter as part of its ongoing share repurchase program to offset dilution from employee stock programs.

Adobe's Board of Directors declared this quarter's cash dividend of 1.25 cents per share payable on April 7th, 2003 to stockholders on record as of March 24th, 2003.

This concludes my discussion on first quarter Fiscal 2003 results.

I would now like to discuss our Q2 Fiscal 2003 targets.

These targets assume no significant changes in the economy or other factors described in our forward-looking statement disclosure.

The targets also assume the shipment of the new version of Acrobat in English late in the quarter.

We are targeting revenue of 300 to 315 million.

As a percent of revenue, our approximate operating model target for the quarter are as follows: gross margin, 92-percent;

R&D, 21 to 22-percent; sales and marking, 33 to 34-percent;

G&A, 10-percent - resulting in an operating margin target of approximately 26 to 28-percent.

For our share count, we are targeting a range of 238 to 240 million shares.

For other income, we are targeting approximately two to three million, and for our tax rate, we are targeting 30-percent.

These targets lead to a GAAP and pro forma earnings per share target range in Q2 Fiscal 2003 of 24 to 27 cents per share.

This concludes my comments.

I will now turn the call over to Shantanu.

Thanks, Murray.

Before I review our Q1 results, I'd like to spend a few minutes reviewing key elements of our ePaper strategy.

As we outlined at our fall analyst meeting, Adobe is solving a large enterprise problem: the sharing of rich information reliably via the Internet and e-mail; and the automation of document processes by bridging server based transaction systems that run the back office with desktop productivity applications in the front office.

Our strategy leverages the more than half a billion distributed copies of Acrobat Reader across many platforms and the broad standardization we have obtained with the Adobe PDF file format in enterprises and governments around the world.

With the launch of the next version of Acrobat, we intend to significantly grow Adobe's Acrobat desktop business by increasing our penetration into enterprises and governments.

To do this, we are segmenting Acrobat into different products, which will provide a more compelling value proposition to enterprises that wish to standardize on Adobe PDF for all external document communication.

In addition, with the high end version of Acrobat, we can meet the demanding needs of customers, such as creative professionals, architects and engineers, end users who represent additional growth markets for the product.

Beyond Acrobat on the desktop, the other major opportunity with our ePaper business is providing complete solutions for enterprises and government agencies in the areas of document generation, document collaboration and business process management.

Our focus here is on highly regulated businesses, where good enough solutions are not acceptable for the customer.

These markets include large verticals where companies have stringent document requirements, such as high fidelity presenting, always in compliance reliable and secure viewing and multi-platform multi-operating system support.

They include industries such as pharmaceutical, insurance, legal, financial services, manufacturing, aerospace, government and other highly regulated industries.

When compared to what is in the marketplace today, or in the foreseeable future, Adobe provides these customers a unique value proposition based on proven technology.

Turning to our Q1 ePaper results, we are pleased that we had a record revenue quarter with our ePaper segment, driven by both sequential and year-over-year increases in Acrobat Q1 desktop revenue.

It shows that Acrobat and our ePaper value proposition are gaining momentum.

Starting with our desktop business, in Q1 we continued to see significant licensing procurements of Acrobat from major corporations and government institutions.

Deals with greater than 2,500 seats in the quarter, included Bayer, Qwest, Renault, ABB Group, the US Navy and INSEE Direction Generale, which is the National Institute for Statistics and Economic Studies in France.

Our licensing revenue, as a percent of ePaper desktop revenue, grew to 36.7-percent, compared to 30.6-percent last quarter, demonstrating continued penetration into the enterprise.

Turning to our ePaper server business, we had a number of significant deals across many verticals.

In the government market, they include: the Australian taxation office, which is using Adobe Form Solutions to automate forms for electronic filing;

INPS, a large government insurance organization in Italy, which is using Adobe Document Server for reader extensions to eliminate all paper forms this year by making them available in an electronic format; the Eling (ph) council, a government agency in the UK, which is implementing Adobe eForms and workflow to improve customer service and delivery capabilities through self-service Internet-based forms; the State of Hawaii, which is using Adobe Form Solutions to implement a statewide portal for the public to make inquiries about services for people with disabilities; and a number of counties in Northern California, which are implementing an online child support enforcement system using Adobe Forms and Output Server Solutions.

In the enterprise market, key wins with our service solutions included: United Health Services, which is utilizing Adobe Forms and Output Solutions to automate sales reporting functions as part of their CRM system; the St. Vincent Hospital in Alabama, which is using Adobe Forms and Output solutions as part of their large initiative to go paperless;

Polaris Industries, which is using the Adobe Document Server to develop a repository for Polaris dealers to create custom print ads, store merchandising aides and other market materials; and Grey Global Group, the global marketing and advertising company, which is doing PDF, XML and an Adobe Output Server Solution to digitize their invoice and bill processes.

The average of the top 10 ePaper transactions in the first quarter of Fiscal 2003 was $254,000.

Finally, we are currently targeting shipping the English version of Acrobat late in Q2.

Turning to our Digital Imaging and Video segment, we received 15-percent year-over-year revenue growth driven by growth in our Photoshop business and strong Photoshop elements revenue.

While overall Photoshop revenue was up on a year-over-year basis, we experienced a marginal decline on a sequential basis with upgrade revenue declining as expected.

Photoshop Elements continued to see momentum throughout the quarter.

Elements 2.0 Reviews and Awards, which potential customers use as criteria for purchasing decisions, continue to be outstanding.

