Adobe Inc (ADBE) 2004 Q1 法說會逐字稿

Welcome to the Adobe Systems Q1 fiscal 2004 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 star then the number 1 on your telephone.

If you would like to withdraw your question, press the pound key on your telephone.

As a reminder, this conference is being recorded Thursday, March 18, 2004.

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

Please go ahead, sir.

Thank you.

Good afternoon.

Thank you for joining us today.

Joining me on the call are Bruce Chizen, our President and CEO;

Murray Demo, Senior Vice President and CFO; and Shantanu Narayen, Executive Vice President of Worldwide Products.

In the call today we will discuss Adobe's first quarter fiscal 2004 financial results.

By now, you should have a copy of our earnings press release, which crossed the wire about 45 minutes ago.

If you need a copy of the press release, you can go to adobe.com under the company and press links and find 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 for the coming quarter and our forward-looking product plans, 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 Adobe's SEC filings, including our annual report on Form 10-K for fiscal 2003 and our quarterly reports on Form 10-Q in fiscal 2004.

During this call, we will discuss non-GAAP financial measures.

The GAAP financial measures that correspond to non-GAAP financial measures, as well as the reconciliation between the two, are set forth in our press release issued today and are also available on our website.

Call participants are advised that the audio of this conference call is being broadcast live over the internet and is also being recorded for playback purposes.

The audio of the call will be archived on Adobe's investor relations website for approximately 45 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 would now like to turn the call over to Bruce.

Thank you, Mike.

I'm pleased to report that our financial performance in the first quarter of fiscal 2004 continues the growth trends we achieved in 2003.

For the second quarter in a row, we are reporting record revenue.

In Q1, revenue was $423.3 million, representing 43% year-over-year growth, which led to record earnings.

This performance highlights the increasing importance of Adobe's technology platforms to creative professionals and enterprises worldwide.

Our platform strategy is resonating with our customers and driving strong revenue growth.

As a result of the momentum in our business, and the solid demand across our major geographies, we're announcing today that we are raising our full-year financial targets.

I'll now turn it over to Murray for a review of our financial results, then Shantanu, who will provide business unit highlights.

Murray?

Thanks, Bruce.

For the first quarter of fiscal 2004, Adobe achieved revenue of $423.3 million.

This compares to $296.9 million reported for the first quarter of fiscal 2003 and $358.6 million reported last quarter.

GAAP net income for the first quarter of fiscal 2004 was $123 million, compared to $54.2 million reported in the first quarter of fiscal 2003 and $83.3 million last quarter.

Non-GAAP net income, which excludes, as applicable, a partial reversal of prior restructuring charges and investment gains and losses from the Company's venture program, was $123.8 million, compared to $58.9 million reported in the first quarter of fiscal 2003 and $83 million last quarter.

GAAP diluted earnings per share for the first quarter of fiscal 2004 were 50 cents, based on 246.1 million weighted average shares.

This compares with GAAP diluted earnings per share of 23 cents, reported in the first quarter of fiscal 2003, based on 235.3 million weighted average shares, and GAAP diluted earnings per share of 34 cents reported last quarter based on 245.5 million weighted average shares.

Non-GAAP diluted earnings per share for the first quarter of fiscal 2004, which excludes investment gains and losses, also were 50 cents.

Gross margin for the quarter was 94.3%, compared to 92.5% in the first quarter of fiscal 2003 and 93% last quarter.

The higher gross margin was due to product mix.

Operating expenses for the first quarter of fiscal 2004 were $235.8 million.

Regular employees at the end of the first quarter totaled 3,518 versus 3,515 at the end of the fourth quarter of fiscal 2003.

Expenses as a percent of revenue breaks down as follows: Research and development, 17.7%; sales and marketing, 30.1%;

G&A, 7.9%.

GAAP operating income in the first quarter of fiscal 2004 was $163.3 million or 38.6% of revenue.

This compares to GAAP operating income of $80.5 million or 27.1% of revenue in the first quarter of fiscal 2003, and $115.3 million or 32.1% of revenue last quarter.

Non-GAAP operating income in the first quarter of fiscal 2004 was $163.3 million or 38.6% of revenue.

This compares to non-GAAP operating income of $80.5 million or 27.1% of revenue in the first quarter of fiscal 2003, and $115.2 million or 32.1% of revenue last quarter, which excludes a minor reversal of prior restructuring charges.

The higher operating market in Q1 was due to the combination of higher revenues untargeted and our leveraged operating model.

Other income for the first quarter of fiscal 2004 was $4 million.

Adobe's effective tax rate for the first quarter of fiscal 2004 was 26%, compared to 30% in the first quarter of fiscal 2003 and 30% last quarter.

The lower tax rate was due to higher international profits than targeted in Q1 and higher anticipated international profits for full-year fiscal 2004.

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

Creative Professional segment revenue was $158.1 million in Q1 fiscal 2004, compared to $85.8 million in Q1 fiscal 2003 and $107 million last quarter.

Higher creative professional revenue was driven by the Creative Suites and Illustrator.

Digital Imaging and Video segment revenue was $113.5 million in Q1 fiscal 2004, compared to $96.2 million in Q1 fiscal 2003 and $112.6 million last quarter.

As we communicated at our analyst meeting last October, we expected some customers to purchase the Creative Suite rather than stand-alone CS products.

Our Q1 results reflect this shift.

Some historic Photoshop revenue, which previously would have been reported in the Digital Imaging and Video Segment, is reflected as Creative Suite revenue in the creative professional segment.

OEM PostScript and other segment revenue was $21.4 million in Q1 fiscal 2004 compared to $24 million in Q1 fiscal 2003 and $20.8 million last quarter.

Intelligent Document segment revenue was $130.3 million in Q1 fiscal 2004, compared to $90.9 million in Q1 fiscal 2003 and $118.1 million last quarter.

In Q1, total Intelligent Documents Desktop revenue was $109 million, representing year-over-year growth of 45%.

Intelligent Document Server revenue grew sequentially from $19.5 million in Q4 fiscal 2003 to $21.3 million in Q1 fiscal 2004, demonstrating continued momentum in the enterprise.

Turning to revenue by geographic segment, the results in Q4 fiscal 2003 were as follows: The Americas, 43%;

Europe, 34%;

Asia, 23%.

