Adobe Reports Third Quarter Results

Tuesday, September 15, 2009 4:06 pm EDT

Category:

Dateline:

SAN JOSE, Calif.

Public Company Information:

NASDAQ:
ADBE

SAN JOSE, Calif.--(BUSINESS WIRE)--Adobe Systems Incorporated (Nasdaq:ADBE) today announced financial results for its third quarter ended Aug. 28, 2009.

In the third quarter of fiscal 2009, Adobe achieved revenue of $697.5 million, compared to $887.3 million reported for the third quarter of fiscal 2008 and $704.7 million reported in the second quarter of fiscal 2009.

“We are pleased with the solid revenue and earnings results we were able to deliver in Q3,” said Shantanu Narayen, president and CEO of Adobe. “Our focus remains on driving growth in our core businesses, as well as investing in promising new opportunities.”

Third Quarter Fiscal 2009 GAAP Results

Adobe’s GAAP diluted earnings per share for the third quarter of fiscal 2009 were $0.26, based on 531.8 million weighted average shares. This compares with GAAP diluted earnings per share of $0.35 reported in the third quarter of fiscal 2008 based on 541.3 million weighted average shares, and GAAP diluted earnings per share of $0.24 reported in the second quarter of fiscal 2009 based on 528.0 million weighted average shares.

GAAP operating income was $167.6 million in the third quarter of fiscal 2009, compared to $219.5 million in the third quarter of fiscal 2008 and $161.4 million in the second quarter of fiscal 2009. As a percent of revenue, GAAP operating income in the third quarter of fiscal 2009 was 24.0 percent, compared to 24.7 percent in the third quarter of fiscal 2008 and 22.9 percent in the second quarter of fiscal 2009.

GAAP net income was $136.0 million for the third quarter of fiscal 2009, compared to $191.6 million reported in the third quarter of fiscal 2008 and $126.1 million in the second quarter of fiscal 2009.

Third Quarter Fiscal 2009 Non-GAAP Results

Non-GAAP diluted earnings per share for the third quarter of fiscal 2009 were $0.35. This compares with non-GAAP diluted earnings per share of $0.50 reported in the third quarter of fiscal 2008 and non-GAAP diluted earnings per share of $0.35 reported in the second quarter of fiscal 2009.

Adobe’s non-GAAP operating income was $237.1 million in the third quarter of fiscal 2009, compared to $351.9 million in the third quarter of fiscal 2008 and $237.7 million in the second quarter of fiscal 2009. As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2009 was 34.0 percent, compared to 39.7 percent in the third quarter of fiscal 2008 and 33.7 percent in the second quarter of fiscal 2009.

Non-GAAP net income was $186.1 million for the third quarter of fiscal 2009, compared to $269.1 million in the third quarter of fiscal 2008 and $185.0 million in the second quarter of fiscal 2009.

Reconciliation between GAAP and non-GAAP results is provided at the end of this press release.

Fourth Quarter Fiscal 2009 Financial Targets

For the fourth quarter of fiscal 2009, Adobe is targeting revenue of $690 million to $740 million, an operating margin of 23 percent to 27 percent on a GAAP basis, and 33 percent to 36 percent on a non-GAAP basis.

In addition, Adobe is targeting its share count to be between 530 million and 532 million. The Company also is targeting non-operating income to be between $1 million and $3 million. Adobe’s GAAP tax rate is expected to be approximately 23 percent and the non-GAAP tax rate is expected to be approximately 23.5 percent.

These targets lead to a fourth quarter diluted earnings per share target range of $0.23 to $0.29 on a GAAP basis, and an earnings per share target range of $0.33 to $0.39 on a non-GAAP basis.

Reconciliation between GAAP and non-GAAP financial targets is provided at the end of this press release.

The fourth quarter financial targets do not include the impact of Adobe’s acquisition of Omniture announced today, which is expected to close in the fourth quarter of Adobe’s 2009 fiscal year.