In Q1, we also shipped the much anticipated Photoshop Album, a new consumer product for organizing and sharing digital photos.

Album extends our Photoshop franchise to millions of digital camera users who need an easy way to find, fix, share and preserve their lifetime of photos.

It has received numerous outstanding reviews and is already being rated number one in its category.

Album just received an Editor's Choice Award and a rare five out of five star rating from "PC Magazine."

It is also currently the best selling software product on Amazon.com.

We continue to extend our leadership position in digital photography.

Our new Photoshop camera raw plug-in allows users to leverage advances in high-end digital cameras, allowing us to unique needs of professional photographers and serious hobbyists.

The highlight in our Creative Professional segment was the performance of InDesign and the Design collection.

During the quarter, we closed additional licensing business with key customers such as: Leo Burnett;

Omnicom Interbrand;

WPP J. Walter Thompson;

Federated Department Stores;

IPG Campbell-Ewald;

IPG Foote, Cone & Belding;

Advil (ph);

The William Carter Company; and La Nacion, which is the largest newspaper in Argentina.

Revenue for these combined products grew 38-percent year-over-year despite a tough compare with Q1 of last year when we shipped InDesign 2.0.

This concludes my Q1 business segment review.

I would now like to turn the call back to Bruce.

Thanks, Shantanu.

At our October financial analyst meeting, we outlined our strategic plan and said we would focus on three key business opportunities: the growth opportunities with Acrobat and ePaper Solutions in the enterprise; extending Adobe's Digital Imaging and Digital Video businesses; and continuing to serve the needs of the Creative Professional customer with enhanced solutions.

Based on our performance in Q1, it is clear that we are executing against this strategy.

Q1 was a great quarter.

We are now entering one of the strongest new product introduction cycles in the company's history.

We are confident that we will continue to execute against our plans.

Mike?

Thanks, Bruce.

Before we start the Q&A session, I would like to announce that our regular interquarter update for the section quarter of Fiscal 2003 will be issued on Wednesday, April 30th, after the market closes.

At this time, our plan is to not have an analyst call or analyst meeting in conjunction with the Q2 interquarter update.

On April 9th, Adobe will hold its annual meeting of stockholders.

Details about the meeting will be made available in proxy material that will soon be distributed to our stockholders.

The information will also be available on the Investor Relations section of Adobe.com.

In Q2, Adobe management will be presenting at several investment conferences in May, including the JP Morgan conference in San Francisco, the Baird conference in Chicago and the Salomon and Piper Jaffray conferences in New York City.

We will make all these conference presentations available via Webcast from Adobe.com.

For those who wish to listen to a playback of today's conference call, an audio recording of the call will be available from Adobe's Investor Relations Web site on Adobe.com later today.

Alternatively, you can listen to a phone replay by calling 402-977-9140; use reservation number 21128622.

Again, the phone number is 402-977-9140, with reservation number 21128622.

The phone playback service will be available beginning at 4:00 Pacific Time today, and again at 4:00 Pacific Time on Monday, March 17th, 2003.

We will now be happy to take your questions.

Operator.

Thank you.

Ladies and gentlemen, if you would like to t register a question, please press the one, followed by the four on your telephone.

You will hear a three-tone prompt to acknowledge you request.

If your question has been answered and you would like to withdraw your registration, please press the one, followed by the three.

If you are using a speakerphone, please lift your handset before entering your request.

One moment, please, for the first question.

The first question is from the line of Gibboney Huske with Credit Suisse First Boston.

Please go ahead.

Thank you very much.

First of all, nice quarter, guys.

It's a tough environment, so - looks pretty good.

My question's really, given your tone on the call, the guidance for Q2 seems pretty conservative.

And I was wondering if you made any assumptions about potential disruptions, just given the geopolitical environment.

And I have a follow-up.

Gibboney, this is Murray.

In terms of the targets for Q2, at this time, we're not assuming any change, really, in the economic picture or the geopolitical situation.

If something were to happen, then we would have to go bang and reassess our targets.

OK.

So there's no embedded conservatism, just given the environment beyond what we've already been experiencing?

That's correct.

This is Bruce, Gibboney.

So, what we said at the last call was that we were assuming relatively stable economic conditions throughout the world, which meant a relatively depressed economic situation throughout the world.

We are anticipating that nothing will change, and that's what we based our target ranges on.

Then if that's the case, at the low end of your guidance basically implies, I mean, very little contribution for an Acrobat upgrade.

Is that anticipating - it sounds like a pretty late shipment date in the quarter.

And maybe you're expecting the majority of that upgrade revenue to come into Q3?

It just looks relatively light, given what you were able to do in Q1.

So, targets this quarter - for Q2, they assume that the - that Acrobat would ship the English version late in the quarter.

And as you know, we have - our conservative channel management practices will be draining the channel in advance (ph) into that - in other words, not shipping into the channel and recognizing revenue.

And as we come in - bring in the next version of Acrobat, it will happen toward the end of the quarter.

And the question will be is we're right now factoring that we're not going to see that - really that sort of second turn that you would normally get in the channel.

And that's what factored into our targets.

So, then you would presume that the majority of that sort of upgrade - that sort of initial (INAUDIBLE) would fall into Q3?

That's a possibility, yes.

Well, I mean, just trying to understand what's - the underlying assumption is to your guidance.

Yes, so - well, clearly, we'll get some revenue in Q2, but because it's shipping late in the quarter, a material piece of the revenue will hit in Q3.

A lot also depends on when do we end up shipping the French and German versions.

