Adobe Surpasses $11 Billion in Annual Revenue

Thursday, December 12, 2019 4:05 pm EST

Record Fourth Quarter Contributes to 24 Percent Year-Over-Year Annual Growth

Category:

Dateline:

SAN JOSE, Calif.

Public Company Information:

NASDAQ:
ADBE
"Adobe delivered another year of strong revenue growth and expanding profitability resulting in record earnings"

SAN JOSE, Calif.--(BUSINESS WIRE)--Adobe (Nasdaq:ADBE) today reported financial results for its fourth quarter and fiscal year 2019 ended Nov. 29, 2019.

In its fourth quarter of fiscal year 2019, Adobe achieved record quarterly revenue of $2.99 billion, which represents 21 percent year-over-year growth. In fiscal year 2019, Adobe achieved record annual revenue of $11.17 billion, which represents 24 percent year-over-year growth.

"Adobe's phenomenal performance in Q4 capped a record fiscal 2019 with revenue exceeding $11 billion,” said Shantanu Narayen, president and CEO, Adobe. "Adobe’s vision, category leadership, continuous product innovation and large and loyal customer base position us well for 2020 and beyond."

“Adobe delivered another year of strong revenue growth and expanding profitability resulting in record earnings," said John Murphy, executive vice president and CFO, Adobe. “We are bullish about our opportunities and our ability to continue to deliver strong top- and bottom-line growth."

Fourth Quarter Fiscal Year 2019 Financial Highlights

  • Adobe achieved record quarterly revenue of $2.99 billion in its fourth quarter of fiscal year 2019, which represents 21 percent year-over-year growth. Diluted earnings per share was $1.74 on a GAAP-basis, and $2.29 on a non-GAAP basis.
  • Digital Media segment revenue was $2.08 billion, which represents 22 percent year-over-year growth. Creative revenue grew to $1.74 billion and Document Cloud revenue was $339 million. Digital Media Annualized Recurring Revenue (“ARR”) grew to $8.40 billion exiting the quarter, a quarter-over-quarter increase of $539 million. Creative ARR grew to $7.31 billion, and Document Cloud ARR grew to $1.09 billion.
  • Digital Experience segment revenue was $859 million, representing 24 percent year-over-year growth.
  • GAAP operating income in the fourth quarter was $970 million, and non-GAAP operating income was $1.27 billion. GAAP net income was $852 million, and non-GAAP net income was $1.12 billion.
  • Cash flow from operations was a record $1.38 billion.
  • Remaining Performance Obligation was $9.82 billion, a quarter-over-quarter increase of $1.05 billion.
  • Adobe repurchased approximately 2.8 million shares during the quarter.

     

Fiscal Year 2019 Financial Highlights

  • Adobe achieved record annual revenue of $11.17 billion in fiscal year 2019, representing 24 percent year-over-year growth.
  • The company reported annual GAAP diluted earnings per share of $6.00 and non-GAAP diluted earnings per share of $7.87.
  • Digital Media segment revenue was $7.71 billion, with Creative and Document Cloud achieving record annual revenue of
    $6.48 billion and $1.22 billion, respectively. Digital Media ARR grew by $1.69 billion during the year.
  • Digital Experience segment revenue was $3.21 billion, representing 31 percent year-over-year growth, and subscription bookings grew by more than 20 percent during the year.
  • Operating income grew 15 percent and net income grew 14 percent year-over-year on a GAAP-basis; operating income grew
    23 percent and net income grew 15 percent year-over-year on a non-GAAP basis.
  • Adobe generated a record $4.42 billion in operating cash flow during the year.
  • The company repurchased 9.9 million shares during the year, returning $2.7 billion 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.

Adobe Provides Fiscal Year and First Quarter 2020 Financial Targets

The following table summarizes Adobe’s fiscal year 2020 targets.

Adobe fiscal year 2020 revenue

~$13.15 billion

Digital Media segment revenue

~19 percent year-over-year growth

Digital Media annualized recurring revenue (ARR)

~$1.55 billion of net new ARR

Digital Experience segment revenue

~16 percent year-over-year growth

Digital Experience subscription revenue1

~18 percent year-over-year growth

Digital Experience subscription bookings2

>20 percent year-over-year growth

Tax rate

GAAP: ~11%

Non-GAAP: ~11%

Share count

~486 million shares

Earnings per share

GAAP: ~$7.40

Non-GAAP: ~$9.75

1

 

Includes revenue from SaaS, managed service, ratable term, usage based, and subscription service offerings for Digital Experience

2

 

Includes annualized subscription value of SaaS, managed service, term and subscription service offerings under contract for Data & Insights, Content & Commerce and Customer Journey Management solutions

The following table summarizes Adobe’s first quarter fiscal year 2020 targets.

