Adobe Achieves Record Revenue

Thursday, March 15, 2018 4:05 pm EDT

Creative ARR Exceeds $5 Billion in Q1 FY2018

Category:

Dateline:

SAN JOSE, Calif.

Public Company Information:

NASDAQ:
ADBE
"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"

SAN JOSE, Calif.--(BUSINESS WIRE)--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.

Contact:

Adobe
Investor Relations Contact
Mike Saviage, 408-536-4416
ir@adobe.com
or
Public Relations Contact
Dan Berthiaume, 408-536-2584
dberthia@adobe.com

Related Materials