If it ships at the very end of the quarter, we suspect that, overall, it won't have any big impact in Q2, which will mean it will impact our Q3 revenue in a positive way.

OK.

And just one final factor - clearly you've said you wanted to invest this year around your enterprise strategy.

Just given the geopolitical situation, are you trying to think about being a little bit more cautious in the spending up front until you see how things play out, or are you just - you know, is there any flexibility to kind of pull back on some of the spending, if things do, in fact, take a turn for the worse?

I think we demonstrated, overall, that if our business - if our revenue looks like it could be off from what we target, that, as a company, we're able to manage our expenses accordingly.

And we've demonstrated time after time that we could adjust pretty quickly.

At this point in time, we are investing as heavily against the enterprise as originally planned.

We believe that even in this tough economic environment that companies and government agencies are looking to reap the investment that they made over the last few years against their enterprise systems.

And one of the best ways to do that is to automate their - or integrate their document processes, both paper and digital, to those back-end systems.

So, no, we are not cutting back on expenditures.

Obviously, if something does change with our revenue outlook, we will.

OK.

Thank you very much.

The next question is from the line of Ben Reitzes with UBS Warburg.

Please go ahead.

Good afternoon, thank you.

Murray, I've been listening to these calls for a while, and I've never heard you - I always hear you say, "Channel inventories in line with policy," and never anything else.

And there was a new comment today that there was quite a bit at the end of the quarter.

Could you explain that, and then maybe talk about if there was any revenue taken from the second quarter into the first quarter at the end there in February?

And then I got a follow-up.

So Ben, as I said earlier, we had a strong February.

In other words, the sell-through was quite strong in the quarter.

And because of that, we received a heightened level of orders from the channel toward the end of the quarter.

And as you know, we have very conservative channel inventory management practices at Adobe, and we're very focused on continuing to manage within our company policy.

So, we also want to make sure that - given that there are these geopolitical risks out there, that we do not put ourselves in a position to have too much inventory out there.

And so, we are being conservative with our channel management practices at this time.

And that's what the point of that sentence was trying to get across.

I mean, was it like a week or two that you tried to work down here the beginning of this quarter or something?

Or is that too granular for you?

Yes, we haven't gotten into specifics on that, and we don't plan on doing that today.

And you know, a lot of this is going to be - depend on what the sell-through looks like now and in the weeks of March in terms of what that way looks like in terms of what we had at the end of the first quarter, but we believe that we've done a good job of managing our channel inventories through the end of the first quarter.

And we'll provide an update of where we stand in April at the interquarter update.

Ben, this is Bruce.

Just to reemphasize the point, February was clearly a stronger month than even we had anticipated.

If you look at our comments during the interquarter, we said we were within the range of 275 to 290; here we are sitting close to 297.

February, as it is, is a seasonally strong month for us; this year was even stronger.

But there's no guarantee that that's going to continue, and we want to be careful about putting too much inventory into the channel, because we think that's the right thing to do and it's always been the right thing to do.

OK.

So Ben, just to follow on that again, the question wasn't about did we - the interpretation shouldn't be that we took revenue from Q2 into Q1.

The question is that we had a lot of orders at the end of Q1 that we have been managing that relative to our channel inventory.

But it's really kind of not what your initial sort of reaction to it.

OK.

And then with regard to Acrobat, maybe I should have known, but this server number looked a little big.

And what has that been running at?

Didn't you guys just release everything, you know, recently as far as your major updates to that line?

And how should we be thinking about that server number as we go forward?

Hi, Ben.

This is Shantanu.

And so, you know, with respect to the server number, the reason why we decided to break up the server number and the desktop number is to really reflect what we've been doing in the enterprise.

So, that's the reason why we're giving that number.

I think the way to look at it is we've really been focusing on how do we provide that compelling value across the three solution areas that we talked about.

And what we've been doing is really taking the existing Accelio products as well as the new Adobe products that we announced and making sure that we subsumed the Accelio functionality within our stuff provide these solutions.

We are seeing some good customer acceptance of these new products; we're seeing successes.

And I think what you should really say is, looking forward, this is a way to measure our server business, as opposed to anything back.

Because anything back was meaningless as we look at, you know, the new server strategy and products moving forward.

A couple of additional points, Ben.

In terms of the server number, if you look at the server revenue quarter-to-quarter, it was relatively flat.

So, it wasn't up, it wasn't down, in any significant way, either way.

In terms of what we've been saying is this is a year in which the foundation gets built, but in terms of significant growth, we've been saying that wouldn't happen until '04 and beyond.

So, this year, we're looking for the most of the revenue growth in ePaper to be around Acrobat desktop products, especially with the launch of Acrobat and the segmentation of that product line.

We'll continue to build the foundation and the infrastructure around the enterprise, and you can begin to see - or we hope to see and expect to see - material increases in that business, '04 and beyond.

So, is enterprise another way of saying the Accelio contribution?

Or I thought there were some new products in there from - you know, launched under the new name as well?

So Ben, the server products are the Accelio servers that we acquired.

But in addition to that, there are servers like the Adobe Document Server that we've talked about, which takes PDF to XML as well as allows other electronic forms of bill presentment as well as statements.

It also includes the Adobe Document Server for Reader extensions that we've talked about and other server products that we have.

So, the way to look at it is really a confluence of what they had as well as what we had in a new server strategy.

OK, thanks.

I appreciate it guys.

Thanks, Ben.

The next question is from the line of Jay Vleeschhouwer with Merrill Lynch.

Please go ahead.

Thanks.

Two questions for you.