In reviewing our performance for Q1, we experienced solid demand across all of our major geographic markets.

Application platform mix was 71% Windows and 29% Mac in the first quarter of fiscal 2004, which compares to 74% Windows and 26% Mac for the first quarter of fiscal 2003 and 73% Windows and 27% Mac last quarter.

Our trade DSO in the first quarter of fiscal 2004 was 28 days.

This compares to 41 days in Q1 fiscal 2003 and 37 days last quarter.

DSO was lower this quarter due to the CS launch in Europe and Japan early in the quarter and the strong collections of our English language products that shipped late in Q4.

In regard to our global channel inventory position, we ended the quarter below company policy.

Despite stronger-than-typical backlog of channel orders at the end of Q1, we elected to take a more prudent approach regarding channel inventory levels.

We made this decision due to the lack of history associated with the sell-through of the new creative suites, combined with historically soft seasonal demand in the spring.

At the end of the first quarter of fiscal 2004, cash and short-term investments were $1,249,000,000 compared to $1,097,000,000 at the end of the fourth quarter of fiscal 2003.

Turning to Adobe Ventures, we realized an investment loss of $1 million in Q1 fiscal 2004.

In the quarter, we made additional investments of $1.7 million.

In total, Adobe has invested $223.7 million through its venture partnerships and direct investments.

As of the end of the first quarter, the net returns from this program were $347.1 million, including the stock dividend to the stock holders and the market value of investments still held by Adobe.

In regard to share buyback, Adobe repurchased approximately 1.3 million shares in Q1 at a cost of $55.6 million as part of its share repurchase programs.

Adobe's Board of Directors declared this quarter's cash dividend of 1.25 cents per share payable on April 13, 2004, to stockholders of record as of March 30, 2004.

This concludes my discussion on first quarter fiscal 2004 results.

Now, I will discuss our Q2 fiscal 2004 targets.

As a reminder, Q1 was 14 weeks in length due to our 52/53-week accounting year.

In Q2, the quarter is 13 weeks.

And this reduction of one week must be considered when comparing our Q1 revenue with our Q2 targets.

We are targeting revenue of $365 million to $385 million.

As a percent of revenue, our approximate operating margin targets for the quarter are as follows: gross margin, 93% to 94%.

R&D, 19% to 20%.

Sales and marketing, 32% to 34%.

G&A, 9% to 10%.

Resulting in a GAAP and non-GAAP operating margin target of approximately 30% to 33%.

For our share count, we are targeting a range of 247 to 249 million shares.

For other income, we are targeting approximately $3 million to $4 million and for our tax rate, we are targeting 26%.

These targets lead to a GAAP and non-GAAP earnings-per-share target range in Q2 fiscal 2004 of 33 cents to 39 cents per share.

For fiscal year 2004, we are increasing our annual revenue target to a range of $1.475 billion to $1.5 billion, and our annual operating margin target to a range of 31% to 32%.

Based on these ranges, we are targeting GAAP and non-GAAP earnings per share at $1.40 to $1.46 for the year.

We currently believe that targeted non-GAAP results will not differ materially from targeted GAAP results. .

This concludes my comments.

I will now turn the call over to Shantanu Narayen.

Thanks, Murray.

I'll take the next few minutes reviewing highlights in each of our major businesses, starting with Intelligent Documents.

In Q1, we achieved Acrobat Desktop revenue of $109 million.

This is the fourth quarter in a row of outstanding performance for Acrobat 6.

The mix between Acrobat Standard and Acrobat Professional revenue continued at approximately a 2:1 ratio consistent with our expectations.

In addition, Acrobat Elements continues to be successful in driving receipt penetration.

This has helped expand the total number of full Acrobat licenses to approximately 14 million desktops.

Overall, intelligent documents desktop licensing as a percent of the total Desktop business was 45.2%.

In summary, we are pleased with the success of Acrobat 6 to date, and believe the momentum will continue.

Our success in the enterprise also extends to our server-based business, where we, again, had both sequential and year-over-year revenue growth.

Intelligent Document Server revenue grew to $21.3 million, representing 38% year-over-year growth.

Driving this performance were a number of significant wins.

In the government market they include the U.S.

Department of Labor, which is using Adobe Reader Extension Server and Adobe Document Server to make workers comp and union forms available on their website.

The Ministry of Finance in Belgium, which is utilizing Adobe Reader Extension Server to administer their tax forms processing on line.

Lombardia Infomatica in Italy, which has licensed the Adobe Document server and the Adobe Reader extension server to implement e-government, G2C and G2G initiatives.

The Pennsylvania Department of Public Welfare, which will use Adobe output and e-form solutions to move their medical forms online in order to streamline and speed up the process of requesting services and paying service providers.

In the commercial market, key wins with our server solutions included Wells Fargo Bank, which is globally deploying the use of Reader Extension Server to enable the use of electronic forms, digital signatures and electronic document distribution in PDF with their clients and employees.

Lloyds DFB Bank in the UK which, is using Reader Extension Server to implement e-forms for their private banking financial advisor network.

Pfizer which is using Adobe Output Server as their standard for publishing documents from their Oracle financial system.

Discovery Insurance, which is using an output service solution to print insurance policies and documents via the web for their independent agents.

In regard to the key quarterly performance indicators that we report, in the first quarter, the number of Enterprise Server transactions greater than $50,000 totaled 29.

The average size of these transactions was $205,000.

In Q1, we made several strategic product announcements that will enhance our Intelligent Document platform.

First, we announced Adobe Policy Server, our new document-controlled solution that will enable enterprises to manage document usage and access policies.

With Policy Server, companies can implement consumer privacy and security measures on electronic documents they distribute or limit who can read and open a confidential document, thereby eliminating the worry it might be sent to unauthorized users.

Policies on documents can also be changed without having to redistribute previously-published electronic documents.

For example, a document also can revoke access privileges to a file they previously distributed.

Policy Server leverages the broad base of Adobe Readers.

Pilots will begin this summer with commercial availability scheduled by the end of the year.

Last week at the AIMM Show in New York City, we announced new technology around 2-D bar code scanning.

Our solution, Mining Data Release (phonetic) will enable more automated processing of paper and electronic forms.

Home designers can create forms using Acrobat which dynamically encode data.

Users enter into the form into a 2-D bar code that is automatically built and displayed on the form.

