Creative ARR Exceeds $5 Billion in Q1 FY2018
Adobe (Nasdaq:ADBE) today reported strong financial results for its
first quarter fiscal year 2018 ended March 2, 2018.
Financial Highlights
-
Adobe achieved record quarterly revenue of $2.08 billion in its first
quarter of fiscal year 2018, which represents 24 percent
year-over-year revenue growth.
-
Diluted earnings per share was $1.17 on a GAAP-basis, and $1.55 on a
non-GAAP basis.
-
Digital Media segment revenue was $1.46 billion, with Creative revenue
growing to $1.23 billion and Document Cloud achieving revenue of $231
million.
-
Digital Media Annualized Recurring Revenue (“ARR”) grew to $5.72
billion exiting the quarter, a quarter-over-quarter increase of $336
million. Creative ARR grew to $5.07 billion, and Document Cloud ARR
grew to $647 million.
-
Digital Experience segment revenue was $554 million, which represents
16 percent year-over-year growth.
-
Operating income grew 50 percent and net income grew 46 percent
year-over-year on a GAAP-basis; operating income grew 43 percent and
net income grew 64 percent year-over-year on a non-GAAP basis.
-
Cash flow from operations was $990 million, and deferred revenue grew
25 percent year-over-year to approximately $2.57 billion.
-
Adobe repurchased approximately 1.6 million shares during the quarter,
returning $301 million of cash to stockholders.
A reconciliation between GAAP and non-GAAP results is provided at the
end of this press release and on Adobe’s website.
Executive Quotes
“Adobe’s outstanding growth is driven by enabling our customers to be
more creative, work smarter and transform their businesses through our
relentless focus on delivering innovation and intelligence across our
solutions,” said Shantanu Narayen, president and CEO, Adobe.
“Our leadership in the large addressable markets we created, combined
with Adobe’s leveraged operating model, contributed to another record
quarter in Q1," said Mark Garrett, executive vice president and CFO,
Adobe.
Adobe to Webcast Earnings Conference Call
Adobe will webcast its first quarter fiscal year 2018 earnings
conference call today at 2:00 p.m. Pacific Time from its investor
relations website: www.adobe.com/ADBE.
Earnings documents, including Adobe management’s prepared conference
call remarks with slides, financial targets and an investor datasheet
are posted to Adobe’s investor relations website in advance of the
conference call for reference. A reconciliation between GAAP and
non-GAAP earnings results and financial targets is also provided on the
website.
Forward-Looking Statements Disclosure
This press release contains forward-looking statements, including those
related to customer success, product innovation, business momentum, our
addressable market, revenue, annualized recurring revenue, non-operating
other expense, tax rate on a GAAP and non-GAAP basis, earnings per share
on a GAAP and non-GAAP basis, and share count, all of 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: failure to develop, acquire, market and
offer products and services that meet customer requirements, failure to
compete effectively, introduction of new technology, complex sales
cycles, risks related to the timing of revenue recognition from our
subscription offerings, fluctuations in subscription renewal rates,
potential interruptions or delays in hosted services provided by us or
third parties, risks associated with cyber-attacks, information security
and privacy, failure to realize the anticipated benefits of past or
future acquisitions, changes in accounting principles and tax
regulations, uncertainty in the financial markets and economic
conditions in the countries where we operate, and other various risks
associated with being a multinational corporation. For a discussion of
these and other risks and uncertainties, please refer to Adobe’s Annual
Report on Form 10-K for our fiscal year 2017 ended Dec. 1, 2017, and
Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2018.
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 March 2, 2018, which Adobe
expects to file in March 2018.
Adobe assumes no obligation to, and does not currently intend to, update
these forward-looking statements.
About Adobe
Adobe is changing the world through digital experiences. For more
information, visit www.adobe.com.