First, on the timing of Acrobat, you said on a couple of occasions that it would be late in the quarter.

Historically, it's unusual for you to have a major upgrade as this will be not in the middle of the quarter, as Photoshop has been, five releases of Acrobat and so forth.

So, can you talk about what's going on with development and freezing the code in terms of the timing towards the end of the quarter?

And as well, on Acrobat, can you elaborate on your thinking as to the contributions you would expect from the LE version and the Creative Pro version, since, as you say, the segmentation is unprecedented?

So, I would think that would affect the revenue flow of this particular cycle.

OK.

So, Jay, I'll take the first part of the question.

And you know, we've consistently been saying that we're targeting the Q2 shipment for Acrobat.

And as you know, we don't give specific guidance for time within the quarter, given the nature of what we're doing, which is software business.

And so, as the schedule is firming up now, that's why we were - we have been more specific now about when in the quarter we expect to ship.

With respect to the segmentation and the revenue associated, I think it's early to tell.

We certainly have our models.

But what I would say is, as we look at trying to proliferate elements and look at what the upgrade business - business is, it's going to take a little while before we good give you more guidance on that.

Yes, once we officially announce the product and the - in fact, all three products, once we officially announce them, we'll give you a lot more information in terms of pricing and targeted customer.

But we have not officially announced those products.

But obviously, we want to help you with your model, so we will give you a little more guidance as to when we are actually shipping them or when we believe we will ship them.

Bruce, can you say what the minimum volume requirements are going to be for customers to qualify for the Light version of Acrobat, since, of course, you're not going to be selling that product through the retail channel?

Right.

You are bringing up a good point.

The light version of Acrobat, which we haven't announced the naming against yet, that we have been testing for the last nine months in Europe.

It is designed for those enterprises that are looking for volume purchases.

We had not yet announced, nor do we plan on announcing, the minimum volume requirement until we announce the product itself in the marketplace.

OK.

Also, at your analyst meeting, you changed your customer classification to include at home and at work, in addition to the regular Creative Pro.

Could you talk about any trends you're seeing in those newer classifications?

Do you have any data to suggest trends or demand in those newer categories?

It's hard to provide you with granular numbers on that, because the products end up crossing the different categories.

As you know, a product like Photoshop, while we target the creative professional, our research indicates the majority of the people who buy it are actually not creative professionals, but they tend to be hobbyists or people who are much more influenced by overall brands but they're not creative professionals.

So, no specific research that I could provide you with, other than if you look at something like our Digital Imaging business, and we talked about the reasons for the year-over-year growth, Photoshop Elements was a driver.

And that's a product which has best quarter ever that is targeted at the combination at work/at home customer.

OK.

Thanks, Bruce.

Thanks, Jay.

The next question is from the line of Steve Ashley with Robert W. Baird.

Please go ahead.

Hi, Mike.

Congratulations as well.

Was the budget flush and the demand in Japan as strong as you had expected?

I know last year that business ratio was up 15-percent sequentially; this year, up seven.

Can you comment on that?

Yes, Steve.

We did see the typical budget flush really begin toward the end of January and into February.

And so it's pretty well right on track, what we'd expect.

Again, the budget flush really culminates really with the March year-end.

So, it will continue, and in March if we see the past patterns - and then in April it starts to decline after that.

Yes.

And were you surprised with the Photoshop desktop growing a little bit sequentially?

Had that kind of been your expectation in the period?

I misspoke, Acrobat, with Acrobat desktop growing sequentially in the period?

So, your question then is regarding the Acrobat desktop growth between Q4 and Q1?

Yes, that's right.

Was that a little bit surprising to you?

You know, we were expecting to see good results.

If you go back to the previous release, we saw good growth from Q4 to Q1 in the '00 to Q1 of '01 timeframe.

But we also were pleasantly surprised by just the overall strength we saw globally in our Acrobat desktop product, especially considering the fact that it is fairly well-known, that we've got a new version coming out in the second quarter.

So, it really just shows that we're continuing to get the penetration into the enterprise with these products.

I think it was very encouraging.

Here is a product we hadn't had a major upgrade on for two years had its second best quarter since we shipped the product.

It is something that is a surprise to us.

And also if you just look at the percentage of the business that was licensing, which is a clear indication of our penetration in the enterprise, it is a big improvement even quarter-to-quarter.

If you look at all that, that was a pleasant surprise for us.

And it suggests great things to come.

Just maybe qualitatively, can you give us some sense of maybe what percentage of your ePaper sales force are making their sales quotas?

That's the information we do not disclose.

I can tell you that we continue to monitor that very closely, and for those individuals who are having challenges over a period of time, we have been taking necessary action.

Right.

And just lastly, with respect to Quark, if they go on a normal upgrade cycle when might we expect to see an upgrade from them and what that might mean for you?

I'll take that question, Steve.

I don't think there is anything normal about releases from Quark.

I think there are rumors about a new OS 10 version that might come out soon.

I think in terms of what it means, we've clearly lapped them already in terms of product quality.

And I think if you look at the reviews, if you look at customers, we believe that's the case.

Certainly, every time Quark upgrades, we actually think it's an opportunity, because people have to make a transition.

And as you know, we've stated it's been our goal for people making a transition to make sure that we win that account.

And I think we've been successful in that regard.

Terrific.

Thanks, guys.

If you look at new unit sales according to the MPD (ph) data in the US, we have been winning that transition battle, at least as far as new units.

It will be interesting to see when they introduce the OS 10 version; what it does.

It will certainly help customers make a decision.