When the form is submitted, either in print or electronic format, the recipient of the form can simply scan the bar code to access and accurately enter the form's data into their back-end systems.

This represents significant potential cost savings for government agencies and enterprises which rely on paper-based forms as a means to do business.

The bar-code-enabled forms will be made publicly available by the end of the current calendar year through Adobe's Silver product line.

Pricing for both Policy Server and the new bar code solution will be announced when we make the products available later in 2004.

Our Intelligent Document Platform vision is gaining acceptance with industry analysts who are an important influence in customer purchases.

For example, in February, Gartner Research commented on the emerging e-forms market.

In their report about Microsoft's InfoPath product, Gartner stated, quote, "Adobe's XML strategy for the enterprise may result in more complete end-to-end process automation for the most important consumer-facing vertical application.

Microsoft's Info Path, Sharepoint and BizTalk simply don't have the horsepower yet to compete against Adobe's server set for document design, composition, output management, integration, delivery, transformation, collaboration, presentation, and security."

Turning to our Creative Professional and Digital Imaging Video business segments, we had an outstanding quarter, driven by the continued success of the Adobe Creative Suite and the major new versions of Photoshop, Illustrator, InDesign and GoLive.

While it's still early in the CS launch and we have generated record revenue, we can provide these additional observations.

Revenue for stand-alone Photoshop, Illustrator and InDesign exceeded our expectations.

Our Creative Suite revenue significantly exceeded any prior quarter collection's revenue.

We have seen a revenue split of approximately 3:1 in favor of the premium creative suite versus the standard version.

We believe many customers are still in the CS product evaluation phase for the following reasons.

First, the new CS version designator initially created confusion with many customers.

Second, customers are taking more time to evaluate whether to purchase the new creative suite or stand-alone product licenses, and third, the new CS products require MAC customers to upgrade to OS 10.

For these reasons, we continue to believe the tail for the CS launch will extend longer than in previous product launches.

Clearly our strategy of moving customers to the Creative Suite platform is working.

In our Consumer Digital Photography business, the Photoshop Elements and Photoshop Album retail bundle had a strong holiday season, leading to year-over-year market share gains.

Adobe continues to be the clear leader in the overall category.

Digital video also continues to be a strategic growth opportunity.

Our new Windows-based video platform including Premiere Pro, After Effects, Audition and Encore DVD, has received outstanding reviews and is being adopted by customers such as CNBC, Turner Broadcasting, ESPN and Lucas Arts.

This concludes my Q1 business segment review.

Bruce?

Thanks, Shantanu.

At our full analyst meeting, we outlined the strategy for growth by delivering a set of comprehensive technology platforms.

It is clear Adobe is executing exceptionally well against this strategy.

First, we are driving higher revenue by delivering more value to creative professionals with the new Creative Suite and CS products.

Second, we continue to grow our leadership position in digital imaging through ongoing innovation with our Photoshop family of products.

And, most importantly, we are delivering an intelligent document platform which is being adopted by governments and enterprises around the world, to increase efficiencies and prove their business processes.

We remain excited about these opportunities and the prospects for continued growth.

I'll now turn the call back over to Mike.

Thanks, Bruce.

Before we start Q&A, I would like to announce the date for our regular inter-quarter update for the second quarter of fiscal 2004.

It will be Monday, May 3, 2004, before the market opens.

This date and other relevant earnings dates for fiscal 2004 are available on our investor's relations website on the financial calendar page.

I would also like to announce the date for Adobe's fall financial analysts meeting.

We have tentatively set it for Tuesday, October 26 in San Jose, so please mark your calendars.

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 website on adobe.com later today.

Alternatively, you can listen to a phone replay by calling 402-977-9140.

Use reservation number 21187062.

Again, the phone number is 402-977-9140 with reservation number 21187062.

The phone playback (phonetic) service will be available beginning at 4 pm Pacific Time today, meeting at 4 pm Pacific Time on Monday, March 22, 2004.

We will now be happy to take your questions.

Operator?

Thank you.

Ladies and gentlemen, if you would like to register a question, please press the star 1 on your telephone.

If your question has been answered and you would like to withdraw your registration, please press the pound.

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

One moment, please, for your first question .

Our first question comes from the line of Gibboney Huske with Credit Suisse First Boston.

Please proceed with your question.

Thank you.

First of all, great quarter.

In terms of just trying to understand the Enterprise business a little bit more, seems like your server revenue is kind of continuing sequentially to pick up.

I was wondering if you could give me a sense in terms of where you are relative to the contribution from sort of products coming from the Accelio family, versus new products that you guys have released since then?

And secondly, your deferred revenue, you know, hasn't moved up that much, and I guess that's sort of a metric, you know, I tend to look for in terms of where the Enterprise business is going, and maybe expectations there.

And the final question is, in terms of your cash balance, up nicely in the quarter, I know your goal was to kind of start holding cash to do some potential acquisitions.

Give us an update kind of where you are there.

Sure.

So, giving the update, the first one about Acrobat and the Enterprise business.

In the Enterprise business, we're releasing continued momentum across the entire value proposition of helping people automate business.

The Document Server for Reader Extensions, which leverages the Adobe Reader out there by allowing people to make sure you can do save and fill-in, is clearly seeing significant adoption with customers.

But in addition to that, the Output Server is also doing good business, and we outlined a couple of the wins.

Clearly what we are working on is really integrating the entire server product line so that what server products you had, all of them work with PDF and the Adobe Reader.

So it increasingly becomes hard to separate what was formerly from Accelio and and currently from Adobe.

The way to really think about it is we're helping people design these forms, deliver these forms and collect the data through an integrated Adobe solution, leveraging the Adobe Reader.

Giving in terms of deferred revenue, one of the challenges in terms of trying to see what the deferred revenue trend is, is that we have three upgrade deferrals that we have to make.

As you know, when we launch a new product, if anybody buys the current version that's on the shelf, they get a free upgrade to the new version and we have to defer revenue for that.

And that causes that deferred revenue line to kind of go up and down because of those free upgrades.

If you pull that out, the rest of that deferred revenue line in terms of the maintenance and support business has been on an upward trend over these quarters and was clearly up in Q1 versus Q4.

Regarding your question on the -- our cash balance and the impact it has on the acquisition strategy, it has not had any impact whatsoever on the acquisition strategy.