© 2018 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
|
|
|
|
March 2,
2018
|
|
March 3,
2017
|
Revenue:
|
|
|
|
|
|
Subscription
|
|
|
$
|
1,793,358
|
|
|
$
|
1,383,856
|
|
Product
|
|
|
171,608
|
|
|
183,385
|
|
Services and support
|
|
|
113,981
|
|
|
114,405
|
|
Total revenue
|
|
|
2,078,947
|
|
|
1,681,646
|
|
|
|
|
|
|
|
Cost of revenue:
|
|
|
|
|
|
Subscription
|
|
|
164,685
|
|
|
141,181
|
|
Product
|
|
|
12,877
|
|
|
14,333
|
|
Services and support
|
|
|
81,340
|
|
|
81,823
|
|
Total cost of revenue
|
|
|
258,902
|
|
|
237,337
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,820,045
|
|
|
1,444,309
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
|
|
348,769
|
|
|
285,077
|
|
Sales and marketing
|
|
|
580,957
|
|
|
520,297
|
|
General and administrative
|
|
|
170,440
|
|
|
150,808
|
|
Amortization of purchased intangibles
|
|
|
17,146
|
|
|
19,128
|
|
Total operating expenses
|
|
|
1,117,312
|
|
|
975,310
|
|
|
|
|
|
|
|
Operating income
|
|
|
702,733
|
|
|
468,999
|
|
|
|
|
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
Interest and other income (expense), net
|
|
|
16,672
|
|
|
7,206
|
|
Interest expense
|
|
|
(19,899
|
)
|
|
(18,130
|
)
|
Investment gains (losses), net
|
|
|
2,996
|
|
|
2,557
|
|
Total non-operating income (expense), net
|
|
|
(231
|
)
|
|
(8,367
|
)
|
Income before income taxes
|
|
|
702,502
|
|
|
460,632
|
|
Provision for income taxes
|
|
|
119,426
|
|
|
62,186
|
|
Net income
|
|
|
$
|
583,076
|
|
|
$
|
398,446
|
|
Basic net income per share
|
|
|
$
|
1.18
|
|
|
$
|
0.81
|
|
Shares used to compute basic net income per share
|
|
|
492,061
|
|
|
494,612
|
|
Diluted net income per share
|
|
|
$
|
1.17
|
|
|
$
|
0.80
|
|
Shares used to compute diluted net income per share
|
|
|
499,433
|
|
|
500,861
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
|
|
|
|
March 2,
2018
|
|
December 1,
2017
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
2,666,981
|
|
|
$
|
2,306,072
|
|
Short-term investments
|
|
|
3,480,989
|
|
|
3,513,702
|
|
Trade receivables, net of allowances for doubtful accounts of $9,284
and $9,151, respectively
|
|
|
1,062,690
|
|
|
1,217,968
|
|
Prepaid expenses and other current assets
|
|
|
270,154
|
|
|
210,071
|
|
Total current assets
|
|
|
7,480,814
|
|
|
7,247,813
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
991,674
|
|
|
936,976
|
|
Goodwill
|
|
|
5,843,899
|
|
|
5,821,561
|
|
Purchased and other intangibles, net
|
|
|
353,740
|
|
|
385,658
|
|
Deferred income taxes
|
|
|
149,710
|
|
|
—
|
|
Other assets
|
|
|
153,648
|
|
|
143,548
|
|
Total assets
|
|
|
$
|
14,973,485
|
|
|
$
|
14,535,556
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Trade payables
|
|
|
$
|
131,090
|
|
|
$
|
113,538
|
|
Accrued expenses
|
|
|
911,044
|
|
|
993,773
|
|
Income taxes payable
|
|
|
10,591
|
|
|
14,196
|
|
Deferred revenue
|
|
|
2,483,744
|
|
|
2,405,950
|
|
Total current liabilities
|
|
|
3,536,469