We believe by having a better product and momentum behind us that that could potentially be in our favor.

I think one of the other pieces of momentum just - Steve, is the fact that, you know, we said we had 38-percent growth year-over-year between InDesign and the Design collection.

Great, thanks.

Let's move on to the next person.

Thanks.

The next question is from the line of Craig Ellis with Salomon Smith Barney.

Please go ahead.

OK, thank you, and some clarifications to begin.

It sounded like the quarter's upside was driven by February, but in terms of products, was it Acrobat or what other specific products were driving the upside that you saw versus initial guidance?

Craig, in terms of the quarter, we had stated on January 30th on our interquarter update that we were on track for the quarter.

So, we would say that December and January were right on track, and then we had a stronger February.

So, February was very important, but the quarter wasn't all about February.

December and January also, you know, good months for us.

In terms of the products, clearly ePaper did very well, being it was a record quarter and second best ever on the desktop with Acrobat.

We also saw very strong results in the design collection, in InDesign as we stated;

Photoshop Elements had its best quarter ever.

So, there were a number of products that did very well for us in Q1.

And were you seeing anything that would cause a real robust demand despite such a weak overall economic climate, such as slower pricing that might give people additional incentive to come out - or what do you attribute the real strength to?

I'd like to think, this is - Craig, this is Bruce.

I'd like to think it has to do with having great products that are able to provide real value to our customers.

I also believe, as an organization, we are executing better today than ever before.

OK.

And then, looking at the quarter's guidance, are there any new refreshes that are expected other than Acrobat?

Nothing of a material nature.

Certainly, you know, we'll do dot-releases here and there, but nothing that's material.

OK, thanks.

We'll also have - with the Photoshop album product, we'll have the non-English version shipping in the second quarter.

Again, it's gotten off to a very good start in the first quarter, and we're looking to driving that product into the markets around the world.

OK.

Thanks, guys.

The next question is from the line of Solin Cho with Morgan Stanley.

Please go ahead.

Hi.

Thank you.

Just a few questions.

Just first, to clarify, in terms of the server revenues, the 15 million that you posted in the first quarter, is that - did you say that was a reasonable run rate expectation for the rest of the year, reasonable to conservative, or is that number going to bounce around a bit?

I think what you'll see is that number probably bouncing around a bit.

A lot will depend on both seasonality as well as ramping.

I think what you'll see is - you'll see probably a seasonal downtick in the Q3 timeframe is my guess today.

Because - especially if you look at out (ph) Q3 being right in the heart of summer, spending does go down.

And I suspect by Q4, the combination of the seasonality along with, at that time, the majority of our salespeople will be performing as what we would consider 100-percent.

So, I would look for growth especially in the Q4 timeframe.

OK, great.

And then, as it relates to the forms and solutions initiative - or aspect of the Acrobat business, some people have recognized - and I think you guys have also acknowledged - that one of the challenges - or a key challenge that Adobe faces is one of marketing and just perception to the enterprise.

And you guys have certainly done a great job, as the statistics show, in terms of percent licensing revenues and so forth.

But can you elaborate a little bit more in terms of the things you're doing to try to improve the perception and the marketing aspect of getting in the door with a lot of these enterprises who, maybe historically, haven't associated you with some of these solutions?

Yes.

First of all, the things we started doing a year ago are beginning to pay off, moving more than 60-percent of our sales organization to have them focus against the ePaper opportunity and training them effectively, has made a difference.

We - as we stated earlier, we inherited a relationship with Accenture, and we continue to work at deepening that relationship.

We will also hopefully be making some announcement of additional system integrator relationships when we announce Acrobat - or the launch of Acrobat.

Additionally, we talked about partnering with QISBs (ph), our independent software vendors, especially those that can help us provide a complete solution.

We announced what we did with SAP, we talked about some relationships - initial relationships with Documentum and OpenText, and you can expect us to announce additional relationships again when we announce the Acrobat product.

Fortunately, what's happening in this environment, big solid companies - software companies like Adobe are getting the attention from CIOs.

When I go knocking on doors, they understand who we are, our brand and more than ever, they appreciate the value proposition around the free Adobe Viewer or the free Acrobat Reader along with what we've been able to accomplish with PDF as a file format.

We've also spent some time, Solin, with analysts.

And clearly, you're starting to see analysts talk about the document problem in enterprises.

And finally, I would say government standardization, heavy focus has been on standardizing PDF, and you know, governments look worldwide to see what solutions are being effective.

And then, there's all the basic - what we call marketing programs.

For instance, we are currently in a seminar series with Accenture and Forester Research and other types of events like that.

We're out conducting seminars, using our newly trained sales organization with our partners, and even those independent research firms to help the IT professionals understand the value that we offer.

The other thing that we are doing as we gain momentum and success, similar to the examples that Shantanu talked about today, we're sharing them with other customers because these are solutions that are clearly repeatable.

OK, great.

And then just one other question, in terms of targeted hirings and just the overall reorganization of the sales force, you've taken a big charge in the fourth quarter to reorganize, I guess, the marketing, sales and aspects of R&D and bring on some new people.

Where are you relative to your target for hiring so far this year?

Solin, we hired well over 100 employees in the first quarter.

We had some attrition related to just finishing up the programs that we launched in Q4 around the restructuring.

So, we've made a number of very solid hires in the fourth quarter.

We still have some hires to go; we'll continue to focus on that.

But we feel good about what we've been able to accomplish in the first quarter.

This is a great hiring environment.

It used to be the challenge was trying to find great candidates.