We continue to look for great technologies, products, companies, that are about strategic to Adobe and can be relatively easily integrated within our organization.

That strategy has not changed.

I guess this last quarter you kind of implied you were sustaining or retaining more cash than usual just to give yourself some flexibility.

Is it fair to say at this level you're still pretty flexible and you had to do a pretty meaningful buyback from the quarter.

So, I guess, this cash balance, do you feel comfortable you've got plenty of flexibility to do any type of acquisition that may come your way?

Yes, that's correct.

Clearly, we generated a significant amount of cash this quarter with the performance that we had in our business.

It also translated into significant cash flows.

We had free cash flow of approximately $156 million in the quarter, so it is generating quite a bit of flexibility for us.

We did repurchase stock in the quarter, as you mentioned, and continue to believe that is the most efficient way to return cash, excess cash, to our shareholders, and we're looking to continue to be able to do that, as well as to continue with our dividend program that we have today.

So, we have the flexibility, we plan on returning excess cash to shareholders, and we're generating a significant amount of cash out of operations.

Great.

Thank you very much.

Thank you, Gibboney.

Our next question comes from the line of Jay Vleeschhouwer with Merrill Lynch.

Please proceed with your question.

Thanks.

I would like to ask you about your product mix.

Shantanu, I think you mentioned that the Creative Suite exceeded any prior quarter in terms of collection revenues, which, I think, is a trend pretty much apparent since the launch of CS back in the fall.

The question is, would it be fair to assume or infer from that remark that the Creative Suite is now well above, let's say, 15% of your revenue and perhaps even exceeded Photoshop in the quarter.

And, if it didn't exceed Photoshop in this quarter, would you anticipate that it might at some point do so this year and do so sustainably?

And then a follow up.

Sure.

Jay, the strategy that we really embarked on was to make sure that, for creative professionals, that they could standardize on a complete platform from Adobe.

And I think what is really gratifying from the results for us, is that that strategy of making sure that people move to the Creative Suite, and. in particular, the Premium Edition of the Creative Suite, is clearly working.

Yes, and Jay, in terms of the financials on that, the Creative Suite, to combine both the premium and the standard version, they were certainly above 15% of our total revenue, which just, again, points to our strategy that we have in place and our success in executing against it.

Okay.

With respect to how the Suite compares to Photoshop, and if it is, in fact, sustainably larger than Photoshop going forward, what are the product management or the market or the margin implications, if any, of that?

Well, in terms of the relationship between the creative suites, again, combining premium and standard versus Photoshop, the suites were higher than Photoshop.

Again, pointing to the success in our strategy of moving our customers to the creative professional platform of creative suites.

In terms of the marketing programs, I'll turn that over to Shantanu.

I think the strategy, again, from the marketing is twofold.

One is, we want to make sure that we clarify to people we have major new upgrades of each of the individual products.

However, what is more important is a really sustained marketing effort associated with clarifying the benefits of the platform.

The integration of the products, as well as the new functionality that is specific only to the Creative Suite, namely Version Cue.

One point I want to reinforce, Jay, is that despite the Creative Suites is doing extremely well, significantly better than collections in the past, and greater than 15% of our overall business, we did exceed our revenue expectations on Photoshop for the quarter.

Okay.

Respect to volume licensing for Acrobat, could you talk about the relative contributions of each of Standard, Pro and Element.

You had a pretty strong sequential increase in volume business, certainly stronger than we had anticipated.

So what's the relative contributions of the three flavors of Acrobat to that?

Sure.

In the Acrobat business, what we've communicated is that the overall mix is really where Standard continues to be the majority of the revenue that we're getting, followed by the Professional, and Elements is really starting to take hold with respect to receipt penetration.

But from a revenue perspective, it's a relatively small percentage of the overall mix, and licensing is a complete picture, almost 45.2%.

We're not breaking up the licensing revenue also by those three separate products, Jay.

Good.

Thank you.

Thanks, Jay.

Our next question comes from the line of Benjamin Reitzes with UBS.

Nice quarter, guys.

Thank you.

I wanted to ask a pretty simple question.

I wanted to get better understanding of your guidance and your guidance for the year.

You have what seems to be very good visibility with very low inventory, and your DSO plummeted.

And I'm wondering, you know, even if you take out the extra week, it looks like maybe you're guiding for a quarter revenue decline of around 5% when you adjust for the extra week.

I'm just trying to figure out what maybe happened sequentially and what you're thinking about with regard to the Creative Suite to have a revenue decline, and what you're seeing in your visibility, which looks like it should be pretty good to have a revenue decline, even though-- especially given that the Creative Suite tail and the Enterprise momentum seem to be there.

So, Ben, first of all, when you look-- as you know, we take our guidance very seriously.

And, as you have tried to do there, it's very important that everybody takes a look at the Q2, the fact that it's 13 weeks and Q1 is 14 weeks, and make the adjustment for that.

But we are very excited by our CS launch results today, but we have no historical trend to follow regarding the suites.

And, hence, we're taking a prudent approach to setting our targets for the second quarter.

We'd like to see more time pass to get a better idea of how the suites are performing.

I will say, though, that as we completed the first quarter, we did not see a slowdown in our business.

Okay.

Well, I guess let's take that even -- I mean ,that sounds pretty good to me, but is there -- is there anything that you can say with regard to Europe that maybe, you know, you saw very good strength, perhaps you beat our numbers in Europe and in Japan, and where I know you shipped the international versions of the CS.

Can you kind of talk about your early indications in those geographies, maybe?

You know, we have had some geopolitical events in Europe, obviously.

If you can just talk about how the momentum there goes into March?

So, yeah.

If we look at each of the markets in Europe, we did have a very good quarter.

The adoption of CS was strong.

We felt good about our business in terms of Intelligent Document business.

It's a seasonably stronger quarter of the year as well.

When you look at Europe as we go into the second quarter, typically, in the spring time, certainly around the April timeframe, things in the past have been typically seasonally weaker.

We'll have to see how things go, but we make the assumption that would probably occur.

In Japan, again, very strong launch.

You can see that in the data as well.

We do know that in Japan, March is the strongest month of the year, as they have their corporate, government, and education year-end buying seasons, but then things slow down following that.

In the U.S. we also see -- we saw good results in Q1, very good results.