Adobe Q1 fiscal year 2020 revenue

~$3.04 billion

Digital Media segment revenue

~19 percent year-over-year growth

Digital Media annualized recurring revenue (ARR)

~$360 million of net new ARR

Digital Experience segment revenue

~15 percent year-over-year growth

Tax rate

GAAP: ~5%

Non-GAAP: ~11%

Share count

~489 million shares

Earnings per share

GAAP: ~$1.76

Non-GAAP: ~$2.23

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

Adobe to Webcast Earnings Conference Call

Adobe will webcast its fourth quarter and fiscal year 2019 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 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 business momentum, our market opportunity, market trends, customer success, revenue, operating margin, seasonality, 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 compete effectively, failure to develop, acquire, market and offer products and services that meet customer requirements, introduction of new technology, information security and privacy, potential interruptions or delays in hosted services provided by us or third parties, risks associated with cyber-attacks, complex sales cycles, risks related to the timing of revenue recognition from our subscription offerings, fluctuations in subscription renewal rates, failure to realize the anticipated benefits of past or future acquisitions, failure to effectively manage critical strategic third-party business relationships, 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 2018 ended Nov. 30, 2018, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2019.

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 Annual Report on Form 10-K for our year ended Nov. 29, 2019, which Adobe expects to file in Jan. 2020. 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.

©2019 Adobe Inc. All rights reserved. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe Inc. (or one of its subsidiaries) 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

 

Year Ended

 

November 29,
2019 (*)

 

November 30,
2018

 

November 29,
2019 (*)

 

November 30,
2018

Revenue:

 

 

 

 

 

 

 

Subscription

$

2,686,829

 

 

$

2,184,158

 

 

$

9,994,463

 

 

$

7,922,152

 

Product

167,097

 

 

150,425

 

 

647,788

 

 

622,153

 

Services and support

138,018

 

 

130,042

 

 

529,046

 

 

485,703

 

Total revenue

2,991,944

 

 

2,464,625

 

 

11,171,297

 

 

9,030,008

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

Subscription

334,129

 

 

257,024

 

 

1,222,520

 

 

807,221

 

Product

9,029

 

 

10,899

 

 

39,625

 

 

46,009

 

Services and support

108,825

 

 

91,338

 

 

410,575

 

 

341,769

 

Total cost of revenue

451,983

 

 

359,261

 

 

1,672,720

 

 

1,194,999

 

 

 

 

 

 

 

 

 

Gross profit

2,539,961

 

 

2,105,364

 

 

9,498,577

 

 

7,835,009

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

499,806

 

 

415,958

 

 

1,930,228

 

 

1,537,812

 

Sales and marketing

801,588

 

 

723,573

 

 

3,244,347

 

 

2,620,829

 

General and administrative

225,938

 

 

212,355

 

 

880,637

 

 

744,898

 

Amortization of intangibles

42,698

 

 

32,932

 

 

175,244

 

 

91,101

 

Total operating expenses

1,570,030

 

 

1,384,818

 

 

6,230,456

 

 

4,994,640

 

 

 

 

 

 

 

 

 

Operating income

969,931

 

 

720,546

 

 

3,268,121

 

 

2,840,369

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

Interest and other income (expense), net

18,879

 

 

9,657

 

 

42,255

 

 

39,536

 

Interest expense

(36,515

)

 

(27,873

)

 

(157,214

)

 

(89,242

)

Investment gains (losses), net

4,852

 

 

(3,113

)

 

51,579

 

 

3,213

 

Total non-operating income (expense), net

(12,784

)

 

(21,329

)

 

(63,380

)

 

(46,493

)

Income before income taxes

957,147

 

 

699,217

 

 

3,204,741

 

 

2,793,876

 

Provision for income taxes

105,286

 

 

20,977

 

 

253,283

 

 

203,102

 

Net income

$

851,861

 

 

$

678,240

 

 

$

2,951,458

 

 

$

2,590,774

 

Basic net income per share

$

1.76

 

 

$

1.39

 

 

$

6.07

 

 

$

5.28

 

Shares used to compute basic net income per share

483,731

 

 

488,246

 

 

486,291

 

 

490,564

 

Diluted net income per share

$

1.74

 

 

$

1.37

 

 

$

6.00

 

 

$

5.20

 

Shares used to compute diluted net income per share

488,851

 

 

495,118

 

 

491,572

 

 

497,843

 

_________________________________________

*  

Adobe adopted ASU No. 2014-09, Revenue from Contracts with Customers, using the modified retrospective method during the first quarter of fiscal 2019. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-K for fiscal year 2019 for additional information.