We now - the biggest challenge we have now is choosing between those great candidates.

As we just take a look at the operating expense run rate, then, you did 194 total op ex in the first quarter.

Adjusting for, you know, the variable aspect of the revenues, should we assume that the six portion stays relatively at these levels given or take, or is there still quite a bit of hiring to be done?

We still have some more hiring to do, and then there will also be obviously a variable side.

For example, in the second quarter, we have obviously an increase in marketing and spending coming associated with the launch of Acrobat.

So, we will have - given the rich product cycle that we have this year, there will be more variable spending and there will still be some more fixed spending in the sense we've got some more hiring that we want to do to build out our organization.

OK, great.

Thank you.

The next question is from the line of Steve Jue with RBC Capital Markets.

Please go ahead.

Thanks.

Let me echo my congratulations as well, guys, on the quarter.

Thank you.

Just looking - drilling down a little bit more on the desktop Acrobat business, you know, it was a good quarter out of that.

In terms of maybe shrink wrap versus the enterprise licensing, was the enterprise the upside in that category?

Well, first of all, we had mentioned that the overall licensing business was about 37-percent.

So, it was up from 30-percent in the previous quarter, so we had real strength in licensing.

But also on the shrink wrap side, we had good strength and sell-through.

OK, great.

And then, are you starting to see as you begin (ph) to build some of the enterprise licensing pipeline, any specific verticals that are early adopters in the technology?

Yes, I think, you know, the highly regulated industries that we've talked about, certainly financial, government, process, manufacturing, but in addition to that, pharmaceutical, legal, we continue to see wins.

I would say financial and government are probably the two strongest verticals at this point.

And then, you talked a little bit about the top 10 ePaper transactions.

Were most of those enterprise wide, or just still some additional up sell opportunities with seats (ph) and the servers?

I think with each one of those we will continue to have opportunities to sell within each of those enterprises.

But what's exciting for us is if you look at the size of those transactions, it represents significant value proposition from Adobe into those enterprises.

What happens - if you look into a large organization, take a typical bank, you apply one application genes very targeted problem.

So, it could be, you work with the bank on a mortgage application, and that could be a $250,000 revenue for us.

And then they say, "Gee, well, we've done mortgage applications, maybe we should take another loan application and streamline that process."

So, once we get in, the opportunities become enormous.

And were you finding the server products involved in all those types of transactions?

Yes.

Yes.

Those were all - all the - every example that Shantanu gave were all server based.

So, he broke them out, desktop and server.

OK, great.

Thanks.

The next question is from the line of Gene Munster with US Bancorp Piper Jaffray.

Please go ahead.

Good afternoon.

If you could give a little bit of color and commentary regarding the backlog, I think you mentioned that you saw strong seasonal demand in Q1 was higher backlog.

But anything - can you give us any sort of color in terms of that?

Was it stronger in any of the last four quarters, or any sort of percentage change?

That would be helpful.

Yes, Gene.

The month of February, we definitely saw quite strong sell-through and allowed us to push above the high end of our range in revenues.

We saw very strong sell-through, and in response to that, we saw a heightened level of orders coming in from the channel.

So, we finished the quarter very strongly and with a very solid backlog as we go into the second quarter.

And to answer specifically your question, Gene, it was higher than we've experienced historically.

OK.

Thank you.

The next question is from the line of Keith Gay with Thomas Weisel Partners.

Please go ahead.

Good afternoon, and congratulations, also.

My question relates to InfoPath and XDocs, which I know you get a lot of questions on, but can you comment on your Acrobat Light proliferation strategy?

It seems if you look at Light and XDocs, both of you are looking - and the end game is tying together the front-end, whether it be PDF or Forms or Office, to back-end databases and other applications.

And my question is, therefore, to what extent is Light viewed as a revenue generator versus a strategy to proliferate on the front-end so then that will drive the rest of your ePaper business?

Keith, it's really comparing apples and oranges.

If you want to compare InfoPath to something, you want to compare it to the more than half a billion Acrobat Readers or Adobe Viewers that are out there.

So, the idea of the Acrobat Light product is not about competing with InfoPath or what used to be called XDocs, because we already compete very effectively.

In fact, we have something that has been adopted around the world, something that is a de facto standardization in just about every government around the world - government agency around the world.

And most organizations that care about reliable presentation of the information, especially in environments that they control, are already dependent on the Adobe Viewer, the Adobe Reader, Acrobat Reader and PDF.

The Acrobat Light product is more about trying to - today, we said - I think it was last quarter or the quarter before, we said we shipped about 10 million Acrobat desktop units to date - or nine million, I'm seeing all kinds of numbers coming up around here - but somewhere between nine and 10 million units of Acrobat.

We say there's 175 million - we didn't say it, Microsoft said there was 175 million paid owners of Microsoft Office.

We believe that many of those 165 million people who haven't bought Acrobat have a requirement for reliable document exchange and reliable document posting.

So, we believe that the Light product, especially for enterprises, will allow us to penetrate some of those 165 million owners that we haven't penetrated today - much different than InfoPath versus the Acrobat Reader.

OK.

So, Light is more of a - revenue generator.

And then, I guess that would be my next question, with ePaper, then, you're talking about your strategy is to go vertical.

And it sounds like - so we're getting, you know, more in the eForms area.

If that becomes, you know, a low end eForm type of product, it seems like Adobe's strategy, then, would be to get into more complex verticals more quickly and to get there first before some other eForm product, whether it be XDocs or InfoPath, eventually gets into some of those verticals.