And, as we tend to go into the springtime, the U.S. tends to also slow in the April timeframe, and so we're going to make the assumption that that also occurs this year, like it has in past years, and that's what's also factoring into the targets that we've set.

Okay.

Well, nice quarter and we'll see what happens.

Thank you.

Thanks, Ben.

Our next question comes from the line of Keith Gay with Thomas Weisel.

Please proceed with your question.

Hi, guys, congratulations again.

When you talk about the different drivers behind the longer Creative Suites strategy, can you also talk about how Creative Suite is helping you in taking share against other point solutions?

For example, with -- you now get InDesign, plus you get Photoshop and Illustrator, and how are you doing -- how is that in terms of a strategy say versus Quark?

Can you comment on what- are you seeing an increase in the share that you were taking there?

Sure.

So Keith, I think, again, the Creative Suite, it's clearly early.

The fact that a lot of customers are moving to the premium version, for us really reflects an adoption of the platform which is great.

Specifically, as it relates to InDesign versus Quark, I think we have been continuing to make in-roads with InDesign against Quark.

I think we have outdistanced them from a product perspective now for couple of generations, and we see more customer adoption.

But also what is exciting now moving forward is a lot of the large customers who started off with pilots are now coming back and really rolling it out across that entire enterprise.

So, for InDesign specifically, companies like InterPublic and Omnicom and TV Guide, Williams Sonoma, this quarter we see increased adoption of that.

So, you know, that's clearly working.

I think the other thing that people are doing is adopting a PDF workflow and the Creative Suite is a great way for people to adopt a complete PDF work flow.

Okay.

And then, shifting to Intelligent Documents, you're not getting -- you know, you're continuing to see sequential, or high levels of sequential increases around Acrobat and Intelligent Documents.

Can you give us a little more color on the percentage of sales in that area that are partner-influenced, specifically, your IBM and Documentem (phonetic) relationships?

Also, it looked like ASPs jumped pretty significantly on the server side.

How many deals, or can you give us a number of deals greater than a million dollars in the Intelligent Documents area?

Were there any very large-sized deals, and do you have a sense of how much of the strength in Enterprise may have been Enterprise Q4-type seasonality, especially around the month of December?

Okay.

So, a couple of questions there, Keith.

First, on the seasonality in December.

We are starting to see customers more aware of our solutions and aware of the value proposition that we're getting with our solutions.

So, I think the momentum has more to do with us getting the word out about how we can get the value proposition to both the financial segment, as well as the government segment.

So we don't attribute it to the December.

In terms of the large deals, the way we break it out is large deals greater than 50K, and we give the average deal size, which was $205,000, $205,000, which clearly greater than what we had in the previous quarter.

What we're seeing is a healthy mix of both new deals, as well as customers who previously had implemented pilots or, you know, one particular server adopting an increasing part of our entire Intelligent Document Platform, which is also pleasing to us.

And with respect to your final question associated with Documentem and IBM, you know, Documentem is a customer, a partner with which we've had the longest history, and we continue to see traction with Documentem in large accounts.

But we are also seeing our customers adopt our forms solution with the IBM DB2 Content Manager as its back end.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Steven Jue with RBC Capital.

Thanks.

I will offer my congratulations as well.

I'd be curious to get your thoughts on, with the success of the Creative Suite and really the, I guess the platform strategy resonating well with customers.

Are you starting to see a shift for more demand for volume licensing on some of the core products?

So, what we have seen, Steven, over the last few years is customers moving more and more to purchasing our products through our volume licensing programs as opposed to shrink-wrap products on a one-off basis through the distribution channel.

And that trend has been upward over the past years.

We, in terms of the Creative Suite, it's really not going to be different than the other products.

Many of our customers, as they look for larger deployments, are going to take advantage of both the pricing that comes with volume licensing as well as the ease of deployment.

So, the trend has been up and we would expect it probably to go in that direction as well over time.

Okay, great.

And then, I wonder if you can just comment on linearity in the quarter, how that came along?

The quarter was quite linear, and you can see that clearly in the fact that we shipped a lot of products early in the quarter.

Throughout the quarter we saw good sell-through, good strength in licensing throughout the quarter, and you can see it in the DSO, the low DSO, that it was a very linear quarter for us.

So it was just, all around, very solid.

Okay.

Great.

And then, just with regards to the Creative Suite, as you guys have gotten feedback as to some of the key features, functions, has anything struck you out as unusual in terms of people really adopting the Version Q for workflow or of doing more custom workflows for what they're doing?

I think with the Creative Suite, again, while it's early, customers clearly recognize that they are working in collaboration and in groups, and hence, the Version Cue functionality which enables them to do both the asset management, as well as the in-process design workflow, is starting to get traction.

But I would say it's early relatively in terms of customers using the Version Cue functionality.

I think the bigger one that people see right off the bat is the fact that each of the products is a fairly significant upgrade, and second, that they work as well together as they would like to see.

An important indicator would be what are the important trade press and research firms saying about Version Cue, and it's very encouraging to see organizations like C-Bold Publications (phonetic) say a lot of positive things about Version Cue, which will influence the usage of Version Cue.

Okay.

Great.

Thank you.

Thanks, Steve.

Our next question comes from the line of Steven Ashley with Robert W. Baird.

Please proceed with your question.

Hi, my congratulations as well.

I just want to drill down in the guidance again and look at the first and second half of the year.

Just taking the map here, it looks like revenues in the second half of the year would be up 3%, year-over-year.

Earnings would actually be down a tick, and I think for that to happen, it kind of implies EBIT margins of low 30%.

And it seems to suggest spending would be higher in the second half of the year.

Is that a right off correct observation?

Hey, Steven, unfortunately, we were having difficulty hearing your question.

Could you just previously summarize that question again?

Sure.

It just had to do with the guidance, breaking this year down into the first half and second half.

The second half looks like revenues would be up 3% year-over-year for the second half.

But the earnings would actually be down a little bit, I think suggesting that spending or expenses would be up a little bit in the second half of the year.

Is that correct, and is that how we should think about that?

In regard to the full-year guidance, as I said earlier, we take our guidance very seriously, and we are pleased to say that we're now targeting 14% to 16% revenue growth in fiscal 2004, and that's up from the 10% that we had with our initial targets.

So, obviously, we're quite pleased with that.