 

Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

 

 

November 29,
2019 (*)

 

November 30,
2018

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

2,650,221

 

 

$

1,642,775

 

Short-term investments

1,526,755

 

 

1,586,187

 

Trade receivables, net of allowances for doubtful accounts of $9,650 and $14,981, respectively

1,534,809

 

 

1,315,578

 

Prepaid expenses and other current assets

783,140

 

 

312,499

 

Total current assets

6,494,925

 

 

4,857,039

 

 

 

 

 

Property and equipment, net

1,293,015

 

 

1,075,072

 

Goodwill

10,691,199

 

 

10,581,048

 

Other intangibles, net

1,720,565

 

 

2,069,001

 

Other assets

562,696

 

 

186,522

 

Total assets

$

20,762,400

 

 

$

18,768,682

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

Trade payables

$

209,499

 

 

$

186,258

 

Accrued expenses

1,398,548

 

 

1,163,185

 

Debt

3,149,343

 

 

 

Deferred revenue

3,377,986

 

 

2,915,974

 

Income taxes payable

55,562

 

 

35,709

 

Total current liabilities

8,190,938

 

 

4,301,126

 

 

 

 

 

Long-term liabilities:

 

 

 

Debt

988,924

 

 

4,124,800

 

Deferred revenue

122,727

 

 

137,630

 

Income taxes payable

616,102

 

 

644,101

 

Deferred income taxes

140,498

 

 

46,702

 

Other liabilities

173,056

 

 

152,209

 

Total liabilities

10,232,245

 

 

9,406,568

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock, $0.0001 par value; 2,000 shares authorized

 

 

 

Common stock, $0.0001 par value

61

 

 

61

 

Additional paid-in-capital

6,504,800

 

 

5,685,337

 

Retained earnings

14,828,562

 

 

11,815,597

 

Accumulated other comprehensive income (loss)

(188,034

)

 

(148,130

)

Treasury stock, at cost (118,495 and 113,171, respectively), net of re-issuances

(10,615,234

)

 

(7,990,751

)

Total stockholders’ equity

10,530,155

 

 

9,362,114

 

Total liabilities and stockholders’ equity

$

20,762,400

 

 

$

18,768,682

 

_________________________________________

*

 

Adobe adopted ASU No. 2014-09, Revenue from Contracts with Customers, using the modified retrospective method during the first quarter of fiscal 2019. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-K for fiscal year 2019 for additional information.

 

Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

 

 

Three Months Ended

 

November 29,
2019

 

November 30,
2018

Cash flows from operating activities:

 

 

 

Net income

$

851,861

 

 

$

678,240

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation, amortization and accretion

183,692

 

 

106,720

 

Stock-based compensation

203,205

 

 

169,621

 

Unrealized losses (gains) on investments, net

(4,170

)

 

3,908

 

Changes in deferred revenue

244,777

 

 

271,443

 

Changes in other operating assets and liabilities

(102,965

)

 

(121,939

)

Net cash provided by operating activities

1,376,400

 

 

1,107,993

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases, sales and maturities of short-term investments, net

(85,462

)

 

1,606,237

 

Purchases of property and equipment

(94,096

)

 

(62,563

)

Purchases and sales of long-term investments, intangibles and other assets, net

12,036

 

 

(1,211

)

Acquisitions, net of cash acquired

(887

)

 

(4,681,341

)

Net cash used for investing activities

(168,409

)

 

(3,138,878

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Purchases of treasury stock

(750,000

)

 

(300,000

)

Taxes paid related to net share settlement of equity awards, net of proceeds from treasury stock re-issuances

(27,294

)

 

(23,036

)

Proceeds from debt issuance, net

 

 

2,248,342

 

Other financing activities, net

11,634

 

 

(575

)

Net cash provided by (used for) financing activities

(765,660

)

 

1,924,731

 

Effect of exchange rate changes on cash and cash equivalents

(1,157

)

 

1,785

 

Net increase (decrease) in cash and cash equivalents

441,174

 

 

(104,369

)

Cash and cash equivalents at beginning of period

2,209,047

 

 

1,747,144

 

Cash and cash equivalents at end of period

$

2,650,221

 

 

$

1,642,775

 

 

Non-GAAP Results

(In thousands, except per share data)

 

The following table shows Adobe's GAAP results reconciled to non-GAAP results included in this release.