I think, Keith, as we said, once we get PDF Generation, which we think is a universal value proposition within these enterprises, there are multiple things that we can then do to, whether it's the individual users or to the entire enterprise to up sell and to provide them solutions.

Certainly, I think, as it relates to users, then, whether it's digital signatures, whether it is collaboration, whether it's forms and they're automating their business processes, we have a number of different solutions.

And you will - identified the document generation, document collaboration and document based process management as the three solutions.

We believe all those three are really horizontal solutions, having most applicability in the vertical markets that we talked about where you know that differentiation and good enough is not good enough.

So again, the strategy is to get PDF be adopted widely, make sure it's standardized, have our roots be deep and continue to provide more compelling value-add on top of that PDF that's out there.

OK.

And then, just quickly, Acrobat Light there, do you expect that to be released in the second quarter with the - will all of those products, in English version, be in the second quarter?

Keith, we haven't announced anything specifically.

Clearly, one would probably anticipate - we'd probably want to announce all three products at the same time.

But I don't want to preannounce what we haven't announced.

OK, thanks a lot.

Thanks, Keith.

The next question is from the line of Scott Kessler with Standard & Poor's.

Please go ahead.

Thanks very much.

First of all, good quarter.

Two questions.

The first is can you provide thoughts regarding specific geographies in terms of areas of strength and weakness?

And secondly, can you talk about how your relationships are going with some of the content management companies that you mentioned, like Documentum and OpenText?

Thanks a lot.

Well, Scott, in regards to geoperformance, first of all, I think that if you look in the Americas, we had a real strength in Q1 relative to a year ago and close to 20-percent growth, given the fact that, a year ago, we had a number of products being shipped for the new versions of products like InDesign and GoLive, et cetera.

So, we saw real strength in the Americas on a year-over-year basis.

Also saw similar results in Europe.

Asia, it wasn't as strong.

We were actually down year-over-year, as Japan is much weaker than it was a year ago in the first quarter.

So, real strength in the US, you know, good strength in Europe on a year-over-year basis, and then Asia was down primarily because of Japan.

So, with respect to your other question about content management providers, let me first articulate what the value proposition is for Adobe working with them.

And it's really in at least three different areas.

The first area is one of all these content management providers would like to standardize on a format, archival, of assets within them.

And you know, in that sense, they look at PDF as a great way to store data within those content management systems.

The second is they do need a forms front-end to run these content management work flows.

And they also look at our technology as being able to front-end, once they have these large content management within these regulated industries.

And third is for collaboration, as they continue to provide deep collaboration, they want Acrobat as the front-end platform that interfaces seamlessly with those back-end content management solutions.

So, we're working with them to have an Adobe PDF for archival standard.

So, OpenText and Documentum, all of them look at it and there is a lot of synergy there.

The one other area of synergy, with Documentum in particular, is that Documentum's getting more into the creative professional space with their media serving, they've also been licensing our Adobe Graphics Server and seeing some wins, as it relates to allowing for the automation of content production of graphic assets.

So, we think that OpenText and Documentum are good partnerships.

You can expect to see more such partnerships with other document content providers.

Great.

Thanks a lot.

The next question is from the line of Bill Lennan with WR Hambrecht.

Please go ahead.

OK.

Thank you very much.

I have two fast ones and maybe a third.

I want to go at this Acrobat release date just one more time in a different way.

Can you remind us what the shipping dates were back on the last version, maybe do an overlay, like this version, the English language version, will be a week later than last time;

French and German versions will be on the same date; maybe if you could do it that way, it would be helpful.

Secondly, you've said in the past that - to all of us that historic release cycles are a good guide as to when new versions will be coming out.

Does that still hold true for Illustrator and Photoshop, or has something changed there where they might be pushed out a little bit?

And then finally, if you can give a little more color on Europe.

I know Europe is strong, but the news out of Germany seems to be awful every time I look at the tape.

And I guess a little more color as to why Europe is strong despite macroeconomic news that seems to the contrary.

Thank you.

So, Murray, why don't you take the Acrobat question, and Shantanu, why don't you talk about the release cycle question.

So, in 2001, the last version of Acrobat shipped - English started shipping in the sort of mid April timeframe.

And then the localized versions followed up the major language toward the end of May.

So, with the English version this time that we stated later in the quarter, it's a little bit different than it was in the past cycle.

In regards to - into Europe - in Europe, we've had good performance this quarter.

Understand that in Germany, for example, it's been a lot of things there in terms of the economy.

But the overall performance that we had there was pretty good for us this quarter.

In a number of markets, we've done pretty well in Q1.

Again, a lot of success around Acrobat and in Digital Imaging around Photoshop Elements.

Real success with InDesign and Design Collection as well as we continue to take market share.

So, we've done well there like we have in the US, with a number of our products despite the economic challenges.

Bill, if you look at the market drivers for our business, the digital camera growth or the movement to digital photography is a worldwide phenomena, and that includes Europe.

And that's certainly helping our Digital Imaging business.

If you look at the adoption of InDesign, there have been many European publishers that have already made the switch from Quark to InDesign and that's fueling our success there, probably at an even higher rate than what we're experiencing in the US today.

And then clearly, the ePaper opportunity.

If you think about the industry that we're focused on, highly regulated industries, manufacturing, those that have to do a lot of business with government, more traditional institutions, that is clearly a strength of the European business community - or of the profile of the European business community.

So, that's also helping us.

So, having a strong European business, despite the fact that a lot of people are experiencing weakness, shouldn't be that much of a surprise.