Because we have, again, no historical trend around the suite, we are taking a prudent approach to the targets that we're setting.

We need to see how that develops throughout the course of the year.

If we come in toward the higher end of the range on revenue, that will be because the strength of the launch and the tail is stronger, and if the tail is not as strong, we finish down toward the lower end of the range.

In terms of spending, we have seen, obviously, some very solid results in our first quarter, and we are quite excited about the opportunities that we have this year and over the next few years, and we are going to increase our spending modestly to go after those opportunities.

We'll spend more money in marketing this year to go after some of these opportunities, which we believe can be quite good for us, as well as the opportunities around the Intelligent Document space in terms of adding more in the R&D perspective to go after the longer-term opportunities.

Steve, I think it's important to take a step back and think about the long-term performance of this company.

If you think about the 11% growth that we had last year, the fact that we'll be targeting exceeding that growth, or it's likely we'll exceed that growth this year, when you look at the success that we're having with our Acrobat product, and when you look at the sequential growth that we're having in our server products, the adoption of our Creative Suite platforms, it's clear that there are significant opportunities ahead of us.

Not only through this year, but more importantly into the other years, and we're going to continue to invest in that opportunity, which we believe is very significant.

Terrific.

And maybe you could just comment on terms of Wipro made a nice announcement of a strategic global alliance.

Can you give us more color on what they might be doing for you and with you?

Sure.

The announcement with Wipro, which is one of the Indian companies in the southwest space, is similar to the announcements that we've made with other companies such as PCS, and it's really about our Wipro and Adobe together delivering intelligent document solutions to our customers in the financial and government segments.

So, what they will be doing with us is jointly coming up with solutions that we can take to both their existing customers, as well as our customers.

Great.

Thanks a lot.

Our next question comes from the line of Steve Kessler with Standard & Poors.

Please proceed with your question.

Hi, thank you very much.

It's Scott Kessler.

Two questions.

The first involves, there was a question earlier about the fact that you guys have a lot of cash, and my recollection suggests that you haven't -- you've paid a dividend since, I guess, 1998, but you haven't really increased that dividend.

I'm wondering if you could shed any light as to how you might be thinking about that subject.

The second actually piggybacks on Steve's question, which is, essentially, can you talk a little bit about further penetration of the Asian continent, specifically India?

You have the alliance with Wipro, I think, Bruce, you've been quoted as saying you're looking for maybe two additional comparable relationships, and also, I have been reading a little bit about your interest in pursuing China as an opportunity and how you have been working with the Chinese government regarding privacy issues.

Excuse me, piracy issues.

If you could talk a little about that, that would be great.

Thanks.

Scott, in terms of the dividend, we have had a dividend with Adobe since 1988, you know, 16 years we have been paying a dividend.

We continue to look at the dividend.

Every quarter we have a discussion about that.

If you're looking at what is going on in the marketplace, given the tax changes, feedback from our investors and also looking at what we believe is an appropriate cash balance for us, to give us the flexibility to continue to grow our business.

And so we continue to look at all of that.

There's nothing more to say today in terms of really updating that.

But it is something that we do look at on a fairly consistent basis.

When you talk about -- when you ask about Asia, Scott, I'm assuming you're excluding Japan.

Right.

Non-Japan Asia.

Right.

So, the rest of Asia represents both a great opportunity for Adobe, as well as a challenge for the Company.

On the opportunity side, there certainly exists a number of opportunities to partner with global system integrators and other partners like ATCS or Wipro or Emphasis or others that are doing business at a global level, and they can help us deploy our intelligent document platform.

Additionally, with countries like China, specifically, and certainly countries like India, the adoption of high technology is now happening at a higher-pace than just about any other place in the world.

The challenging part for us with our traditional desktop products is that, as a society, there has been a tendency to pirate the software, and we continue to work here with our own government to help educate both India government agencies, as well as the Chinese government agencies, on the importance of protecting intellectual property.

We're also directly working with those same governments and trying to help them understand both the value of our intellectual property and why it's so important for them to help us protect the intellectual property.

We do believe that, in the shorter-term, we have the opportunity to sell some of our more mission-critical applications or solutions, especially our server products, to many of the multi-nationals and government agencies in those countries.

Selling a lot of, or licensing a lot of revenue, gaining a lot of revenue, on the traditional desktop products, while it is a significant opportunity, we believe in the short- to-medium-term, it's going to continue to be a challenge.

It's not a market-share issue.

If you look at market share, we have significant market share in each of those countries.

It really is a piracy issue.

Bruce, if I could follow up a little bit about China.

Is the Chinese government currently a customer of Adobe products, and is that kind of part of the conversation that continues between both Adobe and the Chinese government at this point?

The Chinese government is a customer of Adobe's products, but if you look at the overall Chinese revenue, it is very, very immaterial to the overall revenue of this company.

I think that also represents an opportunity for us in the outer years.

Understood.

Thank you very much.

Our next question comes from the line of Sasa Zorovic with Oppenheimer.

Please proceed with your question.

Could you tell us a little bit about what you see with your, in particular, with your CS products here in terms of upgrades versus new sales?

Could you repeat that again, Sasa?

You're breaking up, too.

Is this better?

Yes.

Yeah.

Could you tell us a little about, particularly with your CS products, how you're seeing the mix develop here of upgrades versus new product sales?

Sure.

So, I think with the CS product, it is truly a new platform.

So, in that sense, when people buy the Creative Suite, whether it is the standard or the premium version, it is a brand new product, and so, in that sense, adoption of the suite is clearly exceeding our expectations.

In terms of upgrade, one of the things we mentioned as part of the prepared remarks were that we do find some customers still in the consideration phase, due to some confusion initially about the CS designator, which is one of the reasons why we believe the tail will be longer than in previous product launches.

How about in terms of, you know, is there more -- if you would look sort of at your sales, in terms of are they coming with people who are currently your customers or are you gaining new customers?

Maybe I should ask the question that way.

I think we continue to gain new customers who are adopting the entire platform with the Creative Suite, but certainly, we do have a pretty substantial installed base of customers in the creative professional world who are also upgrading.

I think it's also fair to say that, you know, if you look at the revenue performance in the quarter, it's being driven by both full and upgrade revenue, and that is, in part, driving the success in the quarter.

