Adobe Reports Second Quarter Fiscal 2009 Results

Tuesday, June 16, 2009 4:05 pm EDT

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 second quarter ended May 29, 2009.

In the second quarter of fiscal 2009, Adobe achieved revenue of $704.7 million, compared to $886.9 million reported for the second quarter of fiscal 2008 and $786.4 million reported in the first quarter of fiscal 2009.

“We are pleased with the solid profit margin and earnings results we were able to deliver in Q2,” said Shantanu Narayen, president and CEO of Adobe. “We continue to invest in our key business initiatives which will drive long-term revenue growth once the economy improves.”

Second Quarter Fiscal 2009 GAAP Results

Adobe’s GAAP diluted earnings per share for the second quarter of fiscal 2009 were $0.24, based on 528.0 million weighted average shares. This compares with GAAP diluted earnings per share of $0.40 reported in the second quarter of fiscal 2008 based on 542.4 million weighted average shares, and GAAP diluted earnings per share of $0.30 reported in the first quarter of fiscal 2009 based on 527.8 million weighted average shares.

GAAP operating income was $161.4 million in the second quarter of fiscal 2009, compared to $260.2 million in the second quarter of fiscal 2008 and $207.9 million in the first quarter of fiscal 2009. As a percent of revenue, GAAP operating income in the second quarter of fiscal 2009 was 22.9 percent, compared to 29.3 percent in the second quarter of fiscal 2008 and 26.4 percent in the first quarter of fiscal 2009.

GAAP net income was $126.1 million for the second quarter of fiscal 2009, compared to $214.9 million reported in the second quarter of fiscal 2008 and $156.4 million in the first quarter of fiscal 2009.

Second Quarter Fiscal 2009 Non-GAAP Results

Non-GAAP diluted earnings per share for the second quarter of fiscal 2009 were $0.35. This compares with non-GAAP diluted earnings per share of $0.50 reported in the second quarter of fiscal 2008 and non-GAAP diluted earnings per share of $0.45 reported in the first quarter of fiscal 2009.

Adobe’s non-GAAP operating income was $237.7 million in the second quarter of fiscal 2009, compared to $349.6 million in the second quarter of fiscal 2008 and $295.0 million in the first quarter of fiscal 2009. As a percent of revenue, non-GAAP operating income in the second quarter of fiscal 2009 was 33.7 percent, compared to 39.4 percent in the second quarter of fiscal 2008 and 37.5 percent in the first quarter of fiscal 2009.

Non-GAAP net income was $185.0 million for the second quarter of fiscal 2009, compared to $272.7 million in the second quarter of fiscal 2008 and $236.8 million in the first quarter of fiscal 2009.

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

Third Quarter Fiscal 2009 Financial Targets

For the third quarter of fiscal 2009, Adobe is targeting Q3 revenue of $665 million to $715 million, an operating margin of 20.5 percent to 25.5 percent on a GAAP basis, and 31.0 percent to 35.0 percent on a non-GAAP basis.

In addition, Adobe is targeting its share count to be between 529 million and 531 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 22.5 percent and the non-GAAP tax rate is expected to be approximately 23.5 percent.

These targets lead to a third quarter diluted earnings per share target range of $0.20 to $0.27 on a GAAP basis, and an earnings per share target range of $0.30 to $0.37 on a non-GAAP basis.

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

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, unanticipated 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 May 29, 2009, which the Company expects to file in June 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   Six Months Ended
May 29,

2009

  May 30,

2008

May 29,

2009

  May 30,

2008

 
Revenue:
Products $ 660,055 $ 841,301 $ 1,402,254 $ 1,693,263
Services and support   44,618     45,585     88,809     84,068  
Total revenue   704,673     886,886     1,491,063     1,777,331  
 
Total cost of revenue:
Products 55,758 58,229 114,676 118,034
Services and support   16,250     24,637     34,685     47,307  
Total cost of revenue   72,008     82,866     149,361     165,341  
 