With respect to your final question, on the Photoshop what we have stated is that for - to think about it as a Q4/Q1 release, and nothing has changed with respect to that statement.

And for Illustrator, we have not made any announcement.

To answer your question, I would still use as a rule of thumb the historical behavior.

Of course, history won't necessarily predict the future, but that is a good indicator.

And again, it's used typically in the 15 to 18-month cycle for those products; we've been on a two-year cycle with Acrobat.

OK.

Thank you.

And very solid results.

Congratulations.

Thank you.

The next question is from the line of Steve Frankel with Adams, Harkness & Hill.

Please go ahead.

I just wanted to dig in to the enterprise strength on the desktop on Acrobat.

Obviously, you're doing a great job penetrating there.

Do those customers ask for or pay for upgrade protection, or they're interested in deploying 5.0 and they'll come back for upgrades sometime later next year?

We'll see a mix of both on that.

Some will provide - buy maintenance from us which provides upgrade to the next version and others don't.

It's a real mix.

In the licensing arena, probably many of them haven't done that - that have done it through like a transaction licensing type of program versus a more contractual licensing program.

So, we see - we see both, but probably it's more of them are not doing it by maintenance.

So, they have not contractually committed to the upgrade.

And Steve, keep in mind that if you just look at the installed base, the bulk of the installed base was not through licensing.

It's only recently that lining has become a bigger piece of our business.

And obviously we still look at the ePaper business as about new seats, but given the fact that many of the customers have not gone the route of maintenance gives us an opportunity to go back in and try to install the upgrade with the new features and functionality that we're bringing to the market.

OK.

And then, do you typically do a 30-day upgrade protection at retail for the new versions - or with your corporate sales as we get closer to the release date?

We have a program to provide a free upgrade, but it's not necessarily specific to any particular date and time.

It will only depend upon that particular product launch activity, and it could be 30 days, it could be longer, it could be shorter.

So, it really depends on that particular launch effort.

I think what's important, Steve, is - and Murray will correct me if I'm wrong, I'm sure - this has not been a material in terms of the cost of providing those upgrades.

If you look at the cost of goods in providing somebody an upgrade, it's not a significant expense to Adobe.

So, anybody that is entitled to a free upgrade, we provide it to them, and we're pretty reasonable with the customer.

This is the practice that we've been doing for many, many years.

Including we defer revenue with this future obligation.

So, we defer revenue in anticipation of that program as well as the cost, as Bruce stated, are pretty diminimous.

Great.

I just wanted to make sure there weren't barriers that would cause people to wait until the end of the quarter.

It sounds like there's no reason not to - if you're not interested in upgrading, to keep buying the product right up until the release date.

Yes.

I think the pleasant surprise, Steve, even though many of our customers already know what we're doing with Acrobat, given that we announced it to both the financial community and many members of the press and the public, how good Q1 was is an indicator or belief that Acrobat revenue will continue to be strong through Q2.

Great.

Thank you.

Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four.

The next question is from the line of Jay Vleeschhouwer.

Please go ahead with your follow up question.

Thanks a lot.

Bruce and Shantanu, you have mentioned among your targets for Acrobat both the manufacturing sector and I think you even mentioned architects and engineers.

So, does that suggest that for instance part of your market development for Acrobat, you might have some closer working relationship with companies like Autodesk and others in the CAD software market?

So, for instance - because they're obviously well penetrated already in the document intensive parts of the manufacturing markets.

And secondly, you've mentioned strength for Design Collection.

Can you comment at all on any momentum for the other smaller bundles as well?

So, Jay, with respect to the first question, you're absolutely right.

We think there's a great target for people in the engineering community as well as in Autodesk customers, et cetera, to be using Acrobat to be sharing these documents once they've created it, so that the whole process of architecture, design, procurement, in fact, also can be facilitated through a collaboration with them.

So, that's certainly something we're working on.

You could probably see or probably suspect that, when we launch Acrobat, that there could be some announcements with some partnerships in that area announced at the same time.

On the collection site, certainly with the Digital Video Collection, also, we continue to see people move to the Video Collection as a mechanism to get premiere and aftereffects.

And Jay, just one more comment on the Collections.

I think what you're seeing is, is that we have a strategy to move customers from PageMaker and the Publishing Collection to InDesign and the Design Collection, and we've been very successful in that migration.

So, the Design Collection is growing very rapidly; the Publishing Collection has come down some.

That has been part of our strategy, try to move customers over to the Design Collection.

The Digital Video Collection, we're also seeing that that is doing relatively well.

Many customers are choosing to buy through the Digital Video Collection as opposed to the point products.

And that's really the primary focus.

But the number one collection we are focused on is the Design Collection.

Clearly, the Video Collection will become more important to us as we introduce the new Video products later on in the year.

OK.

I assume that if you have an Illustrator upgrade in, let's say the third quarter, you would also have the collections for that reason, too?

Again, we haven't made any plans at this time.

Also, Jay, you know ...

Any announced - we certainly haven't made any announcements.

Also look at the fact that, as you continue to - you know, if you have upgrades on some of the point products that are in the collections, you've got to be careful that you don't have too many collections coming out and changing every number of weeks and really making it a difficult demand to challenge and confuse the customer.

So, we look at that as part of our collections strategies.

Well, on the other hand, there seems to be a growing trend of volume licensing of - at least the Design Collection, too, just as you've seen for Acrobat.

Yes.

OK.

Thanks, Jay.

Thank you.

There are no further questions at this time.

Please continue.

Well, this concludes our call for today, and we thank everybody for joining us.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.