It's still very, very early, though, to start really drawing lots of conclusions over the information.

We need to see more time pass.

In some of the markets, they've just received the products in the past few weeks.

We want to take more time to understand where that's really at before we we go into more specifics in trying to communicate exactly what is happening, versus full and upgrade, and really making sure that those buying full are new versus customers who really could be upgrading but choose to buy full for whatever reason.

So we just need some more time to work through that before we're in a position to really talk about more observations in that area.

And also, my last question here, is what do you see some of the principle risks here are now for the Company over the next few quarters, and in particular, you know, sort of given the ways that the guidance is shaking out?

There might be somewhat of a slowdown as the second half of the year unfolds.

Yes.

The first thing I will say is I encourage you to look at our SEC filings, both our recent K as well as our previous Qs.

There are obviously a variety of risks in the company.

However, we've factored those risks into our guidance going forward.

So there's nothing specifically that I would point out at this point in time, so I would just encourage you to look at our filings.

Thank you.

Our next question comes from the line of Chris Rowan with Robinson Humphrey.

Please proceed with your question.

A couple of questions.

You mentioned that inventory levels were lower than company policy.

Did you have a significant amount of lost sales due to that?

And if so, could you quantify it?

And then, second, on the consumer video editing, is that still something that you plan to do in the near future and if you can give us color on timing, that will be great.

So, Chris, in terms of the inventory levels, as we mentioned earlier, yes, below company policy.

The way the channel works, again, is we sell to distributors who in turn sell to resellers, who then sell to end-users.

And so we have taken the distributor inventory levels down a little bit lower than the company policy.

There is, in effect ,some safety stock at the reseller to make sure that if there is a customer who comes into the store will be able to get our product.

And if, for some reason they were not able to, they can be able to come to adobe.com or call us directly and we will sell them a product.

So, at this point, we don't believe that we've had any lost sales to customers.

In terms of the video editing opportunity, the way we segment our market, there's the mainstream consumer, then there is the hobbyist and the professional.

And as we have stated, we're clearly in the professional space already.

We have said that we are going to target a product aimed at the hobbyist market, but we're not making product announcements or schedule updates today.

Great.

Thanks a lot.

Our next question comes from the line of Brent Thill with Prudential Equity.

Please go through with your question.

Thanks.

You mentioned the tax rate fell to 26%, but it's down from the historic 30% and 32%.

How should we model the tax rate going forward?

Will that stay 26 in the foreseeable future?

Yeah, in terms of the tax rates, we were targeting 28% for this quarter down from 30% in Q4.

And because of the mix of international revenues and profits, it drove the rate down to 26% in Q1.

We're giving a target of 26% in Q2 based on our full-year look and where we think international profits will be.

And so I think that probably at this point based on that assumption, it's safe to assume that the rate would be, you know, approximately 26% for the full year.

Obviously, if the mix changes, for whatever reason, we believe it's more than just a one-quarter phenomenon, we'd have to come back and look at the rate.

But, right now, the target is 26%.

And clearly, we're paying the full-year U.S. tax rate for profits generated in the United States.

There are certain parts of the world where, as we generate profits there, the tax rates are lower and that's what is contributing to a lower rate.

So, just wanted to make that clear, in case we do repatriate cash from offshore/onshore, we pay the U.S. corporate tax rate on that.

Great, and just as a quick follow-up, can you give us a sense of how big a tail wind the G-5 upgrade cycle has been through the Creative Suite rollout?

It's difficult for us to comment on any specific vendors' product sales.

I think that would be a more appropriate question for Apple.

Clearly, those customers of ours buying Creative Suite for MacIntosh, they do need OS 10 and the OS 10 experience is clearly a superior experience on the very powerful G-5 computer.

Great.

Thanks.

Thanks, Brent.

Our next question comes from the line of Tom Berquist with Smith Barney.

Please proceed with your question.

Thank you.

Just on the-- first, on the Enterprise business.

I was just listening to a discussion about how it's being deployed.

Are you finding that competitors are coming from the application server world or the custom developed tools world?

For example, do you run across any of the other app(phonetic) server vendors who are building e-government websites of different sorts?

At this point, really, the competition, if any, is coming from people who are building home-grown systems.

So, the reality is, when we are going in with our solutions, given the strength of PDF that exists already for these forms, there really isn't any one of the app server vendors or other enterprise vendors that we run into these accounts at this point.

It's one of the reasons why app server vendors like IBM are so anxious to partnership with us.

We complement what they're already offering to provide their customers and our customers with a complete solution.

So, are there hooks currently in your product that connect to app servers, so people who want to connect to the transaction processing systems, they can do it with an app server in the middle or do you go directly to the underlying systems?

Clearly, we're employing a service-oriented architecture as we deliver our servers, so app server vendors, whether it Net Weaver or WebSphere or WebLogic, app servers that we can sit on top of.

And, yes, we have the hooks that allows a customer who wants to deploy and has already decided on a particular app server, the infrastructure to work with their existing infrastructure.

Okay.

And then, on the consumer oriented view, or your view on the consumer side, you know, we have been looking at a lot of data on the consumer spending on laptops, PCs, Apples, MacIntosh's, cameras, digital cameras, et cetera.

How carefully does that -- or how well do you track what is happening with that business and look at it relative to your digital products for consumers and can you give us any sense of what the correlation is?

Sure, I can speak on it as it relates to digital imaging.

And, again, we are the market share leader in the DI category.

The way we segment that market, similar to what we do in video, is mainstream, hobbyists and professionals.

In the mainstream market, paid-for software, that's where there tends to be a significant amount of price sensitivity, and so our real strategy is to make sure that we seek the market.

We have a great product, which is Photoshop Album Starter Edition, that we allow people to bundle with Reader.

At the hobbyist segment, which is a segment above that, clearly Photoshop Elements and Photoshop continue to be the product of choice and we have an absolutely great brand.

And even in the mainstream market, as people require those more powerful solutions, our strategy has always been about getting them exposed to our products and our brand, so when they do upgrade, they turn to the leading brand.

Does the hobbyist buy the stand-alone product versus buying the CS suite?

The hobbyist, we have a significant number of hobbyists who also buy the Creative Suite, as it relates to the creative professional products But in addition to that, the combination of Album and Elements tends to be a product that they use if they are just using DI.