Forward-Looking Statements Disclosure

This press release contains forward-looking statements, including those related to revenue, operating margin, non-operating income, tax rate, share count, earnings per share and business momentum, which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: adverse changes in general economic or political conditions in any of the major countries in which Adobe does business, failure to develop, market and distribute new products or upgrades to existing products that meet customer requirements, introduction of new products and business models by existing and new competitors, failure to successfully manage transitions to new business models and markets, difficulty in predicting revenue from new businesses, costs related to intellectual property acquisitions, disputes and litigation, inability to protect Adobe’s intellectual property from third-party infringers, or unauthorized use, disclosure or malicious attack, failure to realize the anticipated benefits of past or future acquisitions and difficulty in integrating such acquisitions, failure to manage Adobe’s sales and distribution channels effectively, disruption of Adobe’s business due to catastrophic events, risks associated with international operations, fluctuations in foreign currency exchange rates, changes in, or interpretations of, accounting principles, impairment of Adobe’s goodwill or intangible assets, changes in, or interpretations of, tax rules and regulations, Adobe’s inability to attract and retain key personnel, impairment of Adobe’s investment portfolio due to deterioration of the capital markets, market risks associated with Adobe’s equity investments, and interruptions or terminations in Adobe’s relationships with turnkey assemblers. For further discussion of these and other risks and uncertainties, individuals should refer to Adobe’s SEC filings.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Quarterly Report on Form 10-Q for our quarter ended Aug. 28, 2009, which the Company expects to file in October 2009. Adobe does not undertake an obligation to update forward-looking statements.

About Adobe Systems Incorporated

Adobe revolutionizes how the world engages with ideas and information – anytime, anywhere and through any medium. For more information, visit www.adobe.com.

© 2009 Adobe Systems Incorporated. All rights reserved. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. All other trademarks are the property of their respective owners.

 

Condensed Consolidated Statements of Income

(In thousands, except per share data; unaudited)

  Three Months Ended   Nine Months Ended
August 28,

2009

  August 29,

2008

 

August 28,

2009

  August 29,

2008

 
Revenue:
Products $ 649,865 $ 838,813 $ 2,052,119 $ 2,532,076
Services and support   47,642     48,444     136,451     132,512  
Total revenue   697,507     887,257     2,188,570     2,664,588  
 
Cost of revenue:
Products 49,365 84,623 164,041 202,657
Services and support   15,682     26,228     50,367     73,535  
Total cost of revenue   65,047     110,851     214,408     276,192  
 
Gross profit 632,460 776,406 1,974,162 2,388,396
 
Operating expenses:
Research and development 138,902 170,124 427,289 508,909
Sales and marketing 231,320 271,439 724,020 813,399
General and administrative 79,593 97,156 224,462 257,163
Restructuring charges 65 1,194 15,866 2,625
Amortization of purchased intangibles   14,978     17,024     45,654     51,222  
Total operating expenses   464,858     556,937     1,437,291     1,633,318  
 
Operating income 167,602 219,469 536,871 755,078
 
Non-operating income (expense):
Interest and other income, net 6,667 9,338 24,753 34,778
Interest expense (460 ) (2,390 ) (1,872 ) (8,027 )
Investment gains (losses), net   607     2,097     (18,444 )   20,335  
Total non-operating income, net   6,814     9,045     4,437     47,086  
Income before income taxes 174,416 228,514 541,308 802,164
Provision for income taxes   38,371     36,906     122,757     176,267  
Net income $ 136,045   $ 191,608   $ 418,551   $ 625,897  
Basic net income per share $ 0.26   $ 0.36   $ 0.79   $ 1.15  
Shares used in computing basic net income per share   525,911     531,060     528,015     542,624  
Diluted net income per share $ 0.26   $ 0.35   $ 0.79   $ 1.13  
Shares used in computing diluted net income per share   531,809     541,311     532,846     552,739  
 

Condensed Consolidated Balance Sheets

(In thousands, except per share data; unaudited)

  August 28,   November 28,
  2009     2008  
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 1,132,144 $ 886,450
Short-term investments 1,424,317 1,132,752
Trade receivables, net of allowances for doubtful accounts of $6,153 and $4,128, respectively

