On Sept. 17, creativity software maker Adobe Systems (NASDAQ:ADBE) released third-quarter 2007 earnings for the period ended Aug. 31, 2007.

  • Adobe blew its own guidance away, leaving the upper end of the revenue guidance range $52 million behind and eating the company's dust. The GAAP-diluted EPS came in at $0.34 -- well ahead of its target of $0.28-$0.31.
  • The company spent $727 million on share repurchases this quarter and bought back about 9 million shares above and beyond expectations, and up from $34.9 million a year ago.
  • Management expects to do at least this well in the fourth quarter on every count. Revenues and margins are supposed to grow, and the buyback continues.
  • All these good things are happening because the recent round of updated software releases is doing astonishingly well in the marketplace. The sales directors responsible for Corel (NASDAQ:CREL) Draw and Microsoft (NASDAQ:MSFT) SilverLight clearly live in interesting times right now -- in the Chinese sense of that phrase.

(Figures in millions, except per-share data)

Income Statement Highlights

Q3 2007

Q3 2006

Change

Sales

$852

$602

41.4%

Net Profit

$205

$94

117.4%

EPS

$0.34

$0.16

112.5%

Diluted Shares

597.3

600.9

(0.6%)

Get back to basics with the income statement.

Margin Checkup

Q3 2007

Q3 2006

Change*

Gross Margin

89.1%

88.5%

0.7

Operating Margin

29.9%

18.3%

11.7

Net Margin

24.1%

15.7%

8.4

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q3 2007

Q3 2006

Change

Cash + ST Invest.

$1,956

$1,986

(1.5%)

Accounts Rec.

$261

$285

(8.3%)

Inventory

$0

$0

N/A

Liabilities

Q3 2007

Q3 2006

Change

Accounts Payable

$64

$39

66.7%

Long-Term Debt

$0

$0

N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

Q3 2007

Q3 2006

Change

Cash From Ops.

$425

$191

122.1%

Capital Expenditures

$32

$19

70.6%

Free Cash Flow

$393

$173

127.7%

Owner Earnings

$255

$150

69.8%

Free cash flow is a Fool's best friend.

Related Foolishness:

Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

Microsoft is a Motley Fool Inside Value recommendation.

At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here.