You know, the non -- in the nonprofessional segment, what you really see is that there is a price sensitivity and, therefore, there is more of a classification between people who buy the Creative Suite as well as people who buy our other hobbyist products.

But we continue to see a significant number of people in that particular segment go with our professional products, such as Photoshop.

One point I want to reinforce is around our expectations around revenue against the consumer, as you've stated.

Our goal is to capture significant revenue from the more serious consumer.

The amount of revenue that we'll extract or we expect to extract from the mainstream consumer is relatively immaterial to this company.

Okay.

Thank you very much.

Thanks, Tom.

Our next question comes from the line of Amy Feng with JMP Securities.

Please proceed with your question.

Yes.

Can you give us a sense of what percentage of your Intelligent Document revenues came from your direct sales force?

Did you add any additional head counts this quarter, and what are your plans in terms of additional head count for your direct sales force?

So, with respect to the direct sales force, the momentum that we are seeing in the Enterprise business is attributable to the efforts of our direct sales force that we have in there.

They're clearly making traction, and we have talked in the past about bringing them on board, getting them up to speed and then having the traction associated with that.

So we are seeing increased success with our direct force.

However, at the same time, we are benefiting from some of the relationships that we established over the last year and a half.

One of the relationships, without mentioning names, is actually giving us 50% of the leads against their products, so we are benefiting from those relationships even though our own direct sales force is actively involved in the engagement with the customer.

Would you expect to add additional personnel to your direct sales force this year?

Yes.

We haven't broken out specific numbers for a variety of competitive reasons.

But we have been making good process on our hiring plans, but we continue to plan to hire additional direct sales staff over the remainder of this year.

Okay.

Great.

Thank you.

Our next question comes from the line of Bill Lennan with WR Hambrecht.

Please proceed with your question.

Thanks.

Good afternoon.

Two foreign exchange questions and then a DVD question.

One, what was the foreign exchange revenue gain in the quarter?

Two, what -- your guidance for the rest of the year assumes what sort of dollar foreign exchange behavior?

And then, my DVD question is, are you guys free, if you so choose, if you want to, to migrate Encore down to a mainstream or serious consumer price point as opposed to a hobbyist price point?

Are you free to do it and, in other words, are you contractually blocked by agreements you've made with anybody else?

Thanks.

So, Bill, in regards to the FX gain, if you look at the benefit we received on a year-over-year basis, we'd estimate that about $29 million is the benefit.

However, I will remind everybody that the targets that we've set for Q1 already factored in the weaker dollar.

So, the upside that we generated in Q1 was not because of FX.

However, on a year-over-year basis, we did get this benefit.

In terms of the targets the remainder of the year, the assumption there is that there's not going to be a material change one way or the other in the currency.

Regarding our ability to take the technology that is license for Encore DVD down to the consumer, that's a confidential matter between us and the licensor.

Okay.

Thanks, guys.

Thanks, Bill.

Ladies and gentlemen, as a reminder, to register for a question, press star 1.

Our next question comes from the line of Jay Vleeschhouwer with Merrill Lynch.

Please proceed with your question.

Shantanu,in your remarks you mentioned the AIMM and On Demand show last week in New York.

At the show, we heard a lot of floor discussions, a lot of exhibition, around workflow and productivity software and the like, from some of the major imaging OEMs, Xerox, Cannon and the like.

The question for you is, in addition to those partners you mentioned, how would you foresee yourselves working with some of those other major OEMs to proliferate what some of them call smart documents, what you call intelligent documents, into commercial print and corporate markets?

We are fortunate to have a very long and strong relationship with many partners around our PostScript operating system.

Those same partners are also very significant potential partners for deployment of our Intelligent Document platform.

Clearly, we're in discussions with them, and we look to develop those relationships at a more significant level.

Okay.

Could you be more specific, Bruce?

I'm sure that's a goal, but anything more concrete that we could foresee in terms of elaborating on the relations you already have with some of these companies?

There's nothing to announce specifically, but you can imagine that anybody that's in the hardware business selling multi-functional devices or a combination of printers and scanners, anybody that's in the print business, want to provide solutions to their-- complete solutions to their customers.

So those organizations, like a Xerox or a Lexmark or HP or Canon, or Fuji-Xerox, are certainly interested in providing their customers with more value-adds.

You can envision taking products like our new Policy Server and potentially embedding them into their devices, so they could present to their customer value-add, thereby, extracting more value for what they're delivering.

Okay.

Bruce, you've often talked about pricing and packaging optimization.

Is the Creative Suite to be the culmination of that or do you see more optimization of the kind that you've talked about before?

What more can do you besides what you have obviously done thus far with the CS bundle?

If you look back over the last five years, we've continued to look for ways of making sure that we're getting the most revenue for the value that we're offering our customers, and we have done that with the Creative Suite, we have done that our Photoshop products, we've done that with price increases, we have done that with products like Acrobat Professional (phonetic).

You will see this company continue to do that.

Thank you.

Thanks, Jay.

Operator, we'll take one more question.

Our next question comes from the line of Keith Gay with Thomas Weisel.

Please proceed with your question.

Just one more quick question.

Head count looked about stable, but you have done internal re-org activities.

Are those largely complete or are there-- is there any more head count reduction going on in addition to the head count adds that you're doing?

As a company that is in an industry that is constantly changing, one that is advancing rapidly, we will continue to look at making sure we have the right resources on the right projects, those projects that represent the highest growth for this company.

That will mean continued, ongoing review of those resources.

There will be instances where we will potentially not be able to find a home for an individual.

We hope that to be few, and, in fact, we hope that that will be none in the future.

But where they do exist, we will need to have reductions.

We don't anticipate any at this point in time.

In fact, we hired a significant number of employees this quarter and we do plan on hiring a significant number of employees next quarter, and that will be a net add.

Does that mean more employees shifting to Intelligent Documents?

We'll continue to put resources against those opportunities that represent the biggest opportunity.

Clearly, the Intelligent Document opportunity or the opportunity around the Intelligent Document platform, is one of those high-growth opportunities, and you will see us both hiring and shifting resources against that opportunity.

With that said, when you look at the growth of our Creative Professional business, like the Creative Suite, you will look at the opportunities that exist in digital photography as well as digital video, we'll need to continue to resource those projects.

Thanks.

Thanks, Keith.

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

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

We thank you for your