281,807

467,234

Deferred income taxes 72,163 110,713
Prepaid expenses and other current assets   80,503     137,954  
Total current assets 2,990,934 2,735,103
 
Property and equipment, net 335,752 313,037
Goodwill 2,125,946 2,134,730
Purchased and other intangibles, net 117,384 214,960
Investment in lease receivable 207,239 207,239
Other assets   184,705     216,529  
Total assets $ 5,961,960   $ 5,821,598  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Trade payables $ 48,416 $ 55,840
Accrued expenses 349,077 399,969
Accrued restructuring 8,230 35,690
Income taxes payable 20,332 27,136
Deferred revenue   188,328     243,964  
Total current liabilities 614,383 762,599
 
Long-term liabilities:
Deferred revenue 29,866 31,356
Debt 350,000 350,000
Income taxes payable 137,296 123,182
Deferred income taxes 105,597 117,328
Accrued restructuring 4,967 6,214
Other liabilities   25,293     20,565  
Total liabilities 1,267,402 1,411,244
 
Stockholders’ equity:
Preferred stock, $0.0001 par value; 2,000 shares authorized
Common stock, $0.0001 par value 61 61
Additional paid-in-capital 2,303,342 2,396,819
Retained earnings 5,331,957 4,913,406
Accumulated other comprehensive income 21,728 57,222
Treasury stock, at cost (76,169 and 74,723 shares, respectively), net of reissuances  

(2,962,530

)

 

(2,957,154

)

Total stockholders’ equity   4,694,558     4,410,354  
Total liabilities and stockholders’ equity $ 5,961,960   $ 5,821,598  
 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

  Three Months Ended
August 28,

2009

  August 29,

2008

Cash flows from operating activities:
Net income $ 136,045 $ 191,608
Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation, amortization and accretion 63,921 64,983
Stock-based compensation expense, net of tax 39,654 106,297
Net investment gains (3,190 ) (1,111 )
Changes in deferred revenue 4,879 16,018
Changes in operating assets and liabilities   (4,628 )   (166,453 )
 
Net cash provided by operating activities   236,681     211,342  
 
Cash flows from investing activities:
Purchases of short-term investments, net of sales and maturities 7,572 (168,586 )
Purchases of property and equipment (58,431 ) (39,810 )
Purchases of long-term investments and other assets, net of sales   (5,035 )   (56,363 )
 
Net cash used for investing activities   (55,894 )   (264,759 )
 
Cash flows from financing activities:
Purchases of treasury stock (350,000 ) (122,552 )
Reissuances of treasury stock 73,400 138,987
Excess tax benefits from stock-based compensation       14,306  
 
Net cash (used for) provided by financing activities   (276,600 )   30,741  
 
Effect of exchange rate changes on cash and cash equivalents   1,177     (5,514 )
Net decrease in cash and cash equivalents (94,636 ) (28,190 )
Cash and cash equivalents at beginning of period   1,226,780     1,162,453  
Cash and cash equivalents at end of period $ 1,132,144   $ 1,134,263  
 

Third Quarter Fiscal Year 2009 Non-GAAP Results

(In thousands, except per share data)

The following tables show Adobe’s non-GAAP results reconciled to GAAP results included in this release.

 

 
Three Months Ended
August 28,

2009

  August 29,

2008

  May 29,
2009
 
Operating income:
 
GAAP operating income $ 167,602 $ 219,469 $ 161,353
Stock-based and deferred compensation expense 40,526 48,260 43,284
Restructuring charges 65 1,194 3,531
Amortization of purchased intangibles and technology license arrangements   28,896     82,996     29,528  
Non-GAAP operating income $ 237,089   $ 351,919   $ 237,696  
 
Net income:
 
GAAP net income $ 136,045 $ 191,608 $ 126,071
Stock-based and deferred compensation expense 40,526 48,260 43,284
Restructuring charges 65 1,194 3,531
Amortization of purchased intangibles and technology license arrangements 28,896 82,996 29,528
Resolution of an income tax audit (20,712 )
Investment (gains) losses (607 ) (2,097 ) 1,805
Income tax adjustments   (18,804 )   (32,199 )   (19,182 )