|
|
|
3,527,457
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
Debt
|
|
|
1,874,794
|
|
|
1,881,421
|
|
Deferred revenue
|
|
|
88,460
|
|
|
88,592
|
|
Income taxes payable
|
|
|
690,468
|
|
|
173,088
|
|
Deferred income taxes
|
|
|
—
|
|
|
279,941
|
|
Other liabilities
|
|
|
149,266
|
|
|
125,188
|
|
Total liabilities
|
|
|
6,339,457
|
|
|
6,075,687
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 2,000 shares authorized
|
|
|
—
|
|
|
—
|
|
Common stock, $0.0001 par value
|
|
|
61
|
|
|
61
|
|
Additional paid-in-capital
|
|
|
5,208,588
|
|
|
5,082,195
|
|
Retained earnings
|
|
|
9,830,399
|
|
|
9,573,870
|
|
Accumulated other comprehensive income (loss)
|
|
|
(109,939
|
)
|
|
(111,821
|
)
|
Treasury stock, at cost (107,954 and 109,572, respectively), net of
reissuances
|
|
|
(6,295,081
|
)
|
|
(6,084,436
|
)
|
Total stockholders’ equity
|
|
|
8,634,028
|
|
|
8,459,869
|
|
Total liabilities and stockholders’ equity
|
|
|
$
|
14,973,485
|
|
|
$
|
14,535,556
|
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
|
|
|
|
Three Months Ended
|
|
|
|
March 2,
2018
|
|
March 3,
2017
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
|
$
|
583,076
|
|
|
$
|
398,446
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
|
76,522
|
|
|
80,809
|
|
Stock-based compensation expense
|
|
|
130,488
|
|
|
98,310
|
|
Unrealized investment (gains) losses, net
|
|
|
(929
|
)
|
|
(1,021
|
)
|
Changes in deferred revenue
|
|
|
77,662
|
|
|
40,832
|
|
Changes in other operating assets and liabilities
|
|
|
122,782
|
|
|
112,994
|
|
Net cash provided by operating activities
|
|
|
989,601
|
|
|
730,370
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases, sales and maturities of short-term investments, net
|
|
|
7,894
|
|
|
169,320
|
|
Purchases of property and equipment
|
|
|
(95,142
|
)
|
|
(30,903
|
)
|
Purchases and sales of long-term investments, intangibles and other
assets, net
|
|
|
(6,514
|
)
|
|
(17,673
|
)
|
Acquisitions, net of cash
|
|
|
—
|
|
|
(459,626
|
)
|
Net cash used for investing activities
|
|
|
(93,762
|
)
|
|
(338,882
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(300,000
|
)
|
|
(200,000
|
)
|
Taxes paid related to net share settlement of equity awards, net of
proceeds from treasury stock reissuances
|
|
|
(240,969
|
)
|
|
(131,227
|
)
|
Repayment of capital lease obligations
|
|
|
(304
|
)
|
|
(268
|
)
|
Net cash used for financing activities
|
|
|
(541,273
|
)
|
|
(331,495
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
6,343
|
|
|
(2,412
|
)
|
Net increase in cash and cash equivalents
|
|
|
360,909
|
|
|
57,581
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,306,072
|
|
|
1,011,315
|
|
Cash and cash equivalents at end of period
|
|
|
$
|
2,666,981
|
|
|
$
|
1,068,896
|
|
|
|
|
|
Non-GAAP Results
(In thousands, except per share data)
The following tables show Adobe's GAAP results reconciled to
non-GAAP results included in this release.