Gross profit 632,665 804,020 1,341,702 1,611,990
 
Operating expenses:
Research and development 138,470 170,300 288,387 338,785
Sales and marketing 243,209 279,365 492,700 541,960
General and administrative 70,818 77,078 144,869 160,007
Restructuring charges 3,531 15,801 1,431
Amortization of purchased intangibles   15,284     17,099     30,676     34,198  
Total operating expenses   471,312     543,842     972,433     1,076,381  
 
Operating income 161,353 260,178 369,269 535,609
 
Non-operating income (expense):
Interest and other income, net 4,802 12,150 18,086 25,440
Interest expense (620 ) (3,828 ) (1,412 ) (5,637 )
Investment gains (losses), net   (1,805 )   9,506     (19,051 )   18,238  
Total non-operating income (expense), net   2,377     17,828     (2,377 )   38,041  
Income before income taxes 163,730 278,006 366,892 573,650
Provision for income taxes   37,659     63,096     84,386     139,361  
Net income $ 126,071   $ 214,910   $ 282,506   $ 434,289  
Basic net income per share $ 0.24   $ 0.40   $ 0.54   $ 0.79  
Shares used in computing basic net income per share   524,159     533,391     527,324     547,996  
Diluted net income per share $ 0.24   $ 0.40   $ 0.53   $ 0.78  
Shares used in computing diluted net income per share   528,013     542,376     531,338     557,703  

Condensed Consolidated Balance Sheets

(In thousands, except per share data; unaudited)

  May 29,   November 28,
  2009     2008  
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 1,226,780 $ 886,450
Short-term investments 1,437,405 1,132,752
Trade receivables, net of allowances for doubtful accounts of $6,474 and $4,128, respectively 262,598 467,234
Deferred income taxes 76,907 110,713
Prepaid expenses and other assets   84,079     137,954  
Total current assets 3,087,769 2,735,103
 
Property and equipment, net 291,720 313,037
Goodwill 2,134,997 2,134,730
Purchased and other intangibles, net 148,507 214,960
Investment in lease receivable 207,239 207,239
Other assets   193,513     216,529  
Total assets $ 6,063,745   $ 5,821,598  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Current liabilities:
Trade payables $ 42,258 $ 55,840
Accrued expenses 363,431 399,969
Accrued restructuring 11,728 35,690
Income taxes payable 11,024 27,136
Deferred revenue   185,191     243,964  
Total current liabilities 613,632 762,599
 
Long-term liabilities:
Deferred revenue 28,124 31,356
Debt 350,000 350,000
Income taxes payable 137,240 123,182
Deferred income taxes 104,490 117,328
Accrued restructuring 6,559 6,214
Other liabilities   22,659     20,565  
Total liabilities 1,262,704 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 2,361,224 2,396,819
Retained earnings 5,195,911 4,913,406
Accumulated other comprehensive income 27,310 57,222
Treasury stock, at cost (76,304 and 74,723 shares, respectively), net of reissuances   (2,783,465 )   (2,957,154 )
Total stockholders’ equity   4,801,041     4,410,354  
Total liabilities and stockholders’ equity $ 6,063,745   $ 5,821,598  

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

  Three Months Ended
May 29,

2009

  May 30,

2008

Cash flows from operating activities:
Net income $ 126,071 $ 214,910
Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation, amortization and accretion 64,725 68,656
Stock-based compensation expense, net of tax 40,959 48,387
Net investment losses 714 914
Changes in deferred revenue (11,971 ) 1,795
Changes in operating assets and liabilities   41,031     (2,871 )
 
Net cash provided by operating activities   261,529     331,791  
 
Cash flows from investing activities:
Purchases of short-term investments, net of sales and maturities (203,571 ) (27,100 )
Purchases of property and equipment (10,312 ) (22,403 )
Purchases of long-term investments and other assets, net of sales  

 

(3,869

 

)
 

 

(19,599

 

)
 
Net cash used for investing activities   (217,752 )   (69,102 )
 
Cash flows from financing activities:
Purchases of treasury stock (150,161 )
Reissuances of treasury stock 20,215 108,957
Repayment of borrowings under credit facility (100,000 )
Excess tax benefits from stock-based compensation       9,329  
 