 

 

Three Months Ended

 

Year Ended

 

November 29,
2019 (*)

 

November 30,
2018

 

August 30,
2019 (*)

 

November 29,
2019 (*)

 

November 30,
2018

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

$

969,931

 

 

$

720,546

 

 

$

853,812

 

 

$

3,268,121

 

 

$

2,840,369

 

Stock-based and deferred compensation expense

207,781

 

 

166,504

 

 

199,321

 

 

797,890

 

 

610,785

 

Amortization of intangibles

95,861

 

 

65,397

 

 

100,139

 

 

395,403

 

 

174,294

 

Non-GAAP operating income

$

1,273,573

 

 

$

952,447

 

 

$

1,153,272

 

 

$

4,461,414

 

 

$

3,625,448

 

 

 

 

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net income

$

851,861

 

 

$

678,240

 

 

$

792,763

 

 

$

2,951,458

 

 

$

2,590,774

 

Stock-based and deferred compensation expense

207,781

 

 

166,504

 

 

199,321

 

 

797,890

 

 

610,785

 

Amortization of intangibles

95,861

 

 

65,397

 

 

100,139

 

 

395,403

 

 

174,294

 

Investment (gains) losses, net

(4,852

)

 

3,113

 

 

(3,653

)

 

(51,579

)

 

(3,213

)

Income tax adjustments

(32,867

)

 

(7,051

)

 

(82,607

)

 

(224,827

)

 

(9,060

)

Non-GAAP net income

$

1,117,784

 

 

$

906,203

 

 

$

1,005,963

 

 

$

3,868,345

 

 

$

3,363,580

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

$

1.74

 

 

$

1.37

 

 

$

1.61

 

 

$

6.00

 

 

$

5.20

 

Stock-based and deferred compensation expense

0.43

 

 

0.34

 

 

0.41

 

 

1.62

 

 

1.23

 

Amortization of intangibles

0.20

 

 

0.13

 

 

0.20

 

 

0.80

 

 

0.35

 

Investment (gains) losses, net

(0.01

)

 

0.01

 

 

(0.01

)

 

(0.10

)

 

(0.01

)

Income tax adjustments

(0.07

)

 

(0.02

)

 

(0.16

)

 

(0.45

)

 

(0.01

)

Non-GAAP diluted net income per share

$

2.29

 

 

$

1.83

 

 

$

2.05

 

 

$

7.87

 

 

$

6.76

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

488,851

 

 

495,118

 

 

491,042

 

 

491,572

 

 

497,843

 

_________________________________________

*

 

Adobe adopted ASU No. 2014-09, Revenue from Contracts with Customers, using the modified retrospective method during the first quarter of fiscal 2019. Prior period results have not been restated to reflect this change in accounting standards. Refer to our Form 10-K for fiscal year 2019 for additional information.

Reconciliation of GAAP to Non-GAAP Financial Targets
(In millions, except per share data)

The following tables show Adobe's first quarter fiscal year 2020 financial targets reconciled to the non-GAAP financial targets included in this release.

 

 

First Quarter
Fiscal 2020

 

Diluted net income per share:

 

 

 

 

 

 

 

GAAP diluted net income per share

 

 $

1.76

 

 

Stock-based and deferred compensation expense

 

0.46

 

 

Amortization of intangibles

 

0.19

 

 

Income tax adjustments

 

(0.18

)

 

Non-GAAP diluted net income per share

 

$

2.23

 

 

 

 

 

 

Shares used to compute diluted net income per share

 

489.0

 

 

 

 

 

First Quarter
Fiscal 2020

 

Effective income tax rate:

 

 

 

 

 

 

 

GAAP effective income tax rate

 

 

5.0

%

Stock-based and deferred compensation expense

 

(1.4

)

 

Amortization of intangibles

 

(0.6

)

 

Income tax adjustments

 

8.0

 

 

Non-GAAP effective income tax rate

 

11.0

%

The following table shows Adobe's annual fiscal year 2020 GAAP earnings per share target reconciled to the non-GAAP financial target included in this release.

 

 

Fiscal Year 2020

 

Diluted net income per share:

 

 

 

 

 

 

 

GAAP diluted net income per share

 

$

7.40

 

 

Stock-based and deferred compensation expense

 

1.99

 

 

Amortization of intangibles

 

0.74

 

 

Income tax adjustments

 

(0.38

)

 

Non-GAAP diluted net income per share

 

$

9.75

 

 

 

 

 

 

Shares used to compute diluted net income per share

 

486.0

 

 

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 intangibles, 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:

Investor Relations Contact

Mike Saviage
Adobe
408-536-4416
ir@adobe.com

Public Relations Contact

Colleen Rodriguez
Adobe
408-536-6803
corodrig@adobe.com

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