Non-GAAP net income

$ 186,121   $ 269,050   $ 185,037  
 
Diluted net income per share:
 
GAAP diluted net income per share $ 0.26 $ 0.35 $ 0.24
Stock-based and deferred compensation expense 0.08 0.09 0.08
Restructuring charges 0.01
Amortization of purchased intangibles and technology license arrangements 0.05 0.15 0.06
Resolution of an income tax audit (0.04 )
Income tax adjustments   (0.04 )   (0.05 )   (0.04 )
Non-GAAP diluted net income per share $ 0.35   $ 0.50   $ 0.35  
 
Shares used in computing diluted net income per share 531,809 541,311 528,013
 
Three Months Ended
August 28,

2009

August 29,

2008

May 29,
2009
 
Operating expenses:
 
GAAP operating expenses $ 464,858 $ 556,937 $ 471,312
Stock-based and deferred compensation expense (39,899 ) (46,841 ) (41,892 )
Restructuring charges (65 ) (1,194 ) (3,531 )
Amortization of purchased intangibles and technology license arrangements   (14,978 )   (33,802 )   (15,284 )
Non-GAAP operating expenses $ 409,916   $ 475,100   $ 410,605  
 
Three Months Ended
August 28,

2009

August 29,

2008

May 29,
2009
 
Operating margin:
 
GAAP operating margin 24.0 % 24.7 % 22.9 %
Stock-based and deferred compensation expense 5.8 5.4 6.1
Restructuring charges 0.1 0.5
Amortization of purchased intangibles and technology license arrangements   4.2     9.5     4.2  
Non-GAAP operating margin   34.0 %   39.7 %   33.7 %
 

Three Months
Ended

August 28,
2009
Effective income tax rate:
 
GAAP effective income tax rate 22.0 %
Stock-based and deferred compensation expense

0.9

Amortization of purchased intangibles   0.6  
Non-GAAP effective income tax rate   23.5 %
 

Fourth Quarter Fiscal Year 2009 Non-GAAP Financial Targets

(In millions, except per share data)

The following tables show the Company’s fourth quarter fiscal year 2009 non-GAAP financial targets reconciled to GAAP financial targets included in this release.

 
Fourth Quarter

Fiscal 2009

Low   High
Operating margin:  
 
GAAP operating margin 23.0 % 27.0 %
Stock-based and deferred compensation expense 5.8 5.2
Amortization of purchased intangibles   4.2       3.8  
Non-GAAP operating margin   33.0 %

 

  36.0 %
 
Fourth Quarter

Fiscal 2009

Low   High
Diluted net income per share:
 
GAAP diluted net income per share $ 0.23 $ 0.29
Stock-based and deferred compensation expense 0.08 0.08
Amortization of purchased intangibles 0.05 0.05
Income tax adjustments   (0.03 )     (0.03 )
Non-GAAP diluted net income per share $ 0.33     $ 0.39  
 
Shares used in computing diluted net income per share   532.0       530.0  
 
Fourth Quarter

Fiscal 2009

 
GAAP effective income tax rate 23.0 %
Stock-based and deferred compensation expense 0.3
Amortization of purchased intangibles   0.2  
Non-GAAP effective income tax rate   23.5 %
 

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe’s management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe’s operating results in a manner that focuses on what Adobe believes to be its ongoing business operations. Adobe’s management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes the stock-based and deferred compensation impact, restructuring charges, amortization of purchased intangibles and technology license arrangements, the resolution of an income tax audit, investment gains and losses, and the related tax impact of all of these items, the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes, and the non-GAAP measures that exclude such information in order to assess the performance of Adobe’s business and for planning and forecasting in subsequent periods. Whenever Adobe uses such a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

Contact:

Adobe Systems Incorporated
Mike Saviage, 408-536-4416
Investor Relations
ir@adobe.com
Holly Campbell, 408-536-6401
Public Relations
campbell@adobe.com