Net cash provided by (used for) financing activities   20,215     (131,875 )
 
Effect of exchange rate changes on cash and cash equivalents   13,863     (1,094 )
Net increase in cash and cash equivalents 77,855 129,720
Cash and cash equivalents at beginning of period   1,148,925     1,032,733  
Cash and cash equivalents at end of period $ 1,226,780   $ 1,162,453  

Second 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
May 29,

2009

  May 30,

2008

  February 27,
2009
 
Operating income:
 
GAAP operating income $ 161,353 $ 260,178 $ 207,916
Stock-based and deferred compensation expense 43,284 48,388 45,007
Restructuring charges 3,531 12,270
Amortization of purchased intangibles and technology license arrangements   29,528     41,071     29,782  
Non-GAAP operating income $ 237,696   $ 349,637   $ 294,975  
 
Net income:
 
GAAP net income $ 126,071 $ 214,910 $ 156,435
Stock-based and deferred compensation expense 43,284 48,388 45,007
Restructuring charges 3,531 12,270
Amortization of purchased intangibles and technology license arrangements 29,528 41,071 29,782
Investment loss (gain) 1,805 (9,506 ) 17,246
Income tax adjustments   (19,182 )   (22,125 )   (23,990 )

Non-GAAP net income

$ 185,037   $ 272,738   $ 236,750  
 
Diluted earnings per share:
 

GAAP diluted earnings per share

$ 0.24 $ 0.40 $ 0.30
Stock-based and deferred compensation expense 0.08 0.09 0.09
Restructuring charges 0.01 0.02
Amortization of purchased intangibles and technology license arrangements 0.06 0.08 0.06
Investment loss (gain) (0.02 ) 0.03
Income tax adjustments   (0.04 )   (0.05 )   (0.05 )

Non-GAAP diluted earnings per share

$ 0.35   $ 0.50   $ 0.45  
 
Shares used in computing diluted earnings per share 528,013 542,376 527,830
 
Three Months Ended
May 29,

2009

May 30,

2008

February 27,
2009

 
Operating expenses:
 
GAAP operating expenses $ 471,312 $ 543,842 $ 501,121
Stock-based and deferred compensation expense (41,892 ) (47,200 ) (44,904 )
Restructuring charges (3,531 ) (12,270 )
Amortization of purchased intangibles   (15,284 )   (17,099 )   (15,392 )
Non-GAAP operating expenses $ 410,605   $ 479,543   $ 428,555  
 
Three Months Ended
May 29,

2009

May 30,

2008

February 27,
2009

 
Operating margin:
 

GAAP operating margin

22.9 % 29.3 % 26.4 %
Stock-based and deferred compensation expense 6.1 5.5 5.7
Restructuring charges 0.5 1.6
Amortization of purchased intangibles and technology license arrangements   4.2     4.6     3.8  
Non-GAAP operating margin   33.7 %   39.4 %   37.5 %
 
Effective income tax rate:
 
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 %

Third Quarter Fiscal Year 2009 Non-GAAP Financial Targets

(In millions, except per share data)

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

 
  Third Quarter
Fiscal 2009
Low High
 
Operating margin:
 
GAAP operating margin 20.5 % 25.5 %
Stock-based and deferred compensation expense 5.9 5.2
Restructuring charges 0.1 0.1
Amortization of purchased intangibles   4.5     4.2  
Non-GAAP operating margin   31.0 %   35.0 %
 
Third Quarter

Fiscal 2009

Low High
Diluted earnings per share:
 
GAAP diluted earnings per share $ 0.20 $ 0.27
Stock-based and deferred compensation expense 0.07 0.07
Amortization of purchased intangibles 0.06 0.06
Income tax adjustments   (0.03 )   (0.03 )
Non-GAAP diluted earnings per share $ 0.30   $ 0.37  
 
Shares used in computing diluted earnings per share   531.0     529.0  
 

Third Quarter

Fiscal 2009

 
GAAP effective income tax rate 22.5 %
Stock-based and deferred compensation expense 0.6
Amortization of purchased intangibles   0.4  
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, 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