|
|
|
|
|
Three Months Ended
|
|
|
|
March 2,
2018
|
|
March 3,
2017
|
|
December 1,
2017
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating income
|
|
|
$
|
702,733
|
|
|
$
|
468,999
|
|
|
$
|
649,340
|
|
Stock-based and deferred compensation expense
|
|
|
136,414
|
|
|
103,578
|
|
|
122,180
|
|
Restructuring and other charges
|
|
|
—
|
|
|
—
|
|
|
(359
|
)
|
Amortization of purchased intangibles
|
|
|
31,704
|
|
|
35,464
|
|
|
34,817
|
|
Non-GAAP operating income
|
|
|
$
|
870,851
|
|
|
$
|
608,041
|
|
|
$
|
805,978
|
|
|
|
|
|
|
|
|
|
Net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
|
$
|
583,076
|
|
|
$
|
398,446
|
|
|
$
|
501,549
|
|
Stock-based and deferred compensation expense
|
|
|
136,414
|
|
|
103,578
|
|
|
122,180
|
|
Restructuring and other charges
|
|
|
—
|
|
|
—
|
|
|
(359
|
)
|
Amortization of purchased intangibles
|
|
|
31,704
|
|
|
35,464
|
|
|
34,817
|
|
Investment (gains) losses, net
|
|
|
(2,996
|
)
|
|
(2,557
|
)
|
|
(2,292
|
)
|
Income tax adjustments*
|
|
|
23,987
|
|
|
(63,209
|
)
|
|
(25,982
|
)
|
Non-GAAP net income
|
|
|
$
|
772,185
|
|
|
$
|
471,722
|
|
|
$
|
629,913
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP diluted net income per share
|
|
|
$
|
1.17
|
|
|
$
|
0.80
|
|
|
$
|
1.00
|
|
Stock-based and deferred compensation expense
|
|
|
0.27
|
|
|
0.21
|
|
|
0.24
|
|
Amortization of purchased intangibles
|
|
|
0.06
|
|
|
0.07
|
|
|
0.07
|
|
Investment (gains) losses, net
|
|
|
—
|
|
|
(0.01
|
)
|
|
—
|
|
Income tax adjustments*
|
|
|
0.05
|
|
|
(0.13
|
)
|
|
(0.05
|
)
|
Non-GAAP diluted net income per share
|
|
|
$
|
1.55
|
|
|
$
|
0.94
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted net income per share
|
|
|
499,433
|
|
|
500,861
|
|
|
500,060
|
|
_________________________________________
* During the first quarter of fiscal 2018, the $24 million
GAAP to non-GAAP income tax adjustment includes a provisional tax charge
relating to the enactment of the Tax Cuts and Jobs Act that was excluded
from non-GAAP earnings. The Company has recorded a provisional tax
expense of $118 million, which is comprised of $86 million for fiscal
year 2018 plus other ancillary effects recorded in the first fiscal
quarter, related to the U.S. mandatory one-time transition tax on
accumulated non-U.S. earnings. The company also recorded $10 million
related to the remeasurement of deferred taxes. The amounts are
provisional based on the Securities and Exchange Commission Staff
Accounting Bulletin No. 118. The remaining $104 million was related to
other tax matters that are included in the annual non-GAAP tax rate.
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 2,
2018
|
Effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
GAAP effective income tax rate
|
|
|
|
|
17.0
|
%
|
Resolution of income tax examinations
|
|
|
|
|
2.0
|
|
Income tax adjustments
|
|
|
|
|
9.0
|
|
Impacts of the Tax Act
|
|
|
|
|
(17.0
|
)
|
Non-GAAP effective income tax rate**
|
|
|
|
|
11.0
|
%
|
_________________________________________
** The GAAP effective income tax rate of 17% is the rate for
the quarter based on tax events within the quarter. Income tax
adjustments, which are included in both GAAP and non-GAAP earnings, will
fluctuate from quarter-to-quarter but will normalize over the fiscal
year due to the timing of tax events including the timing of recognition
of excess tax benefits within each quarter.
Use of Non-GAAP Financial Information
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. 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. Adobe believes these non-GAAP
financial measures are useful because they allow for greater
transparency with respect to key metrics used by management in its
financial and operational decision-making. This allows institutional
investors, the analyst community and others to better understand and
evaluate our operating results and future prospects in the same manner
as management.
Adobe's management believes it is useful for itself and investors to
review, as applicable, both GAAP information as well as non-GAAP
measures, which may exclude items such as stock-based and deferred
compensation expenses, restructuring and other charges, amortization of
purchased intangibles and certain activity in connection with technology
license arrangements, investment gains and losses, the related tax
impact of all of these items, income tax adjustments, and the income tax
effect of the non-GAAP pre-tax adjustments from the provision for income
taxes. Adobe uses these non-GAAP measures in order to assess the
performance of Adobe's business and for planning and forecasting in
subsequent periods. Whenever such a non-GAAP measure is used, Adobe
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.
Adobe
Investor Relations Contact
Mike Saviage, 408-536-4416
ir@adobe.com
or
Public Relations Contact
Dan Berthiaume, 408-536-2584
dberthia@adobe.com